Garmin Reports First Quarter 2013 Results

  Garmin Reports First Quarter 2013 Results

Business Wire

SCHAFFHAUSEN, Switzerland -- May 01, 2013

Garmin Ltd. (Nasdaq: GRMN) today announced results for the fiscal quarter
ended March 30, 2013.

First Quarter 2013 Financial Summary:

  *Total revenue of $532 million, down 4% from $557 million in first quarter

       *Automotive/Mobile segment revenue decreased 10% to $253 million
       *Outdoor segment revenue decreased 1% to $76 million
       *Fitness segment revenue increased 2% to $72 million
       *Marine segment revenue decreased 10% to $50 million
       *Aviation segment revenue increased 10% to $81 million

  *All geographies posted revenue declines:

       *Americas revenue was $286 million, down 3%
       *Europe, Middle East and Africa (EMEA) revenue was $191 million, down
       *Asia Pacific (APAC) revenue was $55 million, down 10%

  *Gross margin improved both sequentially and year-over-year to 52% for
    first quarter 2013 from 49% in fourth quarter 2012 and 51% in first
    quarter 2012
  *Operating margin decreased year-over-year to 15%, compared to 16% in first
    quarter 2012
  *Effective tax rate decreased to (8.6%) in first quarter of 2013 compared
    to 12.8% in first quarter 2012 due to the release of tax reserves and
    recognition of the 2012 research and development tax credit; the tax rate
    adjusted for releases of reserves was 11.6%
  *Diluted earnings per share (EPS) increased 2% to $0.45 from $0.44 in first
    quarter 2012 including the impact of the one-time tax benefits; pro forma
    diluted EPS decreased 11% to $0.40 from $0.45 in the same quarter in 2012
    (pro forma earnings per share excludes the impact of foreign currency
    transaction gain or loss and income tax benefit due to completion of tax
    audits and/or expiration of statutes)
  *Generated $48 million of free cash flow in first quarter 2013

Recent Business Highlights:

  *Announced an auto OEM relationship with Mercedes Benz which will commence
    in 2013 and add Garmin navigation software to most models by 2017.
  *Delivered the Approach^® S2 for golfers and the Edge^® 510 and 810 for
    cyclists, furthering our product innovation and leadership in both
  *Announced an aviation OEM relationship with Enstrom serving their 480B
    helicopter with the G1000H™ integrated flight deck.
  *Launched new avionics for experimental aircraft including an integrated
    autopilot solution offering the most sophisticated capabilities for this
    aircraft class.
  *Announced our GPSMAP^® 8000 glass helm series in marine, a flagship series
    of multi function devices offering new features, an enhanced user
    interface and a beautiful design.

Executive Overview from Cliff Pemble, President and Chief Executive Officer:

“The first quarter of 2013 proved to be challenging, much as we had
anticipated when providing guidance in February,” said Cliff Pemble, president
and chief executive officer of Garmin Ltd. “Because we expected revenues to
decline, we entered the year cognizant of the need to closely manage expenses
which we accomplished. Both advertising and selling, general and
administrative expenses declined year-over-year. Research and development
expense increased as we remain committed to future innovation that can deliver
long-term growth in both consumer and OEM markets.

The outdoor segment posted a slight revenue decline in the seasonally weak
first quarter. Though this is a slow start to the year, we remain excited
about the innovative products that we will offer throughout the year.

The fitness segment posted revenue growth of 2% in the quarter as we compared
against strong initial shipments of the Forerunner™ 910XT which launched in
first quarter of 2012 and contributed to 26% growth in the year ago quarter.
Even with the difficult comparable, we were pleased to see the strong
reception by the cycling community to our Edge 510 and 810 which began to ship
in the quarter. In addition, consumers continue to gravitate to our Forerunner
10, capturing a new subset of the running market.

The aviation segment posted revenue growth of 10% as the OEM market
contributed strong gains in the quarter. Segment revenues exceeded $80 million
for the first time since 2008 when OEM production rates peaked. This is
evidence of the strong market share gains that the aviation team has achieved.
While excited to post such strong performance in the first quarter, we have
much work ahead of us with numerous business jet certifications slated for
completion in the months ahead. At the same time, we continue to deliver
innovation for the retrofit market – recent examples include new offerings for
the experimental aircraft market and updates to the Garmin Pilot application,
along with best-in-class certified ADS-B solutions with patent pending
technologies that satisfy the FAA mandate for tens of thousands of impacted
and eligible aircraft.

In the marine segment, revenues declined 10% year-over-year due to several
factors including the overall age of our product lineup, unfavorable weather
conditions in the U.S., and ongoing macroeconomic uncertainties. In addition
to decreased revenue, we experienced a significant reduction in gross margins
as it became necessary to discount existing products to maintain market share.
Reduced gross margins coupled with a year-over-year increase in research and
development expense resulted in an operating loss for the segment. We believe
strongly in the innovation that is forthcoming in our glass helms and future
offerings and are committed to returning the segment to profitability.

Looking finally at the auto/mobile segment, we posted a 10% revenue decline in
the quarter as the PND market continues to decelerate. Though these results
are disappointing, they were not unexpected and we are managing our business
accordingly. We remain focused on our goals of market leadership and

Partially offsetting the decline in PNDs is ongoing growth within our auto OEM
market. We were excited to announce the news of our relationship with Mercedes
Benz, delivering Garmin navigation to most models over the next four years. We
are building a strong reputation in the infotainment market and this business
relationship highlights the growing level of confidence amongst OEMs that
Garmin can be a major supplier in the industry.”

Financial Overview from Kevin Rauckman, Chief Financial Officer:

“Our first quarter results are largely as we had anticipated with growing
revenue contribution from outdoor, fitness, and aviation, which represent our
most profitable segments,” said Kevin Rauckman, chief financial officer of
Garmin Ltd. “It highlights that we are a company that will continue to be
highly profitable even as our automotive/mobile segment declines.

Gross margin for the overall business was 52% in the first quarter improving
from 51% in the prior year. Segment mix contributed to the overall strong
gross margin with revenue growth in aviation and fitness, which posted gross
margins of 70% and 62%, respectively. The automotive/mobile segment also
contributed improved gross margins driven by the amortization of previously
deferred high margin revenues. As previously discussed, marine gross margins
declined significantly partially offsetting the improvements noted above.

Operating margin for the overall business was 15% compared to 16% in the
year-ago quarter with the gross margin improvement offset by an increase in
research and development expense. Total operating expenses increased $3
million year-over-year and by 210 basis points as a percent of sales. Research
and development expense increased by $8 million as we continue to invest for
future growth. Other selling, general and administrative and advertising costs
decreased by $4 million and $1 million, respectively, on a year-over-year
basis due to cost containment efforts. As in prior years, we believe that the
first quarter will represent the low point for operating margins and with
increased seasonal sales volumes, profitability levels are expected to

Our tax rate in the first quarter was (8.6%) compared to 12.8% in the first
quarter of 2012. The negative tax rate in 2013 was primarily driven by release
of reserves related to expiration of statutes or completion of tax audits, as
well as the impact of research and development tax credits related to 2012 but
recognized this quarter when related tax legislation was enacted. Adjusting
for the release of reserves, our effective tax rate would have been 11.6% in
the quarter.

We continued to generate significant free cash flow (FCF) in the quarter
though at a lesser rate than the prior year. A major contributing factor to
the lower FCF in the first quarter of 2013 was a $41 million tax-related
prepayment that will be recovered in the second quarter. We ended the quarter
with a cash and marketable securities balance of over $2.7 billion. We intend
to fund our quarterly dividend, share repurchases and future acquisitions with
our strong cash position.”

Guidance, Share Repurchase and Dividend Update

Consistent with prior years, Garmin plans to update guidance following the
second quarter which is seasonally stronger, providing a better preview for
the second half of the year. Revenue and pro forma EPS in the first quarter
were consistent with our expectations.

Garmin did not purchase shares in the first quarter under the $300 million
authorization approved by the Board of Directors on February 15. The
repurchase authorization remains in effect and management intends to
repurchase shares from time to time as conditions warrant.

As announced in February, the Board will recommend to the shareholders for
approval at the annual meeting to be held on June 7, 2013 a cash dividend in
the amount of $1.80 per share (subject to possible adjustment based on the
total amount of the dividend in Swiss Francs as approved at the annual
meeting) payable in quarterly installments.

Non-GAAP Measures

Pro forma net income (earnings) per share

Management believes that net income per share before the impact of foreign
currency translation gain or loss and income tax benefits due to completion of
tax audits and/or expiration of statutes 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. The Company’s income tax expense is periodically
impacted by material reserve releases related to completion of audits and/or
the expiration of statutes effecting prior periods. This is not reflective of
the current effective tax rate. Accordingly, earnings per share before the
impact of foreign currency translation gain or loss and income tax benefits
due to completion of tax audits and/or expiration of statutes permits a
consistent comparison of the Company’s operating performance between periods.

The following table contains a reconciliation of GAAP net income per share to
pro forma net income per share.

Garmin Ltd. And Subsidiaries
Net income per share (Pro Forma)
(in thousands, except per share information)
                                                      13-Weeks Ended
                                                      March 30,      March 31,
                                                      2013          2012
Net Income (GAAP)                                     $ 88,666       $ 86,858
Foreign currency loss, net of adjusted tax rate       $ 7,377        $ 1,735
Income tax benefit due to completion of tax audits     ($16,536 )   -
and/or expiration of statutes
Net income (Pro Forma)                                $ 79,507     $ 88,593
Net income per share (GAAP):
Basic                                                 $ 0.45         $ 0.45
Diluted                                               $ 0.45         $ 0.44
Net income per share (Pro Forma):
Basic                                                 $ 0.41         $ 0.45
Diluted                                               $ 0.40         $ 0.45
Weighted average common shares outstanding:
Basic                                                   195,630        194,742
Diluted                                                 196,457        195,673

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 Subsidiaries
Free Cash Flow
(in thousands)
                                            13-Weeks Ended
                                            March 30,      March 31,
                                            2013          2012
Net cash provided by operating activities   $ 59,363       $ 122,228
Less: purchases of property and equipment    ($11,616 )   ($5,758 )
Free Cash Flow                              $ 47,747     $ 116,470 

Earnings Call Information

The information for Garmin Ltd.’s earnings call is as follows:

When:     Wednesday, May 1, 2013 at 10:30 a.m. Eastern
How:       Simply log on to the web at the address above or call to listen in
           at (888) 510-1762

An archive of the live webcast will be available until June 1, 2013 on the
Garmin website at 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 2013, the Company’s expected segment
revenue growth rate, margins, new products to be introduced in 2013 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 29,
2012 filed by Garmin with the Securities and Exchange Commission (Commission
file number 0-31983). A copy of Garmin’s 2012 Form 10-K can be downloaded from

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. A member of the S&P 500
Index, Garmin Ltd. is incorporated in Switzerland, and its principal
subsidiaries are located in the United States, Taiwan and the United Kingdom.
For more information, visit Garmin's virtual pressroom at or contact the Media Relations
department at 913-397-8200.

Garmin, Approach, Edge, GPSMAP and Forerunner are registered trademarks and
G1000H is a trademark 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 Subsidiaries
Condensed Consolidated Statements of Income (Unaudited)
(In thousands, except per share information)
                                              13-Weeks Ended
                                              March 30,     March 31,
                                              2013          2012
Net sales                                     $ 531,957     $ 556,597
Cost of goods sold                             255,824     272,838 
Gross profit                                    276,133       283,759
Advertising expense                             22,249        23,591
Selling, general and administrative expense     86,269        90,116
Research and development expense               87,689      79,719  
Total operating expense                        196,207     193,426 
Operating income                                79,926        90,333
Other income (expense):
Interest income                                 8,898         9,671
Foreign currency gains (losses)                 (8,348  )     (1,989  )
Other                                          1,158       1,541   
Total other income (expense)                   1,708       9,223   
Income before income taxes                      81,634        99,556
Income tax (benefit) provision                 (7,032  )    12,698  
Net income                                    $ 88,666     $ 86,858  
Net income per share:
Basic                                         $ 0.45        $ 0.45
Diluted                                       $ 0.45        $ 0.44
Weighted average common shares outstanding:
Basic                                           195,630       194,742
Diluted                                         196,457       195,673

Garmin Ltd. And Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except share information)
                                                 March 30,       December 29,
                                                 2013           2012
Current assets:
Cash and cash equivalents                        $ 1,093,440     $ 1,231,180
Marketable securities                              145,478         153,083
Accounts receivable, net                           450,594         603,673
Inventories, net                                   396,010         389,931
Deferred income taxes                              68,528          68,785
Deferred costs                                     53,534          53,948
Prepaid expenses and other current assets         106,371       35,520    
Total current assets                               2,313,955       2,536,120
Property and equipment, net                        407,591         409,751
Marketable securities                              1,479,764       1,488,312
Restricted cash                                    835             836
Noncurrent deferred income tax                     92,828          93,920
Noncurrent deferred costs                          37,955          42,359
Other intangible assets, net                       223,316         232,597
Other assets                                      14,176        15,229    
Total assets                                     $ 4,570,420    $ 4,819,124 
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable                                 $ 112,170       $ 131,263
Salaries and benefits payable                      55,727          55,969
Accrued warranty costs                             34,654          37,301
Accrued sales program costs                        39,716          57,080
Deferred revenue                                   250,217         252,375
Accrued royalty costs                              10,315          71,745
Accrued advertising expense                        14,484          25,192
Other accrued expenses                             59,930          69,806
Deferred income taxes                              214             332
Income taxes payable                               27,674          32,031
Dividend payable                                  -             175,932   
Total current liabilities                          605,101         909,026
Deferred income taxes                              2,421           2,467
Non-current income taxes                           171,915         181,754
Non-current deferred revenue                       171,662         193,047
Other liabilities                                  996             1,034
Stockholders' equity:
Shares, CHF 10 par value, 208,077,418 shares
authorized and issued; 195,658,572 shares          1,797,435       1,797,435
outstanding at March 30, 2013; and 195,591,854
shares outstanding at December 29, 2012
Additional paid-in capital                         77,723          72,462
Treasury stock                                     (79,479   )     (81,280   )
Retained earnings                                  1,693,291       1,604,625
Accumulated other comprehensive income            129,355       138,554   
Total stockholders' equity                        3,618,325     3,531,796 
Total liabilities and stockholders' equity       $ 4,570,420    $ 4,819,124 

Garmin Ltd. And Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)

                                                13-Weeks Ended
                                                 March 30,       March 31,
                                                 2013            2012
Operating Activities:
Net income                                       $ 88,666        $ 86,858
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation                                       12,619          13,790
Amortization                                       9,272           11,609
Loss on sale of property and equipment             36              10
Provision for doubtful accounts                    727             1,037
Deferred income taxes                              1,493           (2,271    )
Unrealized foreign currency (gains) losses         (495      )     3,626
Provision for obsolete and slow moving             6,033           7,858
Stock compensation expense                         5,438           9,844
Realized gains on marketable securities            (1,073    )     (635      )
Changes in operating assets and liabilities,
net of acquisitions:
Accounts receivable                                152,307         185,166
Inventories                                        (13,608   )     (12,506   )
Other current and non-current assets               (50,322   )     16,950
Accounts payable                                   (18,377   )     (58,319   )
Other current and non-current liabilities          (100,784  )     (128,093  )
Deferred revenue                                   (23,329   )     (884      )
Deferred cost                                      4,813           186
Income taxes payable                              (14,053   )   (11,998   )
Net cash provided by operating activities          59,363          122,228
Investing activities:
Purchases of property and equipment                (11,616   )     (5,758    )
Proceeds from sale of property and equipment       12              2
Purchase of intangible assets                      (347      )     (2,929    )
Purchase of marketable securities                  (258,604  )     (250,431  )
Redemption of marketable securities                270,925         207,143
Advances under loan receivable commitment          (18,324   ) -   -
Change in restricted cash                          (1        )     (57       )
Acquisitions, net of cash acquired                -             (2,816    )
Net cash used in investing activities              (17,955   )     (54,846   )
Financing activities:
Dividends paid                                     (175,956  )     (77,915   )
Proceeds from issuance of treasury stock           1,474           2,883
related to equity awards
Tax benefit from issuance of equity awards         258             860
Purchase of treasury stock                        (62       )    (311      )
Net cash used in financing activities              (174,286  )     (74,483   )
Effect of exchange rate changes on cash and        (4,862    )     5,732
cash equivalents
Net decrease in cash and cash equivalents          (137,740  )     (1,369    )
Cash and cash equivalents at beginning of         1,231,180     1,287,160 
Cash and cash equivalents at end of period       $ 1,093,440    $ 1,285,791 

Garmin Ltd. And Subsidiaries
Revenue, Gross Profit, and Operating Income by Segment (Unaudited)
            Reporting Segments
            Outdoor      Fitness      Marine          Mobile        Aviation     Total
March 30,
Net         $ 76,165     $ 72,437     $ 50,296        $ 252,589     $ 80,470     $ 531,957
Gross       $ 44,475     $ 44,968     $ 23,347        $ 107,120     $ 56,223     $ 276,133
income      $ 21,588     $ 19,892       ($2,440 )     $ 20,032      $ 20,854     $ 79,926
March 31,
Net         $ 77,162     $ 71,215     $ 56,064        $ 279,269     $ 72,887     $ 556,597
Gross       $ 47,262     $ 43,494     $ 33,496        $ 109,831     $ 49,676     $ 283,759
Operating   $ 25,909     $ 20,651     $ 8,778         $ 17,935      $ 17,060     $ 90,333


Garmin Ltd.
Investor Contact:
Kerri Thurston, 913-397-8200
Media Contact:
Ted Gartner, 913-397-8200
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