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Press release from Business Wire

Garmin Reports First Quarter 2011 Results with Strong Revenue Performance in all Segments

Wednesday, May 04, 2011

Garmin Reports First Quarter 2011 Results with Strong Revenue Performance in all Segments07:00 EDT Wednesday, May 04, 2011 SCHAFFHAUSEN, Switzerland (Business Wire) -- Garmin Ltd. (Nasdaq: GRMN) today announced results for the fiscal quarter ended March 26, 2011. First Quarter 2011 Financial Summary: Total revenue of $508 million, up 18% from $431 million in first quarter 2010 Automotive/Mobile segment revenue increased 20% to $265 million Outdoor segment revenue increased 12% to $67 million Fitness segment revenue increased 30% to $56 million Marine segment revenue increased 24% to $51 million Aviation segment revenue increased 5% to $69 million All geographies posted double-digit revenue growth: North America revenue was $280 million compared to $243 million, up 15% Europe revenue was $171 million compared to $145 million, up 18% Asia revenue was $57 million compared to $43 million, up 34% Gross margin improved sequentially and decreased year-over-year to 47% for first quarter 2011 from 45% in fourth quarter 2010 and 54% in first quarter 2010 Operating margin decreased year-over-year to 15%, compared to 19% in first quarter 2010 Effective tax rate declined to 1.5% in first quarter of 2011 compared to 18.0% in first quarter 2010 Earnings per share increased to $0.49 from $0.19 in first quarter 2010; pro forma EPS increased 13% to $0.43 from $0.38 in the same quarter in 2010 (Pro forma earnings per share excludes the impact of foreign currency transaction gain or loss) Generated $200 million of free cash flow in first quarter 2011 Note: In accordance with GAAP, the Company is deferring significant revenue and the related costs associated with high margin sales of lifetime maps, connected services and premium traffic over their economic lives. In the first quarter of 2011, the Company deferred, net of amortization of previous deferrals, $22 million of revenue, $4 million of costs, and approximately $0.09 of diluted EPS, net of taxes, into future years. This compares to first quarter of 2010 net deferrals of $15 million of revenue, $3 million of costs, and approximately $0.05 of diluted EPS, net of taxes. A table outlining the impact of this net deferral in both 2011 and 2010 is included for reference. Results have not been adjusted unless specifically stated as such. Recent Business Highlights: Posted revenue growth in every segment with significant growth in fitness and marine during first quarter. Sold 2.5 million units in first quarter 2011, an 18% increase over first quarter 2010 driven by fitness and auto OEM. Announced the opening of an office in the Detroit area to support both current and future automotive OEM customers. Announced the GTN™ 650 and 750 – touchscreen, panel-mount avionics certified for installation in hundreds of makes and models of general aviation aircraft. Announced the G2000™ - a premium flight deck for high performance piston aircraft featuring touchscreen controls and other features currently only available to the business jet market. Announced the Forerunner® 610 – a touchscreen sports watch for those focused on training and improvement with our new Training Effect and Virtual Racer™. Launched the dēzl™ navigator series – specifically designed to meet the needs of the over-the-road trucking industry with The National Truck and Trailer Services Breakdown Directory and fuel and mileage logging capabilities. Executive overview from Dr. Min Kao, Chairman and Chief Executive Officer: “The first quarter of 2011 provided strong revenue performance as each of our business segments contributed to 18% revenue growth,” said Dr. Min Kao, chairman and chief executive officer of Garmin Ltd. “We were pleased with the growth of our outdoor, fitness, aviation and marine segments which combined posted revenue growth of 16% and operating income growth of 10%. We continue to invest in these segments in order to capitalize on the numerous long-term growth initiatives in each of them. The outdoor segment posted revenue growth of 12% in the quarter as the GPSMAP® 62, a high-end handheld product, and our Astro® dog tracking system performed well globally. The diverse niche markets we serve in this segment continue to provide opportunities and we continue to invest in product enhancements and adjacent markets. The fitness segment posted revenue growth of 30% in the quarter as the business continues to expand both in North America and globally. We experienced strong demand for our high-end cycling products, particularly in Europe, and we continue to focus on leadership in the GPS running watch category with the release of the Forerunner 610. We anticipate strong demand for this product based upon the enthusiasm we saw at the Boston Marathon in April. The aviation segment posted revenue growth of 5% as the product mix shifted toward high-end units in our retrofit and portable businesses. The aviation OEM market for single engine and turboprop planes continues to be depressed but we expect some improvement in the back half of 2011. Our focus continues to be on investment to achieve our long-term strategic initiatives of expanding our presence in the business jet and helicopter markets where we are beginning to see success. In the helicopter market, we announced OEM wins for the G500H with Robinson, MD Helicopters and Eurocopter and for the G1000H™ with Bell Helicopters. In the marine segment, revenues grew 24% year-over-year and 38% sequentially as the marine season approached. The boating industry has shown signs of recovery and we are poised to take advantage of that opportunity as boaters prepare for the upcoming season. Many of the OEM wins that were announced throughout 2010 and at the Miami Boat Show this winter are beginning to contribute revenue and are expected to allow us to deliver strong growth in revenues and operating income in the segment. Looking finally at the auto/mobile segment, we posted revenue growth of 20% as our auto OEM business continued to grow and remaining mobile phone inventories were sold. PNDs posted slight growth over the depressed levels we experienced in the first quarter 2010. We don't expect the PND market to continue to grow year over year due to ongoing market contraction. However, we remain focused on our goals of market leadership and profitability in the PND market and expect to see improvement in both as the year progresses with ASPs stabilizing and the market consolidating. At the same time, we have committed significant sales and research and development resources to the auto OEM business which offers significant long-term opportunities. We are excited about the opening of a new office in the Detroit area to support our growing presence in this industry and the addition of Matthew Munn, Vice President and Managing Director Automotive OEM, an industry veteran with more than 25 years of experience.” Financial overview from Kevin Rauckman, Chief Financial Officer: “Strong revenue growth, along with operating income growth in three of our segments, got the year off to a good start,” said Kevin Rauckman, chief financial officer of Garmin Ltd. “While revenues grew 18%, profitability was negatively impacted by lower gross and operating margins, specifically in our automotive/mobile segment. Gross margin for the overall business was 47% in the first quarter declining from 54% in the prior year largely driven by the automotive/mobile segment. Gross margin strength in the prior year quarter was primarily related to the refined warranty estimate that reduced costs by $22 million. This warranty refinement, combined with the increasing deferral of high margin revenues and costs associated with our bundled PNDs into future periods, accounts for 580 basis points of the total company gross margin decline and 780 basis points of decline in the automotive/mobile segment. End of life promotional efforts also contributed to the lower gross margins in automotive/mobile. We expect gross margins for the automotive/mobile segment and the overall company to improve throughout the year. Operating margin for the overall business decreased to 15% when compared with 19% in the year-ago quarter with the gross margin decline partially offset by a decrease in operating expenses as a percentage of sales. When considering the refined warranty estimate adjustment of 2010, operating income grew 21% over the prior year. Total operating expenses increased $16 million year-over-year but declined by 200 basis points as a percent of sales. Advertising expense increased by $3 million primarily due to cooperative advertising which is volume dependent. Other selling, general and administrative costs and research and development costs increased by $6 million and $8 million, respectively, on a year-over-year basis. The research and development investment is across all segments and highlights our commitment to product innovation across our diversified business model. Like 2010, we believe that the first quarter will represent the low point for operating margins and with increased sales volumes during the remainder of the year, profitability levels are expected to improve. Our tax rate in the first quarter was 1.5% driven primarily by the release of reserves related to the expiration of certain statutes for Garmin Europe and lower U.S. reserves provided in 2011 following favorable audits in both 2010 and 2011. We now expect the full year tax rate to be approximately 12%. Free cash flow generation continued to be strong with $200 million generated in the quarter. We had a cash and marketable securities balance of almost $2.3 billion at the end of the quarter. A portion of this cash will be used to fund our proposed dividend payments throughout the year, as well as our recently announced acquisition of our South Africa distributor.” Dividend Update As announced in February, the Board will recommend to the shareholders for approval at the annual meeting to be held on June 3, 2011 a cash dividend in the amount of $2.00 per share (of which, $1.60 will be paid in the Company's 2011 fiscal year subject to possible adjustment based on the total amount of the dividend in Swiss Francs as approved at the annual meeting) payable in four installments as follows: $0.80 on June 30, 2011 to shareholders of record on June 15, 2011, $0.40 on September 30, 2011 to shareholders of record on September 15, 2011, $0.40 on December 30, 2011 to shareholders of record on December 15, 2011 and $0.40 on March 30, 2012 to shareholders of record on March 15, 2012. Non-GAAP MeasuresPro Forma Net income (earnings) per share Management believes that net income per share before the impact of foreign currency translation gain or loss is an important measure. The majority of the Company's consolidated foreign currency gain or a loss result from transactions involving the Euro, the British Pound Sterling and the Taiwan Dollar and from the exchange rate impact of the significant cash and marketable securities, receivables and payables held in U.S. dollars at the end of each reporting period by the Company's various non U.S. subsidiaries. Such gain or loss is required under GAAP because the functional currency of the subsidiaries differs from the currency in which various assets and liabilities are held. However, there is minimal cash impact from such foreign currency gain or loss. Accordingly, earnings per share before the impact of foreign currency translation gain or loss allow an assessment of the Company's operating performance before the non-cash impact of the position of the U.S. Dollar versus other currencies, which permits a consistent comparison of results between periods. The following table contains a reconciliation of GAAP net income per share to pro forma net income per share.         Garmin Ltd. And SubsidiariesNet income per share (Pro Forma)(in thousands, except per share information)   13-Weeks EndedMarch 26,March 27,2011       2010   Net Income (GAAP) $ 95,482 $ 37,329 Foreign currency (gain) / loss, net of tax effects   ($11,959 )       $ 38,160 Net income (Pro Forma) $ 83,523         $ 75,489   Net income per share (GAAP): Basic $ 0.49 $ 0.19 Diluted $ 0.49 $ 0.19   Net income per share (Pro Forma): Basic $ 0.43 $ 0.38 Diluted $ 0.43 $ 0.38   Weighted average common shares outstanding: Basic 193,922 199,926 Diluted 194,720 201,091   Free cash flow Management believes that free cash flow is an important financial measure because it represents the amount of cash provided by operations that is available for investing and defines it as operating cash flow less capital expenditures for property and equipment. The following table contains a reconciliation of GAAP net cash provided by operating activities to free cash flow.       Garmin Ltd. And SubsidiariesFree Cash Flow(in thousands)   13-Weeks EndedMarch 26,March 27,2011     2010   Net cash provided by operating activities $ 207,599 $ 200,131 Less: purchases of property and equipment   ($7,178 )       ($3,935 ) Free Cash Flow $ 200,421       $ 196,196     Net deferred revenues and costs The following table illustrates the net effect of deferred revenues and costs associated with products that include lifetime maps, connected services and premium traffic. These revenues and costs are being amortized over the estimated economic lives of the products. Additional details are available in the Quarterly Report on Form 10-Q for the quarter ended March 26, 2011 that will be filed by Garmin with the Securities and Exchange Commission (Commission file number 0-31983) today.                   Garmin Ltd. And SubsidiariesNet Deferred Revenue Impact (Unaudited)(In thousands, except per share information)   13-Weeks EndedMarch 26,March 27,20112010 Net sales $ (21,826) $ (15,009) Cost of goods sold   (3,905)   (2,782) Gross profit (17,921) (12,227)   Operating income (17,921) (12,227)   Income tax provision   (267)   (2,201)     Net income $ (17,654) $ (10,026)   Net income per share: Basic $ (0.09) $ (0.05) Diluted $ (0.09) $ (0.05)   Earnings Call Information The information for Garmin Ltd.'s earnings call is as follows:     When:     Wednesday, May 4, 2011 at 10:30 a.m. Eastern Where: http://www.garmin.com/aboutGarmin/invRelations/irCalendar.html How: Simply log on to the web at the address above or call to listen in at (888) 542-1136 Contact: investor.relations@garmin.com An archive of the live webcast will be available until June 3, 2011 on the Garmin website at http://www.garmin.com. To access the replay, click on the Investor Relations link and click over to the Events Calendar page. This release includes projections and other forward-looking statements regarding Garmin Ltd. and its business. Any statements regarding the company's estimated earnings and revenue for fiscal 2011, the Company's expected segment revenue growth rate, margins, new products to be introduced in 2011 and the company's plans and objectives are forward-looking statements. The forward-looking events and circumstances discussed in this release may not occur and actual results could differ materially as a result of risk factors affecting Garmin, including, but not limited to, the risk factors that are described in the Annual Report on Form 10-K for the year ended December 25, 2010 filed by Garmin with the Securities and Exchange Commission (Commission file number 0-31983). A copy of Garmin's 2010 Form 10-K can be downloaded from http://www.garmin.com/aboutGarmin/invRelations/finReports.html. The global leader in satellite navigation, Garmin Ltd. and its subsidiaries have designed, manufactured, marketed and sold navigation, communication and information devices and applications since 1989 – most of which are enabled by GPS technology. Garmin's products serve automotive, mobile, wireless, outdoor recreation, marine, aviation, and OEM applications. Garmin Ltd. is incorporated in the Cayman Islands, and its principal subsidiaries are located in the United States, Taiwan and the United Kingdom. For more information, visit Garmin's virtual pressroom at www.garmin.com/pressroom or contact the Media Relations department at 913-397-8200. Garmin, Forerunner, GPSMAP and Astro are registered trademarks, and GTN, G2000, dēzl, and G1000H are trademarks, of Garmin Ltd. or its subsidiaries.All other brands, product names, company names, trademarks and service marks are the properties of their respective owners. All rights reserved.         Garmin Ltd. And SubsidiariesCondensed Consolidated Balance Sheets(In thousands, except share information)           (Unaudited)March 26,December 25,2011       2010Assets Current assets: Cash and cash equivalents $ 1,210,615 $ 1,260,936 Marketable securities 41,723 24,418 Accounts receivable, net 434,935 747,249 Inventories, net 411,021 387,577 Deferred income taxes 33,582 33,628 Deferred costs 22,943 20,053 Prepaid expenses and other current assets   38,018           24,894   Total current assets 2,192,837 2,498,755   Property and equipment, net 427,110 427,805   Marketable securities 1,027,381 777,401 Restricted cash 1,389 1,277 Licensing agreements, net 4,658 1,800 Noncurrent deferred income tax 73,613 73,613 Noncurrent deferred costs 25,700 24,685 Other intangible assets, net   184,821           183,352   Total assets $ 3,937,509         $ 3,988,688     Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 118,845 $ 132,348 Salaries and benefits payable 34,811 49,288 Accrued warranty costs 44,030 49,885 Accrued sales program costs 49,463 107,261 Deferred revenue 104,818 89,711 Accrued royalty costs 7,769 95,086 Accrued advertising expense 17,626 21,587 Other accrued expenses 58,164 63,043 Deferred income taxes 4,428 4,800 Income taxes payable   29,959           56,028   Total current liabilities $ 469,913         $ 669,037     Deferred income taxes 11,068 6,986 Non-current income taxes 147,047 153,621 Non-current deferred revenue 114,795 108,076 Other liabilities 1,457 1,406   Stockholders' equity: Shares, CHF 10 par value, 208,077,418 shares authorized and issued; 194,014,900 shares outstanding at March 26, 2011; and 194,358,038 shares outstanding at December 25, 2010; 1,797,435 1,797,435 Additional paid-in capital 45,435 38,268 Treasury stock (118,018 ) (106,758 ) Retained earnings 1,377,007 1,264,613 Accumulated other comprehensive income   91,370           56,004   Total stockholders' equity   3,193,229           3,049,562   Total liabilities and stockholders' equity $ 3,937,509         $ 3,988,688             Garmin Ltd. And SubsidiariesCondensed Consolidated Statements of Income (Unaudited)(In thousands, except per share information)   13-Weeks EndedMarch 26,March 27,20112010 Net sales $ 507,834 $ 431,067   Cost of goods sold   269,460   200,158     Gross profit 238,374 230,909   Advertising expense 19,956 17,400 Selling, general and administrative expense 73,187 67,678 Research and development expense   70,478   62,483   Total operating expense   163,621   147,561     Operating income 74,753 83,348   Other income (expense): Interest income 7,214 6,879 Foreign currency gains (losses) 12,140 (46,537 ) Other   2,819   1,833   Total other income (expense)   22,173   (37,825 )   Income before income taxes 96,926 45,523   Income tax provision   1,444   8,194     Net income $ 95,482 $ 37,329     Net income per share: Basic $ 0.49 $ 0.19 Diluted $ 0.49 $ 0.19   Weighted average common shares outstanding: Basic 193,922 199,926 Diluted 194,720 201,091     Dividends declared per share - $ 1.50         Garmin Ltd. And SubsidiariesCondensed Consolidated Statements of Cash Flows (Unaudited)(In thousands)   13-Weeks EndedMarch 26,March 27,20112010Operating Activities: Net income $ 95,482 $ 37,329 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 13,839 13,543 Amortization 8,583 8,334 Gain on sale of property and equipment (2 ) (6 ) Provision for doubtful accounts (858 ) (1,260 ) Deferred income taxes 1,023 (1,546 ) Unrealized foreign currency losses 867 47,773 Provision for obsolete and slow moving inventories (4,349 ) 3,140 Stock compensation expense 8,666 9,700 Realized gains on marketable securities (1,492 ) (805 ) Changes in operating assets and liabilities, net of acquisitions: Accounts receivable 327,151 436,446 Inventories (11,067 ) (50,168 ) Other current assets (20,372 ) 2,146 Accounts payable (17,573 ) (94,717 ) Other current and non-current liabilities (190,770 ) (216,868 ) Deferred revenue 21,826 14,286 Deferred cost (3,905 ) (2,752 ) Income taxes payable (16,550 ) (4,048 ) License fees   (2,900 )   (396 ) Net cash provided by operating activities 207,599 200,131   Investing activities: Purchases of property and equipment (7,178 ) (3,935 ) Purchase of intangible assets (2,626 ) (5,029 ) Purchase of marketable securities (363,263 ) (74,303 ) Redemption of marketable securities 98,614 146,073 Change in restricted cash   (112 )   1,106   Net cash (used in)/provided by investing activities (274,565 ) 63,912   Financing activities: Proceeds from issuance of common stock through stock purchase plan 3,041 2,725 Stock repurchase - (47,206 ) Tax benefit related to stock option exercise   787     1,408   Net cash provided by/(used in) financing activities 3,828 (43,073 )   Effect of exchange rate changes on cash and cash equivalents 12,817 (21,208 )     Net (decrease)/increase in cash and cash equivalents (50,321 ) 199,762 Cash and cash equivalents at beginning of period   1,260,936     1,091,581   Cash and cash equivalents at end of period $ 1,210,615   $ 1,291,343                                         Garmin Ltd. And SubsidiariesRevenue, Gross Profit, and Operating Income by Segment (Unaudited)   Reporting SegmentsAuto/OutdoorFitnessMarineMobileAviationTotal   13-Weeks Ended March 26, 2011   Net sales $66,450 $56,367 $51,308 $264,550 $69,159 $507,834 Gross profit $41,353 $33,792 $33,198 $82,551 $47,480 $238,374 Operating income $24,807 $15,457 $15,133 $1,595 $17,761 $74,753   13-Weeks Ended March 27, 2010   Net sales $59,386 $43,350 $41,314 $220,924 $66,093 $431,067 Gross profit $38,510 $27,051 $24,231 $94,775 $46,342 $230,909 Operating income $24,369 $14,199 $8,929 $16,982 $18,869 $83,348   Note: Beginning in 2011, for external reporting purposes, the Company has identified five operating segments – Auto/Mobile, Aviation, Marine, Outdoor and Fitness. Each operating segment is individually reviewed and evaluated by our Chief Operating Decision Maker, who allocates resources and assesses performance of each segment individually. Prior to 2011, the Outdoor and Fitness operating segments were combined into a single reportable segment due to the similar nature of those products, their production processes, the types of customers served, their distribution processes, and similar economic conditions. Management re-evaluated the combination of these operating segments and determined that based on the growth of these segments they should now be reported as two distinct reportable segments. Garmin Ltd.Investor Contact:Kerri Thurston, 913-397-8200investor.relations@garmin.comorMedia Contact:Ted Gartner, 913-397-8200media.relations@garmin.com