In the third quarter, we generated $202 million of free cash flow (see attached table for reconciliation of this non-GAAP measure). We continued to return cash to shareholders with our quarterly dividend of approximately $92 million and our share repurchase activity which totaled $79 million in the current quarter. We have now fully executed the $300 million share repurchase plan and have returned approximately 100% of our forecasted 2014 free cash flow to shareholders via the dividend and share repurchase. As we have done in recent years, we will reassess our capital return strategy in conjunction with our 2015 guidance in February 2015. We currently have almost $2.8 billion of cash and marketable securities allowing us a significant level of flexibility to utilize our balance sheet to continue to generate long-term shareholder value.
2014 Guidance:
Due to our continued strong results in the third quarter, we are revising our guidance to reflect our outlook for the remainder of the year. We now anticipate revenues of approximately $2.85 billion, the high end of our prior guidance, with gross and operating margins of 56% and 24%, respectively. Given the full year effective tax rate of 17%, we forecast pro forma EPS of approximately $3.10. As indicated last quarter, our guidance anticipates promotional pricing for the holiday season, as well as higher spending in marketing and advertising to support new product categories, resulting in slightly lower margins in the fourth quarter.
Webcast Information/Forward-Looking Statements:
The information for Garmin Ltd.’s earnings call is as follows:
When: | Wednesday, October 29, 2014 at 10:30 a.m. Eastern | ||
Where: |
http://www.garmin.com/aboutGarmin/invRelations/irCalendar.html |
||
How: | Simply log on to the web at the address above or call to listen in at 888-312-9865 | ||
An archive of the live webcast will be available until December 24, 2014 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. Any statements regarding the Company’s estimated earnings and revenue for fiscal 2014, the Company’s expected segment revenue growth rate, margins, new products to be introduced in 2014 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 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 28, 2013 filed by Garmin with the Securities and Exchange Commission (Commission file number 0-31983). A copy of Garmin’s 2013 Form 10-K can be downloaded from http://www.garmin.com/aboutGarmin/invRelations/finReports.html.
Garmin, Approach, Alpha, VIRB, Forerunner and Fusion are registered trademarks and fēnix, vívosmart, and Connect IQ 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.
Garmin Ltd. And Subsidiaries | |||||||||||||||
Condensed Consolidated Statements of Income (Unaudited) | |||||||||||||||
(In thousands, except per share information) | |||||||||||||||
13-Weeks Ended | 39-Weeks Ended | ||||||||||||||
Sept 27, | Sept 28, | Sept 27, | Sept 28, | ||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||
Net sales | $ | 706,283 | $ | 643,637 | $ | 2,067,352 | $ | 1,872,156 | |||||||
Cost of goods sold | 308,037 | 290,748 | 893,788 | 859,494 | |||||||||||
Gross profit | 398,246 | 352,889 | 1,173,564 | 1,012,662 | |||||||||||
Advertising expense | 33,112 | 26,251 | 92,457 | 77,983 | |||||||||||
Selling, general and administrative expense | 90,632 | 86,462 | 272,914 | 260,769 | |||||||||||
Research and development expense | 98,998 | 88,427 | 293,567 | 272,349 | |||||||||||
Total operating expense | 222,742 | 201,140 | 658,938 | 611,101 | |||||||||||
Operating income | 175,504 | 151,749 | 514,626 | 401,561 | |||||||||||
Other income (expense): | |||||||||||||||
Interest income | 9,344 | 8,435 | 28,781 | 25,512 | |||||||||||
Foreign currency gains (losses) | (12,703 | ) | (822 | ) | (20,266 | ) | 18,280 | ||||||||
Other | 517 | 1,438 | 707 | 3,666 | |||||||||||
Total other income (expense) | (2,842 | ) | 9,051 | 9,222 | 47,458 | ||||||||||
Income before income taxes | 172,662 | 160,800 | 523,848 | 449,019 | |||||||||||
Income tax provision (benefit) | 319,496 | (26,869 | ) | 369,882 | 192 | ||||||||||
Net income (loss) | ($146,834 | ) | $ | 187,669 | $ | 153,966 | $ | 448,827 | |||||||
Net income (loss) per share: | |||||||||||||||
Basic | ($0.76 | ) | $ | 0.96 | $ | 0.79 | $ | 2.30 | |||||||
Diluted | ($0.76 | ) | $ | 0.96 | $ | 0.79 | $ | 2.29 | |||||||
Weighted average common | |||||||||||||||
shares outstanding: | |||||||||||||||
Basic | 192,239 | 195,325 | 193,700 | 195,488 | |||||||||||
Diluted | 192,239 | 196,300 | 194,763 | 196,312 | |||||||||||
Dividends declared per share | $ | 1.92 | $ | 1.80 | |||||||||||
Garmin Ltd. And Subsidiaries | ||||||||
Condensed Consolidated Balance Sheets | ||||||||
(In thousands) | ||||||||
(Unaudited) | ||||||||
Sept 27, | December 28, | |||||||
2014 | 2013 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 1,154,558 | $ | 1,179,149 | ||||
Marketable securities | 151,366 | 149,862 | ||||||
Accounts receivable, net | 478,722 | 564,586 | ||||||
Inventories, net | 466,482 | 382,226 | ||||||
Deferred income taxes | 59,186 | 69,823 | ||||||
Deferred costs | 52,113 | 57,368 | ||||||
Loan receivable | - | 137,379 | ||||||
Prepaid expenses and other current assets | 59,058 | 55,243 | ||||||
Total current assets | 2,421,485 | 2,595,636 | ||||||
Property and equipment, net | 431,753 | 414,848 | ||||||
Marketable securities | 1,453,047 | 1,502,106 | ||||||
Restricted cash | 293 | 249 | ||||||
Noncurrent deferred income tax | 84,345 | 88,324 | ||||||
Noncurrent deferred costs | 35,272 | 41,157 | ||||||
Other intangible assets, net | 221,566 | 219,494 | ||||||
Other assets | 21,603 | 17,789 | ||||||
Total assets | $ | 4,669,364 | $ | 4,879,603 | ||||
Liabilities and Stockholders' Equity | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 144,882 | $ | 146,582 | ||||
Salaries and benefits payable | 67,496 | 59,794 | ||||||
Accrued warranty costs | 26,543 | 26,767 | ||||||
Accrued sales program costs | 38,699 | 50,903 | ||||||
Deferred revenue | 210,621 | 256,908 | ||||||
Accrued royalty costs | 52,558 | 64,538 | ||||||
Accrued advertising expense | 23,480 | 19,448 | ||||||
Other accrued expenses | 77,157 | 65,657 | ||||||
Deferred income taxes | 6,823 | 989 | ||||||
Income taxes payable | 197,846 | 38,043 | ||||||
Dividend payable | 277,378 | 175,675 | ||||||
Total current liabilities | 1,123,483 | 905,304 | ||||||
Deferred income taxes | 36,073 | 1,758 | ||||||
Non-current income taxes | 135,911 | 140,933 | ||||||
Non-current deferred revenue | 136,025 | 171,012 | ||||||
Other liabilities | 1,459 | 890 | ||||||
Stockholders' equity: | ||||||||
Shares, CHF 10 par value, 208,077 shares authorized and issued; | ||||||||
191,227 shares outstanding at September 27, 2014 | ||||||||
and 195,150 shares outstanding at December 28, 2013 | 1,797,435 | 1,797,435 | ||||||
Additional paid-in capital | 92,144 | 79,263 | ||||||
Treasury stock | (350,063 | ) | (120,620 | ) | ||||
Retained earnings | 1,649,727 | 1,865,587 | ||||||
Accumulated other comprehensive income | 47,170 | 38,041 | ||||||
Total stockholders' equity | 3,236,413 | 3,659,706 | ||||||
Total liabilities and stockholders' equity | $ | 4,669,364 | $ | 4,879,603 | ||||
Garmin Ltd. And Subsidiaries | |||||||||
Condensed Consolidated Statements of Cash Flows (Unaudited) | |||||||||
(In thousands) | |||||||||
39-Weeks Ended | |||||||||
Sept 27, | Sept 28, | ||||||||
2014 | 2013 | ||||||||
Operating Activities: | |||||||||
Net income | $ | 153,966 | $ | 448,827 | |||||
Adjustments to reconcile net income to net cash | |||||||||
provided by operating activities: | |||||||||
Depreciation | 35,860 | 36,840 | |||||||
Amortization | 19,705 | 23,629 | |||||||
(Gain) loss on sale of property and equipment | (742 | ) | 41 | ||||||
Provision for doubtful accounts | 778 | 1,023 | |||||||
Deferred income taxes | 55,235 | 2,851 | |||||||
Unrealized foreign currency loss (gain) | 22,610 | (17,273 | ) | ||||||
Provision for obsolete and slow moving inventories | 21,051 | 15,965 | |||||||
Stock compensation expense | 18,988 | 15,608 | |||||||
Realized loss (gain) on marketable securities | 685 | (2,963 | ) | ||||||
Changes in operating assets and liabilities: | |||||||||
Accounts receivable | 74,323 | 128,098 | |||||||
Inventories | (107,273 | ) | (44,337 | ) | |||||
Other current and non-current assets | 1,528 | (18,329 | ) | ||||||
Accounts payable | (3,209 | ) | 21,936 | ||||||
Other current and non-current liabilities | (1,997 | ) | (60,719 | ) | |||||
Deferred revenue | (80,712 | ) | (22,613 | ) | |||||
Deferred cost | 11,136 | (57 | ) | ||||||
Income taxes payable | 155,762 | (48,256 | ) | ||||||
Net cash provided by operating activities | 377,694 | 480,271 | |||||||
Investing activities: | |||||||||
Purchases of property and equipment | (54,829 | ) | (41,325 | ) | |||||
Proceeds from sale of property and equipment | 748 | 65 | |||||||
Purchase of intangible assets | (9,422 | ) | (1,574 | ) | |||||
Purchase of marketable securities | (746,305 | ) | (716,226 | ) | |||||
Redemption of marketable securities | 807,778 | 578,464 | |||||||
Proceeds from repayment (advances) on loan receivable | 137,379 | (173,708 | ) | ||||||
Change in restricted cash | (44 | ) | 584 | ||||||
Acquisitions, net of cash acquired | (18,871 | ) | (5,686 | ) | |||||
Net cash provided by (used in) investing activities | 116,434 | (359,406 | ) | ||||||
Financing activities: | |||||||||
Dividends paid | (268,023 | ) | (263,857 | ) | |||||
Purchase of treasury stock under share repurchase plan | (241,460 | ) | (26,926 | ) | |||||
Purchase of treasury stock related to equity awards | (11,274 | ) | (7,430 | ) | |||||
Proceeds from issuance of treasury stock related to equity awards | 12,761 | 13,620 | |||||||
Tax benefit from issuance of equity awards | 4,422 | 411 | |||||||
Net cash used in financing activities | (503,574 | ) | (284,182 | ) | |||||
Effect of exchange rate changes on cash and cash equivalents | (15,145 | ) | 837 | ||||||
Net decrease in cash and cash equivalents | (24,591 | ) | (162,480 | ) | |||||
Cash and cash equivalents at beginning of period | 1,179,149 | 1,231,180 | |||||||
Cash and cash equivalents at end of period | $ | 1,154,558 | $ | 1,068,700 | |||||
Garmin Ltd. And Subsidiaries | |||||||||||||||||||
Revenue, Gross Profit, and Operating Income by Segment (Unaudited) | |||||||||||||||||||
Reporting Segments | |||||||||||||||||||
Auto/ | |||||||||||||||||||
Outdoor | Fitness | Marine | Mobile | Aviation | Total | ||||||||||||||
13-Weeks Ended Sep 27, 2014 | |||||||||||||||||||
Net sales | $ | 121,079 | $ | 116,171 | $ | 62,128 | $ | 307,558 | $ | 99,347 | $ | 706,283 | |||||||
Gross profit | $ | 79,227 | $ | 74,056 | $ | 31,510 | $ | 140,995 | $ | 72,458 | $ | 398,246 | |||||||
Operating income | $ | 51,382 | $ | 36,670 | $ | 5,452 | $ | 53,042 | $ | 28,958 | $ | 175,504 | |||||||
13-Weeks Ended Sep 28, 2013 | |||||||||||||||||||
Net sales | $ | 101,350 | $ | 81,007 | $ | 55,301 | $ | 322,520 | $ | 83,459 | $ | 643,637 | |||||||
Gross profit | $ | 69,471 | $ | 49,328 | $ | 27,265 | $ | 147,866 | $ | 58,959 | $ | 352,889 | |||||||
Operating income | $ | 44,107 | $ | 26,493 | $ | 4,118 | $ | 53,848 | $ | 23,183 | $ | 151,749 | |||||||
39-Weeks Ended Sep 27, 2014 | |||||||||||||||||||
Net sales | $ | 311,123 | $ | 367,137 | $ | 195,911 | $ | 900,545 | $ | 292,636 | $ | 2,067,352 | |||||||
Gross profit | $ | 194,805 | $ | 236,204 | $ | 105,097 | $ | 422,379 | 215,079 | $ | 1,173,564 | ||||||||
Operating income | $ | 110,345 | $ | 133,054 | $ | 26,919 | $ | 158,248 | $ | 86,060 | $ | 514,626 | |||||||
39-Weeks Ended Sep 28, 2013 | |||||||||||||||||||
Net sales | $ | 284,372 | $ | 237,660 | $ | 178,344 | $ | 919,810 | $ | 251,970 | $ | 1,872,156 | |||||||
Gross profit | $ | 184,333 | $ | 149,368 | $ | 91,550 | $ | 410,348 | $ | 177,063 | $ | 1,012,662 | |||||||
Operating income | $ | 110,538 | $ | 76,026 | $ | 16,089 | $ | 134,324 | $ | 64,584 | $ | 401,561 | |||||||
Garmin Ltd. And Subsidiaries | |||||||||||||||||
Revenue by Geography (Unaudited) | |||||||||||||||||
13-Weeks Ended | 39-Weeks Ended | ||||||||||||||||
Sep 27, | Sep 28, | Yr over Yr | Sep 27, | Sep 28, | Yr over Yr | ||||||||||||
2014 | 2013 | Change | 2014 | 2013 | Change | ||||||||||||
Net sales | $ | 706,283 | $ | 643,637 | 10% | $ | 2,067,352 | $ | 1,872,156 | 10% | |||||||
Americas | 374,111 | 333,448 | 12% | 1,090,267 | 1,002,796 | 9% | |||||||||||
EMEA | 260,830 | 245,659 | 6% | 781,860 | 692,836 | 13% | |||||||||||
APAC | 71,342 | 64,530 | 11% | 195,225 | 176,524 | 11% | |||||||||||
EMEA - Europe, Middle East and Africa; APAC - Asia Pacific | |||||||||||||||||