Garmin Ltd. (GRMN) Q2 2011 Earnings Call

raw transcript Clifton A. Pemble, President & Chief Operating Officer Operating &Chief President A. Pemble, Clifton Manager R.Thurston, Kerri MANAGEMENT DISCUSSION SECTION MANAGEMENT DISCUSSION billion. $2.5 of balance securities marketable and a cash in quarter resulting the during flow cash free of million $196 in autom the deliveries unit lower by sold We a moment. just in these items of impact the on information additional will provide Kevin quarter. the in expenses by affected was EPS our Additionally, rules. to GAAP according future the into deferred with recognition which at rate increased is the factor contributing year. last A of major Q2 from 26% down $0.63, EPS of pro forma reported We’ve model. business our diversified of strength contribut de and increased volumes driven b 8% down was revenue Total and Fitness. Outdoor Aviation, of Marine, segments seco Garmin morning, this release press in our Asreported joining for today. Thanks everyone. morning, you, good and Kerri, Thank Cliff. to over to call turn the I’dlike time At this Cl call are this morning’s for presenters The and Treasurer. Officer Financial Chief Rauckman, Kevin and Officer; Operating Chief and President Pemble, Cliff Officer; Attendi SEC. with the filed 2010, 10 our in Form is contained factors risk these concerning Information Garmin. affecting factors risk of a as result materially differ could results actual forward The forward are objectives and ourproducts for demand future introductions, product shares, market earnings, A its business. and Limited other forward and projections will include call earnings This tab. Calendar Events the under website the on available will be call the of transcript wi webcast the of archive An this call. during viewed be which can include slides, does webcast this that note Please Internet. onlive the broadcast is being call this Additionally, www.garmin.com/stock. at Internet the on site Relations Investor at is available call earnings this concerning release the press of a copy that note Please Limited you to Garmin welcome to like Good morning. We’d Thu Ms. Thurston. Kerri Miss to over call the turn I’ll now is being recorded. call Today’s Call. Earnings stand Please Operator:

ng today’s call on behalf of Garmin Limited are Dr. Min Kao, Chairman and Chief Executive Chief and Kao,Chairman Min Dr. are Limited Garmin of behalf on call ng today’s www.CallStreet.com • • www.CallStreet.com - looking statements. looking ed 46% of total revenue and 81% of total company income, which is evidence of the the of is evidence which income, total company of 81% and total revenue of 46% ed 3.8 million units in the quarter, which is a 6% decline over prior year levels driven primarily drivenprimarily year levels prior over decline 6% is a which the quarter, in units 3.8 million a - looking events and circumstances discussed in this e this in discussed and circumstances events looking one time accrual for accrualfor time one

- by. Good day and welcome to the Garmin Limited Second Quarter 2011 2011 Quarter Second Limited the toGarmin welcome and day Good by.

GarminLtd. - Investor Relations Investor fe ny statements regarding our future financial position, revenues, revenues, financialposition, future our regarding ny statements

r red revenue in the auto PND market. Our traditional segments segments traditional Our market. PND in auto the red revenue

we’re deferring revenues. deferring we’re Company▲ bad nd quarter results included 11% revenue growth in our traditional our in traditional growth revenue 11% included results quarter nd obile 1

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Second Quarter 2011 Earnings Call. Call. Earnings 2011 Quarter Second Q2 2011 Earnings Call Earnings 2011 Q2 arnings call may not occur and occur not may call arnings iff and Kevin. iff -

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1 raw transcript equipment. training dog electronic of provider leading Tri of acquisition our recent and introductions product new by driven target this exceed or willwe meet that confident weremain and growth 5% of target stated previously our exceeds th in U.S. the While weakness by was offset but was strong, market European 1%.The grew revenues segment, outdoor In our targets. year revenue our full or exceed meet will we that confidence us give far trend so the news, good not of so good and mix contai the market aviation While aircrafts. 27 equip to a contract of part as Defense of Ministry the French to delivery our first made upgrade. We’ve G1000 field for approved aircraft model we announced recently, Most solution. a as retrofit platforms aircraft into additional G1000 we’re the certifying term, near In the track areon certifications our integrat of proposition value on the based our share grow we can we’re confident period, anextended for soft remain market the Should OEM market. long our and excited we remain challenges, these Despite will re market OEM the when predict to difficult very it’s this, of light In States. the United for exports positive and jobs manufacturing domestic creates that industry valuable and a rare at fingerpointing harmful to returned the and are unfavorable conditions economic year. Current this improve conditions see market to expect not we do and remained soft market OEM the Imentioned, As quarter. Operating expenses. operating in growth the outpaced growth revenue as 18%, increased income Operating year flat basically was revenue As a result, OEM soft. conditions remain OEM market legacy Both and new market. retrofit thein bydriven strength expectations of ahead 13% grew revenues Aviation, at next Looking solution for autopilot marine improved, water. the whenon not fee subscription ongoing paying without it need they when need, they information the get to ability the have Boaters now more. wind including radar, platforms a pay 40, GDL is the to mention like product I’d first The boat platforms. more to serve ability our enhance b that products introduced we quarter the during Also intact. remain full Asia. Our and in Europe by wasgains offset softness and otherby customers confirmed been has which market, U.S. the in growth of a flattening weexperienced quarter, the second of beginning At the normalizes. mix product year, the the as of half back the in to improve margins our margins affecting points price lower towards shifted mix product the series, the echo of release the Due to market. the fishfinder of share a meaningful capturing echo se the launched we quarter, year. the During the full for expectations with our line in however, still Q1, of that which is below 6%, of growth revenue we posted segment, atmarine the first Looking segment. each update for well as performance quarter at the second look a closer we’ll take Next,

- as www.CallStreet.com • • www.CallStreet.com ries, which is a new line of low cost fishfinders. The echo series has been very popular verypopular been has echo series The fishfinders. cost low line of new which is a ries,

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income generated by Aviation represented 17% of our total operating income for the for income operating our total of 17% represented Aviation by generated income a - broader range of powerboats and sailboats. powerboats of range broader go Marine w Marine go GarminLtd. and we anticipate they will begi they we anticipate and eather

that supports additional steering systems, making it an attractive it an making systems, steering additional that supports

is is below our full year expectations, year year expectations, our full is below is 5th is our which 700, TBM SOCATA the for solution retrofit G1000 - Company▲ speed and direction, sea sea direction, and speed

receive delivering useful real useful delivering receive cover. products contributed to the growth. On the other hand, the the hand, other the On growth. the to contributed products 1 - 877

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partners serving the U.S. market. However, this this However, market. U.S. the serving partners r

ing new innovation to the Marine market Marine the to innovation new ing

ed cockpit system. New platform New platform system. ed cockpit - In addition, we introduced the GHP 12 an 12 an GHP the we introduced In addition, surface temperatures, wave height and and height wave temperatures, surface n contributing revenue in 2013. in revenue n contributing

year expectations for the Marine market the market Marine for year expectations

- • • term focus is on growing revenues in the the in is on revenues growing focus term Copyright © © Copyright - time content from our server content from time Q2 2011 Earnings Call Earnings 2011 Q2 in the segment, but we expect expect we but in segment, the

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raw transcript long the in profitable will be segment that the our belief reinforces 18%. This been would have margin gross our $51 million, of profit was 7% the segment for margin operating GAAP The anticipated. we earlier than faster is growing products bundled of theas mix the future si declining by offset the was revenues OEM in growth strong as 19% declined revenue segment, automobile our Finally in segment. fitness overall you think but I to value, performance to commitment and their the team of accomplishments the of are very proud tour. the early in We Tyler Farrar stage Sprint July of 4th the including race long the during showing an impressive our cyclist One of team. ever To best achieved their team The de France. Tour the recent Garmin of Team performance incredible tothe highlight would like I on moving Before category. fitness enabled GPS the in position leadership our defending and penetration global and function factor form both in will innovation on focus be our future, to the welook As contributions. delivery unit and its revenue on based costs overhead additional was allocated thisas segment increased costs over year 3% grew only income Operating high demand. in remains and expectations our exceeded has particular in 610 Forerunner high end The 800. Edge and 610 Forerunner 210, our Forerunner as introductions product new by driven growth revenue 25% we reported segment fitness In the camera. autofocus pixel 5 mega a includes ruggedized also 655t Rino the series, 650 the Montana Like awareness. situational and safety enhance po and alerting weather as such new features, and range communication of lineup a we introduced And finally, customers. level with handhelds classic Our conditions. outdoor demanding in damaged lost or becould that device camera second to capture users allows which camera 650and 650 The Montana and compass. altimeter multi as such features advanced include and screen touch with display readable handhelds These series. Montana the include new products Our customer. every for with something needs diverse of variety a serving of tradition in Garmin’s continue products year. the These of half back the story in growth our to will contribute segm outdoor the in new products of set robust a we introduced quarter, second the During outdoor overall our to million $8 approximately add will they anticipate pets. household and tracking the in both position our leadership to expand together collaborating look to forward market. pet the as We such areas new in grow to opportunity an and base customer Astro existing our for offering product expanded an we have products, p quality, represents brand that Tri have are excited to We

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and two stage two stage and Trex series has been updated by a new and greatly improved lineup of the eTrex the eTrex of lineup improved greatly and new a by updated been has series Trex through

enhanced displays, paperless geocaching capabilities and much more for ourentry for more much and capabilities geocaching paperless displays, enhanced

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clean racing. clean Tronics will begin contributing revenue in the back half of 2011, and we 2011, of half and back in the revenue willbegin contributing Tronics s see the dividends dividends the see ze of the PND market. In addition, we deferred $62 million of revenue into into revenue of million $62 wedeferred In addition, market. the PND of ze , Tom Danielson , Tom GarminLtd. ‐

wins for wins for Tronics in the Garmin family. They in Garmin the Tronics Company▲ erformance and c erformance

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term. Rino two way radios with touch screen, extended extended screen, touch with way radios two Rino 1 high quality images in the field without the worry of carrying a carrying of worry the without in field the images quality high - 877 , ;

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achieved ninth place in the individual standings. We had We standings. individual thein ninth place achieved

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raw transcript Kevin S. Rauckman, Chief Financial Officer & FinancialOfficer Chief S. Rauckman, Kevin and favorable points 80was basis advertising points, basis 590 down margin gross the by primarily driven was margin year. This 27.7% last from points basis 820 down 19.5%, was margin Operating g of points basis 200 anadditional for accounted products bundled with associated revenues high margin of Deferral points. basis or 290 million, $22 by our costs reduced i strength margin was which in at 47.8%, came margin Gross year 8% of a decrease represent revenues The period. the during loss currency foreign O $109 of million. income net with quarter the for million $674 of posted revenue statement. We income thewith beginning first results financial Q2 the through us walk to like I’d everyone. and morning, good Cliff, thanks, Well Kevin? overview. financial detailed with more will continue Kevin and update Q2 my concludes That $2.15. $2 toof factor a moment. in just clarity additional will provide Kevin revenues. margin high of deferrals o acquisitio by driven primarily improvement U.S. between year revenue full deliver toexpect us behind 2011 of is half first the Now that a you the segment with from sharing more forwardto look solutions. We and software hardware both for vendor competitive a as recognition gainin with Garmin develop to continue businesses our OEM perspective, a growth From are commi profitable. We while remaining offerings content and share, technology of market the spectrum across leadership have prec we must that we realized category, PND the Within throughout region in this growth unit and growth revenue both to us post allowing gains share strong regions. emerging in growth by some expect continue to th of February in provided those from unchanged PND are expectations for market Our U.S. approximately will add even stronge an as emerging we anticipate acquisition, this result of a As businesses. our PND of combination the through possible are that synergies leverage and our strengths to combine efforts started havealready We markets. application world. the of region in that position our strengthens which further 7% is approximately Europe in share with attract was Navigon authorities. German competition from clearance final receiving after completed propo our weannounced quarter, in Also the size. the total market of estimates on our based 20% range mid the in currently grow, to continues Europe in Share memory. 60% in greater than of share quarter’s with second 2011 throughout has strengthened share market Our

u r revenue range, we are reducing and narrowing our EPS range driven primarily by accelerated byaccelerated primarily driven EPS range our narrowing and reducing we are range, revenue r a s and an anticipated effective tax rate of approximately 12%, result in a forecasted 2011 EPS 2011 a in forecasted result 12%, approximately of tax rate effective andanticipated ans

ive growing custome growing

Finally, they offer a compelling mobile application that has been well received been has that application mobile acompelling offer they Finally, www.CallStreet.com • • www.CallStreet.com North North

to Garmin for three primary reasons. First, Navigon is Navigon First, threereasons. primary for Garmin to the first two quarter of the year. the of two quarter first the America;

n the prior year quarter was primarily related to the refined warranty estimates that estimates warranty refined the to related was primarily quarter yearprior n the PND volumes to decl volumes PND

in fact, N in fact, r list and a well respected technology base. Secondly, their PND market PND market their Secondly, base. technology well respected listr a and GarminLtd. tted to doing just that. just doing tted to

$75 million in revenue in the back half of 2011. 2011. of half back in the revenue in $75 million ur pro forma EPS w EPS forma ur pro Company▲ PD

has reported a share of 64%, which is the highest in recent in recent highest is the which 64%, of a share reported has

1 Garmin is currently bucking the trend in Europe due to our our to due Europe in the trend bucking is currently Garmin - ine year ine 877 ns of Navigon and Tri and Navigon of ns , s the business develops. the business s

w a - sed acquisition of Navigon, which was recently was which Navigon, of acquisition sed e are updating our fiscal 2011 guidance. We now guidance. 2011 We fiscal our updating are e Treasurer FACTSET 590 basis point decline from the prior year. Gross year. Gross the prior decline from point basis 590 Ticker▲

GRMN - $2.5 billion and U.S. and billion $2.5 over as $0.6 as - year in both North America and Europe offset offset Europe and America North both inyear

r global competitor. We expect that Navigon expect Navigon that We competitor. global r

3 per share, which excludes $15 million $15 million excludes which share, 3 per

• • Copyright © © Copyright i sion execution to maintain our global our global maintain to execution sion Q2 2011 Earnings Call Earnings 2011 Q2 - a Tronics. While slightly increasing increasing slightly Tronics. While contender in the OEM market OEM market the in contender

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raw transcript in nature. recurring Auto mar an 83% of and deferral the refinement estimate warranty 2010 driven the by margin by breakdown the margin at next Looking in segment. that margins operating 44% due the to income total op of at way27% the leading withoutdoor income operating 27% of the seco in 44% compared to This the segment. of profile margin lower to the in Q2due income operating our total of 54% represented segment automobile other the of Each 2010. 61% in from down Q2, during total revenues our 54% of represented segment Automobile The period. time same the 7%to 9%in from Asia and total revenue of 38% 31% to compare 2011 in Q2 revenue of 53% represented NorthAmerica market. PND declining to duethe America in North 21% decline by was offset Asia and Europe in respectively 31% 12% and of growth quarter, second the During and for quarter second the 8% during decreased our revenues In total, quarter. duringshare the market wegained as 2010 to of Q2 compared 6% at increased also revenue segment our marine And increased revenues segment highof the strength on 2010 of Q2 products. our new of number of launch grew 1% segment outdoor Our saw. we increase revenue OEM the well as as Asia and Europe in growth by PND offset partially was It America. North in market PND a declining to primarily due segment Automobile the within decline 19% weexperienced Q2 during revenue, our on detail more bit little to a next Moving assuming currently sheet balance our on share per earnings j review in which I’ll flow cash of statement our in positively is reflected which this sale, of time at the cash weare GAAP U.S. to according revenue deferring weare while that note to important amortize will be costs and these revenues of Most EPS int of $0.23 approximately we deferred quarter, current In the 2010. and 2011 of quarter second the both in costs and related amortization the and the deferral of impact net the summarizes slide the on this table and products certain on revenue defer we must GAAP to U.S. according earlier, mentioned Cliff As during favorable per share was $0.07 impact this oftranslation, foreign currency effects the excluding non The selli average our total company and year 6% down were Units shipped year decline 26% EPS represents $0.63 of Pro forma our he as basis year in at came R&D expenses. year a on $12 million upwas yeara on $9down million

/ mobile was also impacted by approximately approximately by impacted also was mobile

future of this year and $0.18 per share favorable for Q2 of last year. last of Q2 for favorable per share $0.18 year and this of future www.CallStreet.com • • www.CallStreet.com were 36% and 7% respectively. The year The 7% respectively. and 36% were the year our total revenues are up 2%. up are revenues total year our the - nd quarter of 2010. of quarter nd GAAP measures that we have reported this morning represent net income per share per share income net represent morning this reported we have that measures GAAP ust a minute. It’s also interesting to note that we have approximately $1 of deferred deferred of $1 approximately wehave that note to interesting also It’s aust minute. gin. Operating margin in the quarter excluding these deferrals would have been 18%. 18%. been have would deferrals these excluding in quarter the margin gin. Operating

ad count declined slightly. declined ad count

segments contributed between 11% and 12% of revenues. While the the revenues. of While 12% and 11% between contributed segments GarminLtd. - over

40 basis points unfavorable but unfavorable points 40 basis

- Each of our other business segments contributed between 17% and and 17% between contributed segments business our other of Each d to 62% in the second quarter of last year. Europe increased from from increased year. Europe last of quarter in second the 62%d to over 13%, compared to Q2 of 2010 with growth in aftermarket products. products. aftermarket in with growth 2010 of to Q2 compared 13%, - Company▲ o year basi

future period future - - - year basis due primarily to bad debt accruals and legal legal and accruals debt bad to primarily due year basis over end running watches and the cycling computers. Aviation Aviation computers. and cycling the watches running end

ng price was $179 per unit basically flat from $182 last year. $182last flat from basically per unit $179 was price ng

1 growth in this segme this in growth - Fitness - 877 year as 3.8 million units were delivered during the quarter quarter the during delivered were units year 3.8as million s. Our SG&A was 260 basis points unfavorable and this this and unfavorable points basis 260 was SG&A Our s. segment, Q2 auto Q2 segment,

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Ticker▲

revenues remain strong and grew 25% grew strongand remain revenues compared to $0.08 in the second quarter of 2010. 2010. of quarter second the in $0.08 to compared GRMN - over $

d straight line over over line d straight revenue 8 million of bad debt and legal costs that are not that are costs legal and debt bad of 8 million - - over year decline in gross margin was primarily was primarily margin gross in decline year

- , it represented only 19% of our of 19% only it represented , • •

nt will improve in the third quarter with a with quarter in third the nt will improve year as revenues and margins declined. margins and year revenues as was down $2 million on a year a on million $2 down was / mobile gross margin and operating operating and margin gross mobile a Copyright © © Copyright 12% effective tax rate. tax effective 12% Q2 2011 Earnings Call Earnings 2011 Q2 $ a 51 million of gross profit profit gross of 51 million three year period. It is period. It year three Event Type▲

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raw transcript quarter. the during balances security marketable earn quarter. second the We during cash of $2 million securiti marketable of net redemption by$7 million offset CapEx in $7 million the to due quarter the during breakeven essentially investingwas flowfrom Cash $196of million. Q2. during million our across flow cash strong continueto generate We end. our quarter after which occurred 30, June appro our shareholder following sheet balance our on payable dividend nowmillion $388 show We $29 million. were quarter the of end at the reserves inventory the and 55were days goods finished of million wo in million $43 days, were38 materials in raw million $153 at ended Q2 inventory. the of We days of number and amounts following with the ended Q2 year. the during We is maximized capital working our that to steps ensure take quarter 119 in first the from a decrease days, 106 was inventory metrics to slightly decreased balance inventory Our 2010. of quarter the second salesof of 61 days to compared quarters four trailing approximately for accounted receivable Accounts 33%. $ bala to the next Moving legal costs. approximately represents increase This increased o in a reduction and dependent volume is which advertising, cooperative reduced a by driven largely was This Q22011. 5% in salesto of percentage decreased spending earlier Imentioned As however, R&D decreased, from byincreased OpEx our Q2 expenses operating at next Looking represent the quarter for was 30% margin operating our second And finally year. the of half back expenses. SG&A and R&D increased decline and margin gross by year driven ago 43% a from down 30%was 201 the against compd we also and fishfinders towards shifted shift mix product as year quarter ago the in 66% to 56% was compared margin gross Marine Q2 costs. administrative and general selling, c advertising increased the well as as decline, margin gross to duethe ago year 40% a from a decline 33%, was margin warranty, operating from benefit 2010 the to related Q2 Our in segment. this expenses operating in increase a slight and decline margin gross the to due yearquarter, ago the 48% in down from 44% was Imentioned as margin operating our warranty refinement, benefit from was dow 65% gross margin outdoor quarter second Our

2.5 billion. Our accounts receivable increased sequentially to to sequentially increased receivable accounts Our billion. 2.5 $ val at the annual meeting in June. The first dividend installment of $155 million was paid on on paid was million $155 of dividend installment first The June. in meeting annual the val at 190 to www.CallStreet.com • • www.CallStreet.com fitness gross margin was 58% down from 62% last year. Like outdoor this was partially partially was year. outdoorthis Like 62% last from was down 58% margin gross fitness $

12 million compared to a year ago and increased 260 basis points up to 13% of sales. of 13% to up points basis 260 increased year and ago a to compared million 12

$ 191 million in Q2 of 2011, 2011, Q2of in million 191

CapEx was $7 million during the quarter. Therefore we generated free cash flow cash free wegenerated Therefore quarter. the during $7was million CapEx A s C s $

, we have slightly reduced head count on a year a count on head reduced slightly have we , 8 million over the year ago quarter and decreased 80 basis points as a as points basis 80 decreased and year quarter ago the over million 8 - quarter aviation gross margi gross aviation quarter nce sheet, we ended the quarter with cash and marketable securities of of securities marketable and with cash quarter the we ended sheet, nce liff GarminLtd.

mentioned previously, we do expect Marine margins to improve in the the in improve to margins Marine expect we do previously, mentioned $ 2 million year 2 million Company▲ 1 - 877 $

and rk in process and assemblies were 12 days and $219 $219 and days were 12 assemblies and in process rk 8 million of nonrecurring costs for both bad debts and and both debts bad for costs nonrecurring of 8 million - over

$ - increased 220 basis points as a percentage of sales. of percentage a as points basis 220 increased 386 million on a sequential basis and our days of of our days and basis a sequential on million 386 FACTSET Ticker▲ -

year, but was up 40 basis points to 10 to points basis was 40 year, up but GRMN

n was 69% down slightly from 70% a year ago, 70% a slightly from 69%was down n ing businesses; ed

a slight increase from 29% in the prior year. prior 29% in the from increase a slight 6 n from 67% last year, due to the 2010 2010 to the year, due 67% last n from

an average of 1.3% on our cash and and our cash on 1.3% of average an 6 days of sales when calculated calculated when sales of 6 days

493 million as revenues increased increased revenues as 493 million es and financing activities provided provided activities and financing es warranty benefit. Operating margin Operating benefit. warranty edia spend. 1 million on a year a on 1 million

cash from operations was $203 $203 was operations from cash - over

Event Type▲ of 2011. We do continue to do continue to We 2011. of osts and allocation of of allocation and osts - year Our basis.

2001 Other SG&A SG&A Other

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on a on CallStreet Aug. 3, 2011 3,Aug. ad ad Date▲

raw transcript conclude This earlier range. our at orabove remained have would our EPS mix, product in change this EPS guidance. Without in reduce EPS resulting of $0.92 approximately defer to wenow expect mix, product estimated $0 approximately of deferral a forecast we had year, bundle toward experiencing we are that shift the mix of impact significant the to wantedhighlight also acquisition. We Navigon the to primarily due segment automobile by segment both today provided we that guidance our updated around details additional tosome provide like would I And finally, 2011. and 2010 in both audits favorable following reserves r 12%. approximately to yearbe rate full the weexpect and 13.8% was Q2 rate for tax Our strategy. this on executing with fit strategic and values compatibility practice Garmin’s been Ashas market. our core fit ortuck niche markets adjacent in on acquisitions to alsofocus continue We both for is scheduled million $78 additional an and mentioned Ijust as million $155 represented 30 payment June The 3rd meeting. June at the was approved that our dividend fund flowto cash the of portion year the throughout to continue generation flow cash free our expect strong We educed effective tax rate tax rate effective educed

www.CallStreet.com • • www.CallStreet.com

September 30th and December 30th d 30th December 30th and September

s our formal comments. comments. formal our s GarminLtd. is is

attributable to a change in methodology for uncer for methodology in a change to attributable Company▲ –

primarily by segment revenue. We saw improvemen revenue. We segment by primarily 1

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acquisitions are evaluated by technology, technology, by evaluated are acquisitions .53 of EPS. However, given our current current our given EPS. However, of .53 payments

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