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Article by DailyStocks_admin    (08-10-08 04:53 AM)

The Daily Magic Formula Stock for 08/09/2008 is Garmin Ltd. According to the Magic Formula Investing Web Site, the ebit yield is 10% and the EBIT ROIC is 75-100 %.

Dailystocks.com only deals with facts, not biased journalism. What is a better way than to go to the SEC Filings? It's not exciting reading, but it makes you money. We cut and paste the important information from SEC filings for you to get started on your research on a specific company.

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This discussion of the business of Garmin Ltd. ("Garmin" or the "Company") should be read in conjunction with, and is qualified by reference to, “Management's Discussion and Analysis of Financial Condition and Results of Operations” under Item 7 herein and the information set forth in response to Item 101 of Regulation S-K in such Item 7 is incorporated herein by reference in partial response to this Item 1. Garmin has four business segments: Marine, Automotive/Mobile, Outdoor/Fitness, and Aviation. The segment and geographic information included in Item 8, “Financial Statements and Supplementary Data,” under Note 9 is incorporated herein by reference in partial response to this Item 1.

Garmin was incorporated in the Cayman Islands on July 24, 2000 as a holding company for Garmin Corporation, a Taiwan corporation, in order to facilitate a public offering of Garmin shares in the United States. Garmin owns, directly or indirectly, all of the operating companies in the Garmin group.

Garmin’s annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statement and Forms 3, 4 and 5 filed by Garmin’s directors and executive officers and all amendments to those reports will be made available free of charge through the Investor Relations section of Garmin’s Internet website (http://www.garmin.com) as soon as reasonably practicable after such material is electronically filed with, or furnished to, the Securities and Exchange Commission.

The reference to Garmin’s website address does not constitute incorporation by reference of the information contained on this website, and such information should not be considered part of this report on Form 10-K.

Company Overview

Garmin is a leading, worldwide provider of navigation, communications and information devices, most of which are enabled by Global Positioning System (“GPS”) technology. Garmin designs, develops, manufactures and markets a diverse family of hand-held, portable and fixed-mount GPS-enabled products and other navigation, communications and information products for the automotive/mobile, outdoor/fitness, marine, and general aviation markets.

Overview of the Global Positioning System

The Global Positioning System is a worldwide navigation system which enables the precise determination of geographic location using established satellite technology. The system consists of a constellation of orbiting satellites. The satellites and their ground control and monitoring stations are maintained and operated by the United States Department of Defense, which maintains an ongoing satellite replenishment program to ensure continuous global system coverage. Access to the system is provided free of charge by the U.S. government.

Prior to May 2000, the U.S. Department of Defense intentionally degraded the accuracy of civilian GPS signals in a process known as Selective Availability (‘‘SA’’) for national security purposes. SA variably degraded GPS position accuracy to a radius of 100 meters. On May 2, 2000, the U.S. Department of Defense discontinued SA. In a presidential policy statement issued in December 2004, the Bush administration indicated that the U.S. does not intend to implement SA again and is committed to preventing hostile use of GPS through regional denial of service, minimizing the impact to peaceful users. With SA removed, a GPS receiver can calculate its position to an accuracy of approximately 10 meters or less, enhancing the utility of GPS for most applications.

The accuracy and utility of GPS can be enhanced through augmentation techniques which compute any remaining errors in the signal and broadcast these corrections to a GPS device. The Federal Aviation Administration (“FAA”) has developed a Wide Area Augmentation System (‘‘WAAS’’) comprising ground reference stations and additional satellites that improve the accuracy of GPS positioning available in the United States and portions of Canada and Mexico to approximately 3 meters. WAAS supports the use of GPS as the primary means of enroute, terminal and approach navigation for aviation in the United States. The increased accuracy offered by WAAS also enhances the utility of WAAS-enabled GPS receivers for consumer applications. The FAA announced on July 11, 2003 that the WAAS system had achieved initial operating capability and that the system was available for instrument flight use with appropriately certified avionics equipment. Since that time, the FAA has installed additional ground reference stations and has launched additional WAAS satellites.

Recent Developments in the Company’s Business

Since the inception of its business, Garmin has delivered over 31 million products, which includes the delivery of over 12.3 million products during 2007.

Automotive/Mobile Product Introductions

Garmin launched many new automotive products in 2007. Among these were many new versions of Garmin’s popular nüvi ® personal navigation device (PND) product line. The nüvi family was expanded in early 2007 to include the nüvi 370 and the nüvi 670, which added built-in European maps to the many features of the nüvi 360 and 660 models. The nüvi 680 was also introduced (along with the StreetPilot® c580) as the first PNDs to incorporate real-time traffic reports, gas prices, weather conditions, and movie times from Microsoft’s MSN Direct network. Garmin later released the nüvi 2XX family of PNDs (nüvi 200, 250, 260, and 270, as well as 200W and 250W widescreen models), which represented an entry-level category of the popular nüvi family with a sleek new design, including a built-in internal GPS antenna. In September 2007, Garmin released the high-end, full-feature nüvi 700 series (nüvi 750, nüvi 760, and nüvi 770 models). The nüvi 700 series combines the sleek form factor of the nüvi 200 widescreen models with full-feature functionality, including a built-in FM transmitter, MP3 player, Bluetooth® hands-free technology (in the nüvi 750, 760 and 780), a built-in FM traffic receiver, and the ability to add custom points of interest (POIs).

Garmin continued its expansion in the rental car market in 2007 by announcing agreements to supply GPS navigation devices to National Car Rental and Alamo Rent A Car. Garmin also continued to expand its presence with automotive manufacturers and dealers in 2007. Ford Component Sales, LLC, a subsidiary of Ford Motor Company, began offering the nüvi 680 and nüvi 360 for sale in certain Ford, Lincoln and Mercury dealerships in the United States. Honda Access Europe N.V. announced that a customized version of the nüvi 360 will be offered in certain Honda dealerships in Europe for six different Honda models of vehicles. In November 2007, Volvo Cars Corporation selected Garmin’s nüvi 760 as a customized navigation solution for select Volvo vehicles, including the new Volvo C30 and Volvo XC70. The Volvo solution is a dealer-fitted accessory kit - which includes a custom dashboard bracket - that will be sold through certain Volvo dealerships in Europe and North America.

Garmin also expanded its Garmin Mobile™ service and family of products in 2007. In October, Garmin announced Garmin Mobile XT, a pre-loaded (microSD card) software application for certain smartphones that provides preloaded maps and dynamic content (such as real-time traffic alerts and fuel prices) but does not require monthly fees or subscriptions. Garmin also announced that Handmark, a global leader in the distribution of mobile media, will distribute Garmin Mobile for BlackBerry devices enabled with GPS through Handmark’s distribution channels.

Outdoor/ Fitness Product Introductions

In the category of fitness products, Garmin expanded its Forerunner® line with the Forerunner 50, an advanced fitness watch that allows runners and walkers to track their workouts and automatically upload their data (via a wireless USB ANT™ Stick) to a personal computer. Garmin also introduced its next generation GPS-enabled personal training devices for cyclists, the Edge® 605 and 705. To help promote the release of the new Forerunner 50 product and its full line of fitness products, Garmin helped sponsor more than a dozen marathons and cycling events in 2007, including the Boston, Chicago, and New York marathons and the Amgen Tour of California cycling race.

Garmin also introduced several new product offerings in the Outdoor category, including the Astro™ GPS Dog Tracking System designed for hunting dogs and two new models of the Rino® GPS two-way radio family, the Rino 520HCx and 530HCx, which added a high-sensitivity GPS receiver and a microSD card slot for detailed mapping data.

Marine Product Introductions

Garmin introduced the new GPSMAP 5000 series of multifunction chartplotters in 2007, which improved upon prior multifunction displays by offering a touchscreen interface and other advancements. In November 2007, Garmin announced a new line of marine products for the 2008 boating season, including a line of big-screen multi-function displays, a new fuel sensor, instruments, and a new marine autopilot system (the GHP™ 10).


Mr. Eller and Mr. Pemble are currently directors of the Company, having been elected at the Company’s annual general meeting in 2005 for a term expiring on the date of this Annual Meeting. Mr. Eller and Mr. Pemble have each indicated that they are willing and able to continue serving as directors if elected and have consented to being named as nominees in this Proxy Statement. If either or both of these nominees should for any reason become unavailable for election, the Proxy Committee will vote for such other nominee as may be proposed by the Company’s Board of Directors.

Donald H. Eller, age 65, has been a director of the Company since March 2001. Dr. Eller has been a private investor since January 1997. From September 1979 to November 1982 he served as the Manager of Navigation System Design for a division of Magnavox Corporation. From January 1984 to December 1996 he served as a consultant on Global Positioning Systems and other navigation technology to various U.S. military agencies and U.S. and foreign corporations. Dr. Eller holds B.S., M.S. and Ph.D. degrees in Electrical Engineering from the University of Texas.

Clifton A. Pemble, age 42, has served as a director of the Company since August 2004 and has been President and Chief Operating Officer of the Company since October 2007. He has served as a director and officer of various subsidiaries of the Company since August 2003. He has been President and Chief Operating Officer of Garmin International, Inc. since October 2007. Previously, he was Vice President, Engineering of Garmin International, Inc. from 2005 to October 2007, Director of Engineering of Garmin International, Inc. from 2003 to 2005, Software Engineering Manager of Garmin International, Inc. from 1995 to 2002, and a Software Engineer with Garmin International, Inc. from 1989 to 1995. Garmin International, Inc. is a subsidiary of the Company. Mr. Pemble holds BA degrees in Mathematics and Computer Science from MidAmerica Nazarene University.

Min H. Kao, age 59, has served as Chairman of the Company since August 2004 and was previously Co-Chairman of the Company from August 2000 to August 2004. He has served as Chief Executive Officer of the Company since August 2002 and previously served as Co-Chief Executive Officer from August 2000 to August 2002. Dr. Kao has served as a director and officer of various subsidiaries of the Company since August 1990. Dr. Kao holds Ph.D. and MS degrees in Electrical Engineering from the University of Tennessee and a BS degree in Electrical Engineering from National Taiwan University.

Charles W. Peffer, age 60, has been a director of the Company since August 2004. Mr. Peffer was a partner in KPMG LLP and its predecessor firms from 1979 to 2002 when he retired. He served in KPMG’s Kansas City office as Partner in Charge of Audit from 1986 to 1993 and as Managing Partner from 1993 to 2000. Mr. Peffer is a director of NPC International, Inc. and of the Commerce Funds, a family of eight mutual funds.

Gene M. Betts, age 55, has been a director of the Company since March 2001. Mr. Betts has been the Chief Financial Officer of Embarq Corporation since May, 2006. He previously served as Senior Vice President-Finance at Sprint Nextel Corporation’s local telecommunications division from August 2005 to May 2006 and as Senior Vice President – Finance and Treasurer of Sprint Corporation from 1998 until August 2005. Mr. Betts is a Certified Public Accountant. Prior to joining Sprint he was a partner in Arthur Young & Co. (now Ernst & Young). Mr. Betts is a director of seven registered investment companies in the Buffalo Funds complex.

Thomas A. McDonnell, age 62, has been a director of the Company since March 2001. Mr. McDonnell has been President of DST Systems, Inc. (“DST”) since January 1973 (except for a 30-month period from October 1984 to April 1987), Chief Executive Officer of DST since 1984 and a director of DST since 1971. He is also a director of Blue Valley Ban Corp., Commerce Bancshares, Inc., Euronet Worldwide, Inc. and Kansas City Southern.


The following discussion and analysis of our financial condition and results of operations focuses on and is intended to clarify the results of our operations, certain changes in our financial position, liquidity, capital structure and business developments for the periods covered by the consolidated financial statements included in this Form 10-K. This discussion should be read in conjunction with, and is qualified by reference to, the other related information including, but not limited to, the audited consolidated financial statements (including the notes thereto), the description of our business, all as set forth in this Form 10-K, as well as the risk factors discussed above in Item 1A.

As previously noted, the discussion set forth below, as well as other portions of this Form 10-K, contain statements concerning potential future events. Readers can identify these forward-looking statements by their use of such verbs as “expects,” “anticipates,” “believes” or similar verbs or conjugations of such verbs. If any of our assumptions on which the statements are based prove incorrect or should unanticipated circumstances arise, our actual results could materially differ from those anticipated by such forward-looking statements. The differences could be caused by a number of factors or combination of factors including, but not limited to, those discussed above in Item 1A. Readers are strongly encouraged to consider those factors when evaluating any such forward-looking statement. We do not undertake to update any forward-looking statements in this Form 10-K.

Garmin’s fiscal year is a 52-53 week period ending on the last Saturday of the calendar year. Fiscal year 2005 contained 53 weeks compared to 52 weeks for fiscal years 2007, 2006, 2004, and 2003. Unless otherwise stated, all years and dates refer to the Company’s fiscal year and fiscal periods. Unless the context otherwise requires, references in this document to "we," "us," "our" and similar terms refer to Garmin Ltd. and its subsidiaries.

Unless otherwise indicated, dollar amounts set forth in the tables are in thousands, except per share data.


We are a leading worldwide provider of navigation, communications and information devices, most of which are enabled by Global Positioning System, or GPS, technology. We operate in four business segments, which serve the marine, outdoor/fitness, automotive/mobile, and aviation markets. Our segments offer products through our network of independent dealers and distributors. However, the nature of products and types of customers for the four segments can vary significantly. As such, the segments are managed separately. Our portable GPS receivers and accessories for marine, recreation/fitness and automotive/mobile segments are sold primarily to retail outlets. Our aviation products are portable and panel-mount avionics for Visual Flight Rules and Instrument Flight Rules navigation and are sold primarily to retail outlets and certain aircraft manufacturers.

Since our first products were delivered in 1991, we have generated positive income from operations each year and have funded our growth from these profits. Our sales have increased at a compounded annual growth rate of 54% since 2003 and our net income has increased at a compounded annual growth rate of 48% since 2003. The vast majority of this growth has been organic; only a very small amount of new revenue occurred as a result of the acquisition of UPS Aviation Technologies, Inc. in 2003, MotionBased Technologies LLC in 2005, Dynastream Innovations Inc. in 2006, Digital Cyclone, Inc. and the assets of Nautamatic Marine Systems, Inc. in 2007, and four European distributors in 2007 - Garmin France SAS, Garmin Deutschland GmbH, Garmin Iberia S.A., and Garmin Italia S.p.A.; these acquisitions had no significant impact on net income for those years.

Since our principal locations are in the United States, Taiwan and the U.K., we experience some foreign currency fluctuations in our operating results. The functional currency of our European operations is the Euro (effective July 2007) and the functional currency of our Asian operations is the New Taiwan Dollar. Approximately 80 percent of transactions of our European operations are now denominated in British Pounds Sterling or the Euro. We experienced $23.0 million, $0.6 million, $15.3 million, ($24.8) million, and ($6.7) million in foreign currency gains (losses) during fiscal years 2007, 2006, 2005, 2004, and 2003, respectively. To date, we have not entered into hedging transactions with the Euro, the British Pound Sterling, the Canadian dollar, or the New Taiwan Dollar, although we may utilize hedging transactions in the future.

Critical Accounting Policies and Estimates


Garmin’s discussion and analysis of its financial condition and results of operations are based upon Garmin’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The presentation of these financial statements requires Garmin to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, Garmin evaluates its estimates, including those related to customer sales programs and incentives, product returns, bad debts, inventories, investments, intangible assets, income taxes, warranty obligations, and contingencies and litigation. Garmin bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Revenue Recognition

Garmin records estimated reductions to revenue for customer sales programs returns and incentive offerings including rebates, price protection (product discounts offered to retailers to assist in clearing older products from their inventories in advance of new product releases), promotions and other volume-based incentives. The reductions to revenue are based on estimates and judgments using historical experience and expectation of future conditions. Changes in these estimates could negatively affect Garmin’s operating results. These incentives are reviewed periodically and, with the exceptions of price protection, are accrued for on a percentage of sales basis. If market conditions were to decline, Garmin may take actions to increase customer incentive offerings possibly resulting in an incremental reduction of revenue at the time the incentive is offered.


Garmin’s products sold are generally covered by a warranty for periods ranging from one to two years. Garmin accrues a warranty reserve for estimated costs to provide warranty services. Garmin’s estimate of costs to service its warranty obligations is based on historical experience and expectation of future conditions. To the extent Garmin experiences increased warranty claim activity or increased costs associated with servicing those claims, its warranty accrual will increase, resulting in decreased gross profit.


Garmin writes down its inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required.


Investments are classified as available for sale and recorded at fair value, and unrealized investment gains and losses are reflected in stockholders’ equity. Investment income is recorded when earned, and capital gains and losses are recognized when investments are sold. Investments are reviewed periodically to determine if they have suffered an impairment of value that is considered other than temporary. If investments are determined to be impaired, a capital loss is recognized at the date of determination.

Testing for impairment of investments also requires significant management judgment. The identification of potentially impaired investments, the determination of their fair value and the assessment of whether any decline in value is other than temporary are the key judgment elements. The discovery of new information and the passage of time can significantly change these judgments. Revisions of impairment judgments are made when new information becomes known, and any resulting impairment adjustments are made at that time. The economic environment and volatility of securities markets increase the difficulty of determining fair value and assessing investment impairment.

Income Taxes

Garmin provides deferred tax assets and liabilities based on the difference between the tax basis of assets and liabilities and their carrying amount for financial reporting purposes as measured by the enacted tax rates and laws that will be in effect when the differences are expected to reverse. While no valuation allowance has been recorded, it is Garmin’s policy to record a valuation allowance to reduce its deferred tax assets to an amount that it believes is more likely than not to be realized. While Garmin has considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance, in the event Garmin were to determine that it would not be able to realize all or part of its net deferred tax assets in the future, an adjustment to the deferred tax assets would be charged to income in the period such determination was made. Likewise, should Garmin determine that it would be able to realize its deferred tax assets in the future in excess of its net recorded amount, an adjustment to the deferred tax assets would increase income in the period such determination was made.

In addition, the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations. We recognize liabilities for tax audit issues in the U.S. and other tax jurisdictions based on our estimate of whether, and the extent to which, additional taxes will be due. If payment of these amounts ultimately proves to be unnecessary, the reversal of the liabilities would result in tax benefits being recognized in the period when we determine the liabilities are no longer necessary. If our estimate of tax liabilities proves to be less than the ultimate assessment, a further charge to expense would result.

Stock Based Compensation

Garmin distributes stock options or stock appreciation rights (“SARs”) each year as part of Garmin’s compensation package for employees. Employees with certain levels of responsibility within Garmin are eligible for stock option or SAR grants, but the granting of options or SARs is at the discretion of the Compensation Committee of the Board of Directors and is not a contractual obligation. Stock compensation plans are discussed in detail in Note 10 of the Notes to Consolidated Financial Statements.

Accounting Terms and Characteristics

Net Sales

Our net sales are primarily generated through sales to our global dealer and distributor network and to original equipment manufacturers. We recognize sales when title of the products passes to the customer. Our sales are largely of a consumer nature; therefore backlog levels are not necessarily indicative of our future sales results. We aim to achieve a quick turnaround on orders we receive, and we typically ship most orders within 72 hours.

Net sales are subject to some seasonal fluctuation. Typically, sales of our consumer products are highest in the second quarter, due to increased demand during the spring and summer marine season, and in the fourth quarter, due to increased demand during the holiday buying season. Our aviation products do not experience much seasonal variation, but are more influenced by the timing of the release of new products when the initial demand is typically the strongest.

Gross Profit

Raw material costs are our most significant component of cost of goods sold. In the first half of 2007, we experienced favorable product mix and product pricing, which allowed us to hold margins in our automotive/mobile segment steady; margin declines in the second half of 2007 were primarily a result of average selling price declines, coupled with raw materials price increases, most notably the costs for flash memory, in late second quarter and through the third quarter of 2007 when we were purchasing these components for our holiday production runs, resulting in margin declines as these components were sold, primarily in the fourth quarter of 2007. In the first half of 2006, we experienced meaningful price declines on flash memory and color screens, which allowed us to hold margins in our automotive/mobile segment steady in the face of price declines, and allowed us to improve margins in other business segments as well. While these price declines did not continue throughout all of 2006, we did have additional component cost reductions as we neared year end. In 2005 we experienced a shift in product mix to lower-margin product groups, which continued in 2006, and price declines related to increased competition, both in relation to the rapidly growing automotive navigation product line.

Our existing practice of performing the design and manufacture of our products in-house has enabled us to utilize alternative lower cost components from different suppliers and, where possible, to redesign our products to permit us to use these lower cost components. We believe that because of our practice of performing the design, manufacture and marketing of our products in-house, our Shijr, Taiwan, Jhongli, Taiwan, Lin-Kou, Taiwan, Olathe, Kansas, and Salem, Oregon manufacturing plants have experienced relatively low costs of manufacturing. In general, products manufactured in Taiwan have been our highest volume products. Our manufacturing labor costs historically have been lower in Taiwan than in Olathe and Salem.

Sales price variability has had and can be expected to have an effect on our gross profit. In the past, prices of our devices sold into the automotive/mobile market have declined due to market pressures and introduction of new products sold at lower price points. The average selling prices of our aviation products have increased due to product mix and the introduction of more advanced products sold at higher prices. The effect of the sales price variability inherent within the mix of GPS-enabled products sold could have a significant impact on our gross profit.

Selling, General and Administrative Expenses

Our selling, general and administrative expenses consist primarily of:

salaries for sales and marketing personnel;

salaries and related costs for executives and administrative personnel;

advertising, marketing, and other brand building costs;

accounting and legal costs;

information systems and infrastructure costs;

travel and related costs; and

occupancy and other overhead costs.

With the expected increase of total revenues in the future, we expect selling, general and administrative expenses to continue to increase for the foreseeable future. We intend to increase advertising and marketing expenses in order to focus on individual markets and build increased brand awareness in the consumer marketplace, especially as we continue to develop new markets and expand opportunities in rapidly growing markets like portable automobile navigation, which is becoming a mass market. We also intend to increase our customer call center support as our business continues to grow. We also anticipate increased selling, general, and administrative costs associated with information technology staffing and support activities.

Research and Development

The majority of our research and development costs represent salaries for our engineers, costs for high technology components used in product and prototype development, and costs of test equipment needed during product development. Approximately 87% of the research and development of our products is performed in the United States. The remainder of our research and development activities are performed by our Taiwan engineering group, which has increased in size in recent years.

We are committed to increasing the level of innovative design and development of new products as we strive for expanded ability to serve our existing consumer and aviation markets as well as new markets for GPS-enabled devices. We continue to grow our research and development budget in absolute terms.


No customer accounted for 10% or more of our sales in the year ended December 29, 2007. Our top ten customers have contributed between 25% and 41% of net sales since 2002. We have experienced average sales days in our customer accounts receivable of between 38 and 62 days since 2002. We have experienced an increase in the level of customer accounts receivable days due to changes in product mix and longer payment terms, and anticipate maintaining approximately the current level of accounts receivable days going forward.

Income Taxes

We have experienced a relatively low effective corporate tax rate due to the proportion of our revenue generated by entities in tax jurisdictions with low statutory rates. In particular, lower marginal tax rates and substantial tax incentives offered by the Taiwanese government on certain high-technology capital investments, and other Taiwan tax credits due to repatriation of 2007 earnings have continued to reduce our tax rate there. Therefore, profits earned in Taiwan have been taxed at a lower rate than those in the United States and Europe. As a result, our consolidated effective tax rate was approximately 12.6% during 2007. We have taken advantage of the tax benefit in Taiwan since our inception and we expect to continue to benefit from lower effective tax rates at least through 2012. The current Taiwan tax incentives for which Garmin has received approval will end in 2012. We plan on applying for additional incentives for years beyond 2012 based on capital investments we expect to make in the future. However, there can be no assurance that such tax incentives will be available indefinitely or that we will receive the incentives for which we apply. Management also believes that the revenue shift to our lower-tax rate corporate entities will continue, however certain tax credits will not be available in 2008, so the effective tax rate for fiscal 2008 is expected to be slightly higher than fiscal 2007. The actual effective tax rate will be dependent upon the production volume, additional capital investments made during fiscal 2008, and the composition of our earnings.

Comparison of Fiscal Years Ended December 29, 2007 and December 30, 2006

The increase in total net sales during fiscal 2007 was primarily due to the introduction of over 60 new products and overall demand for our automotive products. The aviation, marine, and outdoor/fitness segments also experienced solid growth in 2007. Total units sold increased 128% to 12,300,000 in 2007 from 5,400,000 in 2006. In general, management believes that continuous innovation and the introduction of new products are essential for future revenue growth.

The increase in net sales to consumers was primarily due to the introduction of many new automotive, outdoor/fitness, and marine products, strong demand for our automotive products, and solid demand for our aviation, marine, and outdoor/fitness products. It is management’s belief that the continued demand for the Company’s automotive products is due to overall increased consumer awareness of the capabilities and applications of GPS, particularly as those capabilities pertain to automobile navigation. Additionally, the expansion of the GPS market in general, as well as enhanced feature sets in our products specifically, have added to our growth. Innovative new product offerings, enhanced cartography, rich feature sets, and products featuring high sensitivity GPS capabilities increased sales of our marine and outdoor fitness segments. The increase in aviation sales for fiscal 2007 was primarily due to increased sales from panel mount products sold into the OEM (original equipment manufacturers) and retrofit markets. Sales of the G1000 integrated glass cockpit were the primary reason for increased OEM sales in 2006. While Temporary Flight Restrictions (TFR's) continue to impact general aviation, the flying community is adapting to these changes and returning to the skies in greater numbers. Should the FAA impose more restrictions, or elect to shutdown U.S. airspace in the future, these factors could have a material adverse effect on our business.

The increase in gross profit dollars was primarily attributable to the introduction of over 60 new products and strong demand for our automotive and outdoor/fitness products. The reduction in gross margin percentage was primarily due to the strong growth experienced in our lower-margin automotive/mobile product line, offset to some extent by strong gross margins in our other three segments. Notably gross margin in our automotive/mobile segment did not fall as much as anticipated due to volume discounts on certain components, less price competition than anticipated, and new “premium” feature-rich products with higher selling prices and margins. Management believes that the trend to lower gross margin percentages will continue in the future as net sales of automotive products increase at a faster rate than the other business segments. The rise in aviation gross margin was primarily due to a shift in product mix within our OEM and retrofit products. The decline in gross margin in the outdoor/fitness and marine segments was primarily due to a shift in product mix.

The increase in expense was primarily attributable to increases in employment generally across the organization, significantly increased advertising costs (up 80%) associated primarily with mass-market advertising to increase brand awareness and promote our automotive products, increased information technology staffing and support costs, increased staffing in our sales and marketing group to increase focus on specific target markets, and additional staffing in our customer call center. Management expects that because of strong demand for our products, selling, general and administrative expenses will rise in absolute dollars but decline as a percentage of sales during fiscal 2008 as increased advertising and marketing activities build awareness of the Garmin brand and demand for Garmin products worldwide.
The increase in research and development expense was primarily attributable to the addition of over 400 associates to our research and development team during fiscal 2007. Management believes that one of the key strategic initiatives for future growth and success of Garmin is continuous innovation, development, and introduction of new products. Management expects that its research and development expenses will increase approximately 30%-35% during fiscal 2008 on an absolute dollar basis due to the anticipated introduction of a strong portfolio of new products slated for fiscal 2008. Management expects to continue to invest in the research and development of new products and technology in order to maintain Garmin’s competitive advantage in the markets in which it competes.

Other income (expense) principally consists of interest income, interest expense and foreign currency exchange gains and losses. Other income (expense) was higher in fiscal 2007 relative to fiscal 2006, with the majority of this difference caused by increased interest income and a large foreign currency gain in 2007. Interest income for fiscal 2007 increased due to higher interest rates and larger cash and marketable securities balances during the year, increasing the returns on the Company’s cash and cash equivalents.

Foreign currency gains and losses for the Company in 2007 were primarily tied to movements by the Taiwan Dollar, the Euro, and the British Pound Sterling. The U.S. Dollar remains the functional currency of Garmin (Europe) Ltd. The Euro Dollar is the functional currency of Garmin France, Garmin Deutschland, Garmin Iberia, and Garmin Italia. As these entities grow, Euro currency moves will generate material gains and losses. Additionally, Euro-based inter-company transactions between Garmin Ltd. and its subsidiaries can also generate currency gains and losses. The Canadian dollar is the functional currency of Dynastream Innovations, Inc.; due to this entity’s relative size, its currency moves do not have a material impact on the Company’s financial statements.

The majority of the $23.0 million currency gain in fiscal 2007 was due to the weakening of the U.S. Dollar compared to the Euro and the British Pound Sterling. During fiscal 2007, the Taiwan Dollar weakened relative to the U.S. Dollar, resulting in a $2.5 million loss. The British Pound Sterling and the Euro strengthened 2% and 11.4% respectively, relative to the U.S. Dollar during fiscal 2007, which resulted in a $25.6 million gain. Other net currency gains and the timing of transactions created the remaining loss of $0.1 million.

Foreign currency gains and losses for the Company in 2006 were primarily tied to movements by the Taiwan Dollar and the British Pound Sterling relative to the U.S. Dollar. The U.S. dollar weakened when compared to the Taiwan Dollar during fiscal 2006, creating a $3.0 million loss, which was offset almost entirely by a $4.5 million gain as a result of strengthening in the U.S. Dollar relative to the British Pound Sterling. Other net currency gains and the timing of transactions created the remaining loss of $0.9 million.


Results of Operations

The company manages its operations in four segments: outdoor/fitness, marine, automotive/mobile, and aviation, and each of its segments employs the same accounting policies. Allocation of certain research and development expenses, and selling, general, and administrative expenses are made to each segment on a percent of revenue basis. The following table sets forth our results of operations (in thousands) including revenue, gross profit, and operating profit for each of our four segments during the periods shown. For each line item in the table, the total of the outdoor/fitness, marine, automotive/mobile, and aviation segments' amounts equals the amount in the condensed consolidated statements of income included in Item 1.

Comparison of 13-Weeks Ended June 28, 2008 and June 30, 2007

Increases in sales for the 13-week period ended June 28, 2008 were primarily due to a strong response to automotive and outdoor/fitness product offerings. Aviation revenues also grew but marine revenues declined on a year-over-year basis. Automotive/mobile revenue remains a significantly larger portion of our revenue mix, rising from 68.4% in the second quarter of 2007 to 69.3% in the second quarter of 2008.

Total unit sales increased 54% to 3,920,000 in the second quarter of 2008 from 2,544,000 in the second quarter of 2007. The higher unit sales volume in the second quarter of fiscal 2008 was primarily attributable to strong sales of automotive products during the seasonally higher second quarter, although unit growth was also strong in the outdoor/fitness segment due to new product offerings.

Automotive/mobile segment revenue grew 24.4% from the year-ago quarter, on the strength of nüvi and other personal navigation devices (PNDs). Revenues in our outdoor/fitness segment grew the fastest due to the introduction of the Colorado™ series, the Forerunner ® 405 and Edge ® 705. Our aviation segment also performed well with 15.2% growth from the year ago quarter. Growth in this segment is primarily driven by the demand for the G1000 in the OEM market and additional traction of our flight control products. The marine segment slowed during the quarter when compared with the strong second quarter of 2007 when many new products were introduced. The decline is primarily related to less consumer spending in the marine industry due to macroeconomic conditions and fuel prices.

Gross profit dollars in the second quarter of 2008 grew 11.3% while gross profit margin percentage decreased 470 basis points over the second quarter of 2007. Second quarter gross profit margins increased to 57.0%, and 73.1% in the outdoor/fitness and aviation segments respectively, when compared to the second quarter of 2007. Second quarter 2008 gross profit margins decreased to 56.4% and 38.6% in the marine and automotive/mobile segment respectively, when compared with the second quarter of 2007.

Gross profit margin percentage for the Company overall decreased primarily as a result of the automotive/mobile segment remaining a significantly larger percentage of the Company’s product mix during a quarter when this segment’s margin fell by 740 basis points. The automotive/mobile segment is by nature a lower-margin business and the Company has begun to see the impacts expected on gross margin due to falling prices and a product mix shift toward lower end PNDs. Foreign currency fluctuations resulted in 100 basis points of gross margin favorability as the Company benefited from sales transacted in foreign currencies. Release of new products into the outdoor/fitness segment drove strong year-over-year improvement in outdoor/fitness margins. Declines in gross margin in the marine segment occurred as a result of more mature products. The aviation segment saw a 730 basis point increase in gross margin due to growth in OEM sales in the quarter. Aviation continued to be the Company’s highest gross margin segment.

The increase in selling, general and administrative expense was driven primarily by costs associated with the European distributors acquired in 2007 and 2008, increased staffing throughout the organization to support our growth and increased advertising spending. Other selling, general and administrative expenses increased as a percent of sales from 5.2% of sales in the second quarter of 2007 to 7.3% of sales in the second quarter of 2008, as global staffing in marketing and administration were increased to support our rapid growth. In absolute dollars, other selling, general and administrative expenses increased $28.2 million when compared to the previous year quarter, with increases distributed across European distributors, information technology, call center, operations, finance, administration, and marketing administration areas to support the growth of our businesses. Advertising spending, while up $1.5 million in absolute dollars, declined as a percent of revenues, to 6.4% of revenues compared to 7.7% of revenues in the second quarter of 2007.

The 42.1% increase in research and development expense was due to ongoing development activities for new products, the addition of almost 300 new engineering personnel to our staff during the quarter, and an increase in engineering program costs during the second quarter of 2008 as a result of our continued emphasis on product innovation. Research and development costs increased $15.9 million when compared with the second quarter of 2007 representing an 80 basis point increase as a percent of revenue.

Operating margin declined 630 basis points as a percent of revenue when compared to the second quarter of 2007 due to the decrease in gross margins, along with the costs associated with the European distributors, increases in staffing to support the growth of our businesses, and research and development expense associated with ongoing development activities. Operating margins decreased to 20.4% and 33.8% within our automotive/mobile and marine segments, respectively, when compared with the second quarter of 2007. Operating margins increased to 38.1% and 44.5% within our outdoor/fitness and aviation segments, respectively, when compared with the second quarter of 2007. Our operating income decreased as a function of the gross profit margin percentage decrease described above, as well as declining operating margins in both the marine and automotive/mobile segments.

The average taxable equivalent interest rate of return on invested cash during the second quarter of 2008 was 3.6% compared to 4.4% during the same quarter of 2007. The decrease in interest income is attributable to slightly lower cash balances and decreasing interest rates.

Foreign currency gains and losses for the Company are primarily tied to movements by the Taiwan Dollar, the Euro, and the British Pound Sterling. The U.S. Dollar remains the functional currency of Garmin (Europe) Ltd. The Euro is the functional currency of Garmin France, Garmin Deutschland, Garmin Iberia, Garmin Italia, and Garmin Belux. As these entities grow, Euro currency moves will generate material gains and losses. Additionally, Euro-based inter-company transactions can also generate currency gains and losses. The Canadian dollar and Danish Krone are the functional currency of Dynastream Innovations, Inc. and Garmin Danmark, respectively; due to these entities’ relative size, currency moves do not have a material impact on the Company’s financial statements.

The majority of the $21.6 million currency gain in the second quarter of 2008 was related to the tender of our Tele Atlas N.V. shares. This transaction generated a realized gain of $20.4 million due to the strengthening of the Euro between the date of purchase of the shares in October 2007 to the date of tender in June 2008.

The majority of the $6.1 million currency loss in the second quarter of 2007 was due to the weakening of the U.S. Dollar compared to the Taiwan Dollar. During the second quarter of fiscal 2007 the exchange rate decreased 0.7% to $32.86 TD/USD at June 30, 2007 from $33.09 TD/USD at March 31, 2007, resulting in $5.8 million of the quarter’s loss. While the British Pound Sterling strengthened relative to the U.S. Dollar during the quarter, the timing of transactions during the period resulted in Garmin Europe recording a $0.6 million gain.

Other income of $46.3 million in the current quarter was primarily generated from the sale of our equity interest in Tele Atlas N.V.

Income Tax Provision

Our earnings before taxes increased 28.2% when compared to the second quarter of 2007, and our income tax expense increased by $27.8 million, to $60.1 million, for the 13-week period ended June 28, 2008, from $32.3 million for the 13-week period ended June 30, 2007, due to our earnings before taxes growth and a higher effective tax rate. The effective tax rate was 19.0% in the second quarter of 2008 and 13.1% in the second quarter of 2007. The higher tax rate in the second quarter of 2008 when compared to the same quarter in 2007 was driven by a change in tax law related to the repatriation of earnings from our Taiwan subsidiary and the unfavorable mix of taxable income among Company entities.

Net Income

As a result of the above, net income increased 19.5% for the 13-week period ended June 28, 2008 to $256.1 million compared to $214.4 million for the 13-week period ended June 30, 2007.


Kerri Thurston - Investor Relation Officer
Good morning. We would like to welcome you to Garmin Limited's second quarter 2008 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. Please note that this webcast does include slides which can be viewed during this call. An archive of the webcams will be available until August 30th, 2008. A telephone recording will be available two business days following this call, and a transcript of the call will be available on the website 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 introduction, and future demand for our products, 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 29, 2007 filed with the Securities and Exchange Commission.
Attending this call on the behalf of Garmin Limited this morning are Dr. Min Kao, Chairman and Chief Executive Officer; Cliff Pemble, President and Chief Operating Officer; Kevin Rauckman, Chief Financial Officer and Treasurer. The presenters for this morning's call are Cliff Pemble and Kevin Rauckman.
At this time, I would like to turn the call over to Cliff Pemble.
Cliff Pemble - President and Chief Operating Officer
Good morning, as you've read from our press release this morning, Garmin achieved another record quarter of revenue. Financial highlights from Q1 include revenue growth of 23% to $912 million with double-digit growth in automotive corporate business in aviation. Both North America and Europe experienced year-over-year revenue growth of 27% and 19% respectively. Gross margins for the quarter were 46% which is down 2% sequentially and also down 5% year-over-year that exceeded our earlier expectation. We also achieved strong operating margin of 26%.
Some notable business highlights for the quarter. Independent market research indicates we strengthened our market share to 55% in North America and approximately 20% in Europe which further solidifies our worldwide leadership position in the PND market.
Total unit shipments exceeded 3.9 million in the quarter resulting in a year-over-year growth rate of 54%. Our automotive segment growth continues to outpace overall market growth as brand awareness and product differentiation benefit Garmin. The other equipment segment outperformed our expectations due to higher demand for new devises like the Edge and the Colorado series along with a new forerunner.
Finally, we completed the acquisition of our Belgian and Finnish distributors, the sixth and seven distributor acquired today environment of our strategy to improve European market share.
As you have read in our press release, we continue to see challenges associated with macroeconomic condition. Even in the phase of weakening consumers spending, we are pleased to report double digit revenue growth in three of our core business segment. In automotive and mobile segment revenues growth 24% as the market continues to expand and our products continue to gain market share. Aviation revenues grew 15% as the OEM market achieved strong growth that was offset by weakness in retrofit incredible products.
Revenues from the outdoor/fitness business segment grew 54% as customers in greats are compelling new products. And finally marine revenues saw 11% year-over-year. Q2 of 2007 include pipelines drill with our new chart bottom line and that’s what the tough comparison. That higher fuel prices in overall economic condition will contain higher marine industry and affected our results as well.
We would now like to update everybody regarding our views in the current market and economy trends impacting governments diverse business segment. As we’ve been widely discussed the PND market is not growing as fast as in prior years as the market matures. However, the PND market remains one of the fastest growing categories with consumer electronics and we continue to see strong opportunity in the segment as the global market continues to expand, penetration rates claim and replacement market begins to develop. Garmin continues to experience strong market share in North America.
According to MTB, our market share averaged 55% during the quarter. Year-over-year we experienced a 25% decline in ASP which is inline with our full year expectations but less than that experience in Q1 which as you recall was caused by channel clearing and competitors leaving the market. We have been able to largely offset to decline an ASP to the component cost reductions and improve operating efficiency.
As I previously mentioned the marine industry has been negatively impacted by the economy, and specifically by high fuel prices. We are seeing a similar impact to the aviation segment as demand for retrofit incredible products is weaken and some aircraft manufactures are scaling back their production plans.
As I mentioned earlier, we have recently completed the acquisition of our Belgian and Finnish distributors which are the sixth and seventh distributor acquisitions we have completed to date. We now on distributors covering approximately 70% of the European market and they are clearly helping to increase our market share as for customers better than we were able to do in the past. Additionally, we expect to complete the acquisition of our distributors in Austria and Portugal during Q3.
As mentioned in last quarter we are establishing local offices in emerging markets which has strong growth potential. On July 1st we launched the Garmin owned sales office to directly serve growing market and are anticipating strong results in the second half of the year. We also established an office in China to better support our in-country distributor in this growing market.
Turning next to product update. In the second quarter we begin delivering the newly 800 series to our dealers and distributors. These devices feature cutting edge, speech recognition capabilities that are activated by user to aguish the top wireless remote attached to this doing well. The 800 family offers many other high end features including MSN Direct, Bluetooth, MP3 and audio book players, travel features and premium points of interest. The nuvi 800 is quickly gaining a reputation for offering the best speech recognition capability on the market today. The newer tradition to the nuvi family is the 500 Series which was announced last week. The nuvi 500 Series are waterproof, multi-mode devices preloaded with both road and topographic maps making them perfect for driving, cycling, boating or walking. The nuvi 500 is our Garmin Connect photo portal, where users can select scenic destination from millions of view located photos provided by Google's Panoramio. In addition boating enthusiast can add blue chart marine maps making the nuvi 500 a most versatile device on the market today.
In the aviation segment we recently have completed certification of our revolutionary new synthetic vision system. We believe this technology will transform the way in which critical attitude and situational information is presented to the pilot. Synthetic vision provides accurate display to rain, white hazards, traffic, white task markers and high end sky symbiology so that the pilot can maintain an unparallel situation awareness even when flying in condition to reduced visibility or darkness.
We are pleased to welcome Series design as our newest OEM customers. Series chose to offer the most advanced integrated constant features in the series prospected system including dual late hours and air data and the synthetic vision system.
In addition, the series prospected constant after several unique features designed to assist pilot and high workload environments including custom controllers and new autopilot functions.
In the outdoor segment we recently started delivering the new Oregon series of outdoor handheld devices which combined a touch screen with preloaded maps making this the ultimate outdoor handheld. This waterproof device also integrates our HotFix technology which provides faster time to HotFix even in challenging signal environments commonly found in the outdoors. The Oregon is comparable with our highly advantages and speak in sensor and can exchange data with other Oregon and Colorado users over its wireless data lines
During the second quarter Garmin became the title sponsor of Team Garmin which recently completed the defense. We are excited to be associated within a lead cycling team dedicated to clean competition and rigorous drug testing. The team is utilizing our utilizing our Edge 705 for the training and racing, while the Team backs and support cargo guided the Nuvi 770. The Team exceeded expectation throughout the tour with numerous top ten stage finishes and Christian Vande Velde 5th place finish overall. We look forward to many future successors with this young teen.
Next I want to provide an update on our progress on newly found development. As we stated in our press release this morning the Mobile network operator launch as a phone will not occur in 2008 as we earlier anticipated. We look forward to US and European carrier announcements in 2009. While we hope to have carrier launches in the fourth quarter implementing curious specific requirements has taken longer than we anticipated. We continue to be very pleased with carrier interest in the device and we remain completely committed to brining the devices like no other to the mobile community.
Finally while Kevin will provide details regarding our updated full year forecast, I did want to briefly touch on our revised outlook. Our revised guidance cost revenue of approximately 3.9 billion and EPS, despite a weaker worldwide economy and increases in our tax rate. We will continue focus on product innovation which will drive growth in the years to come.
With that I will turn the call over to Kevin.
Kevin S. Rauckman - Chief Financial Officer and Treasurer
Thanks Cliff. Good morning everyone. I wanted to just customary to walk you through the details of our second quarter income statement results in a little bit more detail on the revenue by geography and segments, talk a lot about the margins in our business and finally end up with some additional financial details on the balance sheet and cash flows.
So on the second quarter income statement, we announced revenue of 912 million, net income of 256 million, and then earnings pre share of $1.19 per share. This represents 23% top line growth and 21% EPS growth including the gain of a TA shares. We did see a favorable $0.01 earnings per share impact due to the FX gain of approximately $900,000 during the second quarter. So excluding the FX gain, our earnings per share grew 18%.
Gross margin of 45.8% was better than expected due to the moderation of the ASP decline as Cliff mentioned, material cost reductions that we continue to experience and other operating efficiencies in our business. We did see a $3 million decrease in operating income compared to the second quarter of '07, while our operating margin was 26.2% for the quarter down 32.5 from last year and better than expected.
We achieved the 26.2%operating margin through gross margin of gain unfavorable year-over-year of 470 basis points. Advertising was favorable 120 basis points. Our other SG&A was unfavorable by 210 basis points. However, most of this increase 15 million of the year-over-year increase was due to integration of our five European distributors set this time last year. R&D was also unfavorable at 80 basis points during the quarter.
Our unit shift grew some 54% year-over-year of over 3.9 million units were delivered during the quarter of the strength of our automobile segment. Average selling price was $233 per unit 8% down slightly from $238 in the first quarter and 20% below the second quarter of '07.
The non-GAAP measures that we have recorded included net income excluding the affects of foreign currency and the FX gain does not reflect gain associated with the tender of 10 shares. This FX impact us $0.01 per share favorable to second quarter.
During Q2 we experienced 24% revenue growth within the automobile segment while the unit growth in that segment was 65%. Marine segment revenues declined 11% compared to Q2 of '07. Our Aviation segment achieved a 15% revenue increased during the quarter. Our Outdoor/Fitness segment also experienced double-digit revenue growth of 54% compared to the second quarter of '07 with the fitness category leading the way.
In total our revenues grew 23% during the second quarter which represents growth in our global PND market share. Our total revenues are up 28% on a year-to-date basis with the Automobile and Outdoor/Fitness segments leading the way.
During the second quarter North American revenue was up 27% while our European business increased 19% during the quarter. Our A-Pac region sales declined 6% during the period due to the plan transition from our distributor in Australia to serving donut products directly in that country.
Unit growth in North America exceeded out of Europe as North American PND market clear at a 100% year over year. We experienced 65% unit growth from our PND products with North America as I said leading the way at nearly 100%.
As the automobile segment remained at highest growth business in government is now represent 69% of our total business during the quarter up one point from second quarter of ’07. Because of the stronger growth in North America during the quarter geographic regions, bad geographic region represents 63% of our total quarterly business. Europe now accounts for 34% of our total revenue. The low end unit sales of PND continues to account for approximately 80% of our total PND business. The low end revenues of the PND account for approximately 70% of the total automobile segment.
During the second quarter our aviation and Outdoor/Fitness gross margins increased to 73% and 57% respectively due to product mix. Operating margins for these segments also grew on a strength of the gross margin with aviation at 24% and Outdoor/Fitness at 38%. We continue to target long term margins in these segments at 65 and 35 and 55%, 35% respectively for the aviation and Outdoor/Fitness segments.
Q2 automobile gross margin and operating margin were 39% and 20% respectively down 100 basis points compared to the first quarter of ’08 when excluding the benefits we saw in foreign currency. Gross margin of 39% was inline with expectations and ASP declined 24% and cost declined 20% compared to the second quarter of '07. Q2 marine gross margin was on target at 56% compared to 58% a year ago. Operating margin was also inline as expectations of 34%. This was down from 32% at the same quarter last year when we benefited from new product introduction in this segment.
We continue to expect PND price declines of approximately 25% during 2008 offset by projected raw material cost reduction of approximately 20%. As a result we expect our PND margins to decline from 39% in the second quarter to the mid 30% range in late 2008. However, due to increase volume in the second half of 2008 we expect that the sizable operating profit expansion within the automobile segment.
Moving next to our operating expenses for the quarter, R&D increased $60 million year-over-year and was up 80 basis points to 5.9% of sales. We now employee over 1700 engineers in engineering associate worldwide. Our edge spending increase only 1.5 million on the year ago quarter, but our percentage sales basis advertising was down 120 basis points to 6.4% of sales. We expect edge spending to decrease slightly in the third quarter but then again increase in the fourth quarter holiday selling season. Other SG&A increase to 210 basis points to 7.3% of sales from 5.2% a year ago. As of, the majority of this increase was due to the integration of five European distributors that we have acquired since this period last year. We expect that our SG&A expenses will increase slightly in each remaining quarter of 2008 that we will continue to monitor the business in each of these business functions.
We will move next to the balance sheet. We ended the quarter with cash and marketable securities of just over US $1 billion. Our accounts receivable increased sequentially from the first quarter to 680 million on a heal of a much stronger sales quarter and accounts for approximately 60 days of sales at the end of the quarter. Our inventory balance is decreased to 656 million probably in the spring selling season, and our days of inventory metrics decreased from 98 days at the end of the first quarter to 88 days at the end of the second quarter, primarily in our Finnish goods inventory.
Towards the end of Q2 we have the following levels of inventory and days we have 173 million in raw material which account for 22 days of inventory. 57 million in width, eight days of inventory. 458 million in finished goods, which is approximately 58 days of inventory and finally we have 32 million in our inventory reserves at the end of the period.
As we stated in the past, product availability continues to be a top priority for Garmin and has contributed to our success. However, given a shorter product lifecycles of PND products, we are still working to manage our inventory carefully and it's our goal to have adequate inventory to support our customer needs. But we intend to carry the right level and mix of inventory to minimize the risk of obsolescence. Evaluating the retail channel inventory at the end of the second quarter, we believe that inventory in the channel continues to be lean as the sell-through of most of our products was stronger in the second quarter.
Our cash flow from operations during Q2 was $88 million. CapEx invested was 53 million. Free cash flow, therefore, was 34 million. The cash flow provided by investing was 146 million during the second quarter, which was made up of the 53 million of CapEx, primarily due to the Taiwan product line purchases that we entered in during the quarter, 209 million net redemption of marketable securities and 10 million use of cash due to the acquisition of businesses and intangibles.
Our cash flow from financing was 223 million use of cash during the second quarter primarily made up of 228 million use of cash on our stock buyback and a generation of 5 million cash due to the issuance of stock options during the period. We earned an average of 3.6% on all cash and marketable securities during the quarter.
Touching next on equity, Garmin repurchased over 5.2 million shares during the period as I mentioned 228 million of cash used. Subsequent to the close of the quarter, however, the company purchased the remaining 3.4 million shares under a Rule 10b5-1 plan. There remains 5 million shares available for repurchase and Garmin intends to be an active buyer of the shares as business and market conditions warrant.
Our diluted shares outstanding declined to 215.6 million shares due to the share repurchased during the period.
And finally, giving a little bit more detail on our full year outlook. You noticed we did bring down the revenue expectations to at least 3.9 billion for the year, which is a 23% top line growth for 2008. We still expect our operating margins to come in at 25% for the year and our earnings per share excluding the FX of $4.13 which would be 9% growth rate for the year.
For the full year, we expect CapEx to be 120 million. As discussed in our last earnings call, the tax rate was now 19% across our business and we expect an average diluted share count for the full year to be 214 million shares.
Looking at the segment revenue expectations, we are going to see reduction in our earlier guidance to 3.9 million. We now expect our automobile segment to come down or to increase 25% to 2.9 billion plus. Our Outdoor/Fitness segment was actually raise guidance up to 30% growth for the year to little over 400 million. And as Cliff mentioned in his comments on both Marine and Aviation due to the economy and fuel prices, we expect Marine to be essentially flat and Aviation now to grow 15% for the full year.

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