Garmin 2009 Annual Report Download - page 77

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Otherincomeof$50.9millionin2008wasprimarilygeneratedfromthesaleofourequityinterestinTele
AtlasN.V.whichweacquiredin2007inconnectionwithourannouncedintenttomakeacashofferforall
outstandingshares,whichwassubsequentlyabandoned.

IncomeTaxProvision

Ourearningsbeforetaxesfell6.5%whencomparedto2007,yetourincometaxexpenseincreasedby
$58.2million,to$181.5million,forfiscalyear2008from$123.3millionforfiscalyear2007,duetoahigher
effectivetaxrate.Theeffectivetaxratewas19.9%forfiscal2008comparedto12.6%forfiscal2007.Theincrease
intaxrateisduetoachangeintaxlawrelatedtotherepatriationofearningsfromourTaiwansubsidiaryandthe
unfavorablemixoftaxableincomeamongthetaxjurisdictionsinwhichtheCompanyoperates.

NetIncome

Asaresultofthevariousfactorsnotedabove,netincomedecreased14%to$732.8millionforfiscalyear
2008comparedto$855.0millionforfiscalyear2007.


LiquidityandCapitalResources

Netcashgeneratedbyoperationswas$1,094.5million,$862.2million,and$682.1millionforfiscalyears
2009,2008,and2007,respectively.Ingeneral,cashfromoperationshasbeenderivedfromstrongincomelevels
andimprovedworkingcapitalmanagement.Theincreasein2009wasprincipallyrelatedtoreductionsin
inventoriesandincreasesindeferredrevenuesandaccruedexpensesoffsetbythecashfloweffectsofincreased
accountsreceivableduetotheseasonallystrongfourthquarter.DeferredrevenuesrelatetothenüMaps
Lifetime™offeringasdiscussedincriticalaccountingpolicies.Accruedexpensesincreasedprimarilyduetothe
timingoflicensefeepayments.Withregardtoinventory,weoperatewithacustomer‐orientedapproachand
seektomaintainsufficientinventorytomeetcustomerdemand.Becausewedesiretorespondquicklytoour
customersandminimizeorderfulfillmenttime,ourinventorylevelsaregenerallysubstantialenoughtomeetmost
demand.Wealsoattempttocarrysufficientinventorylevelsofkeycomponentssothatpotentialsupplier
shortageshaveasminimalanimpactaspossibleonourabilitytodeliverourfinishedproducts.Wedonotplanto
furtherreduceinventorylevelsin2010.

Capitalexpendituresin2009totaled$49.2million,adecreaseof$70.4millionfromfiscal2008.This
amountin2009isrelatedtobusinessoperationsandmaintenanceactivities.Thisamountin2008reflectsthe
build‐outofadditionalmanufacturinglinesinLin‐Kou,Taiwan,completionofourexpandedNorthAmerican
distributionfacilityandmaintenanceactivities.Capitalexpendituresin2007totaled$156.8million.Thisamount
in2007reflectsthepurchaseandbuild‐outofanadditionalmanufacturingfacilityinLin‐Kou,Taiwan,continued
expansionofresearchanddevelopmentfacilitiesinourTaiwanfacilities,aswellasordinarycapitalexpenditures
forfiscal2007.

Wehavebudgetedapproximately$50millionofcapitalexpendituresduringfiscal2010toincludenormal
ongoingcapitalexpendituresandmaintenanceactivities.

Inadditiontocapitalexpenditures,2009cashflowusedininvestingactivitiesrelatedtothenet
investmentinfixedincomesecuritiesofouron‐handcashbalancesof$491.0millionandthepurchaseof
intangibleassetsfor$7.6million.Garmin’saveragereturnonitsinvestmentduring2009wasapproximately1.7%.
Thisisadecreasefromreturnsinprioryearsduetolowerinterestratesavailableinthemarket.Inadditionto
capitalexpenditures,2008cashflowusedininvestingrelatedtothepurchaseofEuropeandistributorsforatotal
of$60.1million,thenetsaleof$130.7millionoffixedincomesecuritiesassociatedwiththeinvestmentofouron‐
handcashbalancesandthepurchaseof$7.0millionofintangibleassets.Thenetsaleoffixedincomesecurities
wasprimarilyrelatedto$239.3millionofcashgeneratedfromthetenderofoursharesofTeleAtlasN.V.Garmin’s
averagereturnonitsinvestmentsduringfiscal2008wasapproximately3.4%.Inadditiontocapitalexpenditures,
2007cashflowusedininvestingrelatedtothepurchaseofDigitalCyclone,Inc.,GarminFranceSAS,Garmin