GARMIN INTERNATIONAL, INCORPORATED. Moderator: Min Kao February 9, :00 am CT

Transcription

1 Page 1 February 9, :00 am CT Good morning, my name is (Christie) and I will be your conference facilitator today. At this time I would like to welcome everyone to the Garmin Fourth Quarter Earnings Release conference call. All lines have bee placed on mute to prevent any background noise. After the speaker s remarks, there will be a question and answer period. If you would like to ask a question during this time, simply press star then the number 1 on your telephone keypad. If you would like to withdraw your question press star then the number 2 on your telephone keypad. Thank you. Ms. Schwerdt, you may begin your conference. Polly Schwerdt: Thank you. Good morning, we would like to welcome you to Garmin Limited s 2004 Fourth Quarter Earnings call.

2 Page 2 Please note that a copy of the press release concerning this earnings call is available at Garmin s Investor Relation site on the Internet at Additionally this call is being broadcast live on the Internet and a replay of the Web cast will be available until March 4, 200. A telephone recording will be available for 24 hours after the call and a transcript of the call will be available on the Web site within 48 hours at 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 products and our plans and objectives are forward-looking statements. The forward-looking events and circumstances discussed in this earnings call may not occur and actual results could differ materially as a result of risk factors affecting Garmin. Information concerning these risk factors is contained in our Form 10-K for the fiscal year ended December 27, 2003 filed with the Securities and Exchange Commission. Attend on behalf of Garmin Limited this morning are Dr. Min Kao, Chairman and CEO; Kevin Rauckman, Chief Financial Officer; (Cliff) Pemble, Director of Engineering and Andrew Etkind, General Counsel.

3 Page 3 The presenters for this morning s call are Dr. Min Kao and Kevin Rauckman. At this time I would like to turn the call over to Dr. Kao. Good morning. From the press release issued this morning, you can see that we have just finished another year of record revenue and earnings. Total revenue for the year increased 33% and earnings per share increased 15% relative to Excluding the effect of foreign currency, earnings per share increased 22% relative to was another good year for Garmin. There were many significant accomplishments. We recorded our 14th consecutive year of revenue growth with 42% growth in our aviation business and 31% growth in our consumer business. Over 2.3 million Garmin products were shipped in 2004, raising our total to over 10 million shipped to date, which is an exciting benchmark of the strength of the Garmin brand. We delivered 15 new products in 2004, compared to 16 in 2003, and experienced strong demand across all product lines. These products include: A marine network system, which integrates our chartplotters, sounders, XM satellite weather receivers and radar, filling out our suite of higher-end marine network offerings.

4 Page 4 Three new handheld product lines with beautiful, yet very powerefficient color displays for outdoor recreational users. A number of new wearable products, which further expand our sports and personal fitness product offerings, and Several new automotive products, include in the Quest, a pocket-sized, full-featured product at a sub-$600 price tag. We completed certification of our G1000 integrated cockpit for a total of six aircraft models: the Cessna 182 and 206, Diamond DA40 and DA 42 and Mooney Ovation2 and Bravo. Superb coordination effort with these aircraft manufacturers also enabled us to bring the benefits of this revolutionary system to several hundred pilots in the short few months before the end of the year. We feel that we accomplished a lot in this past year but this does not come without challenges. As you may remember, we experienced margin erosion during the first half of the year due to component cost increases and a record number of product transitions. We also experienced severe product delivery problems due to component shortages and manufacturing capacity constraints, arising from the record number of new products that were introduced. But I m pleased to report that, with much hard work and additional investment in people and equipment, we have overcome most of the challenges. We were able to meet most of the product demands in the fourth quarter and we have additionally replenished our inventory to meet the anticipated demands for the coming marine and spring season. Our continued business strength enable us to undertake a number of important growth initiatives in this past year, which includes:

5 Page 5 The completion of our $(65) million facility is finished in (unintelligible), Kansas and also the airport hanger expansion at our Oregon (AT) division. The addition of manufacturing capacity in our Taiwan facilities. We responded to the product demand challenge by increasing the number of manufacturing lines from eight at the beginning of 2004 to the current number of twelve, with two more to come in March, and an increase in the number of manufacturing associates from 800 to around 1,100. In addition, there are over 400 new associates company wide, including 50 new engineering associates, bringing our research and development group to over 560, and to nearly 2,500 total employees worldwide Outlook The completion of our Phase 1 implementation of Oracle s ERP (Enterprise Resource Planning) system, which provides improved integration of Garmin s major business units in Taiwan, UK and the US. As we go forward, in 2005 we anticipate another year of excitement and success. Consumer awareness and interest in GPS technology continues to grow, and we have been investing in R&D to take advantage of the opportunities in both existing and new markets. We expect to introduce over 60 new products in Products recently announced at the Consumer Electronics Show, including a Pocket PC version of ique, a new ForeRunner with integrated heart rate monitor, and also the very attractive C-series Street Pilots, have been well received. Two years ago we announced a relationship with the MOPAR division of DaimlerChrysler, which allows Daimler to install a custom designed Garmin product on six models of Chrysler, Dodge and Jeep vehicles. While this is only a small step in our pursuit of the

6 Page 6 automotive installed market we are excited by this achievement and are continuing to explore additional opportunities. On the aviation side, we look forward to delivering several new products including weather and radar, and we expect to complete certification of the G1000 cockpit in additional aircraft models in In addition to the Cessna, Diamond, and Mooney shipments that have already begun, we anticipate certification completion and shipment of G1000 avionics for the Raytheon Bonanza and Baron, and the Cessna 172 this year. We are also in ongoing discussions with other aviation OEMs, and hope to have more progress to report throughout the year. Summary In summary, we are pleased with our 2004 results and look forward to another year of growth in The demand for our large portfolio of products remains strong, so we believe Garmin is well positioned to take an advantage of the opportunities the future offers. Since the formation of the company, our quest has been to become a global, world-class supplier of communication, navigation, and information devices. Toward that goal, we work hard to grow our business through continuous product innovation, expanding and broadening our target markets and extending the Garmin brand. I feel that we have been achieving that goal by consistently delivering over 20% of annual growth. We will continue to maintain our focus on this winning strategy. As a final note, I would like to take this opportunity to thank all of our employees, customers, suppliers, investors, dealers and distributors for making 2004 another successful year for Garmin. We are very grateful.

7 Page 7 With that, I would like to turn the call over to Kevin to discuss our financial results and the fiscal year 2005 guidance. Thank you. Kevin Rauckman: Thank you Min and good morning to everyone. As has become customary, I d like to focus my comments this morning on the fourth quarter results, also looking at the full year actual results and then concluding my presentation with expectation on the upcoming 2005 year. So let s get going on the 2004 fourth quarter. The fourth quarter revenue results were $229 million, which was above our range of our guidance earlier of $200 to $204 million, and that s a 30% increase from the year-ago quarter. You probably saw from the press release that we experienced growth across all global regions. North American revenue was $164 million in the fourth quarter, which is up 26% from $130 in Q4 of 03. European revenue was $47.8 million, a 41% increase. Asian revenue was $9.1 million, up 49% from $6.1 million last year. Our gross margin during the quarter decreased 140 basis points to 54.7% from 56.1% in the fourth quarter of 03. However, the 54.7% was just above our earlier guidance of 52% to 54%. Operating margin was 36.1% compared to 36.8% in fourth quarter 03, 90 basis points below our earlier guidance of 37% to 38%, net income $47.6 million however excluding the foreign currency loss we experienced net income of $68.5 million, significantly exceeding our guidance of $47 to $49 million.

8 Page 8 Therefore, our earnings per share results for the quarter were 44 cents. Without the effects of foreign currency loss, we came in at 63 cents per share. That s a 34% increase from the year-ago quarter and it exceeded our earlier guidance of 50 to 54 cents, the total top line growth of 30% and bottom line growth of 34% in the quarter. We also experienced a significant increase in our units sold during the quarter, up 21% to 718,000 units, compared to 591,000 total units in the fourth quarter of 03. As I mentioned, we reported gross margin of 54.7% compared to 56% % in the fourth quarter of 03, above our earlier guidance. We continued to experience the strong acceptance of our new products. In the fourth quarter, approximately 43% of our sales were generated from products introduced within the last 12 months. This has now been the third consecutive quarter where this metric has been above 40%. Looking at the operating margin, for the fourth quarter our operating margin was $79.8 million, a 36.1% of sales, again just below our earlier guidance of 37% to 38%. Operating margin did decrease 70 basis points compared to the fourth quarter of 03. During Q4 SG&A as a percentage of sales decreased 90 basis points to 10.4%. Overall the dollar increase was 20% over the fourth quarter of 2003 during a period where our revenues were up 30% and this 20% increase is driven

9 Page 9 primarily by increased advertising as we expected during the holiday season, (Oracle) consulting costs, increase call center expense as we ve continued to expand our call center to support our aftermarket product and a one-time patent license fee. R&D increased 10 basis points to 8.1% of sales from 8.0% a year ago. Our R&D dollars increased 32% over the prior period. This increase came primarily due to the hiring of new engineering staff and also an increase in our overall engineering program costs. During the quarter, we hired four new engineer and engineering associates and now we employ a total of 567 engineers around the world. So overall our total operating expense as a percentage of sales decreased 70 basis points to 18.6% of sales from 19.3% in the prior year period. I m sure you all noticed that we experienced a $25.3 million foreign currency loss during the fourth quarter as the US dollar continued to weaken compared to the Taiwan dollar. At the end of September of 2004 the Taiwan dollar exchange rate was however at the end of 2004 that rate was 32.19, a 5.3% change. The majority of the company s consolidated foreign currency translation gain or loss results, from translation into new Taiwan dollars at the end of each reporting period of the significant cash, receivables and payables held in US dollars by the company s Taiwan subsidiary. This translation is required under GAAP because the functional currency of our subsidiary is new Taiwan dollars. However, there is minimal cash impact

10 Page 10 from this foreign currency translation and we expect that the Taiwan subsidiary will continue to hold the majority of its cash in US dollars. Our interest income during the fourth quarter came in at $3.1 million, an increase over prior quarters. We re currently earning approximately 3.1% pretax return on our marketable securities and approximately 2.1% on our total cash balances on our consolidated basis. The effective tax rate during the fourth quarter was 17.3%. It came in below our earlier guidance of 20% and 370 basis points lower than the fourth quarter of 03 which was 21.0%. This year-over-year change was caused by the favorable tax rate during Q that resulted in our overall rate during the year of 19.4% during the full year of 04. We expect that our effective tax rate for 2005 will remain at approximately 19%. Moving next to the segment information. Fourth quarter consumer segment - consumer revenue was $173.7 million and represented a 27% increase over the prior year quarter. Consumer segment was 79% of our total revenues and this is now the 13th consecutive quarter of year-over-year revenue growth in excess of 20%. When you break down the consumer segment we experienced growth across most consumer product lines but especially within the automotive and recreational product lines, a continued demonstration of demand for our consumer GPS products.

11 Page 11 Again, our total unit sales were up 21% during the quarter and unit growth occurred in both the consumer and the aviation segments. Our consumer gross margin decreased to 52.7% in the fourth quarter from 54.2% in the year-ago quarter. Consumer gross margin reduction was driven primarily by unfavorable product mix within the quarter. Our operating margin within the consumer segment decreased 170 basis points to 36.6% from 38.3%. This was driven by the reduced gross margin as expected for the holiday season and additional R&D expenses. We saw continued strength in the aviation segment. As Min mentioned, our revenue during the quarter increased 42% to $47.2 million compared to $33.3 million in Q4 of 03. Our aviation segment accounted for 21% of our total revenues and the revenue increase was due to the continued shipments of our new (G1) - newer (G1000) cockpit as well as strong handheld aviation product sales during the quarter. The aviation gross margin decreased to 61.9% from 64.2% in Q4 of 03. This was due primarily to the product mix during the quarter made up primarily of chances with increase in (G1 1000) cockpit sales. Our operating margins for the aviation segment were 34.3%. That s actually an increase of 330 basis points compared to 31% during the fourth quarter of 03. This increase is due to the reduced gross margins that were more than

12 Page 12 offset by reduced R&D and SG&A expenses as a percentage of sales within the aviation segment. And finally for the fourth quarter, I want to talk about cash flow. The cash flow from operations during the quarter was $57.5 million. Fresh cash flow generated was $37.2 million. Again we define that as operating cash flow less CAPEX. Cash flow from investing during Q4 of 04 was at $31.4 million in (USO) cash. Cash flow from financing activities a 49.0 million use of cash primarily made up of our dividend payment we made during the fourth quarter. Capital expenditures for the fourth quarter were $20.3 million. As I mentioned, Garmin Limited paid a 50 cents per share dividend on December 15. Total use of cash was $54 million. Moving next to the overall fiscal year 2004 financial results, 2004 revenue was $762.5 million, a growth of 33% over Our gross margin decreased to 53.9% compared to 57.7% in Operating income was $270.7 million and our net income after tax was $205.7 million. Operating margins decreased to 35.5% compared to 39.6% in the year - in Our GAAP diluted EPS were $1.89 which compares to a $1.64 in 2003, representing a 15% increase in earnings per share.

13 Page 13 The (FX) loss during 2004 however was $24.8 million therefore the earnings per share results excluding the (FX) of foreign currency were $2.07, representing a 22% increase compared to So in summary, our top line growth was 33%, EPS growth of 22% during the year. We saw strong sales across all global regions. North American revenue during the full year was $531.5 million, a 28% increase. European revenue continued to expand $196.9 million for the full year, up 48% over And our Asian revenue was $34.1 million, a 35% increase over Consumer revenue of $591.0 million during the fourth quarter or during the full year represents a 31% increase over fiscal year For the full year, our consumer segment made up 78% of our total revenues. The consumer gross margin decreased to 51.5 from 56.0 in 2003 due to unfavorable product mix and other cost of sales increases during the year, such as warranty cost, freight and license fees. Our aviation revenue was $171.5 during the fiscal year 2004, which was a 42% increase compared to Aviation made up 22% of the total revenue and the aviation gross margin decreased to 62.4 from 64.2 in 2003, due primarily to the introduction of the (G1000) cockpit during 04 and a higher aviation OEM content that we experienced during the year.

14 Page 14 Overall, both total and consumer aviation units combined increased up to $2.306 million from $2.066 million, which is an increase of about 12% on unit growth. Fiscal year 2004 operating profits, as I mentioned, were $270.7 were 35.5% of sales compared to 39.6% in 03. During the full year our SG&A as a percentage of sales was flat at 10.4% compared to 10.4% last year. Because we had - Garmin (AT) in just the last four months of 2003, we looked at SG&A cost and R&D cost excluding Garmin (AT). SG&A expenses increased 29% for the full year excluding (AT). Including (AT), SG&A expenses increased 32% over fiscal year Our R&D overall increased to 8.1% of sales from 7.6% of sales during 2003 due to the hiring of 52 engineers during the year. Excluding our Garmin (AT) business R&D expenses increased 27%. However including Garmin (AT) the overall R&D expense increased 41% over fiscal year We also experienced much like we had in the fourth quarter, a $24.8 million foreign currency loss during the full year 04 as th US dollar weakened versus the Taiwan dollar. The rate at the end of 03 was actually and at the end of 04 a 32.19, a 5.5% reduction. Our interest income was $9.4 million for the full year.

15 Page 15 Moving next to the balance sheet, our cash and investments at the end of the year amounted to $573.6 million, marketable securities made up $322.2 million of this total cash position. Our accounts receivable balance came in at $110.1 million at the end of 04. This represents an increase of $27.4 million from $82.7 at the end of 03 due to strong 2004 sales. When we looked at the shipment linearity during the fourth quarter of 04 it was roughly the same as 2003 therefore we ended the year of 04 at 53 DSO compared to 51 DSO at the end of Inventory increased to $155 million at the end of the year of 2004, up from $96.8 million at the end of The increase in inventory was primarily due to increase in finished goods and raw materials as we meet anticipated demand for our products during Days of sales in our inventory balances were 161 days compared to 145 days at the end of 03. Garmin continues to evaluate the adequacy of our inventory reserves given increased demand and feel that we have appropriate reserves on the books at the end of So overall our balance sheet remains strong and positions us well for future growth.

16 Page 16 Our fiscal year 2004 cash flow, we came in at cash flow from operations at $204.1 million during the year. Free cash flow generated was $126.0 million. Cash flow from investing for the full year was $184.3 million in (USO) cash. Cash flow from financing was $51.1 million in (USO) cash, again primarily due to the dividend payment. And the capital expenditures that we had for the full year were $78.1 million, made up primarily of the (Olasis), Kansas facility expansion that we completed at the end of the year. Finally I d like to end on guidance numbers for both first quarter and full year. As you noted in the press release, due to the desire to focus more on long-term results of the company, we decided to discontinue the practice of specific quarterly revenue margin and EPS guidance. We will however continue to provide annual guidance and update those expectations on a quarterly basis. We will provide general demand outlook and trends for the current quarter. With that in mind, our expectations for Q include continued top line growth of nearly all product lines due to the recent introduction of many new consumer and aviation products. And while competition has increased, our view of the near term is still strong given the acceptance of many of these new products that were released both at the consumer electronics show and prior.

17 Page 17 For the full year, the guidance that we put in the press release and expect for the fiscal year 2005, top line revenue range of $890 million to $915 million which represents a 17% to 20% growth. We expect gross margins to be between 52% and 54%. You recall we ended the full year 04 as 54% roughly. Our operating margins were - will be 33% to 34% expected. As I mentioned earlier, we think the effective tax rate will be 19% for the full year of 05. This derives a net income within the range of $250 to $260 million, excluding any possible foreign currency effects. And the EPS range will be $2.30 to $2.38, excluding any (FX) effect. This represents an 11% to 15% growth and its based on an outstanding diluted share count of million shares. The guidance we did release this morning in the press release includes a 5 cents per shear impact due to the expensing of stock options and our employee stock purchase plan in the back half of And finally our capital expenditure estimate for the full year is $25 million now that we ve completed the large facility expansion here in Kansas. So that concludes my presentation for the morning. I d like to at this point turn it to any questions you all may have. At this time, I would like to remind everyone, in order to ask a question please press star 1 on your telephone keypad. We ll pause for just a moment to compile the Q&A roster.

18 Page 18 Your first question or comment comes from the line of (John Buker) with (Harris Nesbitt). (John Buker): (John Buker) here at (Nesbitt). A question for you all on capacity planning - could you indicate what utilization rate that you were operating at at the end of 2004 with the new production facilities that you have brought up by then? And then also provide some background as to your plans for increasing production capacity in 2005 as you alluded to that there would be some expansion here and whether at the end of the 2005 you can give an idea in terms of, you know, percent increase in capacity or actual, you know, unit volume increase and what sort of target utilization rate that you re targeting. Thank you. (John) this is Min. Our utilization rate of our Taiwan capacity was at 110% at the end of The main reason is to get caught up with our Christmas demand and also to build up sufficient level of (unintelligible) stock as we enter the marine and spring season. Our capacity at this time, you know, again this depends - is a function of the product mix but our existent capacity is approximately 3.5 million units a year, including some over time. (John Buker): Three point five million units is the current production capacity? Yeah, including some overtime. (John Buker): Is there a range that you might be able to provide for what you re targeting for for the end of this year?

19 Page 19 Well I think that I reported - as I stated in my report that we would have two additional lines coming in March so they ll be all full capacity - 3-1/2 million isn t what our (unintelligible) factory is capable of producing. (John Buker): Okay and then there ll be two additional lines would provide a commensurate volume increase on top of that? No that includes. (John Buker): That includes that? Yeah that includes the two lines, yes. (John Buker): Okay and then next question and I ll yield the floor. Can you indicate what sort of production ramp you re expecting in the automotive units that will be shipping to (Mopar), provide any sort of, you know, rough timing on that and then how you expect the unit volumes to ramp over time? Thank you. We really cannot speculate on the (integrity) of the system. Any numbers probably need to come from (Mopar). But seeing as this will be the least expensive in (unintelligible) our variables so we hope that we been (unintelligible) with it. (John Buker): Thank you. Thank you. Your next question comes from the line of (Bill Benton) will William Blair. (Bill Benton): Good morning guys.

20 Page 20 Man: Hey Bill. Good morning. (Bill Benton): Just if you could - I know Kevin you had mentioned that the quarter was relatively linear in terms of shipments. Could you remind us relative to last year - could you kind of talk about was it more back end load? I guess you didn t say it was linear. You said it was a similar pattern. Kevin Rauckman: Yes. (Bill Benton): Could you talk about kind of what pattern was and what the inventory - your view of the inventory looks like in the channel right now. Kevin Rauckman: Okay. Yeah, as I mentioned, the linearity was similar to 03 and if you look - if you recall what we talked about in 03 is that we had a slow start and then we really ramped up in November and December. So many of our sales that we got in December obviously would not be collectible until January and that s what drove the 53 DSO but again very similar to what we experienced in 03. (Bill Benton): Great. Kevin Rauckman: And as far as the inventory channel, to the best of our knowledge we really haven t seen much difference there. W feel like a channel is relatively clean. We haven t seen an increase in inventory by any means and the products that we ve released - the new products we ve released have bee pretty well received and have sold through pretty well.

21 Page 21 (Bill Benton): Okay and I like your new series - (C) series by the way but - and with that comes the question of what are you doing kind of I guess with that - with the high-end (3)? I ve been kind of just searching the Web here and seeing a little bit of discounting on and I wonder if some of you retailers are looking to add that on the shelf next to it or are they looking to maybe phase out the higherend one and come in with maybe the lower price (C) series. Well it really depends on which of your (unintelligible) you talk to and some retailers indicate that they (unintelligible) both the high end and the mid-range products. (Bill Benton): Okay so kind of a mix as you re seeing it right now? Yes, that s what we have been told by some major retailers. (Bill Benton): Okay and then just a final question on (Mopar) as well. I guess, you know, there s been a little bit of confusion on (Harmon) announcing that they were going to be doing with Chrysler starting in Is - can you maybe help alleviate some of that confusion and can you maybe discuss a little bit - I know you maybe discuss a little bit. I know - are the profitability metrics around the (Mopar) solution, should we think about that as similar to what you ve commented in the past on an (OE) type solution? Well we really cannot comment on (Mopar) trends so (unintelligible) from (Mopar). But all I can say is that we are excited by this relationship and look forward exploring additional opportunities. As far as the profit margin is concerned that certainly we won t be - we are not able to achieve 50% margin for this kind of OEM relationships.

22 Page 22 (Bill Benton): Okay. Okay but we should think about it in terms of what you maybe in the past you have said on (OE) relationships? Kevin Rauckman: Yeah I think it s within that range, yes. (Bill Benton): Within that range. Okay well great guys, thanks. Kevin Rauckman: Thank you. Thank you. Your next question comes from the line of (Ron Epstein) with Merrill Lynch. (Stephanie Lang): Hi, this is actually (Stephanie Lang) calling for (Ron) and I actually just had a couple of questions. Can you comment on the ASPs that are excluding (avionics). I just kind of wanted to see a trend of where the selling average prices are without kind of the G1000. Kevin Rauckman: Well since the vast majority of our units come from the consumer business, the fourth quarter ASP came down from the prior quarter, from (355) down to (308) and that still was higher than the fourth quarter of 03 and I think it speaks to the fact of the types of products and the mix of products that we were selling. Again, we have tried to focus your attention way from ASPs because so much of it has to do with these - the product mix and the number of which products are being sold. So as we expected we thought during the fourth quarter because many of our sales are at lower price points for the holiday season, we would see a reduction in ASP during Q4 of 04.

23 Page 23 (Stephanie Lang): Okay thanks. Also, once more question, the OEM manufacturers are seeing kind of a pick up in the corporate jet market and I wanted to know kind of what you re seeing in the general aviation market. Clifton Pemble: (Stephanie), this is (Cliff). I think there s been a lot of increased awareness and attention in the general aviation market, both in the jet area as well as the piston type market so we ve seen an increase in that amount of business. (Stephanie Lang): So like for Q4 Cessna kind of commented that their single engine piston jets kind of go over 40% year-over-year. Is that kind of the gross out you re expecting for the (G1000)? Clifton Pemble: I think for 2005 we ll definitely experience some good growth in (G1000). I think there s some pent up demand for new aircrafts because of the new technologies being offered. (Stephanie Lang): Okay, thank you. Clifton Pemble: Thank you. Your next question comes from the line of (Mark Roberts) with Wachovia. (Mark Roberts): Thank you, good morning. Man: Hi (Mark). (Mark Roberts): If - could I - if I revisit the unit volume in the fourth quarter was there a particular category of product or a particular product th drove the high yearover-year unit sales?

24 Page 24 Man: No, actually we saw - as I mentioned we saw strong growth across all - nearly all product lines. About the only one where we didn t see ans much growth was in the (TDA) product because we had introduced the (IQ3600) late in the year last year and had quite a bit of pent up demand there. So - but in general we saw a unit growth across the aviation segment and in the most of the product lines within the consumer segment. (Mark Roberts): Okay and you had mentioned earlier in the year, earlier last year that you anticipated that shortly the unit volume or at least the revenues from automatic oriented products would equal or surpass marine oriented products. Did that happen in the fourth quarter? Man: I think we can confirm that that did happen in the fourth quarter. (Mark Roberts): And should we anticipate going forward that now you re largest dollar volume category will be automotive. Man: No I don t think you can conclude that. Our recreational product line I still the largest and appears to be - will continue although we expect a nice growth within the automotive product line. (Mark Roberts): Okay so - and so - there doesn t - they re margins were up a little bit so can we conclude - you had mentioned earlier last year that the automotive products generally had somewhat lower gross margins. Is that still true? Man: I think that s still true. It s just that w had a lot of growth from other products outside the automotive product line, including aviation. (Mark Roberts): Okay. Those were all my questions. My other questions have been answered.

25 Page 25 Man: Thanks Mark. Man: Thanks. Your next question comes from the line of (Benjamin Windler) with Morgan Stanley. (Benjamin Windler): Hey good morning guys. Man: Hey Ben. Good morning. (Benjamin Windler): Kevin I was just want to go back and revisit the comments that you guys made up front and then in last years results Min spoke to the margin (unintelligible) the first half of last year and sort of how you guys have alleviated a lot of the short - potential shortages on components and capacity. Is that how I - we should look at the inventory growth in the fourth quarter that effective what you have there is a lot of raw materials so you re ready and you don t have any kind of issue with a big surge in demand in color displays and flash which might have been in shortage quantities last year. You ve already got that sort of taken of, is that the way to look at it? Man: Yeah I think when you look at our inventory possibly it s always been (unintelligible) that we d try to keep at least 60 days of finished goods on and to be able to respond to customer demand. And if you look at the breakdown, right now we have between 60 and 75 days of finished goods and most of that is in - on the newer products so we feel like there s very low risk there. However I think the increase - some of the increase were within raw materials in some of our assemblies.

26 Page 26 (Benjamin Windler): Yep. Man: And would admit that we need to do a better job there of working that through the production process over the next six months and that s really what we re working on right now. (Benjamin Windler): Got it. That makes sense. Thanks. And then if I could just ask one sort of more big picture question. A couple of years ago you guys had sort of talked about the wireless opportunity in GPS cell phone. I think you had launched something in Europe but then sort of back away from it. Any updates there in terms of the opportunity, whether you re focused on it, is it part of the plans in 05? Man: Well we have interest in what s going on in the wireless market. There has been a lot of change since we stopped focusing on devices and started to look at possible applications. For example, our (GPS 10 Blue Tooth) module. (Benjamin Windler): Okay so we ll probably hear more on that front in the current year. Man: Yes, correct. (Benjamin Windler): Great, thank you very much. Man: Thank you. Thank you. Your next question comes from the line of (Ken Suffy) with Thomas Weisel Partners.

27 Page 27 (Ken Suffy): Thank you, good morning. Man: Good morning. (Ken Suffy): Historically you guys have provided a little color on the actual slip between raw materials and work in process and finished goods and inventory. Can you do that for us this quarter? Kevin Rauckman: Well I think as I just mentioned, we saw increases of all of those components. And I feel like again - I feel like the finished goods is in pretty good shape of raw materials due to the decision to bring on more parts in order to not get short. In the fourth quarter and into the marine and spring season we have seen an increase of raw materials over the Q3 of 04. The raw material number is approximately - let s see, over the quarter we saw about a 17 - $16 million increase on raw materials and finished goods was about $15. (Ken Suffy): Okay. Thank you. And has your inventory situation changed dramatically since the end of Q4 as we look at it right now? Kevin Rauckman: I think it s too early to tell. We ve only had a few weeks of shipment but in general I think we re still working through the inventory levels and as I mentioned raw materials and assemblies in particular. I d probably categorize it as a not a significant change at this point. (Ken Suffy): Okay. And then on the capacity issue, any update on the search for additional space in Taiwan?

28 Page 28 Actually, for us three to five years, a lot of plan. We have started the process of looking at the additional facilities for this expansion. But so far we have no identified any (site). (Ken Suffy): Min, when do you hope to have that resolved? Well I guess (unintelligible) we continue to, you know, that the - as you know, in Taiwan, you know, it is not, you know, it s not easy to find a size which is convenient to where you are and our top ten (unintelligible) has been for size which is (unintelligible) facility but so far we have not had any (unintelligible). (Ken Suffy): Okay. Thank you. Man: Thanks. Your next question comes from the line of (Peter Freetland) with (unintelligible). (Peter Freetland): Hey guys, a couple of questions. First just on your revenue growth or your revenue outlook for 05, can you just give us an idea how that would break down consumer and aviation? Should we expect them to both grow at the same rate or (unintelligible) over here? Kevin Rauckman: Yeah, the way we look at it, you know, we had - earlier we had hoped that we d see similar growth, you know, let s say 20% of between both but actually it looks like given the aviation business, we ll probably see a little bit above 20% in aviation, a little bit below 20% for the consumer segment. (Peter Freetland): Okay.

29 Page 29 Kevin Rauckman: That s what we have in our forecast right now. (Peter Freetland): Okay and then I know you guys aren t giving any Q1 guidance but should we expect the same kind of seasonality that you usually experience coming out of that holiday season? Kevin Rauckman: Yes, it would be sequentially down. We would say that but I m really not going to give any specific numbers. (Peter Freetland): Okay. Okay, thanks guys. Kevin Rauckman: Thank you. Your next question comes from the line of (Jeff Evanson) with (Darby and Company). (Jeff Evanson): Thank you. I was wondering if you could us some sense of the mix in the aviation segment between OEM and aftermarket in the quarter. Kevin Rauckman: Not prepared to quote an exact number but historically we ve seen about 20% of our aviation business with OEMs and we ve definitely, given the (G1000), we saw that increase during the - both the quarter and the year. (Jeff Evanson): Okay. As you re moving into some maybe a little bit different markets, a little bit broader consumer markets than you ve had in the past with emphasis on PDAs and automotive, how do you expect that ll change the amount and nature of marketing spending in 05?

30 Page 30 Kevin Rauckman: That s always a challenge to forecast. We do have an advertising budget which is somewhat fixed due to media and then another component of that is due to cooperative advertising which is more variable in nature so given the, you know, given the expected 20% top line growth at the high end of our range, we d expect, you know the SG&A or amortizing dollars to increase at a similar rate. (Jeff Evanson): Might we see more -- excuse me -- less coop and more media as a result of this shift? Kevin Rauckman: I think we re looking at both but I think that could happen yes. (Jeff Evanson): Okay. And then a last follow-up on the (Mopar) deal. Obviously you have ambitions beyond what you announced a couple of weeks ago. Are those ambitions within Daimler Chrysler, outside of that manufacturer or both and maybe what kind of benchmarks are you looking towards for (tape) rates to expand those relationships? Kevin Rauckman: Well we continue to look for opportunity. We don t have anything specific we can share with you at this time but we are really thrilled with the initial relationship with (Mopar). (Jeff Evanson): Okay thank you. Kevin Rauckman: Thank you. Your next question comes from the line of (Connel Modocar) with Lehman Brothers.

31 Page 31 (Connel Modocar): Hey guys, a question on average selling prices - given the competition is increasing and we have seen a general trend, at least on the reseller level that prices are trending down, how should we se average selling prices for Garmin in 05, both with and without aviation? Kevin Rauckman: Well if you recall we had seen actually ASPs increasing during the year, up until we got to the fourth quarter so at this point it s really hard to forecast given the product mix but I wouldn t expect a significant difference on the overall ASP than we had for the year. (Connel Modocar): ASPs in 04 really increased because of the new (unintelligible) product line that you have - the color screens and things like that Kevin Rauckman: Right. (Connel Modocar): And plus the PDAs selling for the whole year and as well as the (G1000) being there, at least during the second half? Kevin Rauckman: Right. (Connel Modocar): But in general one would expect that they would trend down. It you exclude aviation, how will you see ASPs? Kevin Rauckman: Same answer. I think we have (60) new products coming out in 05 and we, you know, now that we re going to be adding color screens because we already them in most cases last year but we don t anticipate a significant reduction in ASP. (Connel Modocar): Okay, thanks.

32 Page 32 Kevin Rauckman: Thank you. You have a follow-up question or comment from the line of (Bill Benton) with William Blair. (Bill Benton): Right, hey guys just - and could you talk about maybe any component pricing break you ve seen or what s going on in the component pricing side? We are literally - we really have not seen much movement overall. (Unintelligible) process for some complements not just that a fresh memory our low to date but on the other hand due to the variation of the US dollars relative to all Asian currencies, many components from Asia surprise actually more expensive than a year ago so overall, you know, we just don t see any, you know, (unintelligible) kind of significant move from one way or the other. (Bill Benton): Okay and then you talked a little bit about your marketing budget. Would you consider I guess looking at a car rental opportunity as more of a sales and marketing type budget item rather than necessarily looking for a return on that kind of from the sale? Well (unintelligible) is not our top priority but frankly we have continued to look into this market. We cannot provide anymore specific information at this time but we are looking into the market. (Bill Benton): You re continuing to look there then? Yeah. (Bill Benton): Okay. And then I think Kevin you mentioned there as a one-time patent license fee in the quarter, in the SG&A line?

33 Page 33 Kevin Rauckman: Right. (Bill Benton): Can you give any magnitude on how big that was? Kevin Rauckman: It was roughly $1 million. I can t really give you any specific details on it though. (Bill Benton): Okay, okay that s great. Thank you. Kevin Rauckman: Thank you. You have a follow-up question or comment from the line of (John Buker) with (Harris Nesbitt). (John Buker): Yeah one other question related to raw materials and more component focused also. You indicated that you had some room for improvement on the current balance of raw materials. As you look out at component availability and just some of the trends that you ve seen and - or they re expecting for There was a fairly dynamic market in 2004 for a number of types of components. You know, what are your expectations for 2005? Do you think it ll be, you know, more stable? Is there - are things more an equilibrium there or are you expecting that there could be surprises as you look out this year? Thank you. Well I have to say that these are (unintelligible) in 2004 we have taken a more defensive approach (unintelligible) by (unintelligible) the high (unintelligible) of critical parts. But at this point we don t see any significant risk for components this year. So around the line we must review our inventory strategy and (unintelligible) down (unintelligible) inventory.

34 Page 34 (John Buker): Thank you. Your next question comes from the line of (Rich Salara) with Needham and Company. (Rich Salara): Kevin, on the R&D side, I think you mentioned you added four people during the quarter, yet it was up sequentially quite significantly in dollar terms. Can you just explain that and then say if you think that s sort of the right dollar level to think about as a baseline going forward? Kevin Rauckman: Yeah what we saw even though we only added four, we definitely had - we had brought on over 50 people during the year so we saw, you know, about 1/3 of that is just general costs, well actually almost about a half of that is just general cost increase to salaries and benefits and the cost of R&D. We also did see an increases in our Taiwan R&D which increased during the quarter but in general, as far as looking forward, you know, we ended at about 8.1% of sales as I mentioned. I think with a 20% growth rate we would still like to see R&D grow as a percentage of sales, somewhere around, you know, 50 basis points could possibly be the number in 05. (Rich Salara): Okay, that s helpful. And then just with respect to the inventory, do you have any targets in terms of inventory days for overall inventory? You know, what is your sort of - how do you plan to manage that going forward? Kevin Rauckman: I think it gets back to what our earlier comments were and that is, you know, 161 days is probably too high and we re looking at reevaluating raw materials

35 Page 35 and assembly part that go into the production process so we d like to see that come back down to a more reasonable level. (Rich Salara): Okay thank you. Your next question comes from the line of (Thomas Cappola) with (DGM Management). (Thomas Cappola): Hey guys, how are you? I appreciate you taking the time. I guess I don t understand the business maybe as well as others. I know you were stressing not to focus on (AFPs) coming in and subsequent margin compression so what should we be focusing on? You know, where is the turn there? What should we be looking for? Well our forecast on our revenue and EPS. (Thomas Cappola): So how, you know, how I guess, you know, as you guys model internally where do you see ASPs coming to? You know, is there an end to this or Kevin Rauckman: Well I guess I can t add too much more other than we don t expect a significant change in ASP. You know, we had 50 new products last year. We expect 60 in 05 and there s a lot of variability there, but in general not a significant change in the market. (Thomas Cappola): So you - so I guess continue to introduce new products even though ASPs will continue to contract and try and make up in volume? We are not sure that EPS will actually contract, you know, but like the introduce more of the (unintelligible) products. The (unintelligible) product tend to have a higher ASPs than are more handheld or personal fitness

36 Page 36 products. So, you know, so in a way we are not quite sure that indeed (unintelligible) is an ASP. (Thomas Cappola): Right, okay. Okay thanks guys, appreciate it. Thank you. Your next question comes from the line of (Adam Rice) with (Koniko Associates). Man: Hello? Man: Hello? Man: Hello? Man: Hello. (Adam Rice): I m sorry about that - my phone s screwing up here. A question on the inventory again and I m sorry to beat a dead horse here. But you mentioned that you all were evaluating the reserves and you - so you had enough on the books. May I ask what the reserve number was in the quarter? Did it change as a percent of total inventory in 4Q? Kevin Rauckman: Well we ll file that with the 10-K but as a percentage of total it actually came down a little bit. It s interesting though when you look at the types of products that, as I mentioned earlier, we don t have a lot of old inventory sitting around in finished goods. It s a lot of new product so therefore we think the risk is very low as far as any kind of obsolescence in the future.

37 Page 37 (Adam Rice): Okay and also I know you gave raw materials I think 15 million in the - sequentially. Kevin Rauckman: Yes. (Adam Rice): And then finished goods up 15 million sequentially. May I ask, do you have - also have a work in progress line or do you have - will you release that at the Kevin Rauckman: Well it came up about $4 million. (Adam Rice): Okay. Kevin Rauckman: Which is the overall $35 million increase. (Adam Rice): Okay and just may I ask why I m not allowed to get the reserve number? I mean that s part and parcel of the Kevin Rauckman: Well I mean we - I guess I ll go ahead and distribute that. It s about 11-1/2 million. (Adam Rice): Okay so - and thanks very much. Kevin Rauckman: Yeah. Your next question comes from the line of (Peter Freetland) with (Fulcrom). (Peter Freetland): Hey guys. Just a follow up on Kevin Rauckman: Yeah.

38 Page 38 (Peter Freetland): Just looking at the 05 working capital would - how should we expect that to trend just looking at accounts receivable and inventories? They re a bit - you had to put a lot of working capital towards those two areas in 04 so just - and roughly speaking what should we expect for 05 for working capital? Kevin Rauckman: Well I would say that, you know, we saw roughly a $60 million use of cash of inventory. I would not expect to see that kind of a level in 05. It should be lower than that. I m going not to give a specific number. Accounts receivable on the other hand, if sales continue to increase like we hope they do, that will continue to increase on an absolute dollar basis. So we may not get much benefit on AR. So I would just classify it in general as working capital improvement due to the inventory balances. (Peter Freetland): Okay fair enough. Kevin Rauckman: Thank you. Your next question comes from the line of (Todd Nett) with (Constant Ford). (Todd Nett): Good morning folks. Good - congratulations on a nice quarter and the great year. I have a couple of questions. First of all, on the new products that you guys are intending to introduce in 05, I think you said 60. Can you break - how many are going to be going into aviation and how many are going to be in Marine and how many are going to be consumer? Could you break that out? Kevin Rauckman: Yeah (Todd) right now probably about 1/4 of those would be in aviation and maybe less than 1/4 in Marine and the rest in consumer.