Garmin Reports Solid Fiscal 2016 Revenue and Operating Income Growth

Garmin Ltd. (Nasdaq: GRMN) today announced results for the fiscal-year
ended December 31, 2016.

Highlights for the fourth quarter 2016 include:

• Total revenue of $861 million, growing 10% over the prior year, with
  outdoor, fitness, marine and aviation collectively growing 25% over
  the prior year quarter and contributing 74% of total revenue
• Gross margin improved to 54.7% compared to 52.9% in the prior year
  quarter
• Operating margin of 18.6% compared to 18.7% in the prior year quarter
• Operating income growth of 10%
• GAAP EPS was $0.72 and pro forma EPS⁽¹⁾ of $0.73 for fourth
  quarter 2016
• Introduced the fēnix® 5 with three watch designs that are expected to
  appeal to a broader range of wrist sizes and style preferences

Highlights for the fiscal year 2016 include:

• Total revenue of $3,019 million growing 7% over the prior year, with
  outdoor, fitness, marine and aviation collectively growing 21% over
  the prior year and contributing 71% of total revenue
• Gross and operating margins of 55.6% and 20.7%, respectively, both
  improving from 2015 levels
• GAAP EPS was $2.70, a 13% improvement over the prior year, and pro
  forma EPS⁽¹⁾ was $2.83, a 14% improvement over the prior
  year
• Shipped approximately 16.8 million units, up 4% from the prior year
  and over 173 million since inception
• Connect IQ app store establishes itself with over 2,500 apps and over
  24 million downloads since inception

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

“2016 was a remarkable year of growth driven by strong sales in our
outdoor, fitness, marine, and aviation segments,” said Cliff Pemble,
president and Chief Executive Officer of Garmin Ltd. “Entering 2017, we
see additional growth opportunities ahead and we are well positioned to
seize these opportunities with a strong lineup of great products.”

Outdoor:

The outdoor segment grew 46% in the quarter with significant
contributions from wearable devices combined with growth in all other
product categories and the contribution of DeLorme products. Gross
margin remained strong at 61% while operating margin was relatively flat
at 33%, resulting in 42% operating income growth. We recently announced
our fēnix® 5 series with three different designs all featuring Garmin
Elevate™ wrist heart rate technology and our QuickFit™ band replacement
system: the fēnix 5S is perfect for smaller wrists without sacrificing
multisport functionality, the fēnix 5X includes preloaded wrist-based
mapping, and the compact fēnix 5 is feature-packed with an all-new
industrial design. We expect outdoor to continue to be a growth segment
in 2017 as we leverage opportunities in wearables and other product
categories in the segment.

Fitness:

The fitness segment posted strong revenue growth of 20% in the quarter
driven by wearables with Garmin Elevate™ wrist heart rate technology.
Gross margin increased year-over-year to 52% with operating margin of
17%, resulting in a 15% growth in operating income. The recently
launched vívofit jr. was well received by retailers and customers during
the holiday quarter and we see additional growth potential for wearables
designed specifically for children. We believe fitness will be our
largest revenue contributor in 2017, and enter the year confident in our
product lineup.

Marine:

The marine segment posted strong fourth quarter revenue growth of 19%
driven by our solid lineup of chart plotters and fish finders. Gross
margin decreased year-over-year to 52% due to product mix, while
operating margin improved to 4%. In the quarter, we introduced new
touchscreen and keyed chartplotter combo offerings in our popular
GPSMAP® product line, many with built-in sonar, and new radar and
entertainment offerings. We expect marine to continue to be a growth
segment in 2017 as we focus on market share gains and new product
innovations.

Aviation:

The aviation segment posted solid revenue growth of 13% in the quarter
with growth contributions from both OEM and aftermarket. Gross and
operating margins were 77% and 28%, respectively. During the quarter, we
received FAA installation approval for our helicopter ADS-B offerings,
supported Cirrus in the certification and initial deliveries of the SF
50 light jet, and Textron Airland announced our selection as the
avionics provider for the Scorpion light attack aircraft. We continue to
invest in upcoming certifications with our numerous OEM partners, as
well as ongoing opportunities for long-term market share gains.

Auto:

The auto segment recorded revenue decline of 17% in the quarter,
primarily due to the ongoing PND market contraction. Gross margin
remained constant at 42%, while operating margin declined year-over-year
to 9%. At the recent CES show we announced our next generation Drive
series PNDs, which offer expanded safety and driver awareness features
and WIFI capability that enhances the process of updating maps and other
content stored on the device. During the quarter, we were chosen as a
Tier 1 infotainment hardware supplier for BMW affirming recent
investments in our OEM program.

Additional Financial Information:

Total operating expenses in the quarter were $311 million, a 16%
increase from the prior year. Advertising increased 19%, driven by
year-over-year increases in the fitness and outdoor segments to support
wearables. Research and development and selling, general and
administrative expenses increased 22% and 9%, respectively, due
primarily to recent acquisitions and an additional week in our fourth
quarter 2016.

The effective tax rate in the fourth quarter of 2016 was 19.0%, an
increase from 13.2% in the prior year quarter. The year-over-year
increase in the fourth quarter 2016 tax rate is primarily due to the
recording of a full year of the U.S. research and development tax credit
in the fourth quarter of 2015 versus being spread over four quarters in
2016.

In the fourth quarter of 2016, we generated $165 million of free cash
flow (see attached table for reconciliation of this non-GAAP measure).
We continued to return cash to shareholders through dividends and share
repurchases. As a result of the additional week in the fourth quarter
2016, two quarterly dividends were recorded totaling approximately $192
million and we repurchased approximately $28 million of Company stock.
We have approximately $75 million remaining in the share repurchase
program which was extended through December 31, 2017, and expect to
repurchase Company stock as business and market conditions warrant. We
ended the quarter with cash and marketable securities of approximately
$2.3 billion.

2017 Guidance:

We expect 2017 revenue of approximately $3.02 billion as growth in
outdoor, fitness, marine and aviation is offset by ongoing declines in
the PND market. We expect gross margins to be approximately 56%,
relatively flat to the prior year. Operating margin is expected to be
approximately 20%. With a pro forma expected tax rate of approximately
22%, we currently forecast 2017 pro forma EPS of approximately $2.65.
The expected year-over-year increase in the 2017 pro forma tax rate is
primarily due to the Company’s election to adjust certain Switzerland
tax positions to address potential tax risk from evolving global tax
initiatives.

Dividend Recommendation:

The board of directors intends to recommend to the shareholders for
approval at the annual meeting to be held on June 9, 2017, 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:

In addition, the board of directors has established March 31, 2017 as
the payment date and March 15, 2017 as the record date for the final
dividend installment of $0.51 per share, per the prior approval at the
2016 annual shareholders’ meeting. The first, second and third payments
of $0.51 per share were made on June 30, 2016, September 30, 2016, and
December 30, 2016, respectively.

Webcast Information/Forward-Looking Statements:

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

An archive of the live webcast will be available until April 27, 2017 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, tax rate and revenue for fiscal 2017, the
Company’s expected segment revenue growth rates, margins, currency
movements, expenses, pricing, new products to be introduced in 2017 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 31, 2016 filed by Garmin with the
Securities and Exchange Commission (Commission file number 0-31983). A
copy of Garmin’s 2016 Form 10-K can be downloaded from

http://www.garmin.com/aboutGarmin/invRelations/finReports.html

.

Garmin, the Garmin logo, the Garmin delta, DeLorme, fēnix, GPSMAP and
vívofit, are trademarks of Garmin Ltd. or its subsidiaries and are
registered in one or more countries, including the U.S.; Garmin Elevate
and QuickFit 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

EMEA – Europe, Middle East and Africa; APAC – Asia Pacific and
Australian Continent

Non-GAAP Financial Information

To supplement our financial results presented in accordance with GAAP,
this release includes the following measures defined by the Securities
and Exchange Commission as non-GAAP financial measures: pro forma net
income (earnings) per share, forward-looking pro forma earnings per
share, forward-looking pro forma tax rate and free cash flow. These
non-GAAP measures are not based on any comprehensive set of accounting
rules or principles and should not be considered a substitute for, or
superior to, financial measures calculated in accordance with GAAP, and
may be different from non-GAAP measures used by other companies.
Management believes providing investors with an operating view
consistent with how it manages the Company provides enhanced
transparency into the operating results of the Company.

Pro forma net income (earnings) per share

Management believes that net income (earnings) per share before the
impact of foreign currency gain or loss and certain discrete income tax
items, as discussed below, is an important measure. The majority of the
Company’s consolidated foreign currency gain or loss is typically driven
by movements in the Taiwan Dollar, Euro, and British Pound Sterling in
relation to the U.S. Dollar and the related exchange rate impact on the
significant cash, 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
discrete tax items that are not reflective of the income tax expense
that is incurred related to the current period earnings. Accordingly,
earnings per share before the impact of foreign currency translation
gain or loss and certain discrete income tax items permits a consistent
comparison of the Company’s operating performance between periods.

The tax effect of foreign currency gains (losses) was calculated using
effective tax rates of 19.0% and 13.2% for the fourth quarters of 2016
and 2015, respectively and 18.9% and 19.6% for the fiscal years of 2016
and 2015. The effective tax rate is calculated by taking the Income tax
provision divided by Income before taxes, as presented on the face of
the Condensed Consolidated Statements of Income both on a quarterly and
fiscal year basis

There were no discrete tax items identified by management in the
53-weeks and 52-weeks ended December 31, 2016 and December 26, 2015,
respectively, that were excluded from pro forma earnings per share. The
net release of other uncertain tax position reserves, amounting to
approximately $11.9 million and $7.3 million for the 53-weeks and
52-weeks ended December 31, 2016 and December 26, 2015, respectively,
have not been included as pro forma adjustments in the above
presentation of pro forma earnings per share as such amounts tend to be
more recurring in nature, and do not affect comparability between
periods.

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.

Forward-looking pro forma tax rate

Forward-looking pro forma tax rate and pro forma earnings per share are
calculated before the effect of certain discrete tax items. Management
believes certain discrete tax items may not be reflective of income tax
expense incurred as a result of current period earnings. Therefore, in
order to permit consistent comparison between periods, the tax rate and
earnings per share before the effect of such discrete tax items are
important measures. In the 53-weeks ended December 31, 2016, there were
no such discrete tax items identified. However, in fiscal 2017,
management believes certain discrete tax items will be recognized on a
U.S. GAAP-basis, that will have an effect on comparability between
periods:

• The Company expects its fiscal 2017 pro forma tax rate to increase to
  22% due to the Company’s election in February 2017 to adjust certain
  Switzerland corporate tax positions to address potential tax risk from
  evolving global tax initiatives. The 2017 pro forma tax rate of 22%
  excludes the effect of the expected revaluation of certain Switzerland
  deferred tax assets, for which the Company anticipates recording
  approximately $150 million of income tax benefit in the first quarter
  of 2017.
• The fiscal 2017 pro forma tax rate of 22% also excludes the tax
  effects from share-based compensation as a result of the adoption of Accounting
  Standards Update No. 2016-09, Compensation – Stock Compensation (Topic
  718): Improvements to Employee Share-Based Accounting (“ASU
  2016-09”), which may have a material effect on the U.S. GAAP-basis tax
  rate. However, the Company is unable to project these amounts due to
  the dependency of this item on the underlying share price of the
  Company.

While management expects the above to have a significant impact on
comparability, management is unable to determine whether or not
additional significant discrete tax items will be identified in fiscal
2017.

Forward-looking pro forma earnings per share (EPS)

In addition to the discrete tax items discussed in the forward-looking
pro forma tax rate section above, our 2017 pro forma EPS excludes
foreign currency exchange gains and losses. The estimated impact of such
foreign currency gains and losses cannot be reasonably estimated on a
forward-looking basis due to the high variability and low visibility
with respect to non-operating foreign currency exchange gains and losses
and the related tax effects of such gains and losses. The impact of such
foreign currency gains and losses, net of tax effects, was $0.01 and
$0.13 per share for the 14-weeks and 53-weeks ended December 31, 2016,
respectively.