Garmin Reports Record Quarter; Announces Two-for-One Stock Split and Cash Dividend
CAYMAN ISLANDS, May 3, 2006 -- Garmin Ltd. today announced a record first quarter ended April 1, 2006.
First Quarter 2006 Financial highlights:
-- Total revenue of $322.3 million, up 67% from $192.7 million in first
quarter 2005
-- Automotive/Mobile segment revenue increased 252% to $150.7 million in
first quarter 2006
-- Outdoor/Fitness segment revenue increased 21% to $63.7 million in
first quarter 2006
-- Marine segment revenue increased 21% to $50.7 million in first quarter
2006
-- Aviation segment revenue increased 4% to $57.2 million in first
quarter 2006
-- All geographic areas experienced significant growth:
-- North America revenue was $202.7 million compared to
$132.6 million, up 53 percent
-- Europe revenue was $101.9 million compared to $50.3 million, up
102 percent
-- Asia revenue was $17.7 million compared to $9.7 million, up
83 percent
-- Mix of revenue continues to shift, with revenue from Europe and
revenue from automotive/mobile continuing to become a larger piece of
the total company
-- Earnings per share increased 86% to $0.80 from $0.43 in 2005;
excluding foreign exchange, EPS increased 65% to $0.86 from $0.52 in
2005
Business highlights:
-- Strong sales in automotive/mobile, outdoor/fitness, and marine
segments, putting them on track to meet or exceed full year guidance.
-- 921,000 units sold in the first quarter of 2006, up 58% from the same
quarter in 2005.
-- Delivered 34 new products in the quarter, setting the stage for
additional growth as the year progresses.
-- Completed the purchase of our second Taiwan manufacturing facility and
expect to begin production in May 2006.
-- Expanded advertising campaign in the U.S. strengthened our leadership
position in the face of growing competition.
-- Continued advertising campaign across Europe, which resulted in
greater brand awareness and strong growth, particularly for portable
navigation devices (PND's).
-- Introduced many new marine products that include new offshore and
inland cartography and new digital fishfinders.
-- Enhanced our position as the leader in GPS-enabled fitness devices as
the Edge(TM) bicycle product and new Forerunner(R) 205/305 models
became more widely available in our distribution channels and were
well-received.
-- Completed certification of Columbia model 400 aircraft, with aircraft
shipments to begin in second quarter 2006.
Executive overview from Dr. Min Kao, Chairman and Chief Executive Officer:
"The first quarter was another exciting quarter for Garmin. We are delighted to have delivered a record number (34) of innovative new products. These products, which include many automotive/mobile, outdoor/fitness, marine, and aviation products, have been well received by the market. We also look forward to the sell-through of our new automotive/mobile products scheduled for retail delivery in the second quarter of 2006.
"We experienced triple digit growth in our automotive/mobile product line, which demonstrates that our products continue to be well-positioned to take advantage of the growing demand for portable navigation devices both in the U.S. and in Europe. Solid growth in both our outdoor/fitness and marine segments has positioned us to meet or exceed our 2006 guidance for these segments.
"Through continuous innovation, we will provide compelling, competitive features like Bluetooth hands-free and creative products like the strong- selling c-series and very popular nuvi(TM), which combines navigation with industry leading features like a language translator, travel guide, MP3 player, and more. We have the focus and commitment to continue our leadership position in the rapidly expanding U.S. automotive market through 2006 and continue to grow our European market share as well.
"To meet our growth goals, we continue to expand our worldwide marketing and sales efforts. We have also increased our manufacturing capacity to meet future demand and compete effectively in the global marketplace, with our new manufacturing facility anticipated to begin production in May 2006."
Financial overview from Kevin Rauckman, Chief Financial Officer:
"We are very pleased with our financial results for the first quarter of 2006," said Kevin Rauckman, chief financial officer of Garmin Ltd. "Our revenue and earnings per share during 2005 grew 67% and 86% respectively, exceeding our expectations. Outdoor/fitness and marine segments performed well, benefiting from new product introductions, and the automotive/mobile segment revenues increased over two and a half times compared to the prior year, when sales were somewhat slow due to the release of c-series products in mid-March 2005. Aviation revenues were up 4% in comparison to last year, when aviation revenues grew strongly driven by strong sales of TAWs enabled products required to meet the FAA equipage mandate. In addition, certification of the Columbia aircraft came later in the first quarter of 2006 than anticipated and resulted in initial shipments of the aircraft by Columbia in the second quarter of this year instead of in the first quarter.
"Gross margin and operating margin improved in our outdoor/fitness and marine segments and declined in our automotive/mobile and aviation segments when compared with the year-ago quarter. Total operating margin of 31.1% for the first quarter of 2006 remained strong at 30 basis points above Q4 2005 levels. These results were in line with our expectations.
"We also generated $41.3 million of free cash flow in the first quarter of 2006, resulting in cash and marketable securities balance of $764.7 million at the end of the quarter."
Fiscal 2006 Outlook
We remain optimistic about the future success of our business as new products are coming to the market during the second quarter as we enter a strong PND selling season. General business expectations for 2006, including our new segments, are updated as follows:
-- We anticipate overall revenue to exceed $1.4 billion in 2006, and
earnings per share to exceed $3.40. We assume our 2006 effective tax
rate will be approximately 16% and estimate an earnings per share
impact of $0.07 in 2006 due to the effects of implementing FAS123(R).
The impact of FAS123(R) has been included in our guidance.
-- We anticipate revenue growth rates within our aviation, outdoor
fitness and marine segments to be 20 percent, 15 percent, and
10 percent, respectively, in 2006. We expect short-term margins
within these segments to be relatively stable despite the possibility
of quarter-to-quarter variability due to product mix and the timing of
new product introductions.
-- We anticipate automotive/mobile revenues to grow above 75 percent in
2006, with declining operating margins due to product mix and a
continued transition toward mass market levels.
-- We continue to look forward to introducing a total of 60 new products
in 2006, with new product announcements to fall more heavily in the
first half of 2006 in preparation for fall deliveries and the holiday
season.
-- With the expansion of Taiwan manufacturing to meet growing demand for
our products; we will be able to double our production capacity within
the automotive/mobile, outdoor/fitness, and marine segments.
-- Increased focus on the development of European opportunities; growth
will be supported with a planned expansion of our European
headquarters and distribution center and continued emphasis on
advertising to enhance awareness of the Garmin brand.
Two-for-One Stock Split and Cash Dividend
The Garmin Board of Directors has approved a two-for-one split of Garmin's Common Shares, subject to shareholder approval. If approved by the shareholders, the stock split would be effected by the subdivision of each outstanding Common Share of a par value of $0.01 each into two Common Shares of a par value of $0.005 each and a proportional amendment of the authorized share capital. A special meeting of shareholders will be convened for the purpose of considering a resolution to approve the stock split.
The Garmin Board of Directors has also approved a post-stock split annual cash dividend of $0.50 per share (equivalent to a pre-stock split cash dividend of $1.00 per share) payable to shareholders of record on December 1, 2006. This dividend will be paid on December 15, 2006.
Non-GAAP Measures Net income (earnings) per share, excluding foreign currency
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 translation gain or loss results from translation into New Taiwan dollars at the end of each reporting period of the significant cash and marketable securities, receivables and payables held in U.S. dollars by the company's Taiwan subsidiary. Such translation is required under GAAP because the functional currency of this subsidiary is New Taiwan dollars. However, there is minimal cash impact from such foreign currency translation and management expects that the Taiwan subsidiary will continue to hold the majority of its cash, cash equivalents and marketable securities in U.S. dollars. Accordingly, earnings per share before the impact of foreign currency translation gain or loss allows an assessment of the company's operating performance before the non-cash impact of the position of the U.S. dollar versus the New Taiwan dollar, which permits a consistent comparison of results between periods.
The following table contains a reconciliation of GAAP net income per share to net income per share excluding the impact of foreign currency translation gain or loss.
Garmin Ltd. And Subsidiaries
Net income per share, excluding FX
(in thousands, except per share information)
13-Weeks Ended
April 1, March 26,
2006 2005
Net Income (GAAP) $87,516 $47,401
Foreign currency (gain) / loss, net
of tax effects $6,292 $8,977
Net income, excluding FX $93,808 $56,378
Net income per share (GAAP):
Basic $0.81 $0.44
Diluted $0.80 $0.43
Net income per share, excluding FX:
Basic $0.87 $0.52
Diluted $0.86 $0.52
Weighted average common shares
outstanding:
Basic 108,185 108,408
Diluted 109,161 109,421
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
April 1, March 26,
2006 2005
Net cash provided by operating
activities $56,216 $42,847
Less: purchases of property and
equipment ($14,868) ($11,777)
Free Cash Flow $41,348 $31,069
2006 Annual Meeting
Garmin Ltd. has stated its annual shareholders meeting will be held at 10:00 a.m., Central Time, on June 9, 2006 at the headquarters of Garmin International, Inc., 1200 E. 151st Street, Olathe, Kansas, 66062. The record date for shareholders entitled to vote at the annual meeting was April 17, 2006.
Through its operating subsidiaries, Garmin Ltd. designs, manufactures, and markets navigation, communications and information devices, most of which are enabled by GPS technology. Garmin is a leader in the general aviation and consumer markets and its products serve aviation, marine, general recreation, automotive, wireless and OEM applications. Garmin Ltd. is incorporated in the Cayman Islands, and its principal subsidiaries are located in the United States, Taiwan and United Kingdom. For more information, visit the investor relations site of Garmin Ltd. at http://www.garmin.com/ or contact the Investor Relations department at 913-397-8200. Garmin and Forerunner are registered trademarks, and nuvi and Edge are trademarks, of Garmin Ltd. or its subsidiaries.
Garmin Ltd. And Subsidiaries
Condensed Consolidated Statements of Income (Unaudited)
(In thousands, except per share information)
13-Weeks Ended
April 1, March 26,
2006 2005
Net sales $322,311 $192,651
Cost of goods sold 159,521 89,453
Gross profit 162,790 103,198
Selling, general and administrative expenses 37,764 20,518
Research and development expense 24,913 16,928
62,677 37,446
Operating income 100,113 65,752
Other income (expense):
Interest income 7,305 3,901
Interest expense (8) (2)
Foreign currency (7,446) (11,138)
Other 3,605 297
3,456 (6,942)
Income before income taxes 103,569 58,810
Income tax provision 16,053 11,409
Net income $87,516 $47,401
Net income per share:
Basic $0.81 $0.44
Diluted $0.80 $0.43
Weighted average common shares outstanding:
Basic 108,185 108,408
Diluted 109,161 109,421
Garmin Ltd. And Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except share information)
(Unaudited)
April 1, December 31,
2006 2005
Assets
Current assets:
Cash and cash equivalents $314,623 $334,352
Marketable securities 46,249 32,050
Accounts receivable, net 200,251 170,997
Inventories 200,253 199,841
Deferred income taxes 36,723 29,615
Prepaid expenses and other current assets 46,361 34,312
Total current assets 844,460 801,167
Property and equipment, net 188,820 179,173
Marketable securities 402,417 344,673
Restricted cash 1,370 1,356
Licensing agreements, net 5,102 6,517
Other assets, net 29,330 29,349
Total assets $1,471,499 $1,362,235
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $68,809 $76,516
Salaries and benefits payable 10,277 13,005
Warranty reserve 20,179 18,817
Other accrued expenses 28,939 23,993
Income taxes payable 68,879 63,154
Total current liabilities 197,083 195,485
Deferred income taxes 9,730 9,486
Stockholders' equity:
Common stock 1,084 1,081
Additional paid-in capital 109,781 96,242
Retained earnings 1,159,970 1,072,454
Accumulated other comprehensive gain (6,149) (12,513)
Total stockholders' equity 1,264,686 1,157,264
Total liabilities and stockholders' equity $1,471,499 $1,362,235
Garmin Ltd. And Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
13-Weeks Ended
April 1, March 26,
2006 2005
Operating Activities:
Net income $87,516 $47,401
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 5,050 4,070
Amortization 8,922 5,372
Loss (gain) on sale of property and
equipment 172 (140)
Provision for doubtful accounts 500 146
Deferred income taxes (7,725) 1,596
Foreign currency translation gains/losses 10,290 15,116
Provision for obsolete inventories 4,712 2,346
Stock compensation expense 2,500 -
Realized gains on marketable securities (3,852) -
Changes in operating assets and liabilities:
Accounts receivable (29,753) 8,440
Inventories (5,124) (11,943)
Other current assets (18,141) (337)
Accounts payable (7,707) (14,346)
Other current liabilities 3,580 (10,558)
Income taxes 5,725 (4,316)
Purchase of licenses (449) -
Net cash provided by operating activities 56,216 42,847
Investing activities:
Purchases of property and equipment (14,868) (11,777)
Purchase of intangible assets (683) (177)
Purchase of marketable securities, net (71,607) (33,162)
Change in restricted cash (14) (22)
Proceeds from sale of property and equipment 0 -
Net cash provided by investing activities (87,172) (45,138)
Financing activities:
Proceeds from issuance of common stock 6,671 1,104
Tax benefit related to stock option exercise 4,371 -
Net cash provided by financing activities 11,042 1,104
Effect of exchange rate changes on cash and
cash equivalents 185 471
Net increase in cash and cash equivalents (19,729) (716)
Cash and cash equivalents at beginning of
period 334,352 249,909
Cash and cash equivalents at end of period $314,623 $249,193
Garmin Ltd. And Subsidiaries
Revenue, Gross Profit, and Operating Income by Segment
Reporting Segments
Outdoor/ Auto/
Fitness Marine Mobile Aviation Total
13-Weeks Ended April 1, 2006
Net sales $63,645 $50,703 $150,730 $57,233 $322,311
Gross profit $36,343 $28,017 $63,086 $35,344 $162,790
Operating income $24,679 $18,914 $36,292 $20,228 $100,113
13-Weeks Ended March 26, 2005
Net sales $52,658 $41,986 $42,831 $55,176 $192,651
Gross profit $27,504 $19,638 $19,362 $36,694 $103,198
Operating income $18,467 $12,408 $11,868 $23,009 $65,752