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Garmin Reports 2012 Results; Initiates $300 Million Share Repurchase Program

SCHAFFHAUSEN, Switzerland — (BUSINESS WIRE) — February 20, 2013 — Garmin Ltd. (Nasdaq: GRMN) today announced fourth quarter and full year results for the period ended December 29, 2012.

Fourth Quarter 2012 Financial Summary:

Fiscal Year 2012 Financial Summary:

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 estimated economic life. A table outlining the impact of this net deferral in both 2012 and 2011 is included for reference. Results have not been adjusted unless specifically stated as such.

Business highlights:

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

“Entering 2012, we forecasted $2.7-2.8 billion of revenue and $2.45-2.60 of EPS. I am pleased to say that we met or exceeded those targets through a combination of solid execution by our associates and ongoing market share gains across our diverse set of products and geographies,” said Cliff Pemble, president and chief executive officer of Garmin Ltd. “Though business trends decelerated in the fourth quarter, we remain focused on new product development and market share gains to offset the secular declines in the PND industry and the continued generation of long-term shareholder value.

The automotive/mobile segment revenues declined 6% and 25% for the full year and fourth quarter, respectively. We experienced steeper declines in the quarter as our consistent market share gains could no longer offset the industry declines. Though the PND market size continued to decline in 2012, we again emerge from the year with increased market share and strong profitability. As we look at long-term opportunities within the segment, we remain focused on capturing market share in the OEM infotainment industry. Our K2 digital cockpit for the auto OEM market was well-received at the recent Consumer Electronics Show garnering a nomination for CNET’s Best of Show. We continue to pursue business opportunities in this high growth segment with our innovative solutions.

The outdoor segment posted a slight revenue decline in the fourth quarter as we compared against fourth quarter 2011 when growth was 35%. For the full year, the segment grew 11% and contributed $165 million of operating income. We continued to see strong results from our golf portfolio, as well as our dog-focused products. As we enter 2013, we are excited to offer additional products in each of those niches with the Approach® S2 for the golf community and the BarkLimiter™ and the Delta™ series designed for both the pet and sport dog markets. These products, along with other compelling introductions to come later in the year, are expected to contribute to growth in 2013.

The fitness segment posted revenue growth of 10% in the quarter and full-year growth of 8%, contributing $112 million of full year operating income. Growth in the segment fell slightly short of our full-year expectations due to product delays but strong fourth quarter results point to ongoing growth opportunities within the category. As we had anticipated, the Forerunner® 10 was a popular holiday gift and we expect the momentum from that product to continue in 2013. In addition, we recently launched the connected Edge 510 and 810 for the cycling community which offer live tracking capabilities. The product pipeline is robust driving our expectations for growth in 2013.

Aviation segment revenues decreased slightly in the fourth quarter but increased 2% on a full year basis, contributing $73 million of full year operating income. While the general aviation market remains challenging with OEM production showing few signs of recovery, we are investing for the future and looking forward to significant certification completions with both LearJet and Cessna in 2013. We have also introduced new aftermarket products that we expect to drive increased demand in 2013 including VHF radios and FAA certified traffic solutions, covering both airborne and ground-based traffic. We anticipate that these events will lead to stronger growth in 2013.

The marine segment posted full year and fourth quarter revenue declines of 6% and 9%, respectively. The marine industry, like aviation, has been slow to recover and economic turmoil in southern Europe has worsened the situation. We have continued to invest heavily in research and development for our marine segment causing a significant decline in operating margins and profits. While this is difficult in the near-term, we do believe that it is justified by the long-term opportunities presented in terms of both market share gains and industry improvement. New chartplotters, fishfinders and a marine-focused watch are a result of this investment and should allow us to return to revenue growth in 2013.”

Financial overview from Kevin Rauckman, Chief Financial Officer:

“While fourth quarter results did not meet our expectations, we remain excited about the long-term opportunities that are developing as we continue to invest in growing industries and expand our strong position in others,” said Kevin Rauckman, Chief Financial Officer of Garmin Ltd. “With dedicated associates and a diversified business model, we will execute around a 2013 business plan focused on innovation and efficiency to drive long-term growth.

Gross margin for the overall business in the fourth quarter was 49% which represents an improvement from the fourth quarter 2011 level of 48%. The improvement resulted from strong margins in aviation where a variety of factors contributed including product mix and a 2011 OEM program contribution that negatively impacted margins. The automotive/mobile segment gross margin was consistent at 38%.

Operating margin for the overall business was 19% in the current quarter as improved gross margins were offset by deleveraging of operating expenses. Total operating expenses were down $10 million on a year-over-year basis. Advertising expenses decreased by $9 million as volume-related cooperative advertising declined. Selling, general and administrative and research and development expenses were basically flat year-over-year.

We generated $163 million of free cash flow in the fourth quarter of 2012 and $646 million for the full year. Our strong cash generation will continue to fund significant returns to our shareholders through our quarterly dividend and recently approved share buyback program. The strong cash and marketable securities balance of approximately $2.9 billion at the end of the year also affords us the opportunity to pursue acquisitions that fit within our corporate framework.”

Dividend Recommendation and Share Repurchase Program

The Board intends to 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 four equal installments. The Board currently anticipates the scheduling of the dividend in four installments as follows:

Dividend Date

 

Record Date

 

$s per share

June 28, 2013 June 18, 2013 $0.45
September 30, 2013 September 16, 2013 $0.45
December 31, 2013 December 16, 2013 $0.45
March 31, 2014 March 17, 2014 $0.45
 

In addition, we have one additional payment of $0.45 due on March 29, 2013 to shareholders of record on March 15, 2013.

On February 15, our Board of Directors authorized the Company to repurchase up to $300 million of the Company’s shares as market and business conditions warrant through December 31, 2014. The repurchases may be made from time to time on the open market at prevailing market prices or in negotiated transactions off the market. The Company views the stock repurchase as an appropriate use of cash given the long-term growth prospects of the Company and ongoing free cash flow generation.

2013 Guidance

    2013 Guidance
Revenue   $2.5 – 2.6 B
Gross Margin 53 - 54%
Operating Income $480 - $500 M
Operating Margin 19 - 20%
EPS (Pro Forma) $2.30 - $2.40
 

We expect 2013 revenue of $2.5 - $2.6 billion as growth in the outdoor, fitness, marine and aviation segments partially offset ongoing declines in the PND market. We anticipate gross margins to be stable to slightly improved at 53-54% while operating margins decline slightly to 19-20% due to ongoing research and development investment. This results in a currently forecasted 2013 EPS range of $2.30 - $2.40. This EPS range assumes an effective tax rate of 14% and a full-year EUR/USD currency exchange rate of 1.30.

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 is an important measure. The majority of the Company’s consolidated foreign currency gain or loss results 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 Subsidiaries
Net income per share (Pro Forma)
(in thousands, except per share information)
       
13-Weeks Ended   14-Weeks Ended   52-Weeks Ended   53-Weeks Ended
December 29, December 31, December 29, December 31,
2012   2011 2012   2011
 
Net Income (GAAP) $ 129,294 $ 165,556 $ 542,403 $ 520,896
Foreign currency (gain) / loss, net of normalized tax effects $ 3,254 $ 21,930 $ 17,389 $ 10,790
Net income (Pro Forma) $ 132,548 $ 187,486 $ 559,792 $ 531,686
 
Net income per share (GAAP):
Basic $ 0.66 $ 0.85 $ 2.78 $ 2.68
Diluted $ 0.66 $ 0.85 $ 2.76 $ 2.67
 
Net income per share (Pro Forma):
Basic $ 0.68 $ 0.96 $ 2.87 $ 2.74
Diluted $ 0.68 $ 0.96 $ 2.85 $ 2.73
 
Weighted average common shares outstanding:
Basic 195,101 194,319 194,909 194,105
Diluted 196,275 195,100 196,213 194,894
 

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 14-Weeks Ended   52-Weeks Ended 53-Weeks Ended
December 29, December 31, December 29, December 31,
2012 2011 2012 2011
 
Net cash provided by operating activities $ 174,711 $ 224,858 $ 684,745 $ 822,334
Less: purchases of property and equipment   ($11,564 )   ($11,843 )   ($38,445 )   ($38,366 )
Free Cash Flow $ 163,147   $ 213,015   $ 646,300   $ 783,968  
 

Net deferred revenues and costs

The following table illustrates the net effect of deferred revenues and costs associated with certain products bundled with content and services in the current quarter and year-to-date periods. These deferred revenues and costs are being amortized over the estimated economic lives of the products. Additional details will be available in the Annual Report on Form 10-K for the year ended December 29, 2012 that will be filed by Garmin with the Securities and Exchange Commission (Commission file number 0-31983) next week.

Garmin Ltd. And Subsidiaries
Net Deferred Revenue Impact (Unaudited)
(In thousands, except per share information)
       
13-Weeks Ended   14-Weeks Ended   52-Weeks Ended   53-Weeks Ended
December 29, December 31, December 29, December 31,
2012 2011 2012 2011
Net sales $ (33,035 ) $ (71,976 ) $ (68,303 ) $ (179,333 )
Cost of goods sold   (6,510 )   (14,793 )   (15,451 )   (36,117 )
Gross profit (26,525 ) (57,183 ) (52,852 ) (143,216 )
 
Operating income (26,525 ) (57,183 ) (52,852 ) (143,216 )
 
Income tax provision based on normalized tax effects   (4,386 )   (6,045 )   (6,950 )   (15,510 )
             
Net income $ (22,139 )   $ (51,138 )   $ (45,902 )   $ (127,706 )
 
Net income per share:
Basic -$0.11 -$0.26 -$0.24 -$0.66
Diluted -$0.11 -$0.26 -$0.23 -$0.66

Return on invested capital (ROIC)

Management defines return on invested capital (ROIC) as net operating profit after taxes divided by operating invested capital. Management believes that ROIC provides greater visibility into how effectively Garmin deploys capital. ROIC is not a measure of financial performance under accounting principles generally accepted in the United States (GAAP), and may not be defined and calculated by other companies in the same manner as Garmin does. ROIC should not be considered in isolation or as an alternative to net income as an indicator of company performance.

The following table contains a GAAP reconciliation of return on invested capital.

Garmin Ltd. And Subsidiaries
Return on Invested Capital (ROIC)
(in thousands)
   
52-Weeks Ended   53-Weeks Ended
December 29, December 31,
2012   2011
Net Operating Profit After Taxes (NOPAT):
Operating Income (EBIT) $ 604,160 $ 553,767
Less: Taxes on Operating Income   ($79,447 )     ($59,973 )
Net Operating Profit after Taxes (NOPAT) $ 524,713     $ 493,794  
 
Invested Capital (IC):
Total Assets $ 4,819,124 $ 4,471,338
Less: Cash & Marketable Securities ($2,872,575 ) ($2,495,315 )
Less: Deferred Income Taxes ($162,704 ) ($142,307 )
Less: Non-Interest Bearing Current Liabilities   ($909,026 )     ($858,279 )
Operating Invested Capital (IC) $ 874,819     $ 975,437  
     
Return on Invested Capital   60 %     51 %
 

Earnings Call Information

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

When:

 

Wednesday, February 20, 2012 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) 437.9366 (due to the limited number of lines available, we encourage you to participate via the webcast).

Contact:

Email Contact

 

An archive of the live webcast will be available until March 27, 2013 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 2013, the Company’s expected segment revenue growth rate, margins, new products to be introduced 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 31, 2011 filed by Garmin with the Securities and Exchange Commission (Commission file number 0-31983). A copy of such 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, fitness, marine, aviation, and OEM applications. A member of the S&P 500 Index, Garmin Ltd. is incorporated in Schaffhausen, 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 www.garmin.com/pressroom or contact the Media Relations department at 913-397-8200.

Garmin, nüvi, Approach, and Forerunner are registered trademarks, and Real Directions, Edge, BarkLimiter and Delta 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 Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except share information)
   
December 29, December 31,
2012   2011
Assets
Current assets:
Cash and cash equivalents $ 1,231,180 $ 1,287,160
Marketable securities 153,083 111,153
Accounts receivable, net 603,673 607,450
Inventories, net 389,931 397,741
Deferred income taxes 68,785 53,670
Deferred costs 53,948 40,033
Prepaid expenses and other current assets   35,520     77,630  
Total current assets 2,536,120 2,574,837
 
Property and equipment, net 409,751 417,105
 
Marketable securities 1,488,312 1,097,002
Restricted cash 836 771
Noncurrent deferred income tax 93,920 88,637
Noncurrent deferred costs 42,359 40,823
Intangible assets, net 232,597 246,646
Other assets   15,229     5,517  
Total assets $ 4,819,124   $ 4,471,338  
 
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 131,263 $ 164,010
Salaries and benefits payable 55,969 45,964
Accrued warranty costs 37,301 46,773
Accrued sales program costs 57,080 52,262
Deferred revenue 252,375 188,987
Accrued license fees 71,745 99,025
Accrued advertising expense 25,192 31,915
Other accrued expenses 69,806 67,912
Deferred income taxes 332 5,782
Income taxes payable 32,031 77,784
Dividend payable   175,932     77,865  
Total current liabilities 909,026 858,279
 
Deferred income taxes 2,467 4,951
Non-current income taxes 181,754 161,904
Non-current deferred revenue 193,047 188,132
Other liabilities 1,034 1,491
 
Stockholders' equity:
Shares, CHF 10 par value, 208,077,418 shares authorized and issued;
195,591,854 shares outstanding at December 29, 2012 and
194,622,617 shares outstanding at December 31, 2011 1,797,435 1,797,435
Additional paid-in capital 72,462 61,869
Treasury stock (81,280 ) (103,498 )
Retained earnings 1,604,625 1,413,582
Accumulated other comprehensive income   138,554     87,193  
Total stockholders' equity   3,531,796     3,256,581  
Total liabilities and stockholders' equity $ 4,819,124   $ 4,471,338  
 
 
Garmin Ltd. And Subsidiaries
Condensed Consolidated Statements of Income (Unaudited)
(In thousands, except per share information)
       
13-Weeks Ended   14-Weeks Ended   52-Weeks Ended   53-Weeks Ended
December 29, December 31, December 29, December 31,
2012 2011 2012 2011
Net sales $ 768,548 $ 909,644 $ 2,715,675 $ 2,758,569
 
Cost of goods sold   394,694     475,857     1,277,195     1,419,977  
 
Gross profit 373,854 433,787 1,438,480 1,338,592
 
Advertising expense 46,806 55,660 138,757 145,024
Selling, general and administrative expense 94,026 93,383 369,790 341,217
Research and development expense   83,263     84,655     325,773     298,584  
Total operating expense   224,095     233,698     834,320     784,825  
 
Operating income 149,759 200,089 604,160 553,767
 
Other income (expense):
Interest income 8,830 9,494 35,108 32,812
Foreign currency (3,898 ) (24,523 ) (20,022 ) (12,100 )
Other   219     67     5,282     9,682  
Total other income (expense)   5,151     (14,962 )   20,368     30,394  
 
Income before income taxes 154,910 185,127 624,528 584,161
 
Income tax provision   25,616     19,571     82,125     63,265  
 
Net income $ 129,294   $ 165,556   $ 542,403   $ 520,896  
 
Net income per share:
Basic $ 0.66 $ 0.85 $ 2.78 $ 2.68
Diluted $ 0.66 $ 0.85 $ 2.76 $ 2.67
 
Weighted average common
shares outstanding:
Basic 195,101 194,319 194,909 194,105
Diluted 196,275 195,100 196,213 194,894
 
Garmin Ltd. And Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
 
  52-Weeks Ended   53-Weeks Ended
December 29,   December 31,
2012 2011
Operating Activities:
Net income $ 542,403 $ 520,896
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 52,632 54,610
Amortization 37,835 39,925
Gain on sale of property and equipment (367 ) (2,192 )
Provision for doubtful accounts 4,678 2,317
Deferred income taxes (32,080 ) (42,475 )
Unrealized foreign currency losses 40,042 18,583
Provision for obsolete and slow moving inventories 11,003 16,047
Stock compensation expense 29,274 40,212
Realized gains on marketable securities (2,980 ) (4,322 )
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable 9,077 169,543
Inventories 3,997 (6,385 )
Other current and non-current assets 39,717 (60,996 )
Accounts payable (38,929 ) (26,329 )
Other current and non-current liabilities (33,235 ) (61,103 )
Deferred revenue 67,931 179,439
Deferred costs (15,441 ) (36,120 )
Income taxes payable   (30,812 )   20,684  
Net cash provided by operating activities 684,745 822,334
 
Investing activities:
Purchases of property and equipment (38,445 ) (38,366 )
Proceeds from sale of property and equipment 757 4,127
Purchase of intangible assets (6,783 ) (6,933 )
Purchase of marketable securities (1,429,593 ) (1,172,555 )
Redemption of marketable securities 985,598 779,213
Change in restricted cash (65 ) 506
Acquisitions, net of cash acquired   (7,697 )   (54,190 )
Net cash used in investing activities (496,228 ) (488,198 )
 
Financing activities:
Dividends paid (253,386 ) (310,763 )
Issuance of treasury stock related to equity awards 22,798 22,337
Tax benefit from issuance of equity awards (516 ) 3,313
Purchase of treasury stock   (18,745 )     (22,300 )
Net cash used in financing activities (249,849 ) (307,413 )
 
Effect of exchange rate changes on cash and cash equivalents 5,352 (499 )
   
Net (decrease)/increase in cash and cash equivalents (55,980 ) 26,224
Cash and cash equivalents at beginning of period   1,287,160     1,260,936  
Cash and cash equivalents at end of period $ 1,231,180   $ 1,287,160  
 
Garmin Ltd. And Subsidiaries
Revenue, Gross Profit, and Operating Income by Segment (Unaudited)
           
Reporting Segments

Outdoor

Fitness

Marine

Auto/

Mobile

Aviation

Total

 
13-Weeks Ended December 29, 2012
 
Net sales $ 118,517 $ 103,973 $ 39,516 $ 436,654 $ 69,888 $ 768,548
Gross profit $ 73,990 $ 62,570 $ 19,995 $ 166,153 $ 51,146 $ 373,854
Operating income $ 46,579 $ 35,791 ($1,583 ) $ 50,557 $ 18,415 $ 149,759
 
14-Weeks Ended December 31, 2011
 
Net sales $ 121,045 $ 94,752 $ 43,250 $ 579,193 $ 71,404 $ 909,644
Gross profit $ 82,161 $ 60,989 $ 25,868 $ 218,738 $ 46,031 $ 433,787
Operating income $ 59,707 $ 40,808 $ 9,285 $ 77,750 $ 12,539 $ 200,089
                         
 
52-Weeks Ended December 29, 2012
 
Net sales $ 401,747 $ 321,788 $ 208,136 $ 1,492,440 $ 291,564 $ 2,715,675
Gross profit $ 260,564 $ 204,615 $ 125,201 $ 642,913 $ 205,187 $ 1,438,480
Operating income $ 164,611 $ 111,807 $ 34,000 $ 220,766 $ 72,976 $ 604,160
 
53-Weeks Ended December 31, 2011
 
Net sales $ 363,223 $ 298,163 $ 221,730 $ 1,590,598 $ 284,855 $ 2,758,569
Gross profit $ 238,850 $ 181,759 $ 129,653 $ 597,017 $ 191,313 $ 1,338,592
Operating income $ 161,511 $ 102,101 $ 57,645 $ 160,837 $ 71,673 $ 553,767


Contact:

Garmin Ltd.
INVESTOR CONTACT:
Kerri Thurston 913-397-8200
Email Contact
or
MEDIA CONTACT:
Ted Gartner, 913-397-8200
Email Contact