10-QPeriod: Q1 FY2011

GARMIN LTD Quarterly Report for Q1 Ended Mar 26, 2011

Filed May 4, 2011For Securities:GRMN

Summary

Garmin Ltd. reported a strong first quarter for 2011, with net sales increasing by 18% year-over-year to $507.8 million. This growth was driven by robust performance across most segments, particularly Fitness and Marine, which saw substantial percentage gains, and continued strength in the dominant Auto/Mobile segment. Net income more than doubled, reaching $95.5 million, a 156% increase compared to the prior year's first quarter, largely due to significant positive foreign currency exchange rate movements and a lower effective tax rate. Despite an increase in cost of goods sold driven by higher volumes and a one-time warranty benefit in the prior year, the company managed to grow gross profit dollars, though the gross profit margin decreased due to the prior year's benefit and increased per-unit costs in the Auto/Mobile segment. Liquidity remains strong, with $1.2 billion in cash and cash equivalents and a substantial increase in cash generated from operating activities. The company's investment strategy focuses on preserving capital and maintaining liquidity. While facing numerous ongoing patent litigation cases, management believes these claims are without merit and intends to defend them vigorously. The company anticipates its existing cash and operational cash flow will be sufficient to cover its financial needs through fiscal year 2011.

Financial Highlights

49 data points
Beta

Revenue

$507.83M

46.9% Gross Margin

Net Income

$95.48M

18.8% Net Margin

EPS (Diluted)

$0.49

Total Assets

$3.94B

Cash & Equivalents

$1.21B

Free Cash Flow

$200.42M

Financial Statements
Beta
Revenue$507.83M
Cost of Revenue$269.46M
Gross Profit$238.37M
R&D Expenses$70.48M
SG&A Expenses$73.19M
Operating Expenses$163.62M
Operating Income$74.75M
Net Income$95.48M
EPS (Basic)$0.49
EPS (Diluted)$0.49
Shares Outstanding (Basic)193.92M
Shares Outstanding (Diluted)194.72M

Key Highlights

  • 1Net sales grew 18% to $507.8 million in Q1 2011 compared to Q1 2010.
  • 2Net income more than doubled, increasing 156% to $95.5 million.
  • 3Operating income decreased by 10% to $74.8 million, primarily due to a large warranty benefit in the prior year.
  • 4Significant positive impact from foreign currency exchange gains ($12.1 million) compared to a loss in the prior year (-$46.5 million).
  • 5Effective tax rate decreased significantly to 1.5% from 18.0% due to release of reserves and favorable audits.
  • 6Cash and cash equivalents remained strong at $1.21 billion.
  • 7The company is involved in multiple patent litigations but believes the claims are without merit.

Frequently Asked Questions

Garmin's net sales increased by 18% to $507.8 million in the first quarter of 2011, compared to $431.1 million in the same period of 2010. This growth was broad-based across most segments, with notable percentage increases in Fitness and Marine.

The substantial 156% increase in net income to $95.5 million was driven by several factors, including strong revenue growth, a significant positive swing in foreign currency exchange rates (from a loss in Q1 2010 to a gain in Q1 2011), and a considerably lower effective tax rate due to the release of reserves and favorable audits.

Garmin maintained a strong liquidity position, ending the quarter with $1.21 billion in cash and cash equivalents. Net cash generated from operating activities was robust at $207.6 million for the quarter, indicating healthy cash flow generation.

Garmin operates internationally, exposing it to foreign currency exchange rate risk. In Q1 2011, the company benefited from a $12.1 million foreign currency gain, primarily due to the weakening of the U.S. Dollar against the Euro and other global currencies. This contrasts with a $46.5 million loss in the prior year's comparable quarter, highlighting the significant impact currency movements can have on its results.