10-QPeriod: Q3 FY2010

GARMIN LTD Quarterly Report for Q3 Ended Sep 25, 2010

Filed November 3, 2010For Securities:GRMN

Summary

Garmin Ltd. reported third-quarter 2010 results showing a notable decline in the Automotive/Mobile segment, which was the primary driver of an 11% year-over-year decrease in consolidated net sales for the quarter. Despite this headwind, the company demonstrated resilience with growth in its Outdoor/Fitness, Marine, and Aviation segments, and a significant increase in net income, up 30% year-over-year for the quarter. This performance was aided by a substantial positive swing in foreign currency translation and a one-time income tax benefit. The company continues to invest heavily in Research & Development, particularly in the mobile handset initiative, which contributed to increased operating expenses but signals a strategic focus on future growth. Financially, Garmin maintained a strong cash position, though operating cash flow saw a decrease compared to the prior year, partly due to an increase in inventories. The company also actively engaged in share repurchases and dividend payments. While litigation remains a factor, Garmin's management believes current legal actions are without merit and intends to defend them vigorously. The overall financial health appears solid, with management confident in its ability to meet financial obligations.

Financial Highlights

50 data points
Beta

Revenue

$692.36M

49.7% Gross Margin

Net Income

$279.55M

40.4% Net Margin

EPS (Diluted)

$1.43

Total Assets

$3.66B

Cash & Equivalents

$1.24B

Free Cash Flow

$194.59M

Financial Statements
Beta
Revenue$692.36M
Cost of Revenue$348.34M
Gross Profit$344.02M
R&D Expenses$69.51M
SG&A Expenses$66.87M
Operating Expenses$177.38M
Operating Income$166.64M
Net Income$279.55M
EPS (Basic)$1.43
EPS (Diluted)$1.43
Shares Outstanding (Basic)194.48M
Shares Outstanding (Diluted)195.31M

Key Highlights

  • 1Net sales for the third quarter of 2010 decreased by 11% year-over-year to $692.4 million, primarily driven by a 19% decline in the Automotive/Mobile segment.
  • 2Despite the overall sales decline, Outdoor/Fitness, Marine, and Aviation segments showed year-over-year revenue growth of 9%, 1%, and 4% respectively.
  • 3Net income saw a significant increase of 30% to $279.6 million for the quarter, compared to $215.1 million in the prior year's quarter.
  • 4Operating income decreased by 30% to $166.6 million, reflecting lower gross profit margins and increased R&D expenses, particularly in the Automotive/Mobile segment.
  • 5Research and Development expenses increased by 25% year-over-year, driven by new product development and an expansion of engineering personnel, notably for mobile handset initiatives.
  • 6The company repurchased approximately $223.4 million of its common shares during the first 39 weeks of 2010 under its $300 million authorization.

Frequently Asked Questions

Garmin's net sales declined by 11% year-over-year in the third quarter of 2010, primarily due to a significant 19% decrease in the Automotive/Mobile segment. This decline is attributed to industry saturation and competing technologies. However, the Outdoor/Fitness, Marine, and Aviation segments showed resilience, with revenue increases of 9%, 1%, and 4% respectively, driven by new product introductions and market share gains.

Garmin reported a strong 30% increase in net income for the quarter, reaching $279.6 million. This growth was bolstered by a significant positive foreign currency translation of $35.5 million and a one-time income tax benefit of ($114.6) million related to the release of uncertain tax position reserves. While operating income decreased due to lower gross margins and higher R&D spending, the net income performance was notably positive.

Garmin is significantly increasing its investment in Research and Development (R&D), with expenses rising 25% year-over-year for the quarter. This increase is attributed to ongoing new product development and the addition of approximately 450 engineering personnel, particularly focusing on a mobile handset initiative. While this drives up operating expenses, it reflects a strategic emphasis on innovation and future growth opportunities.

Garmin generated $586.2 million in net cash from operating activities during the first 39 weeks of 2010, although this was lower than the prior year. The company also utilized $299.1 million for dividend payments and $223.4 million for share repurchases under its $300 million authorization, demonstrating a commitment to returning capital to shareholders while maintaining sufficient cash reserves for operations and investments.