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Corporate earnings
Wednesday, 17 February 2016, 12:00 am CST

Garmin Reports Q4 and Fiscal 2015 Results

Garmin Ltd. (Nasdaq: GRMN – News) today announced results for the fourth
quarter ended December 26, 2015.

Highlights in the quarter include:

  • Total revenue of $781 million with outdoor, fitness, aviation and
    marine collectively growing 11% over the year ago quarter and
    contributing 66% of total revenue
  • Gross and operating margins were 52.9% and 18.7%, respectively
  • Pro forma EPS(1) of $0.74 for fourth quarter 2015
  • Launched our global Beat Yesterday™ advertising campaign, designed to
    highlight the intrinsic motivation that leads to self-improvement
  • Recently announced new products available for the first quarter 2016
    including a new line up of golf devices, fēnix® 3 HR with Garmin
    Elevate™ wrist heart rate technology, Varia Vision™ in-sight display,
    and the Garmin Drive™ line of PNDs

Highlights for the fiscal year include:

  • Total revenue of $2,820 million with outdoor, fitness, aviation, and
    marine collectively growing 9% over 2014 and contributing 63% of total
    revenue
  • Gross and operating margins were 54.6% and 19.5%, respectively
  • Shipped approximately 16.2 million units, up 7% from prior year
  • Pro forma EPS(1) of $2.49 for 2015
(in thousands, 13-Weeks Ended 52-Weeks Ended
except per share data) Dec 26, Dec 27, Yr over Yr Dec 26, Dec 27, Yr over Yr
2015 2014 Change 2015 2014 Change
Net sales $781,358 $803,306 -3% $2,820,270 $2,870,658 -2%
Auto 268,478 339,832 -21% 1,048,125 1,240,377 -15%
Fitness 228,740 201,303 14% 661,599 568,440 16%
Outdoor 123,627 116,432 6% 425,150 427,555 -1%
Aviation 104,059 93,279 12% 398,618 385,915 3%
Marine 56,454 52,460 8% 286,778 248,371 15%
Gross profit % 52.9% 53.6% 54.6% 55.9%
Operating profit % 18.7% 21.9% 19.5% 24.1%
GAAP diluted EPS $0.70 $1.09 -36% $2.39 $1.88 27%
Pro forma diluted EPS (1) $0.74 $0.77 -4% $2.49 $3.10 -20%

(1) See attached table for reconciliation of non-GAAP measures including
pro forma diluted EPS


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

“Despite the challenging global economic environment and the intensified
competitive landscape of 2015, we finished strong with revenue and
margins exceeding our expectations,” said Cliff Pemble, president and
chief executive officer (CEO) of Garmin Ltd. “We are utilizing our
robust balance sheet to further diversify our revenue base in adjacent
categories with our recently announced acquisitions. We believe we have
strong products across all of our business segments and are well
positioned as we enter 2016.”

Fitness:

The fitness segment posted revenue growth of 14% in the quarter
reflecting the strength of our wellness, running, and cycling product
offerings. Gross margin fell to 51% in the quarter, while operating
margin declined to 18%. The gross margin decline was driven by holiday
promotions and competitive dynamics in certain product categories, as
well as product mix within the quarter. We saw our Beat Yesterday
advertising campaign favorably impact our holiday sales and the Garmin
brand. We recently introduced Varia Vision, a new product category that
provides cyclists with an in-sight display to enhance their road
awareness by putting the information in their line of sight. We believe
our product lineup is very strong and look forward to another year of
growth from our fitness segment in 2016.

Outdoor:

The outdoor segment posted revenue growth of 6% in the quarter driven by
the strength of our outdoor wearables. Gross and operating margins
within the segment were down slightly from the year ago quarter at 60%
and 33%, respectively. As we enter 2016, we are excited about our recent
new product announcements including the fēnix® 3 HR with Garmin Elevate
wrist heart rate technology, Approach® S20 and G10, and TruSwing™. The
pending acquisition of DeLorme® and the acquisition of PulsedLight™
provide opportunity to expand into new areas of growth for the future.

Aviation:

The aviation segment posted revenue growth of 12% in the quarter,
exceeding our expectations in a challenging general aviation
environment. The gross margin in aviation was strong at 76%. This gross
margin performance allowed the aviation segment to deliver 62% operating
income growth over the year ago quarter. We will continue to invest in
upcoming certifications with numerous OEM partners, while also
developing new products and technologies, which we expect will result in
long-term market share gains and growth in the aviation segment.

Marine:

The marine segment posted revenue growth of 8% in the seasonally slow
fourth quarter on the strength of our new product offerings. Gross
margin improved year-over-year to 54% as mix shifted toward new products
with higher margin profiles. In the quarter, we recorded additional
litigation related costs leading to an operating loss of 10%. Excluding
these costs, we would have reported an operating profit compared to an
operating loss in the fourth quarter of 2014. We recently announced the
Striker™ series, a new line of fishfinders which redefine the entry
level fishfinder market with the addition of GPS capability. At recent
boat shows, we announced the quatix 3 wearable, the Garmin Nautix™
in-sight display, and the GNX Wind, providing sailors important wind and
boat data. In 2015, we delivered both revenue and profitability
improvements as a result of our significant investment in recent years.
We believe our product lineup is very strong and look forward to another
year of growth in 2016.

Auto:

Consistent with the ongoing decline of the overall PND market, the auto
segment posted a revenue decline of 21% in the fourth quarter. Gross and
operating margins were 42% and 13%, respectively. We recently introduced
the Garmin Drive line of PND devices with a range of product offerings
from basic navigation to integrated dashcam providing additional driver
assistance. On the OEM side, our newly developed high performance
navigation software solution is fully integrated in the new Mercedes
E-Class recently launched in Detroit.

Additional Financial Information:

Total operating expenses in the quarter were $267 million, a 5% increase
from the prior year. Research and development investment increased 4%,
with continued emphasis on active lifestyle products in fitness and
outdoor. Advertising increased 5%, driven primarily by increases in
fitness and outdoor advertising to support wearables. Selling, general
and administrative expense increased by 5%, driven primarily by
litigation related costs and information technology.

The effective tax rate in the fourth quarter of 2015 was 13.2% compared
to a pro forma effective tax rate of 19.1% in the prior year, excluding
the impact of $49 million income tax benefit associated with net
releases of reserves primarily associated with completion of tax audits
in 2014. The decrease in the effective tax rate resulted from the
improved pretax income compared to previous projections for 2015, which
positively impacts our geographic income mix. Consistent with the prior
year, the fourth quarter included the full year impact of the U.S.
research and development tax credit.

We continued to return cash to shareholders with our quarterly dividend
of approximately $97 million and our share repurchase activity, which
totaled $23 million in the fourth quarter. We returned $509 million of
cash to shareholders in 2015 with quarterly dividends totaling $378
million and share repurchases of $131 million. We have $169 million
remaining in the share repurchase program authorized through December
31, 2016, and expect to repurchase as business and market conditions
warrant. We ended the quarter with cash and marketable securities of
about $2.4 billion.

2016 Guidance:

2016 Guidance
Revenue ~$2.82 B
Gross Margin ~54.5%
Operating Income ~510M
Operating Margin ~18%
Tax Rate ~20.5%
EPS (Pro Forma) ~$2.25

We expect 2016 revenue of approximately $2.82 billion as growth in all
non-auto segments offsets ongoing declines in the PND market. We expect
gross margins to be approximately 54.5%, relatively flat to the prior
year. Operating margins are forecasted to decline to approximately 18%
due primarily to ongoing research and development investment and the
addition of recently announced acquisitions. With an expected tax rate
of approximately 20.5%, we currently forecast 2016 EPS of approximately
$2.25. This includes approximately $0.05 of negative impact in 2016 due
to acquisitions.

Dividend Recommendation:

The board of directors intends to recommend to the shareholders for
approval at the annual meeting to be held on June 10, 2016, a cash
dividend in the amount of $2.04 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 on
dates to be determined by the Board. The Board currently anticipates the
scheduling of the dividend in four installments as follows:

Dividend Date Record Date $s per share
June 30, 2016 June 16, 2016 $0.51
September 30, 2016 September 15, 2016 $0.51
December 30, 2016 December 14, 2016 $0.51
March 31, 2017 March 15, 2017 $0.51

In addition, the board of directors has established March 31, 2016 as
the payment date and March 16, 2016 as the record date for the final
dividend installment of $0.51 per share, per the prior approval at the
2015 annual shareholders’ meeting. The first, second and third payments
of $0.51 per share were made on June 30, 2015, September 30, 2015, and
December 31, 2015, respectively.

Webcast Information/Forward-Looking Statements:

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

When: Wednesday, February 17, 2016 at 10:30 a.m. Eastern
Where:

http://www.garmin.com/en-US/company/investors/events/

How: Simply log on to the web at the address above or call to listen in
at 855-820-2296

An archive of the live webcast will be available until March 23, 2016 on
the Garmin website at 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 that are commonly
identified by words such as “would”, “may”, “expects”, “estimates”,
“plans”, “intends”, “projects”, and other words or phrases with similar
meanings. Any statements regarding the Company’s GAAP and pro
forma estimated earnings, EPS and revenue for fiscal 2016, the Company’s
expected segment revenue growth rates, margins, currency movements,
expenses, pricing, new products to be introduced in 2016 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 and uncertainties 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 26, 2015 filed by Garmin with the
Securities and Exchange Commission (Commission file number 0-31983). A
copy of Garmin’s 2015 Form 10-K can be downloaded from http://www.garmin.com/aboutGarmin/invRelations/finReports.html.

Garmin, the Garmin logo, the Garmin delta, Approach, fēnix and quatix
are trademarks of Garmin Ltd. or its subsidiaries and are registered in
one or more countries, including the U.S. Varia Vision, Garmin Drive,
Garmin Nautix, Striker, GNX, PulsedLight, Garmin Elevate, TruSwing and
Beat Yesterday are trademarks of, or exclusively licensed to, 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 52-Weeks Ended
Dec 26, Dec 27, Dec 26, Dec 27,
2015 2014 2015 2014
Net sales $781,358 $803,306 $2,820,270 $2,870,658
Cost of goods sold 368,215 372,458 1,281,566 1,266,246
Gross profit 413,143 430,848 1,538,704 1,604,412
Advertising expense 56,814 54,175 167,166 146,633
Selling, general and administrative expense 104,556 99,119 394,914 372,032
Research and development expense 106,011 101,554 427,043 395,121
Total operating expense 267,381 254,848 989,123 913,786
Operating income 145,762 176,000 549,581 690,626
Other income:
Interest income 7,358 6,803 29,653 35,584
Foreign currency gains (losses) (9,288 ) 15,967 (23,465 ) (4,299 )
Other income 8,711 1,126 11,418 1,834
Total other income 6,781 23,896 17,606 33,119
Income before income taxes 152,543 199,896 567,187 723,745
Income tax provision (benefit) 20,160 (10,349 ) 110,960 359,534
Net income $132,383 $210,245 $456,227 $364,211
Net income per share:
Basic $0.70 $1.10 $2.39 $1.89
Diluted $0.70 $1.09 $2.39 $1.88
Weighted average common
shares outstanding:
Basic 189,317 191,322 190,631 193,106
Diluted 189,847 192,356 191,107 194,165
Dividends declared per share $2.04 $1.92
Garmin Ltd. And Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except per share information)
(Unaudited)
Dec 26, Dec 27,
2015 2014
Assets
Current assets:
Cash and cash equivalents $833,070 $1,196,268
Marketable securities 215,161 167,989
Accounts receivable, net 531,481 570,191
Inventories, net 500,554 420,475
Deferred income taxes – 56,102
Deferred costs 49,176 51,336
Prepaid expenses and other current assets 81,645 48,615
Total current assets 2,211,087 2,510,976
Property and equipment, net 446,089 430,887
Marketable securities 1,343,387 1,407,344
Restricted cash 259 308
Noncurrent deferred income tax 116,518 67,712
Noncurrent deferred costs 38,769 36,140
Intangible assets, net 245,552 218,083
Other assets 97,730 21,853
Total assets $4,499,391 $4,693,303
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable $178,905 $149,094
Salaries and benefits payable 70,601 62,764
Accrued warranty costs 30,449 27,609
Accrued sales program costs 67,613 58,934
Deferred revenue 164,982 203,598
Accrued royalty costs 30,310 51,889
Accrued advertising expense 33,547 26,334
Other accrued expenses 74,926 67,780
Deferred income taxes – 17,673
Income taxes payable 21,674 182,260
Dividend payable 192,991 185,326
Total current liabilities 865,998 1,033,261
Deferred income taxes 56,210 39,497
Non-current income taxes 101,689 80,611
Non-current deferred revenue 128,731 135,130
Other liabilities 1,637 1,437
Stockholders’ equity:
Shares, CHF 10 par value, 208,077 shares authorized and issued;
189,722 shares outstanding at December 26, 2015
and 191,815 shares outstanding at December 27, 2014 1,797,435 1,797,435
Additional paid-in capital 62,239 73,521
Treasury stock (414,637 ) (330,132 )
Retained earnings 1,930,517 1,859,972
Accumulated other comprehensive income (30,428 ) 2,571
Total stockholders’ equity 3,345,126 3,403,367
Total liabilities and stockholders’ equity 4,499,391 $4,693,303
Garmin Ltd. And Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
52-Weeks Ended
Dec 26, Dec 27,
2015 2014
Operating Activities:
Net income $456,227 $364,211
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 51,311 48,433
Amortization 27,049 28,582
Gain on sale of property and equipment (198 ) (306 )
Provision for doubtful accounts (2,521 ) 66
Deferred income taxes 5,897 89,828
Unrealized foreign currency loss 37,931 573
Provision for obsolete and slow moving inventories 23,257 25,903
Stock compensation expense 26,290 24,293
Realized gain on marketable securities (55 ) (505 )
Changes in operating assets and liabilities:
Accounts receivable 22,473 (27,398 )
Inventories (121,718 ) (76,491 )
Other current and non-current assets (107,360 ) 627
Accounts payable 36,079 8,981
Other current and non-current liabilities 20,742 16,467
Deferred revenue (43,338 ) (87,543 )
Deferred cost (585 ) 11,029
Income taxes payable (151,014 ) 95,961
Net cash provided by operating activities 280,467 522,711
Investing activities:
Purchases of property and equipment (80,592 ) (73,339 )
Proceeds from sale of property and equipment 7,921 748
Purchase of intangible assets (3,889 ) (4,720 )
Purchase of marketable securities (915,921 ) (1,006,482 )
Redemption of marketable securities 919,141 1,096,676
Proceeds from repayment on loan receivable – 137,379
Change in restricted cash 48 (59 )
Acquisitions, net of cash acquired (38,687 ) (18,871 )
Net cash provided by/(used in) investing activities (111,979 ) 131,332
Financing activities:
Dividends paid (378,117 ) (360,075 )
Purchase of treasury stock under share repurchase plan (131,413 ) (241,578 )
Purchase of treasury stock related to equity awards (5,586 ) (18,638 )
Proceeds from issuance of treasury stock related to equity awards 17,073 20,753
Tax benefit from issuance of equity awards (2,049 ) (84 )
Net cash used in financing activities (500,092 ) (599,622 )
Effect of exchange rate changes on cash and cash equivalents (31,594 ) (37,302 )
Net increase/(decrease) in cash and cash equivalents (363,198 ) 17,119
Cash and cash equivalents at beginning of period 1,196,268 1,179,149
Cash and cash equivalents at end of period $833,070 $1,196,268
Garmin Ltd. And Subsidiaries
Net Sales, Gross Profit, and Operating Income/(Loss) by Segment
(Unaudited)
Reporting Segments
Outdoor Fitness Marine Auto Aviation Total
13-Weeks Ended December 26, 2015
Net sales $123,627 $228,740 $56,454 $268,478 $104,059 $781,358
Gross profit $74,549 $117,344 $30,289 $112,061 $78,900 $413,143
Operating income/(loss) $41,189 $40,288 ($5,593 ) $35,928 $33,950 $145,762
13-Weeks Ended December 27, 2014
Net sales $116,432 $201,303 $52,460 $339,832 $93,279 $803,306
Gross profit $71,745 $122,083 $24,612 $147,073 $65,335 $430,848
Operating income/(loss) $40,709 $57,629 ($687 ) $57,431 $20,918 $176,000
52-Weeks Ended December 26, 2015
Net sales $425,150 $661,599 $286,778 $1,048,125 $398,618 $2,820,270
Gross profit $259,889 $366,139 $158,493 $459,469 $294,714 $1,538,704
Operating income $140,200 $134,574 $28,611 $134,939 $111,257 $549,581
52-Weeks Ended December 27, 2014
Net sales $427,555 $568,440 $248,371 $1,240,377 $385,915 $2,870,658
Gross profit $266,550 $358,287 $129,710 $569,452 $280,413 $1,604,412
Operating income $151,055 $190,682 $26,232 $215,679 $106,978 $690,626
Garmin Ltd. And Subsidiaries
Net Sales by Geography (Unaudited)
13-Weeks Ended 52-Weeks Ended
Dec 26, Dec 27, Yr over Yr Dec 26, Dec 27, Yr over Yr
2015 2014 Change 2015 2014 Change
Net sales $781,358 $803,306 -3% $2,820,270 $2,870,658 -2%
Americas 412,581 448,055 -8% 1,469,243 1,538,322 -4%
EMEA 268,787 272,384 -1% 1,013,139 1,054,244 -4%
APAC 99,990 82,867 21% 337,888 278,092 22%
EMEA – Europe, Middle East and Africa; APAC – Asia Pacific

Non-GAAP Financial Information

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 adjustments
that materially impact the effective tax rate, as discussed below, is an
important measure. The majority of the Company’s consolidated foreign
currency gain or loss result from balances 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 a currency other than the functional currency at
one of the Company’s subsidiaries. However, there is minimal cash impact
from such foreign currency gain or loss. The Company’s income tax
expense is periodically impacted by material net releases of reserves
primarily related to completion of audits and/or the expiration of
statutes effecting prior periods. Thus, reported income tax expense is
not reflective of the income tax expense that is incurred related to the
current period earnings. The net release of other uncertain tax position
reserves, amounting to approximately $7 million and $11 million for 2015
and 2014, respectively, have not been included as pro forma adjustments
in the following presentation of pro forma net income as such amounts
have been considered immaterial, tend to be more recurring in nature and
are comparable between periods. In the third quarter of 2014, the
company incurred tax expense of $308 million associated with our
inter-company restructuring. As this is a one-time transaction and not
reflective of income tax expense incurred related to the current period
earnings, it has been excluded from pro forma net income (earnings) per
share. Accordingly, earnings per share before the impact of foreign
currency translation gain or loss and income tax adjustments that
materially impact the effective tax rate permits a consistent comparison
of the Company’s operating performance between periods.

Garmin Ltd. And Subsidiaries
Net income per share (Pro Forma)
(in thousands, except per share information)
13-Weeks Ended 52-weeks Ended
Dec 26, Dec 27, Dec 26, Dec 27,
2015 2014 2015 2014
Net Income (GAAP) $132,383 $210,245 $456,227 $364,211
Foreign currency (gain) / loss, net of tax effects $8,061 ($12,917 ) $18,875 $3,557
Income tax benefit due to completion of tax audits
and/or expiration of statutes – ($48,542 ) – ($72,942 )
Tax due to inter-company restructuring – – – $307,635
Net income (Pro Forma) $140,444 $148,786 $475,102 $602,461
Net income per share (GAAP):
Basic $0.70 $1.10 $2.39 $1.89
Diluted $0.70 $1.09 $2.39 $1.88
Net income per share (Pro Forma):
Basic $0.74 $0.78 $2.49 $3.12
Diluted $0.74 $0.77 $2.49 $3.10
Weighted average common shares outstanding:
Basic 189,317 191,322 190,631 193,106
Diluted (GAAP) 189,847 192,356 191,107 194,165

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
plus one-time cash payments associated with our inter-company
restructuring less capital expenditures for property and equipment.

Garmin Ltd. And Subsidiaries
Free Cash Flow
(in thousands)
13-Weeks Ended 52-weeks Ended
Dec 26, Dec 27, Dec 26, Dec 27,
2015 2014 2015 2014
Net cash provided by operating activities $158,336 $145,017 $280,467 $522,711
Less: purchases of property and equipment ($27,295 ) ($18,510 ) ($80,592 ) ($73,339 )
Plus: taxes paid related to inter-company restructuring – – $182,800 $78,137
Free Cash Flow $131,041 $126,507 $382,675 $527,509

 

Contacts

Garmin Ltd.Investor Relations:Teri Seck, [email protected] Relations:Ted Gartner, [email protected]