台灣國際航電 (GRMN) 2003 Q3 法說會逐字稿

Good morning. My name is Mandy and I will be your conference facilitator. At this time I would like to welcome everyone to the Garmin Ltd. international third quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers remarks there will be a question-and-answer period. If you would like to ask a question during this time, simply press star then the number 1 on your telephone keypad. If you would like to withdraw your question, press star then the number 2 on your telephone keypad. Thank you. Miss Polly Schwerdt, you may begin your conference.

Good morning. We would like to welcome you to Garmin Ltd.'s 2003 third quarter earnings call. Please note a copy of the press release concerning this earnings call is available at Garmin's investor relations site on the Internet at www.garmin.com. Additionally, this call is broadcast live on the Internet and a replay of the webcast will be available until November 26, 2003. A telephone recording will be available for 24 hours after this call. This earnings call includes projections and other forward-looking statements regarding Garmin Ltd. and it's business. Any statements regarding our future financial position, revenues, earnings, market shares, product introduction, future demands for our products and our plans and objectives are forward-looking statements.

The forward-looking events and circumstances discussed in this earnings call may not occur and actual results could differ materially as a result of risk factors affecting Garmin. Information concerning these risk factors is contained in our form 10-K for the fiscal year ended December 28, 2002, filed with the Securities and Exchange Commission. Attending on behalf of Garmin Ltd. this morning are Dr. Min Kao, Co-Chairman and CEO; Kevin Rauckman, Chief Financial Officer; Cliff Pemble, Director of Engineering; and Andrew Etkind, General Counsel. The presenters for this morning's call are Dr. Min Kao and Kevin Rauckman. At this time, I would like to turn the call over to Dr. Kao.

Good morning. From the newest release issued this morning you can see that Garmin has achieved a very good quarter. Revenues increased 26% and net income increased 36% relative to the third quarter of 2002 on excluding the effect of foreign exchange. The strength of our business is evidenced by eight consecutive year-over-year record quarters of revenue, strong margins, and a level of EPS growth. We were able to achieve many accomplishments since our last earnings report. We experienced growth across all product lines and in all three geographical regions. We maintained ongoing strong margins through product innovation, vertical integration and continued improvement in quality and upgraded efficiency. We shipped over a half million units this quarter. Ad we are pleased to report that during this quarter Garmin shipped 8 million units. And the [inaudible] of our success and the strength of the Garmin brand.

We have received high marks from the media who have reviewed our GPS PDA integrated products, the [inaudible]. The initial sales of this report had met our expectations, and we have now reached its full production. We continue to experience strong growth in our portable of the [inaudible] products. The new StreetPilot 2610 and 2650 have been well-received, and we continue to rev up production to meet the increased demand for these two [inaudible] products. The response to our G1000 integrated Cockpits continues to be [inaudible]. We are pleased that Cessna will now be offering these Cockpit for the 2004 model of their 182 and 206 single-engine aircraft. Diamond Aircraft has also announced that this system would be available for their 2004 model of the DA40.

Lastly, with much hard work we completed a position of UPS aviation technology (ph) on August 22, less than a month after the initial announcement. We have begun integrating the two product lines under the Garmin brand and have now completed the [inaudible] of our older entry and market functions. We are real pleased with additional results [inaudible] to Garmin. Our engineer staff now totals 473, and we have a total of three highly automated surface mount (ph) assembly lines dedicated to the production of our recent products. We are excited about our intense ability to serve the general aviation and business jet markets.

With regard to the outlook for the remainder of 2003, we anticipate continued growth and we are revising our guidance upward as the demand for all product lines continues to be [inaudible]. We look forward to promoting the PDA and [inaudible] product on TV and in nationwide newspapers during the holiday season and hope to enjoy [inaudible] demand for our products through the end of the year. On the initial side, integrate copy development continues. The selection of our system by Cessna and Diamond for both existing and [inaudible] is an [inaudible] of this integrated approach, and we are continuing our discussions with other general aviation and business jet manufacturers.

In summary, we are pleased with our third quarter results and are looking forward to the remainder of 2003 as we continue to have exhibit growth in our business. We are continuing to maintain our strategic [inaudible] for the business through ongoing product innovation, expanding our target markets and expanding the Garmin brand. With that I would like to turn the call over to Kevin to discuss our financial results for the quarter and, also, the Q4 in 2003-04 year guidance. Thank you.

Thank you, Min. It's my pleasure to be able to walk through the financial results, as Min said, for the Q3 just ended. And, again, it was a good quarter for us financially and met or exceeded expectations in nearly all areas. Starting with the Q3 revenue, our revenue came in $135.6 million which was above the range of our guidance with $120 to $125 million. The press release that we announced today also said that we included about $3 million of sales for our Garmin AT business from the time of acquisition until the end of the quarter, and that revenue number in total is a 26% increase from the year ago quarter. Looking at revenue by the geographic regions our U.S. revenue came in at $99.0 million, which is a 27% increase from the year ago quarter of $77.9 million. European revenue was $28.7 million, a similar increase of 26% from the prior year quarter of $22.8 million. And our Asian revenue was $7.9 million, which represents a 13% increase from $7.0 million the year ago quarter.

The gross margin also increased. It increased 180 basis points to 56.6%, which compares favorably to 54.8% in Q3 2002 and is just on the low end or in line with our earlier guidance of 57% to 58%. Operating margins were 38.3%, compared to 37.2% in Q3 of 2002, again, in line with our earlier guidance of 37% to 38%. Net income results were $35.3 million. When we take out the pretax of foreign currency lost and the net income, excluding foreign currency, is $42.4 million, which exceeded our guidance of $36 to $39 million. Earnings per share results, GAAP results came in at 32 cents per share. And when we back out the effect of foreign currency the earnings per share was 39 cents per share, and that represents a 34% increase from the year ago quarter and also exceeded our earlier guidance of 33 to 36 cents per share.

As Min mentioned, the total units sold for the quarter increased 37% up to 517,000 units, which compare to the 378,000 units we sold in the third quarter of 2002. Again, the gross margin was 56.6% compared to 54.8% in the year ago quarter. And we really continue to experience strong acceptance of our new products. In fact this quarter, approximately 23% of our third quarter sales were generated from products introduced within the last 12 months. And I do believe that was one of the reasons for the ability to report such a high margin at 56.6%.

Looking next at operating margin performance, Garmin achieved operating profit of $52 million and an operating margin of 38.3% in line with our guidance of 37 to 38. Operating margin increased 110 basis points compared to the third quarter of 2002. During the third quarter of 2003, SG&A as a percentage of sales decreased 70 basis points to 9.6% of sales. The SG&A dollar increase was 18% over the year ago quarter. And, again, this is during a period when our revenues were up 26%. The 18% increase was driven primarily by continued increased call center expenses; additional advertising that we experienced during the quarter; and, then, having roughly one month worth of Garmin ATs SG&A in our third quarter results.

R&D increased 130 basis points to 8.7% of sales from 7.4% of sales during the third quarter of 2002. The absolute dollar increase of R&D was 48% over the third period. We also increased the R&D due to engineering program costs and the hiring of new engineering staff, and we now expect that our R&D costs for the year will exceed a 25% growth rate. Currently we're at a 29% year-to-date increase including the Garmin AT business. After you take that component of R&D investment out, we're sitting at 25% year-over-year growth excluding Garmin AT. So during the quarter we hired 21 new engineers and engineering associates and we acquired 53 engineers due to the Garmin AT acquisition. So total now -- we employ a total of 473 engineers around the world.

Total operating expenses as a percentage of sales increased 70 basis points to 18.3% from 17.6% in the prior year period. I'm sure you recognize that we experienced a $9.0 million foreign currency loss during the quarter as the dollar continued to weaken, primarily against the Taiwan dollar, which is where we get the results of the foreign currency loss. When you look at our foreign currency rates, the dollar weakened from 34 NT, new Taiwan dollars, 34.61 at the end of June, down to 33.79 NT dollars at the end of September, which is a 2.4% change during the quarter. That is what drove the $9 million loss. Looking next at interest income. We achieved interest income of $1.8 million and we had no interest expense during the period since our debt had been fully retired in the prior periods. We are currently earning approximately 2% pretax return on our marketable securities and approximately 1.4% on our total cash balances as on a consolidated basis.

Focusing next on the taxes. During the quarter the effective tax rate of 21% was in line with our earlier guidance; however, it was 330 basis points lower than the third quarter of last year. That rate was 24.3%. The year-over-year improvement was caused by the ongoing tax incentives received from the Taiwan government during 2003. And we do expect that our effective tax rate for the remainder of the year will be approximately 21% and may still improve if unit volume out of our Taiwan factory continues to increase throughout the fourth quarter of 2003.

Focusing next on the segment results. The third quarter consumer segment, consumer revenue was $108 million during the quarter and that represents a 32% increase over the prior year quarter. Consumer business is now 78% of our total revenues. And for the eighth consecutive quarter we have exceeded 20% revenue growth in our consumer segment. During the third quarter we experienced growth across all product lines within the consumer segment, but especially within the automotive and then the recently released PDA product line, again, a demonstration of the continued demand for our consumer GPS products. Total unit sales, as I mentioned, were up 37%. The unit growth occurred primarily in our consumer segment. Consumer gross margin improved to 55.0% in the third quarter from 52.6% in Q3 of 2002. The consumer growth margin improvement was driven by the higher sales volume during the quarter and lower manufacturing overhead costs from our higher volume production during the quarter. Consumer operating margin improved, in total, 340 basis points to 40.1%; and that's an increase compared to 36.7% a year ago.

Looking at the aviation revenue, aviation revenue increased 8% to 29.6% during the third quarter, compared to 27.5% in Q3 of 2002. So the aviation business was 22% of our total revenue, and most of the revenue increase was due to the sales from Garmin AT after the acquisition. Aviation gross margin increased to 62.1% from 61.2% in Q3 of 2002. And as has been the case in most of this year, the improvement is due to improved product mix that we experienced within the aviation segment during the quarter. Overall operating margins came in at 32.1% in aviation, which was down 630 basis points, compared to 38.4% during Q3 of 2002. And what's driving this, primarily, is the increased gross margin that were more than offset by the increased operating expenses within the segment and basically coming from R&D investments within the segment. This also includes operating margins of about 1% from Garmin AT. As we said, $3 million of sales during the quarter had a break-even EPS; so the operating margin from the Garmin AT business during the quarter was 1%.

Looking next at the year-to-date financials. The year-to-date revenue now stands at $402.8 million, which is a 22% growth rate over 2002. Our gross margin has now improved to 58.3%, compared to 54.7% in 2002. Operating income was $164.3 million and net income year-to-date of $124 million. So our operating margins have now improved to 40.8% year-to-date, compared to 37.5% in 2002. Again, diluted EPS year-to-date is now $1.14, compared to 90 cents a year ago. And this 27% increase in earnings per share was partially caused by the $11.1 million FX loss during 2002. Earnings per share results excluding the effects of FX were $1.22, which is a 36% increase year-to-date compared to the prior year 2002.

Looking at revenue by geographic region on a year-to-date basis now. The trends we see, U.S. revenue, $284.6 million, which is up 19% from a year ago. Europe revenue of $99.2 million is an increase of 31% from 2002. And Asian revenue of $19 million, which is also a significant increase, 18% up from 2002. Breaking down the segment data for the year-to-date results are consumer revenue is now $315.6 million, which is a 27% increase over year-to-date 2002. Consumer is 78% of our total revenues and our gross margin within the segment improved to 56.7% from 52.5% in 2002 due to several factors: Due to raw material and overhead cost improvement and also favorable product mix throughout the year. Our aviation revenue year-to-date, $87.3 million, which is a 6% increase compared to '02, and is 22% of our business. The aviation gross margin has improved this year to 64.2% from 61.2% in 2002 due to favorable product mix within the segment.

And looking at total consumer and aviation units year-to-date, we've now shipped 1,476,000 units, which is a 37% increase over 1,079,000 units from last year. Overall year-to-date operating margin is now 164 million, as I stated, 40.8% of sales; and that compares very favorably to the 37 1/2% of 2002. During the year, year-to-date 2003, SG&A as a percentage of sales has remained flat at 10.1% of sales. The SG&A dollars have increased 21% compared to last year, and that tracks consistently with the revenue being roughly 21% to 22% this year. R&D increased to 7.5% of sales from 6.9% of sales during 2002. And as I stated earlier, R&D dollars have now increased 29% year-to-date over 2002. As we have communicated in the past, we intend to grow our operating expenses at roughly the same rate as our revenues; and we're on track to achieve that this year.

Year-to-date foreign currency gain, we've gained and lost. We've actually experienced now an $11 million foreign currency loss during 2003 as the dollar weakened from the beginning point of 3510, new Taiwan dollar to dollar, down to 3379, which is a 3.7% reduction. Our year-to-date interest income is now $5.5 million, and our interest expense for the year has been a half a million dollars.

Moving next to the balance sheet. Our cash and investments at the end of the quarter now amount to $514.6 million, and our marketable securities make up approximately $270 million of this total cash position. Accounts receivable balance at the end of the quarter was $64.1 million, and that represents an increase of $12 million from the balance sheet at the end of 2002 due to strong Q3 sales and in the relatively linear shipments that we experienced during Q3 of '03. When we look at days sales outstanding at the end of Q3 we have 42 days, and that compares to 39 DSO at the third quarter of last year.

Our inventory did increase up to $66.8 million from $57 1/2 million at the end of 2002, as expected. And we had earlier guided to an increased level of inventory during the third quarter as we prepared for new product launches of iQue 3600 and III Pilot 2610/2650 products. We also experienced some lead time increases during the quarter with certain electronic components. As I stated, typically, you would see during Q3 a ramp up of inventory as we prepare not only for new product launches but also get ready for the upcoming holiday season in Q4.

Cash flow. Cash flow from operations was $37.6 million during the third quarter. Free cash flow generated was $27.8 million. And, again, that's operating cash less our Capex. We had roughly $10 million of Capex investment during the period. Cash flow from investing for the third quarter was at $60.2 million use of cash, the largest component of that coming from the, roughly, $38 million acquisition of the Garmin AT. Cash flow from financing was zero. And as I mentioned, capital expenditures for Q3 were $9.8 million. Garmin Ltd. still plans on paying a 50 cent per share dividend for all shareholders of record as of December 1, 2003, and the payment will be made on December 15th. So as has been the case in the past, overall our balance sheet continues to remain strong, and we're well-positioned for the future growth that we would expect in the business.

I would spend just a few minutes on the Garmin AT acquisition to bring everyone up to date. As I mentioned, Garmin AT contributed $3 million of revenue and zero net income to the financial results during the third quarter; and this represents one month of activity since the acquisition was completed late in August. We do expect that Garmin AT will generate sales of approximately $7 million during Q4 of 2003 and between $20 million and $30 million of revenue during the full year, fiscal year, 2004. The impact on Garmin's earnings per share will continue to be neutral or slightly accretive as we go through 2004. Since the close of the transaction, we began blending the product lines under the Garmin brand and we have now completed the consolidation of ur order entry function allowing customers to interface with Garmin through one point of sale.

And, finally, I would like to close my time this morning with the revised guidance both for the fourth quarter and for the full year 2003. As you probably saw on the press release, our revenue, now, we expect the fourth quarter to be between $155 and $160 million and that does include $7 million for Garmin AT. That revenue range will generate between 16% and 20% growth rate, top line. We expect our gross margins to come in between 55% and 56% of sales, operating margins to be 37% to 38%; our effective tax rate, as I mentioned, is staying static at 21%, which would drive a net income between the range of $47 to $49 million, excluding any foreign currency effect. Therefore, our EPS range is expected to be between 43 and 45 cent per share, excluding FX, with is a 2% to 7% growth rate year-over-year. The outstanding diluted shares that we are basing this EPS range on continues to be 109 million shares, and we also expect our Capex estimate for the quarter to be approximately $13 million.

So adding up the year-to-date numbers plus the fourth quarter, our full-year guidance now becomes a top line revenue between $558 and $563 million, a 20% to 21% growth; gross margin between 57% and 58%; operating margins between 39% and 40%; and effective tax rate for the full year at 21%. Net income between $179 and $181 million, excluding FX; and in earnings per share, therefore, between $1.65 and $1.67, excluding FX; and an EPS range generates a 25% to 26% growth rate for the year, again, based on 109 million shares outstanding. For our Capex estimate for the year, which about 20 million comes from our facility expansion right in the middle of, it will $33 million expected for the full year. So that ends my section of the earnings call. I would like to open it up, at this point, for any questions that any of you may have.

At this time, I would like to remind everyone if you would like to ask a question, press star then the number 1 on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Your first question from V. J. Jantz (ph) with Lehman Brothers.

Good morning. Kevin, you're looking good on TV this morning

Thank you.

Now that we're coming to the end of the year and most folks are starting to look into '04, given the fact that 23% of revenues in any period comes from prior products launched in the prior 12 months, can you give us any sense of an outlook into '04, because I think that's where we are all basing our evaluations on?

We really aren't prepared to talk about anything specific in '04. I think you would expect to continue to see new product introductions, much like you would have seen in the past, roughly 20 or 25 products per year. And so we don't necessarily see any trends that would change '04 over the past; however, we're not planning on giving any specific guidance on '04.

And on the UPS AT acquisition, in the fourth quarter you don't expect any earnings impact from that? I want to confirm that.

That's correct.

But -- okay.

And going through '04 we would expect the same type of results, possibly some positive accretion on EPS.

Right. Thanks very much. Great quarter, guys.

Thank you.

Your next question comes from John Bucher with Harris Nesbitt.

I'm going to ask the same question I did last quarter. Is portable automotive still the third largest consumer segment in terms of revenue contribution? And what relative ranking do you think that portable automotive could have one year from now?

I can answer the first part of that in that, definitely, it is is still the third largest ranking, yes. As far as in the future, I'm may defer to Min or Cliff on that one.

Well, I feel that the trend will probably be the same for next year.

Okay. And next question is regarding some of the wireless communications products that you have. It seems like you're somewhat de-emphasizing the NavTalk GSM product compared to your PDA product. I'm wondering, should we expect, in 2004, PDA-like products that have embedded wireless communications capabilities, or are you likely to rely on more accessory PC card modems for such wide area wireless capability?

John, I think we're evaluating both and, certainly, there's some ubiquitous technologies available for PDAs now that are very attractive for our kind products, so we're evaluating those.

Okay. So you have, if it's possible, you're still deciding whether to embed cellular capability in some of the products?

We're looking at cellular as well as other wireless technologies, but we really don't have specifics regarding a product configuration at this time.

Okay. And I'll yield the floor after just a couple of housekeeping things. What was the depreciation for the quarter? And could you just confirm, was there any restructuring that had to be taken at all in conjunction with the acquisition of AT?

Nothing -- no restructuring that would have had any impact to the income statement, no. And the depreciation question is $5.3 million for the quarter.

Thank you very much. Great quarter.

Thanks.

Your next question comes from Mike Rappaport with Rice Volcker.

Good morning, and thanks for another solid result. Couple of questions. One, is the product still --

I'm sorry. Could you repeat the question, Mike? It was a little hard to hear that.

Do you still expect the [inaudible] product to be out [inaudible] this quarter?

We expect it to be out near the end of the year.

Near the end of the year, okay. And do you, or are you planning to, engage in any [inaudible] activities --

No.

-- to offset [inaudible] foreign currency exposure?

No. I think, as we have stated in the past, if you look at -- you haven't seen the cash flow but when we file the 10-Q you'll notice that virtually none of that $9 million foreign currency loss really was a cash impact. It was virtually zero on cash. And so our strategy has been to not head that. We obviously know there's going to be fluctuation, both pluses and minuses on gains and losses, but we don't have any plan to hedge at this time. Okay, great. Thanks again. Thanks.

Your next question comes from Mark Roberts with Wachovia Capital Markets.

Thank you. Just to follow up a little bit on John's question earlier. Can you give us any kind of rough percentages, Kevin, on just the broad categories of products, for example, recreational, auto, and others in terms of the mix of units that we saw in the quarter?

Unfortunately, not. This question gets asked nearly every quarter and we generally just guide it as a fact that our recreational products are the Number 1, in in marine Number 2, and auto Number 3, but we're really not able to give any specific numbers for competitive purposes.

Okay. And, second question, in the quarter did you see in any of your categories, either marine, recreation or auto, did you see any new, significant competitors entering the markets where you compete with the new product offerings?

We're seeing some new competitors come in in that area, Mark. Navman has entered during the past year, as you know. And, also, Magellan has also announced a product which is supposed to be available later this year.

Now the Magellan product, are you saying that is going to be different than the recreational products they have been offering?

That's our understanding, yes.

Okay. And is that [inaudible] their product intended for the mobile market?

Yes.

Okay. That's all I had. Thank you.

Thanks.

Your next question comes from John Braatz with Kansas City Capital.

Good morning, guys.

Good morning.

With regards to the G1000, I think there's probably additional OEM business awaiting you, but my question is, at this stage of the game, would any additional business, any additional OEM business from the G1000 would that be a potentially 2004 revenue item or are are we a little bit beyond that in terms of any contribution next year?

Yeah. I think we're still looking at other OEM manufacturers in that segment, and I believe we still have an opportunity to certify new aircraft that would generate 2004 sales; however, I wouldn't expect it to be in the first half of the year. It would probably, primarily be backend loaded.

Okay. That's fine. And also, in terms of new products you mentioned 20 to 25 annually. Where do we stand at this time for fiscal 2003 in terms of new products, and what might we see in terms of new products in the fourth quarter, in terms of the amount?

We're currently at about 15 to 16 new products as of right now, John. And we would expect to see another 5 to 10 in the fourth quarter. Some of those may slip into the early part of 2004 just depending on our market timing on those.

Thank you, Cliff.

Your next question comes from Mark Naby with Merrill Lynch.

Hey, it's Mark Naby from Merrill Lynch. Just a couple of questions. One, I'm sorry, I don't know if you said -- you say 2004, how many new product lines do you anticipate to add? I heard -- I don't think you answered that correct.

2004, again, we'd give similar guidance as we've done in the past in the range of 20 to 25 new products per year.

And are those products going to be based more on the recreational side, the consumer side or aviation?

It will be a mix of all of those.

Okay. The other thing I noticed, which was interesting, is that I saw a significant pickup between the second quarter of North America sales, representing a 27% year-over-year versus the -- that's the third quarter, excuse me, up 27% versus the second quarter up 14%. Kevin, was there anything there that -- the new devices? Was it a surge? Again, in your existing base, maybe you could just give a little more color on that.

Yeah. I think the primary answer there is just the iQue. I mean, that came out in the middle of the quarter. We also had 2610 and 2650 contribution that was probably more heavily weighted to the U.S. as opposed to Europe, and that kind of skewed the numbers as opposed to what you've seen in the past.

Okay. And, then, just the last quick question relates to on a going-forward basis, I'm trying to figure out the marketplace for auto. I mean, we're seeing a lot of noise being made, ads, for example. Min, maybe you can respond to this. The Wall Street Journal, for example, Harmon International making up big spreads talking about what they can offer on the automotive side just as a suite of products. When you go in and talk to -- and this is in general on the OEM side -- are you saying you're trying to capture the low-end market, the higher-end market? I'm just trying to figure out how you're approaching this on a conversation basis.

We are [inaudible] with OEM of the multi-OEM [inaudible] comparable mid- to low-range product.

So you're going after the low-end side, which has yet to be tapped, for example?

Yeah. I think the price and the value has been [inaudible] in business.

Thanks. I have one last thing, Kevin. Can you also just say what the Capex is for the full year, again, for '03?

$33 million expected for the full year.

$33 for the full year?

Yeah.

Great. Okay. Thanks.

Thanks.

Your next question comes from Peter Friedland with W.R. Hambrecht.

This is, actually, Michaela Crouch (ph) for Peter. I was wondering if you could discuss any plans for new product launches in the consumer market within the next quarter or so on completely new platforms, sort of along the lines of the Forerunner product?

Yeah. At this time, Michaela, we really don't have any specifics that we can share on some of the new platforms. I would add, thought, that we are extremely excited by the Forerunner. And in our market tests and in working with the runners and other exercise-related activities, people are extremely complementary of the product, so we're very excited about it.

Okay. Then would you mind discussing any kind of trends you're seeing in the marine market right now?

Well, I think the marine business, as were all of our product lines, the marine increased double digits in sales quarter over quarter; and so I think we're still seeing growth. And out of the new products that we anticipate next year and some of the new products we brought this year, some of those are marine products, which will drive increased sales. So I think other than that, we don't have any other new trends to offer.

Okay. Then last question for you, in the retail [inaudible] definitely in seeing some new market entrants recently do you know of any -- losing any shelf space to some of these new products? Have you heard of that at all?

Did you say losing shelf space?

Yes. Have you heard that occurring?

We're not aware of any [inaudible]. We actually loss shelf space. Most of retailers like to carry two brands, so this is probably what you're referring to. But we're not aware of any [inaudible] loss the shelf space.

Okay, great. Thank you very much.

Your next question comes from Rich Balara (ph) with Natim Company (ph).

Thank you. Last quarter you guys gave an estimated [inaudible] the second half [inaudible], I'm just wondering if you could comment where you are with respect to that number and still the active number and how [inaudible] --

Well, I wouldn't expect to buy it towards the fourth quarter. I think we're right on track with our earlier numbers were communicated. So we've seen initial sell-through -- sell the end of the channel and sell-through and no changes at this point on what we would expect for the full year.

Great. And just wondering, it sounds like it's gotten, as you said, very good initial reviews. The one thing that people have maybe complained about was battery life. Any plans for a version of this which has extended battery life relative to the [inaudible] model?

Rich, we're continually working on product improvement, so we're evaluating that, as well as other features and enhancements to the PDA line. Great. Just one final [inaudible] ASP did trend down a bit sequentially. Not sure if there's anything there. Is there anything you could talk about as to why it may have trended down a bit, Kevin? Well, we tend to focus away from ASP and we have for many quarters. In this case we were end-of-lifing. We're not end of life but at least changing the pricing on our existing StreetPilot product and rolling out a new product, 2610, so that had some impact. But other than that, it was just product mix, primarily.

[inaudible] the volume increased by 37% (ph), and the bulk of the increase came from the low-end products.

Right. One final question. I think earlier in the year you talked about '04 aviation growth. And I'm not sure how specific you were, but I think you talked about [inaudible] expectations of 5% to 10% (ph) [inaudible]. I think that extended into [inaudible]. Would you still consider that the active number or [inaudible] change a bit with --

We feel that we the introduction of the G1000 integrated cockpit will be [inaudible] to achieve that in outgrowth.

Okay. Great. Thank you.

Thank you.

Again, at this time if you would like to ask a question, please press star 1 on your telephone keypad. You have a follow-up question from John Braatz with Kansas City Capital.

Two questions, Kevin. How much of the inventory increase was a result of UPS?

The inventory was -- just a second. There's some in the neighborhood of $6 to $7 million, yeah.

Okay. All right. And then secondly, I think it was your current at -- other current assets were up, like $20 million. Anything funky there?

Well, that was primarily the intangibles and goodwill that we put on the balance sheet related to the acquisition.

Okay. Thank you.

Okay. Thank you.

Thank you.

At this time, sir, there are no further questions.

Thank you very much for participating. Look forward to speaking with you next.

Thank you for participating in today's Garmin Ltd. international third quarter earnings conference call. You may now disconnect.