10-QPeriod: Q2 FY2010

GARMIN LTD Quarterly Report for Q2 Ended Jun 26, 2010

Filed August 4, 2010For Securities:GRMN

Summary

Garmin Ltd. reported revenues of $728.8 million for the 13-week period ended June 26, 2010, a 8.9% increase year-over-year, and $1.16 billion for the 26-week period, a 4.9% increase. Net income for the 13-week period was $134.8 million, down from $161.9 million in the prior year, reflecting a 17% decrease. For the 26-week period, net income was $172.1 million, a 18.2% decrease from $210.4 million in the prior year. This decline in profitability was largely attributed to significant foreign currency exchange losses and increased operating expenses, particularly in research and development and selling, general, and administrative categories, driven by new product development and Swiss redomestication efforts. The company saw strong growth in its Outdoor/Fitness and Marine segments, which increased by 31.8% and 23.4% respectively in the quarter. However, the Automotive/Mobile segment, the largest revenue contributor, experienced a 2.4% increase in the quarter and a 4.0% decrease year-to-date, indicating a potential maturation of this market. The company continues to invest heavily in R&D, with expenses increasing significantly due to new product initiatives, particularly in the mobile handset space. Management expressed confidence that current cash balances and operating cash flow will be sufficient to meet future financial obligations through the end of fiscal 2010.

Financial Highlights

48 data points
Beta

Revenue

$728.76M

53.7% Gross Margin

Net Income

$134.82M

18.5% Net Margin

EPS (Diluted)

$0.67

Total Assets

$3.43B

Cash & Equivalents

$1.17B

Free Cash Flow

$168.52M

Financial Statements
Beta
Revenue$728.76M
Cost of Revenue$337.11M
Gross Profit$391.65M
R&D Expenses$73.34M
SG&A Expenses$73.83M
Operating Expenses$189.61M
Operating Income$202.04M
Net Income$134.82M
EPS (Basic)$0.68
EPS (Diluted)$0.67
Shares Outstanding (Basic)198.95M
Shares Outstanding (Diluted)200.10M

Key Highlights

  • 1Net sales increased by 8.9% to $728.8 million for the 13-week period and 4.9% to $1.16 billion for the 26-week period ended June 26, 2010.
  • 2Net income decreased by 17% to $134.8 million for the 13-week period and 18.2% to $172.1 million for the 26-week period.
  • 3Significant foreign currency losses, particularly due to the strengthening of the U.S. Dollar against the Euro, negatively impacted profitability.
  • 4Operating expenses increased, with Research & Development up 30.4% and Selling, General & Administrative up 18.7% for the 13-week period, driven by new product initiatives and Swiss redomestication costs.
  • 5The Outdoor/Fitness and Marine segments showed robust revenue growth of 31.8% and 23.4% respectively in the quarter, while the Automotive/Mobile segment's growth slowed.
  • 6The company repurchased approximately $99.6 million of its common shares under an approved $300 million repurchase program.
  • 7Gross profit margins improved year-over-year, partly due to a significant warranty reserve adjustment that decreased accrued warranty costs.

Frequently Asked Questions

Garmin reported an increase in net sales for both the 13-week and 26-week periods ended June 26, 2010. However, net income saw a significant decline compared to the same periods in the prior year. This was primarily driven by a substantial negative impact from foreign currency exchange rate fluctuations and an increase in operating expenses, especially in R&D and SG&A, related to new product development and corporate restructuring.

The Outdoor/Fitness and Marine segments demonstrated strong revenue growth. The Automotive/Mobile segment, while still the largest contributor to revenue, showed slower growth in the quarter and a decline year-to-date, suggesting potential market maturation and increasing competition from mobile handsets and integrated in-car systems. Aviation segment revenue saw a modest increase.

The primary drivers for the decline in net income are significant foreign currency exchange losses, particularly from the strengthening U.S. Dollar against the Euro, and increased operating expenses. Research and development expenses rose considerably due to ongoing new product development, including the mobile handset initiative, and selling, general, and administrative expenses increased due to costs associated with the company's redomestication to Switzerland.

Garmin generated substantial cash flow from operations, though it was lower than the previous year. The company utilized cash for dividend payments and share repurchases under its approved program. Management believes that existing cash balances and operating cash flow are sufficient to meet projected capital expenditures, working capital requirements, and other cash needs through the end of fiscal year 2010. The company also has ongoing commitments for raw materials and other purchases totaling approximately $70.1 million over the next five years.