台灣國際航電 (GRMN) 2005 Q4 法說會逐字稿

Good morning.

I will be your conference operator today.

At this time, I would like to welcome everyone to the Garmin Limited fiscal year 2005 earnings conference call. [OPERATOR INSTRUCTIONS] Thank you, Miss Schwerdt, you may begin your conference.

Good morning.

We would like to welcome you to Garmin Limited's 2005 fourth quarter earnings call.

Please note that 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/stock.

Additionally, this call is being broadcast live on the Internet, and a replay of the webcast will be available until March 24th, 2006.

A telephone recording will be available for 24 hours after this call, and a transcript of the call will be available on the web site within 48 hours at www.garmin.com/stock under the events calendar tab.

This earnings call includes projections and other forward-looking statements regarding Garmin Limited and its business.

Any statements regarding our future financial position, revenues, earnings, market shares, product introductions, future demand for our product, 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 on concerning these risk factors is contained in our form 10-K for the fiscal year ended December 25, 2004 filed with the Securities and Exchange Commission.

Attending on behalf of Garmin Limited this morning are Dr. Min Kao, Chairman and CEO, Kevin Rauckman, Chief Financial Officer, Cliff Pemble, Vice President of Engineering, , and Andrew Etkind, General Counsel.

The presenters for this morning's call are Doctor Min Kao, Cliff Pemble and Kevin Rauckman.

At this time, I would like to turn the call over to Dr. kao.

Good morning.

From the press release issued this morning, you can see that we just finished another record year.

We recorded our 15th consecutive year of business growth.

Total revenue for the year increased 35% to just over 1 billion.

EPS went up 51% or 32% excluding the effects of foreign currency. [Indiscernible] new products in 2005.

The response to our Portable Navigation devices was especially strong, resulting in a triple-digit increase in the sales of our automotive product line.

Over 3 million government products were shipped in 2005.

Raising our total to 14 million units shipped to date, a significant benchmark of the strengths of the government brand.

Our worldwide employees increased to over 3,000.

R&D account for nearly a quarter of our total employees.

And we continue to expand our patent portfolio with 257 issued and 171 pending obligations.

In an article published in the December 26th issue of Business Week, the quality of Garmin's patent portfolio was given a very high ranking.

Simple formation of the Company, our strategy has been to grow our business through continuous product innovation and expansion of our target markets.

We feel that we have achieved that goal by delivering consistent growth every year.

Just some highlights of our 2005 achievements.

In the Aviation market, in addition to the seven new airframes that were certified with G1000 cockpits.

We won several additional programs.

Most significantly the ember rail, light jet and the leer light jet.

And we completed our first flight control certification, which is a very significant accomplishment making Garmin the only general aviation provider that many offer all aviation cockpit technologies in a single highly integrated system.

We deliver our 60,000 GNS 430, 530 at very significant [Indiscernible] in aviation industry.

For Marine, we experience strong success with our Chartplotters.

We [Indiscernible] of the entire U.S.

In the Auto market, we retain our leadership position in the handheld market and continue the success of our [Indiscernible] wearable product category.

In the Automotive market, we introduced StreetPilot, [Indiscernible] with innovative features.

All have been well received.

And we won numerous programs in various markets.

As we look forward, we anticipate another year of excitement and success.

As we recorded in our earnings release, beginning in 2006, we will provide results for four business segments.

Internally, we are also organized in our teams to align with these four markets with the goal to maximize growth opportunities of each market reserve.

We will continue to invest heavily in R&D to take advantage of the opportunities in both existing and new markets.

We expect to introduce over 50 new products in 2006, many of which were introduced at a consumer show in Las Vegas with very positive response.

We expect to introduce additional new products in March.

We have just purchased our second Taiwan facility in order to meet the anticipated increase in demand.

The additional facility also allows us to expand our R&D capacity in Taiwan.

The demand for portable navigation devices continues to show a significant expansion.

In order to capitalize on this opportunity, we are expanding our marketing and sales infrastructure, including a position of a new facility in the UK.

We'll continue to promote the Garmin brand through expanded modern media marketing and advertising campaign.

So in summary, we are pleased with our 2005 results.

For 2006, our total revenue is expected to be at least 1.3 billion with double-digit growth for every business segment.

With that, I would like to turn the call over to Cliff Pemble, who will present our product and product strategy.

Kevin Rauckman will discuss our financial results and fiscal year 2006 status.

Thank you.

I'm really excited to talk about our product highlights for the fourth quarter, as well as, some recent product introductions that have occurred since the beginning of the year.

During the fourth quarter, we introduced the nuvi, which is one of the most exciting automotive products on the market today.

The nuvi offers features not previously available to customers such as travel guides with reviews of restaurants and hotel destinations, as well as, a language dictionary and translation tools.

The nuvi recently won an Editor's Choice Award from PC Magazine for its innovation, and Garmin's promotion of the nuvi at the 2006 GPS show helped us earn recognition as one of the top 33 booths of the entire show.

During fourth quarter, we also introduced a new edition to I-Series line the III Pilot iQue.

This product includes all of the features of the I-Series but is packaged with a monochrome display making it an ideal offering as a promotional product or as a solid portable navigator for value-oriented customers.

Finally, we introduced the latest in our windows mobile product line-up, the iQue M4.

This product features a preloaded map and a high sensitivity SiRFstarIII 3 GPS receiver.

In addition, we have updated our Que application suite to provide finger touch full operation much like the C-Series and nuvi.

During fourth quarter, we announced some exciting new promotional opportunities with major automotive OEMs and rental car companies.

In the UK, Garmin was named the exclusive provider of portable navigation devices for all BMW and MINI dealerships.

As part of this promotion, BMW will be offering all our both our StreetPilot C-series, as well as, the nuvi for BMW and MINI vehicles.

In Germany, Garmin landed wins with both Ford and Mercedes Benz.

Ford is offering our I-series and C-series products while Mercedes is offering our C-series product.

In Taiwan, Garmin won a deal with Ford in which a StreetPilot C-series is given away with new vehicles sold before Chinese New Year.

This program has been very popular with buyers and was promoted heavily by Ford.

On the rental car front, we secured relationships with Dollar Thrifty, and Enterprise in which a version of our StreetPilot C-series is offered to customers for a daily rental fee.

The rental business is an exciting opportunity to expose new customers to our easy-to- use products and to the Garmin brand.

These new partners join an extensive list of opportunities we are serving in the automotive market and speak highly of the capability of our products and the strength of our brand.

We are proud to be affiliated with partners like BMW, Chrysler, Mopar, Dollar Thrifty, Enterprise, Ford, Harley-Davidson, Honda, Kenwood and all of the others represented on this slide.

Going forward, the automotive market continues to offer significant opportunities for growth in our business.

During 2006, we expect the T&D market to approximately double in size.

To address this opportunity, we will continue in our strategy of offering products with a broad range of price points, appealing form factors, and innovative features to suit the needs of every buyer.

Our goal is to retain market leadership in North America while increasing our market shares in Europe.

During fourth quarter, we introduced exciting new additions to our FRS product line, the Rino 520 and 530.

These products offer all of the great features of our existing Rino product line and add a 2.2-inch color TFC display, additional memory for uploading map information, turn-by-turn routing capability, and higher transmitter power which allows communications at distances up to 14 miles.

At this year's CES show, we announced an updated hand-held product line called our X-series.

This new product line features a removable memory card which enables the user to expand the memory available for mapping.

To compliment this product line, we've created a comprehensive set of preprogrammed maps for our customers, which allow them to easily add mapping content to the product without complication of using a computer.

We offer preprogrammed cards with Topo information, detailed inland lake data and also our BlueChart marine data.

The GPSMAP 60Cx line and the GPSMAP 76Cx line also feature a high sensitivity SiRFstarIII receiver, which will expand the utility of these products for our customers.

We have also introduced a completely updated line of fitness products.

Forerunner 205 and 305 offer an improved watch-like appearance and feature the SiRFstarIII high sensitivity GPS receiver.

The 205 offers basic speed and distance capabilities while the 305 adds a heart rate sensor.

The Edge 205 and 305 are totally new GPS solutions for cyclists.

This product is the first of its kind to combine GPS with bike specific features. 205 offers basic GPS feeds and distance capabilities along with innovative features, such as the Virtual Partner will helps users stay on a desired pace.

The 305 has wireless heart rate and [Indiscernible] sensors.

Customers can expand the utility of the Forerunner and Edge through our MotionBased web portal which allows users to share workout information with others around the world.

In the Marine market, we have been working on a new family of products that will hit the store shelves in March.

This family of products includes new Fishfinders that can depict underwater objects in vivid detail and refresh that information at high speeds.

In addition, we've expanded the number of marine products, preloaded map information for both offshore and inland boaters.

Our new G2 offshore marine cartography provides faster redraws, perspective view, and improved cartographic presentation.

We now offer a comprehensive set of photographs depicting harbors, marinas, approaches significant aids to navigation around the world.

This new data allows Garmin customers to visualize and anticipate potential hazards long before they're actually encountered.

For the U.S. market, we have created an all new inland lakes map which includes detailed shoreline and depth contour information for over 3000 lakes across the country.

This this will be preloaded into our new GPSMAP 392 and 398 product line.

Our new Fishfinder technology includes digital signal processing which provides highly detailed view of objects beneath the boat .This product can be interfaced with our GPSMAP 3000 series of network Chartplotters.

In addition, we've updated the entire Fishfinder product line to include past growing of information and improved performance of shallow water.

Moving to the Aviation segment, we continue to see strength in our G1000 Integrated Cockpit System.

We are honored to have been selected as the integrated cockpit provider for [Embre Air] on their [Indiscernible] the jets, which were announced at the recent NBAA Trade Show.

In the piston market, Columbia Aircraft announced a selection of the G1000 Integrated Cockpit System for their 350 and 400 model aircraft, which was recently given an Editor's Choice Award by Flying Magazine.

This is a beautiful aircraft and is now complimented by an automotive style instrumental panel designed by Garmin.

We introduced the GMA 347 audio panel which includes some of the great features found in our G1000 system such as clearance recording, digital squelch control, and ability to accommodate additional audio input.

Garmin continues to build strength in the OEM market with a host of world class aircraft manufacturing partners.

During the fourth quarter, we delivered 333 G1000 systems to our partners.

Also during the fourth quarter, [Indiscernible] began delivery of the G36 and G58 aircraft, which include the G1000 with our new digital autopilot system.

In addition, the G58 aircraft offers our terrain warning systems, as well as, our new weather radar system.

At Cessna, we are making great progress in the development and certification of the Mustang Integrated Cockpit System.

In the single-engine area, Cessna really announced that the G1000 is now the standard avionic offering for the Skyling 182 and stationary 206 aircrafts.

In summary, I feel like we had a fantastic year for our products introductions and in forming new relationships with partners.

During 2006, we expect to introduce between 50 and 60 new products that will continue to provide innovation and value to the market.

At this time, I'd like to turn the presentation over to Kevin who will be providing our financial update.

Thank you and good to talk to you everyone this morning.

As you can see from the fourth-quarter financial summary, fourth quarter we posted solid financial results, both at the top line where we experienced a revenue of just over 319 million, a 45% top line growth, and also, a strong bottom line growth of 38% earnings per share, after the affect of foreign currency.

There were a couple of unique items that did flow through our financial results, the one I just mentioned being the $8.5 million foreign currency loss, which affected our earnings per share by $0.07.

Though $0.87 per share after that foreign currency tax.

That does also include the other impact of favorable tax rate during the quarter.

We experienced 8.9% effective tax rate during the fourth quarter, about $0.09 EPS impact due to that favorable rate.

You can see from the slides that our gross margins were better than expected due to both stable pricing during the period and also favorable product mix within our entire business.

Operating margins came in at about 31%, which was down from last year but better than expected.

We also saw SG&A get about $44 million, which was due to higher than planned amortizing within our European business.

On the bottom of the slide, you can see that our units shipped just over 1 million during the period.

Incidentally, our average selling price during Q4 was about $310 per unit, which was flat with the fourth quarter of '04.

Looking next at our segments during the quarter, our fourth quarter segment of revenue, you can see we had strong revenue across both segments with both Consumer and Aviation.

Our Consumer growth actually doubled our Aviation segment growth on the strength of our Automotive products.

Automotive revenue overall grew well over 100% during the fourth quarter of 2005.

When we look at the sales of our products that have been introduced within the last 12 months, we often use that as a metric to determine how well the new products have sold.

In Q4, the sales of these new products actually came at 60% of our total fourth quarter revenue.

That compares very favorable with our historical rates.

In fact, you may be reminded during Q3 that number was 44%.

Fourth quarter sales over 60% of that just due to new products.

Because of the stronger consumer growth during the period, our Consumer segment now represents 81% of our total business.

Looking at the revenue by geography, Garmin Europe actually outpaced our North American market growth and therefore, represented 29% of our total business up from 22% in the prior year.

North American revenue was up 29 while our European business actually increased nearly 100% during the fourth quarter.

Overall, as I stated, we experienced a 45% top line growth during fourth quarter.

For the year, we exceeded 1 billion in revenue above our expectation due to the sizeable expansion in all geographies.

Europe for the full year was up 61% over 2004.

Looking next at our margins by segment, you can see that our fourth quarter consumer margins exceeded our expectations coming in at 47.7%m which was 100 basis points above Q3 of '05.

As I stated earlier, both pricing and product mix were the main reasons that our fourth quarter gross margins within the segment were stronger than expected.

Fourth quarter consumer operating margins were down 230 basis points due to the increased advertising during the periods.

Garmin invested $7 million in advertising during the period, about $5 million higher than expected.

Looking next at our Aviation segment.

Our Aviation gross margin came in at expectation near the 65% level.

Very similar to the 64.7% during the quarter.

This results were 180 basis points down from the third quarter of 66.5.

Our Aviation operating margin was down 300 basis points due to the reduction in gross margin and an increase in SG&A costs during the quarter.

Looking next at our operating expenses, you can see that R&D was flat in dollar terms but as a percentage of sales actually it was 6.3%.

We did add 142 engineers to our team during the year, including 47 engineering associates during the fourth quarter.

We nearly doubled our advertising spending as a percentage of sales compared to Q3 and up to 8.5 % of sales.

Garmin ads were seen and heard through print, radio, proper advertising and TV campaigns around the world.

Our other SG&A stayed flat as a percentage of sales at 5.4%.

Overall, our total operating expenses just about 20%.

Moving next to our 2005 financial summary, you see again our top line strong growth at 35%, just over $1 billion.

Bottom line, 32% growth excluding foreign currency.

We also, when you go into the full year, experienced $0.11 EPS impact due to the foreign currency gain of $15.3 million during 2005.

As I mentioned, we did have a favorable impact to the tax rate of about $0.09 per share on a full year basis also, even without that, our earnings per share grew at 28%.

Gross margins came in as expected at 52.1%, which is down 180 basis points from 2004.

We achieved 32.9% operating margin driven by the reduction in gross margin on the full year basis and an increase in SG&A.

Again, primarily due to the advertising spend during the fall year.

We invested over $59 million of advertising during 2005.

On a full year basis, we exceeded 3 million units shipped during the year.

Our average selling price during the full year was $339 per unit, which compares to 331 during the full year of 2004.

Looking next at our 2005 segment revenue, we experienced consistent growth across all segments as we exceeded 1 billion in sales.

We grew the entire business right around that 35% consistently during the entire year of 2005.

Again, as I mentioned, consistent revenue growth for each segment due to the 61% top line growth in Europe.

Europe became nearly 1/3 of our business at 31% of our total revenue during the year.

We do expect to increase our market shares in Europe, as Cliff mentioned during 2006.

Looking next at our balance sheet, cash balances remained above 700 million even after a $54 million dividend payment in December.

You can see from this slide our accounts receivable increased due to increased revenue and accounted for approximately 60 days sales.

As we continue increases our business within our consumer and becomes more of a mass market, you're likely to see AR days around the 60-day level.

We did look at dollars collected in 2006 on our AR balances at the end of the year, and we've now collected 96% of that $171 million AR balance through today.

So AR is in line with expectations.

Our inventory dollars did increase an absolute dollar basis but came down on a day's metric that we've given through the last several quarters.

At the end 2005, we now hold 114 days of inventory, which was down from 121 at the end of the third quarter.

Product availability continues to be a key strategy as we manage our inventory and our supply chain, looking at specific inventory balances by the type of inventory, we ended the year at $65 million in raw materials or 34 days of inventory. $28 million in width and assemblies, 16 days of inventory and $121 million in finished goods, approximately 64 days of inventory.

We did end the year with $15 million in inventory reserves.

Overall, our retail channel inventory appears to be clean and sell through as most of our products was strong during the fourth quarter before the holiday season.

Looking next to cash flow, cash flow from operations during the fourth quarter was 71.7 million.

Free cash flow during Q4 was 65 million on a full year basis, 219.9 million.

We invested 6.6 million of capital expenditures during the fourth quarter and 27 million of CapEx during this whole year of 2005.

Cash flow from investing was $20 million in cash during Q4 made up of CapEx, I just mentioned, purchase of marketable securities, purchase of intangibles and also the acquisition of MotionBased technology.

MotionBased technology during the period.

Cash flow from financing was a $48.5 million use of cash during the fourth quarter, primarily driven by the dividend payment that I mentioned earlier.

We did post an effective tax rate of 8.9% during the fourth quarter.

Our decision to repatriate subsidiary cash balances beginning in the 2006 created significant tax credits during the period.

Our overall effective tax rate for the year 16.5% compared fairly to our 2004 rate of 19.4%.

Going forward, we expect our 2006 tax rate to be approximately 16% as we expect to repatriate nearly $200 million of cash to our parent company during 2006.

Garmin's Limited did pay a $0.50 per share dividend on December 15th, which was a $54 million use of cash.

We had no share repurchases during the fourth quarter of 2005.

Although, we do have approximately 2.3 million shares remaining available to purchase on our existing outstanding share repurchase plan.

For the full year, Garmin did grant 831,000 stock appreciation rights during 2005.

We also recognized approximately $900,000 of expense related to those during 2005.

In conclusion, our full year of guidance, we have expectation of approximately $1.3 billion in revenue, double-digit growth across all four of our newly defined business segments.

We expect 19% earnings per share growth up to $3.26, excluding the $0.07 per share of expensing of stock options under FAS-123R.

We expect to spend approximately $50 million of CapEx, including 10 million for our new Taiwan facility that Min mentioned, 10 million of additional production equipment during the year, leaving approximately $30 million of maintenance CapEx across our business.

We are continuing to look at expansion of our European facility, but it will likely be a lease, not a buy.

We're still in negotiations on that deal, so we've excluded that from any kind of capital expenditure forecast for 2005.

We've assumed stable outstanding share count of approximately or 9 million shares.

Excuse me.

Due to the alignment of our international recording structure, we will begin providing results within these four business segments with our first quarter '06, 10-Q filing.

The ends our formal presentation.

We'd like to open it up now for questions as is customary.

Please bring your question to the front.

Thank you.

[OPERATOR INSTRUCTIONS]

Your first question is from the line of John Bucher.

First an administrative one.

When you file your K, are you going to show the segment reporting in the new format?

As I mentioned, the K will be based on the existing Consumer and Aviation segments.

We will not post any four segment results until the first quarter of '06.

Okay.

Very good.

And then understand that the favorable tax treatment is due to the repatriation of dollars I guess.

As it flows through that new Dutch facility that you've put in place.

That's effectively lowering the tax rate.

What do you view as the pro forma going forward tax rate?

Again, we expect 2006 to be around 16% effective tax rate.

So pretty consistent with what we had at the end of the year 2005.

But that's because you're repatriating $200 million.

I'm just wondering -- do you expect that repatriation to be an ongoing thing and that we should be using this on a going forward basis or once you've done repatriating -- ?

Again, this is going to be a consistent theme as we take our subsidiary cash and continue to repatriate every year.

That's not the entire answer for why the rate is what it is.

Long-term, we would expect our effective tax rate and long-term being not 2006 but beyond, we had expect our effective tax rate to be closer to 20% as it kind of ramps up time.

Okay.

That's helpful.

So for a pro forma tax rate longer return, 20% is probably what people should use?

I would lean that way, yes.

Then on the Aviation side, in terms of the turbine G1000 unit shipments, can you give an idea just how many you're expecting in 2006?

I am guessing there is some that are going to start in the fourth quarter associated with the Mustang.

Can you give me any idea as to the volume level on those?

John, I think the plan to deliver some number of Mustangs in the fourth quarter, but I think they'll be ramping up production, so I wouldn't anticipate it to be very high.

I don't have a specific number off the top of my head, but I believe it's a very low number.

Thank you.

I'll yield the floor and get back in the queue.

Your next question is from the line of Noelle Swatland.

Hi, guys.

Kevin, I was wondering if you could just talk a little bit more around the guidance you gave for the auto navigation division, particularly the 60%.

Can you talk a little about what that assumes for units and ASPs?

And also can you talk about some of the seasonality we should expect in the first quarter?

Well, I think we're not going to give specific guidance on units, but we would expect units growth, as Cliff mentioned, the overall P&D market is nearly doubled through the period.

There's a lot of variables in that assumption.

In general, units slightly higher than overall revenue growth, just what we would expect in that number.

The second question was -- remind me again.

Can you just talk about what kind of seasonality we should expect for the first quarter and also for Aviation, I guess?

We're not in the practice of giving quarterly guidance anymore, but just expect the overall market to continue to grow question essentially our business is going to be down from Q4 to Q1, because our strongest season is clearly the holiday season with the second largest quarter, being the second quarter, tied in with Consumer and Marine selling season.

Can you just remind us what it has been historically?

The seasonal decline.

Well, I don't think you can look at past history to predict the future, but anywhere from last year I believe we were around 13% down, but again,I don't like to lean towards using that was a guide post for the future.

And then just one last question.

You talked a lot about an increased focus on Europe and expanding your marketing initiative to expand share.

Can you outline some broad parameters around where you think SG&A as a percentage of Consumer could go in '06?

Well, a lot depends on how fast the market grows.

But at the roughly 30% level at 1.3 billion, we would expect that SG&A would be fairly consistent, fairly flat year-over-year.

As a percentage of sales?

Percentage of sales, yes.

Dollars obviously we're going to expand advertising and other investment there.

And do you have any comments on gross margins in consumer this year?

In 2005?

In '06.

We don't want to comment on just gross margin other than we have given a kind of broad operating margin at least 30% next year given our top line growth rate.

Should we continue to assume around 2 to 300 basis points for the overall Company decline year-over-year?

I think a lot depends on how fast the market grows, but I think that's probably not an unreasonable assumption.

There's again a lot of variability between the four different business segments that we're going to be announcing results on, but clearly Automotive is driving a big part of that, yes.

Thanks.

Thank you.

Your next question is from the line of Jeff Evanson.

Good morning, everybody.

Congratulations on the quarter.

Thank you, Jeff.

Cliff, I thought I heard you say that you thought P&Ds could double in '06.

I don't know if you were talking units or revenues.

How does that compare with your revenue guidance of up 60% by year-over-year.

I believe the market projects the unit volumes would double in 2006 and our revenue growth production assumes that the price continues to come down as the market expands.

Should one assume that you expect to lose market share in 2006 in P&Ds?

No.

That's good.

Specifically on Europe with respect to P&Ds, you said you spend a lot of advertising dollars in Europe in Q4.

There's some data out there that suggests you you really didn't take market share in Q4.

I'm wondering what your thoughts are about your market share in Europe in Q4, and if you think you're getting good yield on your advertising dollars at this point?

It's our view that we did not lose share in the fourth quarter and specifically in Europe is what you're talking about.

Yes.

As far as the investment in advertising, we spent considerable dollars both in the North American market and in Europe, and I think you can clearly see from the results today that we feel like that was beneficial, and we did get a new return on that investment.

One last question.

On the marine products, when do you expect the G2 Cartography Software to be available, and did marine grow in this quarter year-over-year?

I'll start with the Marine business.

No.

Marine was down in the fourth quarter, but I'll let Cliff talk about the G2 question.

The G2 charts are going to be available very soon in the March timeframe.

The products are already in production, and we're filling the channel now.

Thank you very much.

Your next question is from the line of J.B. Groh.

A question on your expansion, the facility that you purchased.

What sort of additional square footage does that give you?

Can you give us a little bit of clarity on how much more capacity that gives you relative to Q4 where it looks like you're pretty much running it full bore?

Yes.

I think overall the square footage is a little over 220,000 square feet, which is nearly double.

We had about 250,000 or have 250 in our existing facility.

As far as capacity, I think you pointed out, it was 1 million units in Q4.

We're running -- it would be an annual run rate of 4 million on an annual basis.

And the capacity if you look at square footage up here, it would be close to double.

We're going to not some use that for manufacturing but also R&D capacity.

So I think you could fairly say we're at least double the unit capacity by having that additional facility there.

So on an annualized rate, you're now doing 4 million.

You think with the additional you could do as high as 8 million?

I think that's a reasonable number, but I don't want to be held down to --

I won't hold you down.

I promise.

And I'm guessing you paid cash for this?

Yes.

And then as sort of a housekeeping number, would you run through those margins again on Aviation and Consumer?

I'm not on the webcast, and the slide flipped before I could get to it.

The Aviation gross margin for the quarter was 54.7.

And the operating margin for the quarter was 40.2.

Okay.

And then you want the Consumer piece?

Please, yes.

47.7 and then 28.6 operating margin.

Okay.

And then one last thing.

Obviously big bump in SG&A.

Is that a fourth quarter thing or is that -- are we to expect kind of a similar run rate?

I know you don't want to give too detailed a guidance, but just in terms of modeling.

As I mentioned seasonality earlier with the earlier question, definitely we're going to continue to spend significant dollars in advertising in SG&A, but you shouldn't expect on an absolute level that that amount of 44 million in Q1 or because of the seasonality of our business.

So that will follow typical seasonal sales patterns?

Right.

Thank you very much.

Your next question is from the line of Jim Duffy.

Thanks.

Hello, everyone.

Nice finish to the year.

Thank you.

A few questions for you.

You were running at full capacity it seems in Q4.

Was there some unmet demand?

And, if so, could you quantify that possibly?

I think in general, we talked about product availability, and with as many products as we have, we're also going to have some unmet demand, but in general, we felt like we were able to meet most of the customer demand during the period.

And you mentioned new products for 2006 kind of a consistent, I guess a slight uptick in the number of new products expected to be launched.

From an overall skew count, in 2006, will there be a consistent number with what we saw in 2005?

As typical, we will introduce new skews and we will retire old ones.

I'd say in general, what you saw last year is a little bit of an increase in the number of skews.

I'd say with 50 to 60 new products this year, we'll see a likely increase as well but there will be a retirement or end of life to a lot of existing skews, too.

Kevin, you spoke to the gross margins.

You saw some benefits from more favorable pricing and mix.

Can you elaborate on that a little bit more?

I think just going into the quarter, you could speculate given competition that there could have been more pricing pressure, but when we experienced the fairly stable pricing through the fourth quarter of the holiday season and a lot of the aggressive pricing or the more aggressive pricing really hasn't hit until we get into the 2006 timeframe.

Product mix, we saw some of our higher priced products continue to sell well even as we brought in the I-series and some of the value at lower priced spots.

The sweet spot in the P&D market still seems to be priced above where that I-series is?

Is that fair?

That's a fair statement, yes.

The European business was very strong.

Can you provide anymore detail on regions or areas of particular traction?

Within Europe?

Not at this time, no.

And then my final question, I have been making a number of assumptions regarding the segments that you're about to report.

Are you guys prepared to give any clarity on the size of those segments for 2005 for a comparison basis?

No.

Again, we're not prepared to talk about those until we get into the first quarter filing of '06.

We've stated in the past that Automobile is clearly Number 1.

You know what Aviation is because it's already a publicly stated segment.

Number 2 is our outdoor fitness in the Consumer segment and then Number 3 is the Marines in terms of size.

I'll let someone else ask a question.

Thank you.

Your next question is from the line of Ron Epstein.

Good morning, guys.

Hi, Ron.

Just a couple questions.

The I-series, how did it do?

Can you broadly speak with relative to the C-series and some of the other products, how did it do?

The C-series definitely has been the most popular product.

However, the I-series, we have some strong sales in southern channels, especially in some portions of Europe and also different channels in U.S.

Like Target, Amazon.com, and also Wal-Mart.

Another question for Cliff.

You guys are developing I guess the G1000 for both the [Phenom 100 and 300] for Ember Air.

You guys are on the Mustang.

Are there other jets?

I know you can't be specific, but are there other programs that are turbine powered that you could pitch the G1000 for that you're currently pitching it for?

Not disclosing what they are.

One program that has been disclosed is the V Jet program with Diamond Aircraft.

Okay.

There are any other bigger aircraft?

I mean the V jet's a single engine.

I guess what I'm trying at, are you guys thinking about or pitching for other business jets that might be bigger than what you're currently on?

I know you can't see manufacturers for anything like that.

Just kind of a sense of what's going on.

Right now our specialty for our equipment is really the R-23 Class 3, Class 4 type aircraft and with the Phenom we're bridging into some part 25.

I think that's kind of the range where we're targeting where there's really the most volume.

Then I guess just one last question.

With the expansion in the fabrication facilities, is it safe to think you guys won't be doing any -- significantly more outsourcing in terms of chip fabrication or anything else?

From a manufacturing level, we're committed to -- for now, we're committed to doing our own manufacturing from the chip side.

We've already announced high sensitivity GPS with surf, so we're going to continue to roll out new products with those features and functionality in them but no other business to report.

And then I guess one last question going back to Cliff -- back to my airplane question.

I like those questions.

There's aircraft like the CJ-1.

I believe that's part 23.

Right?

Yes.

And a it's bigger than a Mustang.

Is that the kind of thing that potentially we could see a G1000 on?

Well, again, Cessna is our partner and any announcements on any programs come from our partners first.

Certainly that class of aircraft is our target.

Thank you.

Your next question is from the line of William Benton.

Hi, guys.

This is Jonathan [Hofer] for Bill Benton.

In terms of your distribution, are you planning on pursuing more opportunities, say, in things like U.S. dealers similar to the channels that you've done in Europe.

I think, for us, we're going after as many opportunities as we can get in the P&D market, but if you look at where most of the growth has been, it still continues to be through the retail channels in the North American market.

There are certain promotional opportunities which Cliff highlighted with many partnerships that we have in Europe that we'll continue to go after, but I would say just in general, that's not where -- your question is not where we're going to see most of the growth in 2006.

In terms of the pricing environment and the competitive environment, how are you seeing things in terms of the increase in the number of players that are coming into the markets?

And how are you looking at the pricing for 2006 as a result of that?

I think in Europe, we've seen more aggressive pricing.

For one, the European channel, the European market has been -- is becoming more competitive there.

In the U.S. market, we will continue to evaluate what happens there, but generally we have a little bit higher pricing in the U.S. that we're able to secure.

But at this point, I don't have any further details that we can talk about.

Last question.

In terms of the seasonality, have you guys seen continued momentum from the strong fourth quarter into the first quarter?

Well, I talked about seasonality earlier.

Just in general, we wouldn't be laying out the growth numbers that we have today if we didn't see a large degree of growth in the P&D market, in general, and the overall business specifically.

Thank you.

Your next question is from the line of Rich Valera.

Thank you.

Good morning.

Hi, Rich.

In your prepared remarks, you mentioned that in the marine area you expected to have several new products hitting the shelves I think in March.

Do you expect them to have a meaningful impact in the March quarter in terms of a revenue standpoint or is that going to hit in the June quarter?

It is a major product rolloff for all of our mid-range and high end Chartplotters.

So we would expect that the initial channel fill is going to be significant to the marine market.

Great.

That's helpful.

And I know you don't want to give away any competitive info on future products, but is there anything you can say about the pipeline of P&D products in '06 with respect to maybe any kind of successor to the C-series or new variations of nuvi type products.

We continue to innovate and create new products.

We are working on new product introductions as we speak, and we should have more news for you that you'll be able to see here shortly.

And with respect to the cogs of the P&Ds, clearly you have to make some assumptions about prices coming down, but presumably there's also the ability to reduce your cogs.

Is there anything you can talk about with respect to any assumptions you've made about how the cost of materials and components and P&Ds will decline in '06 relative to '05

Well, from a component perspective, we've not seen a lot of movement.

Definitely flash and LCD in particular have declined in terms of raw material costs.

We expect consistent cost reductions, cost takeout within our own both Aviation and Consumer manufacturing processes that will help overall keep costs in line with the overall market, so that's kind of what our goal is in 2006.

And is there any way to quantify the impact of the numerous auto dealership agreements you've landed over in Europe and you've got the Taiwan deal, which I guess actually a question there, too.

Did the Taiwan Ford deal continue past the Chinese New Year or was that simply a one off?

They have extended the promotion, but we'll probably end this month.

And how about -- just in you can in any way sort of quantify or even qualitatively talk about the contribution you expect from those dealer relationships in Europe?

I don't think we want to break out anything specifically there in terms of how much that contributes, but I think in general the dealerships and the promotional activity that we see in Europe is a little bit larger in Europe, obviously, than it is in the United States.

I'm not going to give you an exact number.

Fair enough.

Thank you.

Your next question is from the line of Peter Friedland.

Within the auto business, can you give us some idea of mix between the products?Wether that's percentages or if you could just rank them in order of volume?

Well, I think other than what Min says is that the C-series continues to be the sweet spot and it is still leading the way in terms of volume.

The I-series did come in in the fourth quarter and sell well, particularly in Europe and in certain areas of North America.

The nuvi was primarily just a European product in the fourth quarter and is really kind of ramping up in 2006 now.

But that's kind of how I'd lay it out in terms of size.

So you can call those, as you said, one, two, and three in terms of unit volume?

Yes.

Great.

Thanks very much.

Your next question is from the line of Mike Rappaport.

Good morning and thanks for another great quarter.

Thanks, Mike.

Could you give us a split on the Aviation side between OEM and aftermarket?

I mean, normally what we've seen in the past there, I think clearly with the success of the G1000 the OEM contribution has continued to increase.

I think the number I would say is somewhere around 30% and growing.

30% OEM.

And everything else being aftermarket.

Okay.

Can you give us your approximate ASP on the G1000 as you're shipping it today?

I mean, I think we've stated that publicly in the past with many of the deals.

We don't want to make the specific deals known, but sitting around $40,000 per plane with the autopilot, obviously that increases.

Right.

That's roughly the number that we're experiencing right now.

And how much is that going to increase when you go to a turbine with presumably two sides and radar and all that in.

At least $100,000 per plane.

And could you discuss again what you see as your best use of cash going forward when you generate so much of it?

Well, I don't think the story has really changed there.

We continue to look for acquisition opportunities.

We are committed to dividend.

I mentioned the stock repurchase plan.

We're also committed to investing in our own business with facility expansions in Taiwan and also Europe and even in the U.S. if we need to in the future.

So those still continue to be the four major uses of cash.

So no changes there.

Not really.

You made a comment in your prepared remarks about the amount of AR during the a either that you'd already collected.

Could you give me that again in.

I said we -- you mean how much we actually collected in 2006?

Yeah.

To date.

96% of the AR we had at year end, we've already collected in 2006.

Great.

That's the end of my questions.

And thanks again for the great year.

Thank you.

Your next question is from the line of John Bucher.

On the portable automotive category, just trying to get a feel for what are the sensitivity factors on margin there?

I mean, you've got everything in that category from the $1500 Model 7200 that just became available down to the Sub $300 I-series.

I'm guessing it's not necessarily ASP.

Low ASP doesn't necessarily mean low margin.

Is it really volume that drives the ultimate margins here?

Since it looked like your pricing remained pretty stable throughout the holiday period.

If it's some other attribute, if you could just touch on what typically drives the margins for the wide diversity of products you've got in in that portable automotive category?

I think the key drivers are really the embodiment which includes the memory configuration, the display.

Those are some of the key component costs that we have in those product lines.

You can't elaborate any further?

Well, what specifically -- could you follow-up with your question?

Well, in general, should we assume that that lower ASP does necessarily mean lower margin or is that not the case since it does appear that the higher ASP products have more display and more storage?

On the low we were end, there's probably always more price pressure to satisfy the market, so I wouldn't assume that the lower end are necessarily same margin as the higher end.

I was just trying to get to the point -- you mentioned that you had favorable product mix and that accounted for the better than expected margins as well as stable pricing.

We saw the stable pricing.

From a favorable mix standpoint, did you not expect that the C-series was going to be such a significant percentage of the overall mix in this category?

Well, I think going into the quarter we knew we'd continue to sell the C, but we weren't sure about how strong the I was going to be.

The I-series has done well, but we're not talking about a lot of variability there.

The other thing is that the 2700 was another new product that I think probably did better than expected, and that's at the high end of the price curve.

Those are the two major factors laid out in the consumer margins.

Do you expect compared to the other reporting segments -- do you expect that you're going to see greatest variability of profit margins from quarter to quarter in this particular new segment?

Absolutely.

That'll make it challenging for us.

Thank you.

Your next question is from the line of Cory Johnson.

Hello.

Cory, your line is open.

Your next question is from the line of Nicholas [Vanstacel] Hello.

Nicholas, your line is open.

Your next question is from the line of Mark [Mckeckni].

Thank you.

I'm here, but my question has been asked and answered.

Congrats on a solid quarter.

Thanks, mark.

Thanks.

Your next question is from the line of Jeff Evanson.

I'm sorry.

I'm all set.

Thanks, Jeff.

Your next question is from the line of [Arris Karim].

Can you hear me?

Yes.

Go ahead.

I had a couple questions for you.

One was can you be a little bit more specific about what you expect in terms of consumer ASP declines in the P&D market for 2006?

Well, we won't give an exact number other than just to -- given the fact that the automotive and the mobile segment is definitely the highest and the faster growing, so we will just -- other than to say that our ASPs will likely continue to come down, but we're not prepared to quantify how much that is.

There's just too much variability in that market right now.

On your inventory days, I think it's around 115 days or so.

Right.

Is that about what your target is or is your target different than that level?

114 is the exact number, and we've kind of quantified the fact that inventory dollars are going to continue to go up, but they should continue to come down.

Although, I think, given the fact that product availability continues to be critical in a growing mass market.

That's kind of how we're managing our overall inventory.

So I think we're pleased with the 114.

Could we see some reductions?

Possibly, but there is not a lot of significant amount of improvement that we're going to be able to see in the future.

Okay.

Europe doubled for you basically.

Can you talk about what your share is like there versus Tom Tom?

Do you think that you were able to gain share versus down there?

I think at this moment some of the retail data that we rely upon has not been released.

We have data from the previous quarters which I think you've seen, and at this moment we don't know of any change.

That's fair.

The last question is can you give us some idea of -- I can't remember if -- can you give us an idea of what the ASPs were by segment?

Aviation versus Consumer?

No.

We have not made that public.

That will be available at the end of the first quarter, though.

Thanks very much and congrats on the quarter.

Thank you.

Your next question is from the line of Jim Duffy.

Thanks.

A follow-up here as I'm playing with my model.

As I look out to your guidance, kind of high 20% year to year growth in revenue, and I'm wondering where there's opportunity for leverage on the operating expenses or if you believe there is?

Well, I think at the levels that we gave in terms of revenue and operating margin and then EPS, you were expecting the high 20s, roughly 30% growth.

We're expecting that the SG&A will stay flat as a percentage of sales.

R&D could be a little bit of leverage there, but in general fairly flat in both of those categories.

Do you have to grow SG&A and R&D that much?

Well, we believe that R&D is critical to the future of the Company, so we're again on a dollar basis committed to doing that.

And then given the increase from the P&D market, automotive, we feel like we have to spend additional SG&A dollars to be able to advertise and compete there as well.

Thank you.

Thanks.

Your next question is from the line of Cory Johnson.

We'll try again.

Can you guys hear me now?

Yes.

Much better.

Let me ask you about retailers.

Kevin, when you were out here in San Francisco, you talked about the Internet being much more important than it had been in the past.

Who were the top retailers in Q4 and what percentage of that was on the Internet?

What percentage of that was what?

On the Internet or Amazon was one of those people.

Maybe that would tell us something.

I think we typically don't lay out the top specifically other than just to say that the Internet has continued to be a strong part of the business.

But still the major retailers that we've talked about in the past continue to be the major retailers, guys like Best Buy, and Circuit City, and those being the top retailers that we sell into.

There's been talk of Wal-Mart, and you mentioned Wal-Mart earlier in the call.

Have you guys been in any physical locations in Wal-Mart or just on the Internet, Wal-Mart.com?

Definitely both.

Physical and Internet both.

Great.

And this is maybe just bookkeeping, but there was an other use of cash of $3.5 million?

What was that?

Hold on a second.

Let me go back to that.

Cash flow statement.

Yes.

Thank you.

Within the investing or financing?

In the operation section toward the top.

I guess I'm not following what question -- what specifically you're looking for.

It was another use of cash.

It wasn't specified as to what it is.

You want to follow up with me later, we can specifically identify.

I can't tell which one you're looking at there.

I can follow-up with you later.

Thank you.

That's all I have.

Thank you very much.

Your next question is from Nicholas [Vanstacel].

Can you hear me now?

Yes.

Great.

Thanks for taking my question.

I have a question regarding the competitive landscape in the U.S. specifically.

Have you noted any changes in the fourth quarter?

I just feel like we've been able to retain our leadership as the P&D provider in the U.S. market, so overall, no.

Second question, do you have any automotive products already in the market in Asia?

And if so, could you give your best guess of the approximate size of the Asian markets in terms of the unit in '05?

So far, the market pull in Asia is quite small because of the lack of map data in the region.

When do you think that map data in sufficient quality will become available for you to start addressing this market?

That depends on country.

Which ones do you see kind of coming in first?

So far we have seen some variable in Taiwan.

China is coming, and we see very limit amount of data in [Indiscernible] and Singapore.

And other countries like India is way behind.

And the time line?

Thailand's coming.

We've been selling product in Thailand.

And that's '06?

No.

We've been selling product in '05.

And your best guess of the unit size of that market across the countries that you just mentioned?

I cannot give you the numbers.

Fair enough.

Thank you.

Third question, if I may.

Have you experienced any shortage in components in Q4?

Well, we don't have any significant shortage of components, but the [Indiscernible] many are the components such that LCD display more like four months.

So any time when you have the upside in demand, you [Indiscernible] enough components.

On the margins that you've indicated for the business units, are there any adjustments that we have to make or can we take them as they are?

You mean within the 2005 results or 2006 expectations?

Yes.

For the Q4 results.

If there are any accounting changes that you can already anticipate for going forward.

I mean, I do understand that you will split it up differently, but are there any things that you may be able to highlight already?

No.

I think they're pretty much as stated.

And then finally, last question, if I may.

How with you going to manage the auto business going forward?

Will you manage it for gross margin as Tom Tom indicated they are doing or how do you think about that without giving any indication on the margin itself?

I think the overall way we're going to manage that is it's just a high growth business, and we will -- we've often stated that you shouldn't just be looking at gross margin dollar but you should be looking at overall gross margin contribution, or operating margin contribution, so that's how we're going to continue to manage the business.

I did not understand the comment you made on manufacturing your own chipset?

Did I get that right?

I think the question may be injected the term chipset when it was referring to our factory facility and we don't do any manufacturing of chipsets ourselves.

We always rely on partners for that.

The manufacturing we do is for assembled units.

Perfect.

That's what I understood.

Great.

Thanks very much.

You have no further questions.

Will there be any closing remarks?

No I think other than to say thank you for your participation, and we'll talk to you again next quarter.

Good-bye.

This concludes today's conference.

You may now disconnect.