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Executives

Connie Hamblin - VP of IR & Corporate Communications

Enoch Jen - Sr. VP

Steve Dykman - VP of Finance & CFO

Analysts

Rob Hinchcliffe - UBS

David Leiker - Robert W. Baird

Brett Hoselton - KeyBanc

Richard Kwas - Wachovia Capital Markets

John Murphy - Merrill Lynch

Alexander Paris - Barrington Research

Himanshu Patel - JP Morgan

Greg Halter - Great Lakes Review

Gregory Macosko - Lord, Abbett

Gentex Corporation (GNTX) Q4 FY07 Earnings Call January 29, 2008 10:30 AM ET

Operator

All participants please stand by. Your conference is ready to begin. Good morning ladies and gentlemen, welcome to the Gentex Corporation Fourth Quarter and Year End earnings conference call. I would now like to turn the meeting over to Ms. Connie Hamblin, Vice President of Investors Relations and Corporate Communication. Please go ahead Ms. Hamblin.

Connie Hamblin - Vice President of Investor Relations & Corporate Communications

Thank you. Good morning everyone. Welcome to Gentex Corporation's fourth quarter conference call. I'm going to go through a few details initially and then I'll turn the phone call over to Enoch Jen, our Senior Vice President who is on the call with me as is Steve Dykman, our Chief Financial Officer. This call is being broadcast live on the Internet via our website at www. gentex.com, and there will be an auto playback of the conference available on that website as well. This call is being recorded by Gentex Corporation. All contents of Gentex Corporation's conference call 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 Corporation alone holds such rights. While we understand that there may be companies that transcribe and redistribute our conference call not withstanding 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 transcript, 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 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. Our safe harbor statement; this presentation may include forward-looking statements that are based on management's belief, assumptions, current expectation, estimates, projections about 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, believe, confident, estimate, expect, forecast, likely, plan, project, and should and variations of such words and similar expressions identify forward-looking statements. These statements do not guarantee future performance and involve certain risks and uncertainties and assumptions that are difficult to predict with regard to timing, expense, likelihood and degree of occurrence and actual results may differ materially from those in the forward-looking statements. The company undertakes no obligation to update, amend, or clarify forward-looking statements, whether as a result of new information, future events, or otherwise. We urge you to review the full Safe Harbor statement that is contained in the news release that is posted on our website. At this point, I'll turn the call over to Enoch Jen, and then after Enoch makes his remarks with respect to the quarter, we'll open the call up for Q&A. And as usual we ask that you ask one question, so that everybody else gets a chance. Just jump back into the queue, if you have multiple question. Thank you.

Enoch Jen - Senior Vice President

Good morning, we're pleased to report solid results despite a difficult operating environment. For the fourth quarter we reported record revenues of $170.7 million, a 14% increase over the revenues of $149.6 million reported in the fourth quarter of 2006. For the year, we reported revenues of $653.9 million, also a 14% increase over the revenues of $572.3 million reported for the year ended December 31, 2006. We also reported record net income. For the fourth quarter, we reported net income of $31.8 million, a 3% increase over the $30.8 million reported in the fourth quarter of 2006. Excluding stock option expense, our fourth quarter net income would have been $33.1 million, a 4% increase over the prior year fourth quarter, excluding stock option expense and the $2.9 million litigation judgment fourth quarter net income would have been $35.1 million a 10% increase over the prior year quarter. For the year, we reported record net income of $122.1 million, a 12% increase over the net income of $108.8 million reported for the year ended December 31, 2006. Excluding stock option expense net income would have been $125.4 million, an 11% increase over the prior year. And excluding stock option expense and the $2.9 million litigation judgment net income would have been $127.4 million, a 12% increase over the prior year. Earnings per share for the fourth quarter was $0.22, this compared to $0.22 reported in the fourth quarter of 2006. Excluding stock option expense, fourth quarter earnings per share would have been $0.23 and excluding stock option expense and the $2.9 million litigation expense earnings per share for the fourth quarter would have been $0.24, a 9% increase over the prior year fourth quarter. For the year, earnings per share was $0.85, a 16% increase over the $0.73 reported for 2006. Excluding stock option expense, earnings per share would have been $0.87, a 14% increase over the prior year and excluding stock option expense and the $2.9 million litigation judgment earnings per share would have $0.88, a 16% increase over the prior year.

Looking next at automotive revenues and auto-dimming mirror unit shipments. Automotive revenues increased by 15% from $144 million in the fourth quarter of 2006 to a $155.3 million in the fourth quarter of 2007. Total auto-dimming mirror unit shipments were up by about 13% in the fourth quarter of 2007 compared with the fourth quarter last year. Automotive revenues increased by 15% from $548.4 million for the year ended December 31, 2006 to $630.1 million for calendar year 2007. Total auto-dimming mirror unit shipments increased by 13% for the year ended December 31, 2007 compared with the prior year. Auto-dimming mirror unit shipments in North America increased by 16% in the fourth quarter of 2007 compared with the same period in 2006. The increase in unit shipments in North America during the fourth quarter was primarily due to increased interior auto-dimming mirror unit shipments for certain domestic and Asian transplant auto makers.

North American light vehicle production increased by 1% in the fourth quarter of 2007 compared with the same prior year period. GMT 900 light vehicle production was down 1% in the fourth quarter of 2007 compared to the same period in 2006. Auto-dimming mirror unit shipments in North America increased by 10% for the year ended December 31, 2007 compared with the same period in 2006, primarily due to increased interior mirror unit shipments for certain domestic and Asian transplant automakers. North American light vehicle production declined by 2% for the year ended December 31, 2007 compared with the prior year. GMT 900 production declined by 1% for calendar year 2007 compared to calendar year 2006.

Auto-dimming mirror unit shipments to offshore customers increased by 11% in the fourth quarter of 2007 compared with the same period year last year. The increase in unit shipments was primarily due to higher penetration of interior auto-dimming mirrors at certain European and Asian customers. Light vehicle production in Europe increased by 6% in the fourth quarter, and increase by 5% in Japan and Korea in the fourth quarter of 2007 compared with the same period last year. Auto-dimming mirror unit shipments to offshore customers increased by 16% for the year ended December 31, 2007 compared with the same period last year primarily due to higher penetration at certain European and Asian customers. Light vehicle production in Europe increased by 6% for the year ended December 31, 2007 compared with the same period last year. Light vehicle production in Japan and Korea increased by 3% for the year ended December 31, compared with the same prior year period.

Our average selling price per auto-dimming mirror unit was $42.47 in the fourth quarter of 2007. The ASP increased from $42.24 in the third quarter of 2007 to $42.47 in the fourth quarter of 2007, primarily due to a higher percentage of featured versus base mirrors. Based on our current forecast, we would expect the ASP in the first quarter and for calendar year 2008 to be in the range of ASP reported for calendar year 2007 depending upon product mix. The ASP increased on a year-over-year basis from fourth quarter 2006 when it was $42.15 to the $42.47 in the fourth quarter of 2007, primarily due to higher contented interior mirrors, partially offset by annual customer price reduction.

During calendar year 2007, 57% of the interior auto dimming mirrors shipped by the company contained one or more advanced electronic features compared with 54% in calendar year 2006. Fourth quarter 2007 and calendar year 2007 ASPs, exclude non-auto dimming mirrors as well as microphone units, as this was the first quarter when it was more significant. This is how we will be reporting ASPs going forward. Fire protection revenues decreased by 2% to $5.5 million for the fourth quarter of 2007 compared with the same period last year. Fire protection revenues were approximately flat at $23.8 million for the year ended December 31, 2007 compared with the same period last year. The fourth quarter gross profit margin of 34.2% was slightly lower than the third quarter gross margin of 35.1%, primarily due to the company's inability to fully leverage fixed overhead costs due to approximately 100,000 units that customers canceled at the last minute during the last two weeks of December 2007, the majority of those units consisted of exterior auto dimming mirrors to tier one mirror suppliers.

On previous conference calls, we have discussed that the tier one exterior mirror suppliers do not always manage their inventories as well as we would like and we believe that this shortfall was the result of their year-end inventory management. In addition, in order to meet a large customer cost reduction efforts, the company granted a price reduction on a certain product that impacted the fourth quarter of 2007. In separate negotiations with the same customer the company negotiated an agreement to be that customer's sole supplier of rear camera display mirrors for model years 2011 through 2015. We have not yet announced any rear camera display business awards with that customer at this time. Gross profit margin for calendar year 2007 was flat on a year-over-year basis at 34.8%, primarily due to purchasing cost reductions, leveraging our fixed overhead costs, and improved manufacturing yields, which were offset by annual and other automotive customer price reductions.

We expect our gross margin in the first quarter of 2008 to be in the range of 35%. The company currently anticipates the gross margin for all of calendar year 2008 may improve by approximately 25 to 50 basis points versus the full calendar year 2007 reported margin of 34.8%, primarily dependent upon top line growth and purchasing cost reductions. The gross profit margin will continue to be impacted by customer price reductions, uncertain North American automotive production levels, our ability to leverage our fixed overhead costs, purchasing cost reductions and VAVE initiatives and manufacturing yield.

Our engineering research and development expense increased by 15% in the fourth quarter of 2007 compared with the same 2006 period. The increased expense was primarily due to additional staffing in engineering for new product development and new vehicle programs. Expense related to the Muth litigation was $358,000 in the fourth quarter of 2007 compared with $608,000 in the fourth quarter of 2006.

Excluding stock option expense and the Muth litigation expense, ER&D expense would have increased by approximately 18% in the fourth quarter of 2007 compared with the same prior-year period. Expense related to the Muth litigation was in connection with lawsuits between the company and K.W. Muth and Muth Mirror Systems, LLC collectively referred to as Muth related to exterior mirrors with turn signal indicators.

The turn signal feature and exterior mirrors currently represents about 1% of our revenues and the litigation does not involve core Gentex's electrochromic technology. A trial took place in Wisconsin in July 2007. And in December 2007, the court found that Muth's patents were invalid and unenforceable and that Gentex's Razor mirror product does not infringe the patents in the suit.

However the judge did find that Gentex had breached the agreement between the two companies and on January 24th, 2008 entered a judgment against Gentex of $2.9 million dollars. In accordance with Generally Accepted Accounting Principles, Gentex reported the charge for the $2.9 million in the fourth quarter of 2007. At this time it is uncertain whether either party will appeal.

ER&D expense increased by approximately 21% for the year ended December 31, 2007 compared with the same 2006 period. Excluding stock option expense and Muth patent litigation expense of approximately $4.8 million in calendar year 2007 compared with $1 million in calendar year 2006, ER&D expense would have increased by approximately 13% for the year ended December 31, 2007.

For the first quarter and calendar year 2008, ER&D expense excluding Muth litigation expense is currently expected to increase by approximately 15%. Selling, general, and administrative expense increased by 16% in the fourth quarter of 2007 and by 14% for the year ended December 31, 2007 compared with the same prior-year periods.

The increase was primarily due to the continued expansion of the company's overseas sales offices as well as foreign exchange rates. The increases in both periods were partially offset by a reduction in non-income based state taxes. We currently believe that SG&A expense will increase in the first quarter and calendar year 2008 by approximately 15%.

Total other income increased by 17% in the fourth quarter of 2007 and by 26% for the year ended December 31, 2007 compared with the same prior year periods. The increase in investment income in the fourth quarter and year was primarily due to increased year-end mutual fund distribution. The increase in the line item labeled other common net for calendar year 2007 is primarily due to realized gains on the sale of equity investments. A few breakdowns of the total other income amounts for the fourth quarter of 2007, investment income was $11,319,000, other net was $2,407,000 for a total of $13,726,000. For the year ended December 31, 2007, investment income was $25,778,000, other net was $15,145,000 for a total of $40, 923,000.

Next, we have a few balance sheet items. As of December 31, 2007, accounts receivable was $54.2 million, inventories was $48.1 million, patents and other assets were $8.5 million, accounts payable was $30.5 million and accrued liabilities was $37.8 million. The tax rate was 32.9% in the fourth quarter of 2007 and 32.1% for the year ended December 31, 2007 as compared with the statutory federal income tax rate of 35%, primarily due to the domestic manufacturing deduction and stock option expensing. Tax benefits pertaining to stock option expense can significantly vary from quarter to quarter and from year to year due to incentive stock option disqualifying disposition activity. The tax benefit pertaining to stock option expense decreased from a rate of 42% of the expense in the fourth quarter of 2006 to 36% of the expense in the fourth quarter of 2007. The tax benefit pertaining to stock option expense increased from 35% of the expense for the year ended December 31, 2006 to 56% of the expense for the year ended December 31, 2007. Excluding stock option expensing, we currently expect that the tax rate for 2008 will be approximately 33.25% based on current tax loss [ph]. Our annual cash flow from operations for calendar year 2007 was $148.7 million. Our capital expenditures for the fourth quarter of 2007 was $15.6 million and for calendar year 2007 was $54.5 million. For calendar year 2008, our estimate for capital expenditures is approximately $45 million to $50 million. Depreciation and Amortization expense for 2008 is estimated at $34 million to $37 million.

Next, an update on our share repurchase plan, the company did not repurchase any shares during the fourth quarter of 2007. The company has a share repurchase plan in place with authorization to repurchase up to 24 million shares of the company's stock. To-date, including the prior share repurchases, the company has repurchased approximately 18 million shares leaving approximately 6 million shares authorized to be repurchased under the plan. On January 18, 2008, the company paid a quarterly cash dividend of $0.105 per share to shareholders of record of the common stock at the close of business on January 7, 2008. The ex-dividend date was January 3, 2008.

An update on SmartBeam, we continue to be pleased with the progress we are making on the market of substance with SmartBeam, the High-Beam headlamp assist product that we introduced in the 2005 calendar year. We are currently shipping product in North America for the 2008 model year Cadillac STS, DTS, Escalade and Escalade EXT, the 2008 Jeep Grand Cherokee, Jeep Commander, Jeep Grand Cherokee SRT8, the Chrysler 300 C Heritage and the Chrysler 300 C and the BMW 5 and 6 Series.

We also are shipping SmartBeam for the BMW X5 and the 3, 5, 6 and 7 Series for Europe and other selective regions. During 2008, we expect to announce and start shipping SmartBeam mirrors to the second and third European customers and our first Asian customer. There are also a number of follow-on programs for existing and new customers schedule for the 2009 calendar year. Based on our existing forecast, volumes and incremental sales dollars for SmartBeam will become more meaningful in the 2009 calendar year.

For the 2007 calendar year, we shipped approximately 300 to 4000 Smart Beam units. The shipments were at the lower end of our guidance primarily due to production cuts on light vehicles in North America. Option [ph] rates have remained strong at 25% to 30% on average. For the 2008 calendar year, we currently expect to ship approximately 350 to 400,000 SmartBeam units.

Next, we are providing an update on rear camera display or RCD. In late 2006, we announced that we had developed a new product that we called Rear Camera Display mirror. The product currently is offered as original regiment on the Ford F-150 and Expedition and the Lincoln Navigator and Mark LT as well as on the Kia Mohave for the Korean market. We previously had announced that it is available as a port or dealer installed option on the Mazda CX-9. The company also previously announced that the RCD mirror is available as a dealer or port-installed option on Toyota Camry's [inaudible] Toyota.

Because the RCD mirror is offered as a stand-alone option on the Ford and Lincoln Programs, Gentex has contracted with an outside marketing firm to visit the top 200 Ford and Lincoln dealerships, was typically due 80% of Fords business and educate dealer sales managers and sales people on the product, provide marketing materials etcetera.

We are in the process of evaluating the impact this type of activity may have on the take rates for these programs. At this time too early to tell what take rates will be. We also continue to work with a number of other customers, on original equipment development programs for this product. This is not a long lead-time product. So, upon receiving a production order from a customer, we could be in volume production for other programs within nine to twelve months. The company shipped approximately 55,000 RCD mirrors in calendar year 2007. And we currently estimate that we will ship between 250,000 and 300,000 RCD mirrors in calendar year 2008. Based on our current forecast, the company believes that RCD mirror shipments will more than double in calendar year 2009, compared with calendar year 2008.

The automakers currently offering a rear camera display product are doing this absent any legislation and made their decisions before any legislation was pending. As most of you have likely heard, the pending legislation now called the Kids Transportation Safety Act of 2007 passed the house and was introduced into the Senate on December 19, 2007. Subsequently the legislation was referred to committee in the Senate. The bill orders of Secretary of Transportation at the National Highway Traffic Safety Administration or NHTSA to initiate rulemaking to revise the federal standard to expand the field of view so that drivers can detect objects directly behind vehicles. Requirements may be met by the use of additional mirrors, sensors, cameras or other technology, which is the decision that NHTSA needs to make once it is passed by the Senate and signed into law by the President.

NHTSA has done some independent studies already and is leaning towards camera-based system. Once it's signed into law, the timeline is 12 months for NHTSA to initiate rulemaking, 36 months to publish final standards and then full compliance with final standards are required within 48 months. So in general, automakers will have approximately 7 years to comply with the rule that NHTSA initiates. However, we expect early adoption by many automakers.

An update on shipment of non-auto dimming mirrors and microphone units. On December 13, 2007, the company announced that the United States bankruptcy court in the Eastern district of Wisconsin had recently rendered its opinion in the case of Muth Mirror Systems and K.W. Muth Company versus Gentex Corporation. The court found that Moose US patent number 6005724 is invalid and unenforceable and Gentex's Razor Turn Signal mirror does not infringed that patent. The court also denied all but one of Muth’s other motions was prejudiced including its motion for an injunction and its claim for tortuous interference with its business relationships. The full point of liability for Gentex was that the court found that Gentex breached one provision of the alliance agreement it has with Muth and granted Muth damages in the amount of approximately $2.9 million. The court's decision that Gentex's new Razor Exterior Mirror product does not infringe Muth’s patent is good news for the company moving forward as it allows Gentex to provide auto-dimming mirrors with Razor Turn signals and other value-added features in the exterior mirror. The company has also begun shipping non-auto dimming exterior mirrors with a side blind zone feature in low volume.

We have additional programs for non-auto dimming exterior mirrors forecasted to start shipping in 2008 with additional programs slated for calendar year 2009. We do not expect these units or revenues to be significant in 2008. In addition, at a customer's request we are shipping Gentex's proprietary microphone units that are being incorporated into prismatic interior mirrors. We also do not expect these revenues to be significant in 2008. At this time we do not expect to provide guidance on unit shipments, incremental sales dollars, or average selling prices on non-auto dimming mirrors or microphones.

Next, an update on the Boeing 787 Dreamliner Window program. We began shipping parts for the first test planes for the Boeing 787 Dreamliner series of aircraft at mid-year 2007. Boeing has now announced two delays for the final deliveries of aircraft to their customers. The latest information that we have is that the first planes will go into service in early 2009 based on Boeing's last communication to us, as a supplier we are expected to deliver our first production shipments in early 2008. Other aircraft manufacturers have expressed interest in this technology and we continue to work on these potential programs with PPG Aerospace.

The following projections top line growth are based on CSMs preliminary mid January light vehicle production forecast. For the first quarter of 2008, our estimates for top line growth is approximately 10% compared with the same period in 2007, based on the current forecast for product mix, light vehicle production levels and take rates. Our estimate for top line growth for calendar year 2008 is also approximately 10% compared with calendar year 2007 based on our current forecast for product mix light vehicle production levels and take rates.

According to CSM, their light vehicle production forecast for the first quarter of 2008 for North America is 3.6 million vehicle units, a decrease of 5% compared to the first quarter of 2007. Their forecast for Europe is currently 5.6 million vehicle units, a 1% decrease compared to the first quarter of 2007. And their forecast for Japan and Korea is 4 million vehicle units, a 7% increase compared to the first quarter of 2007. For calendar year 2008, the CSM light vehicle production forecast for North America is 14.4 million vehicle units, a 5% decrease over calendar year 2007. Their forecast for Europe is 21.9 million vehicle units, a 2% increase over 2007. And their forecast for Japan and Korea is 14.9 million vehicle units, a 1% increase compared to calendar year of 2007.

Connie Hamblin - Vice President of Investor Relations & Corporate Communications

At this point that concludes Enoch's remarks. This is Connie. I just want to give you a reminder that all listeners should note that this call is being recorded by Gentex Corporation. All contents of Gentex's Corporation's conference call are property of Gentex, no such content may be copied, published, reproduced, rebroadcast, retransmitted or otherwise redistributed without the expressed 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 call 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 such unauthorized transcript, as Gentex Corporation will not be held liable for the content of any such transcript. Gentex will hold responsible and liable any parties 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.

At this point, I'm going to turn it over... back over to Lauren, our operator and open it up to questions and answers. If you would please ask one question at a time, we would appreciate it and don't ask multiple part questions because we can't remember them. Thank you, operator?

Question and Answer

Operator

Thank you. We will now take questions from the telephone lines. [Operator Instructions] The first question is from Rob Hinchcliffe from UBS, please go ahead.

Rob Hinchcliffe - UBS

Thanks, good morning.

Enoch Jen - Senior Vice President

Good morning, Rob.

Rob Hinchcliffe - UBS

I wanted to ask really focusing on the price down with the unnamed customer. In the past, I guess there is going back a couple of years you had price down too and margins have been down quite a bit over recent years, is this the start of something like that again, do you think other customers will follow the price down that you just granted to one customer. Was the pricing [inaudible] with this one customer? And then I guess what was the threat, last time I guess you got a lot of business, you became GM's exclusive EC mirror supplier or pretty much and Donnelly gave up a lot of the business, what was the threat this time?

Enoch Jen - Senior Vice President

Well, I think any time we enter into negotiations with our automotive customers either whether there are annual price reductions or other request of reductions, we have to look maybe not so much as a threat but as the opportunity that we have going forward to work with that particular customer. And I think in this particular situation, we saw that we had the opportunity to strengthen our relationship with the customer to help them accomplish their cost reduction efforts and gain the opportunity, the significant opportunity for a significant amount of new RCV mirror business going forward in the future.

Rob Hinchcliffe - UBS

Did your other customers put similar pressure on you to do the same?

Enoch Jen - Senior Vice President

As you are well aware, all of the automakers and particularly domestic automakers in North America are under a lot of financial pressure and one of the ways they are looking to deal with their own situations is to look for some very aggressive cost reduction opportunities with their suppliers. So we have been asked this question I think since 1990 and our response has been pretty consistent that all of our customers are very aggressive in requesting price reductions. We do take into consideration the amount of business we have with each customer, the potential additional business that we can gain with those customers, and making a decision as to whether any particular agreement is in our mutual best interest or not.

Rob Hinchcliffe - UBS

Can you comment on that? The impact in the fourth quarter of the pricing if any?

Steve Dykman - Vice President of Finance & Chief Financial Officer

Each of the factors that Enoch mentioned in his comments equally impacted the margin during the fourth quarter.

Rob Hinchcliffe - UBS

And that was the production cut and the pricing?

Steve Dykman - Vice President of Finance & Chief Financial Officer

Correct.

Rob Hinchcliffe - UBS

Okay, okay thank you.

Connie Hamblin - Vice President of Investor Relations & Corporate Communications

Thanks.

Operator

Thank you, the next question is from David Leiker from Robert W. Baird. Please go ahead.

David Leiker - Robert W. Baird

Good morning.

Enoch Jen - Senior Vice President

Good morning David.

Connie Hamblin - Vice President of Investor Relations & Corporate Communications

Good morning.

David Leiker - Robert W. Baird

And I only got two number questions first and then my real question. I don't think you gave depreciation, did you, for the quarter?

Enoch Jen - Senior Vice President

The depreciation expense for calendar 2007 was $32.4 million and depreciation expense for the fourth quarter of 2007 was $8.2 million.

Connie Hamblin - Vice President of Investor Relations & Corporate Communications

He was running out of breath. There was a lot of comments.

David Leiker - Robert W. Baird

No, I realize that.

Enoch Jen - Senior Vice President

Good catch David.

Connie Hamblin - Vice President of Investor Relations & Corporate Communications

Yes.

David Leiker - Robert W. Baird

And this pricing item, I guess two kind of interrelated items, as you look at to take these actions and you obviously weigh off the positives from the negatives but your intention I would hope at time is to recoup that margin at some point. But in the face of this you know part of what you talk about is the opportunity to boost your margins with volumes going forward, when you see these price cuts and the margin impact that kind of flies in the opposite direction. If you can kind of talk about how you weigh out the opportunity to take your margins back towards the level that they have been in the past, and how long of a payback there is in the process of taking on these lower prices?

Enoch Jen - Senior Vice President

Well, I think we always recognize the risk we are taking by granting price reductions in the short-term that negatively impact our margins with the expectation of gaining new business in the future, which should help our margins. I think we've talked about over the past year that being able to grow our top line, in double digits and being able to… there by being able to leverage our fixed overhead cost as well as our more aggressive purchasing cost and VAVE initiatives that we are currently expecting to be able to improve our margins even in the phase of annual price reduction by 25 to 50 basis points per year over the next several years. So I think, you know while this new RCD business, doesn't officially kick off until the 2011 model year, where we expect a significant amount of unit volume as well as… because that's our highest incremental valued feature we expect a significant amount of revenue growth also, in the interim we still have internal expectations of being able to improve our margins gradually.

David Leiker - Robert W. Baird

Okay thank you.

Connie Hamblin - Vice President of Investor Relations & Corporate Communications

Thanks.

Operator

Thank you. The next question is from Brett Hoselton from KeyBanc. Please go ahead.

Brett Hoselton - KeyBanc

Good morning.

Enoch Jen - Senior Vice President

Good morning Brett.

Brett Hoselton - KeyBanc

Lets see, so I'm confused about the revenue guidance. In the past you've talked about growth in that 10% to 15% range. In my opinion, the RCD mirrors.... I mean they are much more robust than I thought they would be in 2008. So therefore those adjusted revenue would be towards the higher end of the guidance, but... so what's the offsetting factor that causes you to say 10% is the number now as opposed to 10% to 15%?

Enoch Jen - Senior Vice President

Well, I think it’s no surprise that the domestic North American automakers have significantly taken down their production schedules for the first quarter of 2008. And looking out through the rest of the year, I think there is a lot of uncertainty. So, I think some of the same factors that reduced our actual shipments in the fourth quarter of 2007, we know will continue into the first quarter of 2008 probably even a greater impact in the first quarter and then the balance of the year is really up in the air, but I think there is a general consensus that as of today there is more downside to the CSM forecast than upside.

Brett Hoselton - KeyBanc

Okay. So, having covered you for 10 years, you generally tend to be a little bit on the conservative side, so am I just believe or interpret what you're saying as, Brett, we looked at the CSM numbers and we're spot on with the CSM numbers or Brett, we've kind of hedged a little bit?

Enoch Jen - Senior Vice President

Well, I think we probably have been hedging for the past couple of years, Brett, I mean just wonders an uncertain outlook, you have a range and you're going to tend to be, what we call it, cautiously optimistic.

Brett Hoselton - KeyBanc

Okay. Now, regarding this new customer, the only customer I am aware of that you previously had, I am trying to find a way of you providing us with the name and I know you're not going to provide us with the name, but I am wondering if...

Connie Hamblin - Vice President of Investor Relations & Corporate Communications

And you're limited to one question.

Brett Hoselton - KeyBanc

Well that’s because, you kept talking all the time, if you talk less we would have more time for questions, just food for thought. So that this... I'm thinking the SmartBeam customer, have you done a deal similar to this in the past with this customer?

Enoch Jen - Senior Vice President

I think what we've said is what we're able to say at this time. I mean, certainly its a large customer, so on one hand, the near term impact is larger and on the other hand, going forward we expect a positive impact from new business to be greater than the average customer also.

Brett Hoselton - KeyBanc

Okay. Well, lets see. And... okay, I am going to ask one more which is how aggressively have you been repurchasing.... well, let me ask you in a different way, in the first quarter of '06 when the stock was down around... about $16... $15, $16, $17 range whatever it was, you did $15 million worth of repurchase. The stock is obviously well below where it was in the first quarter of '06... well below... I think it’s either in line or below where it was in the first quarter of '06, is it unreasonable for some reason for me to believe that the share repurchase program has changed such that you just are going to repurchase the same amount you did in the first quarter of '06, I mean is there any… has there been any mechanical change in the share repurchase program?

Enoch Jen - Senior Vice President

The criteria with respect to our existing share repurchase program has not changed at all and we've consistently applied those criteria to date. One thing to keep in mind, we have previously stated, it's the company's practice not to repurchase shares during our blackout period.

Brett Hoselton - KeyBanc

Great. Thank you so much for the extra questions Connie. You are so generous.

Connie Hamblin - Vice President of Investor Relations & Corporate Communications

You are so welcome.

Operator

Thank you. The next question is from Richard Kwas from Wachovia. Please go ahead.

Richard Kwas - Wachovia Capital Markets

Hi, good morning everyone.

Enoch Jen - Senior Vice President

Good morning Rich.

Connie Hamblin - Vice President of Investor Relations & Corporate Communications

Good morning.

Richard Kwas - Wachovia Capital Markets

Enoch, on the guidance here, 10% for the first quarter in terms of revenues. You're expecting that for the year. Can you... given that it seems like first half production in North America is going to be under some pressure and that's I think pretty well known. With some expectation in the second half improves a bit, what's kind of the offset to why you wouldn't have a lower revenue expectation in the first-half of the year and then with a pickup in the second half? Is there some kind of offset in the second half of the year in other regions of the world that is keeping this more or less straight line across the year?

Enoch Jen - Senior Vice President

I think Rich, probably the two factors are that, the people who hope or expect that the second half of the year will rebound are probably in the optimistic camp. And we are not as confident that that will happen. The second factor is that, as we gain new business, in the second half of the year that’s tied to the model year the third quarter is also a quarter where most of our annual price reductions take place. So, those two tend to somewhat offset each other.

Richard Kwas - Wachovia Capital Markets

Okay. So, basically you are less optimistic about North America and you've got some flushes on the content with RCD and SmartBeam, but generally speaking this 10% number is a pretty good number as the quarters play out?

Enoch Jen - Senior Vice President

I think that's a good summary Rich.

Richard Kwas - Wachovia Capital Markets

Okay. And then in terms of the gross margin, on the potential 25 basis points to 50 basis points increase, how should I think about the price reduction in the fourth quarter, the residual impact from that at least for the first half of the year maybe in the third quarter. And what's going to offset that to kind of potentially get you this increase.

Enoch Jen - Senior Vice President

Of the anticipated margin improvement going forward will largely be driven by purchasing cost reductions and VAVE initiatives. And that would be the primary item.

Steve Dykman - Vice President of Finance & Chief Financial Officer

I mean if you look at price reductions, you're going to have the ongoing impact of the price reductions that were granted in the end of 2007 as well as the annual price reductions that are scheduled in the different quarters of 2008. So, we're basically saying that we expect our cost reduction efforts incorporating the different factors as Steve mentioned to more than offset the impact of the price reductions by about 25 basis points to 50 basis points.

Richard Kwas - Wachovia Capital Markets

And then finally on RCD on the growth and the volume. Is it fair to assume that comes on the back half of the year as the model year changes over.

Enoch Jen - Senior Vice President

Not necessarily. I think in North America, new programs tend to follow model years that begin in the third quarter. But, European and Asian customers and programs do not necessarily follow the North American schedule.

Richard Kwas - Wachovia Capital Markets

All right. Thank you.

Connie Hamblin - Vice President of Investor Relations & Corporate Communications

Thank you.

Enoch Jen - Senior Vice President

You are welcome.

Operator

Thank you. The next question is from John Murphy from Merrill Lynch. Please go ahead.

John Murphy - Merrill Lynch

Good morning.

Enoch Jen - Senior Vice President

Good morning, John.

John Murphy - Merrill Lynch

Good morning. Just going to sneak two questions in here. First on a gross margin, what makes you so comfortable? I can understand in the longer term as you could make up volumes of other products that you might be able to recover gross margin, but in the short term from the fourth quarter or the first quarter what makes you so comfortable that you can recover that 80 basis points of gross margin that quickly?

Enoch Jen - Senior Vice President

Well, in the short-term, we also are not only more confident about the amount and magnitude of price reductions we are also more confident about the purchasing cost reduction and VAVE initiative that will kick in in the first quarter. So, again, I mean obviously, life is uncertain, and we are all in a difficult operating environment, but that is our best internal information that we have at this point.

John Murphy - Merrill Lynch

So, you think that quickly you can make any change in the cost side of your equation as opposed to getting incremental operating leverage in a big way, probably sequentially, I m just trying to think about this sequentially.

Enoch Jen - Senior Vice President

Yes.

John Murphy - Merrill Lynch

Okay. Then secondly, on share buyback, [inaudible] but you have quite a bit of money invested in the market in mutual funds and given what has happened with your stock in the last quarter, you seem to be sending a pretty clear signal to investors that you would prefer investing in the market as opposed to investing in your shares, and it just seems odd to have that kind of capital allocation given what's happened to your stock with your cash?

Enoch Jen - Senior Vice President

I think that's a valid question. I think if you look at the criteria that we outlined in our share repurchase plan and the fact that we have repurchased 18 million shares over the last couple of years you have a pretty good footprint in terms of at what share prices we repurchase shares and that we do repurchase more shares at lower prices. I think if you look at the fourth quarter by itself, you will see that the share price really never hit our prior entry point. And as Steve pointed out a little earlier in the call, we have been precluded by a company practice from repurchasing shares during our blackout period, which would have affected January to date. So, I don't think that anyone should read anything into that we've changed any criteria or philosophy. Steve mentioned we still are sticking very consistently to the criteria that we established when we initiated the plan.

John Murphy - Merrill Lynch

Okay. Thank you very much.

Connie Hamblin - Vice President of Investor Relations & Corporate Communications

Thanks.

Enoch Jen - Senior Vice President

Welcome.

Operator

Thank you. The next question is from Alexander Paris from Barrington Research. Please go ahead.

Alexander Paris - Barrington Research

Good Morning.

Enoch Jen - Senior Vice President

Good morning, Alex.

Alexander Paris - Barrington Research

With all the talk of price reductions and more aggressive actions by a troubled big three, just trying to get a feel for your annual price givebacks, they have been kind of running at a certain percentage year-to-year. Has that increased in 2007 for example?

Enoch Jen - Senior Vice President

No. Overall, our annual price reductions have fallen in the range of 3% to 5% per year on a company wide basis.

Alexander Paris - Barrington Research

How about just maybe looking at one number, the average selling price of your base mirror so it takes out a little different additional features and so forth. What is that average price now?

Enoch Jen - Senior Vice President

Well, what we have said is back in 1987 when we first introduced our inside base mirror it was priced in the low 40s and today in volumes it's priced in the low 20s.

Connie Hamblin - Vice President of Investor Relations & Corporate Communications

And also Alex, when we talk about 3% to 5% annual price reductions that doesn't mean that they take every purchase order and that we give 3% to 5% on every products. I mean, obviously there are certain products where we have more room to give. The base feature mirror is a much more mature product. So, we are not likely giving 3% to 5% on a base feature mirror. They are just looking at the total book of business that we have with that customer. They are looking for 3% to 5% on the total book of businesses as opposed to on a product-by-product basis.

Alexander Paris - Barrington Research

Now, that's fair [ph] because I think in your release you said, if I am not mistaken, that the average selling price on the rear camera display on the SmartBeam was about three times the base mirror, is that what you said?

Connie Hamblin - Vice President of Investor Relations & Corporate Communications

The incremental adder for SmartBeam is approximately 3X and our RCD is higher.

Alexander Paris - Barrington Research

That 3, will that be… that was taken into the 60 some dollar range, and that is lower than you used to talk about the SmartBeam?

Connie Hamblin - Vice President of Investor Relations & Corporate Communications

No.

Enoch Jen - Senior Vice President

When we first announced the SmartBeam program, we had talked about an incremental value of $65 to $75. Well, that's about 3X the low $20s. And then we have been pretty consistent with RCD saying that we are not disclosing the exact value of the incremental value adder for marketing and competitive reasons but that it is higher than the SmartBeam adder.

Alexander Paris - Barrington Research

Thank you very much.

Enoch Jen - Senior Vice President

Welcome.

Operator

Thank you. The next question is from Himanshu Patel from JP Morgan. Please go ahead.

Himanshu Patel - JP Morgan

Hi, guys. Good morning.

Enoch Jen - Senior Vice President

Good morning.

Connie Hamblin - Vice President of Investor Relations & Corporate Communications

Good morning.

Himanshu Patel - JP Morgan

Couple of questions. Enoch, you mentioned purchasing and the VAVE initiatives, I am just wondering has the rate of purchasing cost savings that you are targeting in '08, has that accelerated versus what you guys have done historically?

Enoch Jen - Senior Vice President

The pace of our purchasing cost and VAVE activities accelerated beginning around the middle of 2006. And so we are about a year-and-a-half into that. That certainly played a significant part in stabilizing our gross margin and we expect that effort to continue into 2008.

Himanshu Patel - JP Morgan

Any way we can get a sense for the total Global Procurement Bill?

Enoch Jen - Senior Vice President

Only have very large ballpark and that we have said that our material cost is our single largest portion of our cost of goods sold and that labor is in the single digits, and we said... single digits as a percentage of net sales and that overhead... that fixed overhead represents approximately 10% as a percentage of net sales.

Himanshu Patel - JP Morgan

Okay. And then last question, can you just refresh us on the mix within the investment portfolio in terms of asset allocation?

Steve Dykman - Vice President of Finance & Chief Financial Officer

Yeah, within the investment portfolio we are, the portfolio is split between fixed income, cash and money market accounts as well as equity investments and our investment policy and philosophy to-date has been equity investments, can account to for about 30% of the investment portfolio. And then within the fixed income side of things as well as money markets is currently a larger proportion of those funds and money market accounts.

Himanshu Patel - JP Morgan

Okay that is all I had. Thank you.

Enoch Jen - Senior Vice President

Welcome.

Operator

Thank you, the next question is from Greg Halter from Great Lakes Review. Please go ahead.

Greg Halter - Great Lakes Review

Yes, I just wanted to... good morning.

Enoch Jen - Senior Vice President

Good morning.

Connie Hamblin - Vice President of Investor Relations & Corporate Communications

Good morning.

Greg Halter - Great Lakes Review

Wanted to clarify one number on the receivables that you know that, that was $64.2 million?

Steve Dykman - Vice President of Finance & Chief Financial Officer

Yes.

Greg Halter - Great Lakes Review

Okay. Thank you. And relative to the company's market share, any early indications on where you came out for 2007?

Steve Dykman - Vice President of Finance & Chief Financial Officer

We actually have not done the computation, I think we've previously said that we don't expect this relative 80%, 20% market share to change significantly over the next few years.

Greg Halter - Great Lakes Review

All right. Are you doing anything meaningful with the Chinese or Indian automakers currently and do you have any plans to do so?

Enoch Jen - Senior Vice President

Well I think we announced the opening of an office in China.

Greg Halter - Great Lakes Review

Two years ago?

Enoch Jen - Senior Vice President

About two years ago. And we've been staffing up there, I think we've talked about that from our perspective the Chinese market is probably split into three major segments. We have the high and luxury segment that's primarily joint ventures between Chinese auto makers and global auto makers. You've got… and that's a fairly small percentage, but still from significant unit volume, the second fairly small piece is the… dominated by several Chinese automakers who have stayed at their intention to become global automakers and they tend to dominate the higher price vehicle segment, within China. And then finally you've got the largest percentage of the market, which is the a large number of smaller domestic automakers that produced fairly inexpensively price vehicles. And so we have the selling into the high-end luxury segment for 5, 6 years now, we are beginning to sell into that second segment and probably that third segment still needs quite a bit of consolidation and standardization. We have talked about that we are looking into entering the India market also probably on average their vehicles are even lower priced than China. So while there is some potential initially it is going to be at the high end of that market.

Greg Halter - Great Lakes Review

All right and one last if I may on the RCD, I am talking about the bill that is out there and there is some commentary in your release that the National Highway Traffic Safety Administration is leading towards the use of camera based systems versus some of the others that they look at. I'm just wondering if it's... if they lean in other way beyond camera based systems, what that would mean to your RCD business?

Connie Hamblin - Vice President of Investor Relations & Corporate Communications

Well I think in general if they lean another way, I think that they're probably going to lean in several ways. I think that they will likely come out with a number of different ways that auto makers can meet the whatever rules they come up with the rule making body, which is pretty typical of the National Highway Traffic Safety Administration when they do mandate something like that. So, I mean there can be sensors, it might be a combination of sensors and cameras. It might be sensors alone. It's just going to depend on what they actually come up with, but we still think that there is definitely a place for rear camera displays in mirrors because all of the business that we have at this point in time is absent any legislation and these automakers made the decision to do it and put the rear camera display in the mirror on the vehicle long before there was any legislation pending. So, I don’t think that that's a huge issue for us and I guess it's probably in some respect good that there are other potential options out there because Gentex in general is not in favor of having products mandated but if there at least is a palette of different products in different ways to meet the regulations at least we will be one of them as opposed to the only one, which would tend to potentially force pricing way down on… just like when they mandated airbags. If you look at when they mandated airbags what happened to the companies that were in the business and actually develop the airbags in the sensors mechanism.

Enoch Jen - Senior Vice President

If you look at rear backup of systems currently you've got sensor based systems which are the least expensive but also have some disadvantages. On the high-end you've got camera based systems that are located in a vehicle navigation system and then we feel we are positioned very well as a much less expensive alternative to enhance [ph] system with a our camera display located in the mirror. And a number of studies have been conducted that clearly show that drivers prefer the camera in the mirror versus down in the dashboard or console.

Greg Halter - Great Lakes Review

Okay I appreciate the commentary we do have one of those on one of our vehicles and it does make a difference in terms of being able to see behind you and know what’s out there. So I think it is a good advancement.

Enoch Jen - Senior Vice President

Thanks.

Connie Hamblin - Vice President of Investor Relations & Corporate Communications

Thank you.

Operator

Thank you. The next question is from Mike Slown from Harvey Partners [ph]. Please go ahead. Mr. Slown, please go ahead.

Unidentified Analyst

Can you hear me?

Enoch Jen - Senior Vice President

Yes.

Connie Hamblin - Vice President of Investor Relations & Corporate Communications

Yes.

Unidentified Analyst

Hi guys, how are you doing?

Connie Hamblin - Vice President of Investor Relations & Corporate Communications

Good. Thank you.

Enoch Jen - Senior Vice President

Good.

Unidentified Analyst

There have been a lot of questions about the share buyback and I'm just curious the cash flow keeps getting bigger, any other options for putting it to work as far as historically you guys haven't been particularly inquisitive, is there anything out there that interests you or would you consider one-time dividend something like that?

Enoch Jen - Senior Vice President

Well I think the issue of our cash is considered regularly by management and our Board of Directors, I think we've tended to look at three uses of cash. The first and while we prefer it strongly, like you said, we haven't done much in terms of acquisitions or purchasing equity interest in some of these new technology startups. We have a regular quarterly cash dividend, which does represent between 40% and 45% of our annual operating cash flow, and together with our share repurchase plan. So while I'd say, we never would say, never in terms of a large one-time cash dividend, most of the feedback we received from our shareholder is that that's not that high on their priority list.

Unidentified Analyst

Okay. Thanks a lot.

Enoch Jen - Senior Vice President

Yes.

Operator

Thank you. The next question is from Gregory Macosko from Lord, Abbett. Please go ahead.

Gregory Macosko - Lord, Abbett

Yes. Hello.

Enoch Jen - Senior Vice President

Hello.

Gregory Macosko - Lord, Abbett

I was wondering about the R&D number. It looks like, I know it was up about 20% plus for the year, it slowed down in the fourth quarter. And it is expected to be... to grow 15% in the first quarter I think you said.

Enoch Jen - Senior Vice President

Yes.

Gregory Macosko - Lord, Abbett

Is there anything driving that sort of, I guess it is slower from this current year the growth rate, but are there any particular programs or projects that are driving that faster than your expected sales growth?

Enoch Jen - Senior Vice President

Okay, we try to look at two things, the first is, if your look at our ER&D expense growth for the year, we do need to consider that that line item includes the Muth patent litigation expenses and excluding those litigation expenses ER&D expense would have increased by approximately 13% for the year. So, on an operating basis, we are not really seeing an acceleration of our ER&D expense growth. Now the second part would be as we've talked about previously most of our ER&D expense growth is tied to new programs that we will be introducing over the next two to three year. And so there is this accounting disconnect in terms of when we spend the money and when we will see the results of the new program. So from our perspective, we've talked about the 10% to 15% annual top line growth rate over a 3 to 5 year period. We're seeing that our ER&D expense growth is fairly similar, certainly in the near-term when customers produced fewer vehicles, we shipped fewer mirrors, but that doesn't really help us in terms of the new programs that we are working on out a few years.

Gregory Macosko - Lord, Abbett

Is there anything that you are doing particularly with PP&G on any other projects besides the Boeing project?

Enoch Jen - Senior Vice President

No.

Connie Hamblin - Vice President of Investor Relations & Corporate Communications

Not that we... I mean we are working on other customers but we haven't announced anything and we don't have any business that we've announced with other customers.

Gregory Macosko - Lord, Abbett

And nothing... anything beyond the aerospace business?

Connie Hamblin - Vice President of Investor Relations & Corporate Communications

No. Not at this time.

Gregory Macosko - Lord, Abbett

And then that agreement only includes aerospace in terms of your understanding to work with PP&G?

Enoch Jen - Senior Vice President

Yes. Just for dimmable windows for aircraft.

Gregory Macosko - Lord, Abbett

For aircraft.

Connie Hamblin - Vice President of Investor Relations & Corporate Communications

Because we are working with PPG’s Aerospace division.

Gregory Macosko - Lord, Abbett

Okay. And there is no other projects to work on it, you do that… anything that would do for any other applications would be internal?

Enoch Jen - Senior Vice President

Well, we don't customarily disclose development programs that we work on with other companies. So it is always a combination of our internal efforts and working with other companies, but we are not working on any other products other than dimmable aircraft windows with PPG Aerospace.

Gregory Macosko - Lord, Abbett

Yes. Better get off the phone; I don't want to get put into Brett Hoselton’s camp.

Connie Hamblin - Vice President of Investor Relations & Corporate Communications

I think we have time for one more question.

Operator

Thank you, the next question is from David Leiker from Robert W. Baird. Please go ahead.

David Leiker - Robert W. Baird

I got the golden ticket I guess.

Enoch Jen - Senior Vice President

Yes you did.

David Leiker - Robert W. Baird

If you look at the pool of SmartBeam vehicles, we have talked about this in the past, I think it was like a right now you are running like a million and a half available. Is that number… you finished the year with that number being accurate or in the ballpark?

Connie Hamblin - Vice President of Investor Relations & Corporate Communications

We basically moved away from giving guidance on the addressable market to more giving you unit shipment guidance, which is better for you --

David Leiker - Robert W. Baird

Well my next question as you talked about ’08 and in '09 adding new customers. I was just trying to get my arms around what that would increase as a potential adjustable market [inaudible]?

Enoch Jen - Senior Vice President

I think we moved away from using the adjustable market for a couple of reasons. One is it created some confusion with the Cadillac Escalade because some people were saying while the entire GMT 900 platform, some people were saying it's the GMT 900 SUV platform, and some people were saying it is just the Escalade. And then we got some confusion with the BMW 5 and 6 Series, when it was first introduced where it was just for Europe and select European centered regions and then North America got added. So, we kind of decided that we are probably confusing ourselves and you by using that metric.

David Leiker - Robert W. Baird

I wasn't.

Connie Hamblin - Vice President of Investor Relations & Corporate Communications

And David, I think because you are looking for a number kind of like we did with rear camera display where we talked about potentially doubling from '08 to '09. The reason with SmartBeam that we are not doing that is because it is a little less precise, it's a much longer lead time product than rear camera display is and there is a lot of work to be done on both ends from an engineering perspective. Our engineering people have to do a lot of vehicle, specific implementation as does the automakers. And sometimes if either one of us don't do our part, I mean typically we have met our goals but sometimes the OE doesn't do their part. So it's a little less certain.

David Leiker - Robert W. Baird

Let me ask it this way then. If we take a look at GMT 900 platform where right now you are on just a handful of those vehicles, the way that was designed, the way SmartBeam is designed, you are electronically protected to go across that entire platform. Are you seeing any moves at GM to take it beyond the existing vehicles, when you look on?

Enoch Jen - Senior Vice President

Yes, we’ve said that we are working with both GM and Chrysler on a future vehicle model.

David Leiker - Robert W. Baird

And I guess I am just asking on just that particular platform?

Connie Hamblin - Vice President of Investor Relations & Corporate Communications

We can't comment.

David Leiker - Robert W. Baird

Okay. And then one last thing since I am the last one. When you look at your SG&A and R&D costs, they have been going up faster than revenue here for a while if you look at your guidance here for '08. If that’s the case here as well, is that... in restraining your arms around when you start to leverage that and be able to drive some margin improvement from that part of the income statement?

Steve Dykman - Vice President of Finance & Chief Financial Officer

I think we tend to look at it as the break even is like 10% to 15% and I think the top line has been held back for reasons we're all well aware of and reasons not within our control and a lot of the ER&D as well as the SG&A are really tied to future programs. So, I think we need to eliminate this headwind of declining production levels, and then I think we need to see the acceleration of some of these advanced featured mirrors like SmartBeam and RCD. And so we are hopeful that within a few years we will begin to see that leverage comeback.

David Leiker - Robert W. Baird

So vehicle production for some reason, let’s your revenues are up only 7% instead of 10%, would you still expect your... those two line items that could grow 15%?

Steve Dykman - Vice President of Finance & Chief Financial Officer

I think they would still tend to grow at that rate, one because of the R&D because it's correlated with new programs out two or three years. It's not really affected by this year’s, or this quarter’s or this week’s shipments. SG&A, we are trying to manage it wisely but a lot of it is dictated by positioning ourselves overseas, both to support our current business overseas as well as to enter some of these new emerging markets like China and India.

David Leiker - Robert W. Baird

All right. Great, thank you very much.

Connie Hamblin - Vice President of Investor Relations & Corporate Communications

Thank you.

Enoch Jen - Senior Vice President

Okay. At this time we would like to thank you all for participating. That is if you're still on the call, and if you have any further questions, Connie is available. She has promised to work through her lunch hour to answer all your questions and we look forward to talking with you later. Thank you.

Operator

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

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Source: Gentex Corp. Q4 2007 Earnings Call Transcript
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