The following discussion and analysis of our financial condition and results of operations focuses on and is intended to clarify the results of our operations, certain changes in our financial position, liquidity, capital structure and business developments for the periods covered by the consolidated financial statements included in this Form 10-K. This discussion should be read in conjunction with, and is qualified by reference to, the other related information including, but not limited to, the audited consolidated financial statements (including the notes thereto), the description of our business, all as set forth in this Form 10-K, as well as the risk factors discussed above in Item 1A. As previously noted, the discussion set forth below, as well as other portions of this Form 10-K, contain statements concerning potential future events. Readers can identify these forward-looking statements by their use of such verbs as "expects," "anticipates," "believes" or similar verbs or conjugations of such verbs. If any of our assumptions on which the statements are based prove incorrect or should unanticipated circumstances arise, our actual results could materially differ from those anticipated by such forward-looking statements. The differences could be caused by a number of factors or combination of factors including, but not limited to, those discussed above in Item 1A. Readers are strongly encouraged to consider those factors when evaluating any such forward-looking statement. We do not undertake to update any forward-looking statements in this Form 10-
K. Garmin'sfiscal year is a 52-53 week period ending on the last Saturday of the calendar year. Fiscal year 2013 and 2012 contained 52 weeks compared to 53 weeks for 2011. Unless otherwise stated, all years and dates refer to the Company's fiscal year and fiscal periods. Unless the context otherwise requires, references in this document to "we," "us," "our" and similar terms refer to Garmin Ltd.and its subsidiaries.
Unless otherwise indicated, dollar amounts set forth in the tables are in thousands, except per share data.
We are a leading worldwide provider of navigation, communications and information devices, most of which are enabled by Global Positioning System, or GPS, technology. We operate in five business segments, which serve the marine, outdoor, fitness, automotive/mobile, and aviation markets. Our segments offer products through our network of subsidiary distributors and independent dealers and distributors. However, the nature of products and types of customers for the five segments can vary significantly. As such, the segments are managed separately.
Since our first products were delivered in 1991, we have generated positive income from operations each year and have funded our growth from these profits.
We experience some foreign currency fluctuations in our operating results. Foreign currency gains and losses for the Company are primarily tied to movements by the Taiwan Dollar, the Euro, and the British Pound Sterling. The Taiwan Dollar is the functional currency of
Garmin Corporation. The U.S. Dollar remains the functional currency of Garmin Europe. The Euro is the functional currency of most European subsidiaries. As these entities have grown, currency moves can generate material gains and losses. Additionally, Euro-based inter-company transactions in Garmin Ltd.can also generate currency gains and losses. Other legal entities primarily use the local currency as the functional currency. Due to the relative size of entities using a functional currency other than the Taiwan Dollar, the Euro and the British Pound Sterling, currency fluctuations within these entities are not expected to have a material impact on the Company's financial statements. Approximately 77% of sales by our European subsidiaries are now denominated in British Pounds Sterling or the Euro. We experienced $35.5 millionin foreign currency gains during fiscal year 2013 and ($20.0) millionand ($12.1) millionin foreign currency losses during fiscal years 2012 and 2011, respectively.
date, we have not entered into hedging transactions related to any currency, and we do not currently plan to utilize hedging transactions in the future.
Critical Accounting Policies and Estimates
Garmin's discussion and analysis of its financial condition and results of operations are based upon Garmin's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in
the United States. The presentation of these financial statements requires Garmin to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, Garmin evaluates its estimates, including those related to customer sales programs and incentives, product returns, bad debts, inventories, investments, intangible assets, income taxes, warranty obligations, and contingencies and litigation. Garmin bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Garmin recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable, and collection is probable. For the large majority of Garmin's sales, these criteria are met once product has shipped and title and risk of loss have transferred to the customer. The Company recognizes revenue from the sale of hardware products and software bundled with hardware that is essential to the functionality of the hardware in accordance with general revenue recognition accounting guidance. The Company recognizes revenue in accordance with industry specific software accounting guidance for standalone sales of software products and sales of software bundled with hardware not essential to the functionality of the hardware. The Company generally does not offer specified or unspecified upgrade rights to its customers in connection with software sales. Garmin introduced nÜMaps Lifetime™ in
January 2009, which is a single fee program that, subject to the program's terms and conditions, enables customers to download the latest map and point of interest information every quarter for the useful life of their PND. The revenue and associated cost of royalties for sales of nÜMaps Lifetime™ products are deferred at the time of sale and recognized ratably on a straight-line basis over the estimated 36-month life of the products. With the acquisition of Navigon AGin 2011, products marketed under the Navigon brand have a FreshMaps program that enables customers to download the latest map and point of interest information for two years. The revenue and associated cost of royalties for sales of FreshMaps products are deferred at the time of sale and recognized ratably on a straight-line basis over the two year period. For multiple-element arrangements that include tangible products that contain software essential to the tangible product's functionality and undelivered software elements that relate to the tangible product's essential software, the Company allocates revenue to all deliverables based on their relative selling prices. In such circumstances, the accounting principles establish a hierarchy to determine the selling price to be used for allocating revenue to deliverables as follows: (i) vendor-specific objective evidence of fair value (VSOE), (ii) third-party evidence of selling price (TPE), and (iii) best estimate of the selling price (ESP). VSOE generally exists only when the Company sells the deliverable separately, on more than a limited basis, at prices within a relatively narrow range. In addition to the products listed below, the Company has offered certain other products including mobile applications, aviation subscriptions and extended warranties that involve multiple-element arrangements that are immaterial. 39 In 2010, Garmin began offering PNDs with lifetime map updates (LMUs) bundled in the original purchase price. Similar to nÜMaps Lifetime™, LMUs enable customers to download the latest map and point of interest information every quarter for the useful life of their PND. In addition, Garmin offers PNDs with premium traffic service bundled in the original purchase price in the European market. The Company has identified multiple deliverables contained in arrangements involving the sale of PNDs which include the LMU and/or premium traffic service. The first deliverable is the hardware along with the software essential to the functionality of the hardware device delivered at the time of sale. The second and potentially third deliverables are the LMU and/or premium traffic service. The Company has allocated revenue between these deliverables using the relative selling price method. Amounts allocated to the delivered hardware and the related essential software are recognized at the time of sale provided the other conditions for revenue recognition have been met. The revenue and associated cost of royalties allocated to the LMU and/or the subscription for premium traffic service are deferred and recognized on a straight-line basis over the estimated 36-month life of the products. Prior to the third quarter of fiscal 2011, Garmin determined its estimate of selling price using the dealer/distributor price for nÜMaps Lifetime or premium traffic subscriptions sold separately, and the prices for products bundled with and without the LMU and premium traffic service when comparable models were available, as inputs to the relative selling price method in a manner similar to VSOE. The estimated selling price determined in this manner was used to defer revenues for all products bundled with the LMU and premium traffic service, as the number of bundled units sold as a percentage of total units sold was less significant and other indicators of selling price were not readily available. During 2011, sales of products bundled with LMUs and premium traffic service increased significantly as a percentage of total product sales. Concurrently, market conditions caused decreases in the ASP and margins of comparable models year over year, new bundled products were introduced at lower ASPs, and the difference in pricing of bundled units and comparable unbundled models decreased considerably. Due to these changes, the Company determined it was appropriate to change its estimate of the per unit revenue and cost deferrals during the third quarter of 2011. As the sales of nÜMaps Lifetime and premium traffic subscriptions as a percentage of total unit sales or in the aggregate decreased significantly in mid-2011, the Company determined that the previous estimate of selling price based on more limited stand-alone sales of nÜMaps Lifetime or premium traffic was no longer a sole determinant of its value as determined under VSOE, and that third party evidence of selling price was not available. Management determined that the price differential between bundled and unbundled products and the royalty cost of the LMU or premium traffic subscription plus an approximate margin were both additional indicators of estimated selling price. These estimates are also reflective of how the Company establishes product pricing based in part on customer perception of value of the added LMU or premium traffic service capability. As such, beginning in the third quarter of 2011, the Company changed its estimate of selling price of the undelivered element to be based on the relative selling price method using a weighted average of the stand-alone sales price, the price differential between bundled and unbundled units, and the royalty or subscription cost plus a normal margin. The impact in 2011 of the change in estimate for lifetime map updates and premium traffic service, as described above, was an increase in revenue, gross profit, net income, basic net income per share, and diluted net income per share of $77.8 million, $66.5 million, $59.3 million, $0.31, and $0.30, respectively. Garmin records estimated reductions to revenue for customer sales programs, returns and incentive offerings including rebates, price protection (product discounts offered to retailers to assist in clearing older products from their inventories in advance of new product releases), promotions and other volume-based incentives. The reductions to revenue are based on estimates and judgments using historical experience and expectation of future conditions. Changes in these estimates could negatively affect Garmin's operating results. These incentives are reviewed periodically and, with the exceptions of price protection and certain other promotions, accrued for on a percentage of sales basis. If market conditions were to decline, Garmin may take actions to increase customer incentive offerings, possibly resulting in an incremental reduction of revenue at the time the incentive is offered. 40
The Company records revenue net of sales tax, trade discounts and customer returns. The reductions to revenue for expected future product returns are based on Garmin's historical experience.
Trade Accounts Receivable
We sell our products to retailers, wholesalers, and other customers and extend credit based on our evaluation of each customer's financial condition. Potential losses on receivables are dependent on each individual customer's financial condition. We carry our trade accounts receivable at net realizable value. Typically, our accounts receivable are collected within 80 days and do not bear interest. We monitor our exposure to losses on receivables and maintain allowances for potential losses or adjustments. We determine these allowances by (1) evaluating the aging of our receivables; and (2) reviewing our high-risk customers. Past due receivable balances are written off when our internal collection efforts have been unsuccessful. Beginning in 2011, the Company has maintained trade credit insurance to provide security against large losses. Loan Receivable
March 14, 2013, the Company entered into a Memorandum of Agreement (the "Agreement") with Bombardier, Inc. ("Bombardier"). The Company is the supplier of the avionics system for the Lear 70 and Lear 75 aircraft currently in development for Learjet, Inc., which is a subsidiary of Bombardier (the "Program"). In order to assist Bombardier in connection with delayed cash flows from the Program partially related to the certification of avionics for the Program exceeding the planned delivery date, the Company agreed to provide Bombardier a short term, interest free, loan of $173,708in cash in seven installments beginning on March 22, 2013and ending on September 20, 2013pursuant to the terms and conditions of the Agreement. Bombardier will repay the loan in five installments beginning in November 2013and ending in April 2014pursuant to the terms and conditions of the Agreement and subsequent amendment signed December 6, 2013. As of December 28, 2013, the Company had a loan receivable balance of $137,369from Bombardier, in the accompanying consolidated balance sheet.
The Company provides for estimated warranty costs at the time of sale. The Company's standard warranty obligation to retail partners generally provides for a right of return of any product for a full refund in the event that such product is not merchantable, is damaged or defective. The Company's historical experience is that these types of warranty obligations are generally fulfilled within 5 months from time of sale. The Company's standard warranty obligation to its end-users provides for a period of one to two years from date of shipment while certain aviation products have a warranty period of two years from the date of installation. The Company's estimate of costs to service its warranty obligations are based on historical experience and expectations of future conditions and are recorded as a liability on the balance sheet. To the extent Garmin experiences increased warranty claim activity or increased costs associated with servicing those claims, its warranty accrual will increase, resulting in decreased gross profit.
Garmin writes down its inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required.
Investments are classified as available for sale and recorded at fair value, and unrealized investment gains and losses are reflected in stockholders' equity. Investment income is recorded when earned, and gains and losses are recognized when investments are sold. Investments are reviewed periodically to determine if they have suffered an impairment of value that is considered other than temporary. If investments are determined to be impaired, a loss is recognized at the date of determination. Testing for impairment of investments requires significant management judgment. The identification of potentially impaired investments, the determination of their fair value and the assessment of whether any decline in value is other than temporary are the key judgment elements. The discovery of new information and the passage of time can significantly change these judgments. Revisions of impairment judgments are made when new information becomes known, and any resulting impairment adjustments are made at that time. The economic environment and volatility of securities markets increase the difficulty of determining fair value and assessing investment impairment. Investments are discussed in detail in Note 3 of the Notes to Consolidated Financial Statements. 41 Income Taxes
Garmin provides deferred tax assets and liabilities based on the difference between the tax basis of assets and liabilities and their carrying amount for financial reporting purposes as measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. It is Garmin's policy to record a valuation allowance to reduce its deferred tax assets to an amount that it believes is more likely than not to be realized. While Garmin has considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance, in the event Garmin were to determine that it would not be able to realize all or part of its net deferred tax assets in the future, an adjustment to the deferred tax assets would be charged to income in the period such determination is made. Likewise, should Garmin determine that it would be able to realize its deferred tax assets in the future in excess of its net recorded amount, an adjustment to the deferred tax assets would increase income in the period such determination is made. In addition, the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations. We recognize liabilities for tax audit issues in the U.S. and other tax jurisdictions based on our estimate of whether, and the extent to which, additional taxes will be due. If payment of these amounts ultimately proves not to be required, the reversal of the liabilities would result in tax benefits being recognized in the period when we determine the liabilities are no longer necessary. If our estimate of tax liabilities proves to be less than the ultimate assessment, a further charge to expense would result.
Stock Based Compensation
Garmin awards stock options, stock appreciation rights (SARs), restricted stock units (RSUs) and/or performance shares each year as part of Garmin's compensation package for employees. Certain employees within Garmin are eligible for stock options, SAR grants, RSU grants and/or performance shares but the granting of options, SARs, RSUs and/or performance shares is at the discretion of the Compensation Committee of the Board of Directors and is not a contractual obligation. Stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense on a straight-line basis over the requisite service period. Determining the fair value of stock-based awards at the grant date requires judgment, including estimating expected life, forfeitures and dividends. If actual results differ significantly from these estimates, stock-based compensation expense could be impacted. Stock compensation plans are discussed in detail in Note 9 of the Notes to Consolidated Financial Statements.
Accounting Terms and Characteristics
Our net sales are primarily generated through sales to our global dealer and distributor network and to original equipment manufacturers. Refer to the Revenue Recognition discussion above. Our sales are largely of a consumer nature; therefore, backlog levels are not necessarily indicative of our future sales results. We aim to achieve a quick turnaround on orders we receive, and we typically ship most orders within 72 hours. Net sales are subject to seasonal fluctuation. Typically, sales of our consumer products are highest in the second quarter, due to increased demand during the spring and summer season, and in the fourth quarter, due to increased demand during the holiday buying season. Our aviation products do not experience much seasonal variation, but are more influenced by the timing of the release of new products when the initial demand is typically the strongest. 42 Cost of Sales/Gross Profit Raw material costs are our most significant component of cost of goods sold. In 2013, gross margin for our automotive/mobile segment increased 40 basis points driven primarily by the amortization of previously deferred high margin revenues partially offset by a positive impact to 2012 gross margin from a one-time royalty fee adjustment. See Note 2 of the Notes to Consolidated Financial Statements for further information on gross profit deferrals. In 2012, gross margin for our automotive/mobile segment increased 560 basis points driven primarily by the amortization of previously deferred high margin revenues, the third quarter 2011 change in estimate of per unit revenue and cost deferred as previously discussed and a one-time royalty fee adjustment. In 2011, gross margin for our automotive/mobile segment declined 280 basis points driven primarily by the deferral of high margin revenue associated with bundled products, partially offset by the change in estimate mentioned above, and decreased selling prices on comparable units, as well as positive impact to 2010 gross margin from a refinement in the estimated warranty reserve. In 2013, we experienced an 860 basis point decline in marine gross margin due to significant pricing discounts on legacy inventory in the first half of 2013, competitive pricing dynamics on new products and product mix. In 2012, we experienced a 320 and 260 basis point increase in aviation and fitness gross margins, respectively. Aviation gross margin expansion was driven primarily by product mix and a OEM program contribution that negatively impacted gross margins in 2011. Fitness gross margin improvement was due to product mix. In 2011, we experienced a 420 basis point decline in marine gross margin due to a shift in product mix. Gross margins for the aviation, marine, outdoor, and fitness segments are typically more stable than in the automotive/mobile segment. Our long-term gross margin targets are 70%, 55%, 60%, and 60%, respectively, for these segments. Our existing practice of performing the design and manufacture of our products in-house has enabled us to source components from different suppliers and, where possible, to redesign our products to leverage lower cost components. We believe that our flexible production model allows our Sijhih, Jhongli, and LinKou manufacturing plants in
Taiwan, our Olathe, Kansas, and Salem, Oregonmanufacturing plants to experience relatively low costs of manufacturing. In general, products manufactured in Taiwanhave been our highest volume products. Our manufacturing labor costs historically have been lower in Taiwanthan in Olatheand Salem. Sales price variability has had and can be expected to have an effect on our gross profit. In the past, prices of our devices sold into the automotive/mobile market have declined due to market pressures and introduction of new products sold at lower price points. The average selling prices of our aviation, outdoor, fitness, and marine products have been stable due to product mix and the introduction of more advanced products sold at higher prices. The effect of the sales price differences inherent within the mix of GPS-enabled products sold could have a significant impact on our gross profit.
Our advertising expenses consist of costs for both media advertising and cooperative advertising with our retail partners. In both 2013 and 2012, we reduced our advertising expense due primarily to reduced cooperative advertising associated with lower volumes in the automotive/mobile segment. In 2011, our advertising costs increased slightly as we again experienced revenue growth. We expect advertising costs to increase slightly in 2014 with incremental spending associated with new product categories partially offset by decreased spending in the automotive/mobile segment.
Selling, General and Administrative Expenses
Our selling, general and administrative expenses consist primarily of: · salaries for sales and marketing personnel; · salaries and related costs for executives and administrative personnel; · marketing, and other brand building costs; 43 · accounting and legal costs; · information systems and infrastructure costs; · travel and related costs; and · occupancy and other overhead costs. Selling, general and administrative expenses decreased in 2013 after increasing in both 2012 and 2011. The 2013 decrease was primarily driven by reduced legal settlements and related fees. The 2012 increase was primarily driven by full year expenses associated with acquisitions completed in the second half of 2011 and legal costs. The 2011 increase was primarily driven by acquisitions, commissions associated with a new web-based sales program, bad debt expense, legal costs and product support costs. We expect selling, general and administrative costs, excluding advertising, to increase slightly in 2014 and remain consistent as a percentage of net sales.
Research and Development
The majority of our research and development costs represent salaries for our engineers, costs for high technology components and costs of test equipment used in product and prototype development. Approximately 81% of the research and development of our products is performed in
North America. We are committed to increasing the level of innovative design and development of new products as we strive for expanded ability to serve our existing consumer and aviation markets as well as new markets for GPS-enabled devices. We expect our research and development budget to increase in 2014 due to our ongoing commitment to innovation and growth.
Our top ten customers have contributed between 24% and 29% of net sales since 2011. We have experienced average sales days in our customer accounts receivable of between 69 and 72 days since 2011. We expect the level of customer accounts receivable days to be relatively stable in 2014.
We have experienced a relatively low effective corporate tax rate due to the proportion of our revenue generated by entities in tax jurisdictions with low statutory rates. In particular, the profit entitlement afforded our Swiss-based companies based on their intellectual property rights ownership of our consumer products along with tax incentives offered by the Taiwanese government on certain high-technology capital investments have continued to reduce our tax rate. We have taken advantage of the tax benefit in
Taiwansince our inception and we expect to continue to benefit from lower effective tax rates at least through 2015. Our consolidated effective tax rate was approximately 6.3% during 2013. This is a decrease from an effective rate of 13.1% in 2012. The significant decline was due to the impact of a $68.7 millionbenefit, which includes the release of uncertain tax position reserves from 2009 offset by Taiwansurtax expense due to this reserve release. Excluding these items, we would have reported an effective tax rate of 16.8% for fiscal year 2013 compared to 13.1% for fiscal year 2012. This increase was primarily driven by an unfavorable income mix across tax jurisdictions, reduced Taiwanese tax incentives, and the release of other uncertain tax position reserves, amounting to approximately $11.2 millionfor 2013 and $13.0 millionfor 2012 that are considered immaterial, tend to be more recurring in nature and are comparable between periods. These factors were partially offset by the impact of $6.3 millionof research and development tax credits related to 2012 which were recognized when the related legislation was enacted in January 2013. Management believes that the effective tax rate for fiscal 2014 will be consistent with the 2013 effective tax rate of 16.8%, excluding special items as outlined above, as operating profits and margins are relatively stable. The actual effective tax rate will depend upon the operating margins, production volume, additional capital investments made during fiscal 2014, the resolution of uncertain tax positions and the composition of our earnings. 44 Results of Operations
The following table sets forth our results of operations as a percentage of net sales during the periods shown (the table may not foot due to rounding):
Fiscal Years Ended Dec. 28, Dec. 29, Dec. 31, 2013 2012 2011 Net sales 100 % 100 % 100 % Cost of goods sold 47 % 47 % 51 % Gross profit 53 % 53 % 49 % Operating expenses: Advertising 4 % 5 % 5 %
Selling, general and administrative 14 % 14 %
Research and development 14 % 12 %
Total operating expenses 32 % 31 %
Operating income 22 % 22 %
Other income / (expense) , net 3 % 1 %
Income before income taxes 25 % 23 %
Provision for income taxes 2 % 3 % 2 % Net income 23 % 20 % 19 % The following table sets forth our results of operations through income before income taxes for each of our five segments during the period shown. For each line item in the table the total of the segments' amounts equals the amount in the consolidated statements of income data included in Item 6. 45 Automotive/ Fiscal year ended December 28, 2013 Outdoor Fitness Marine Mobile Aviation Net sales
$ 410,989 $ 356,283 $ 222,928 $ 1,302,314 $ 339,337Cost of goods sold 148,460 133,358 107,837 737,231 97,665 Gross profit 262,529 222,925 115,091 565,083 241,672 Advertising 19,805 24,153 11,435 52,478 5,034 Selling, general and administrative expenses 59,058 50,765 38,578 187,449 19,590 Research and development 24,469 27,757 46,585 136,639 129,473 Total expenses 103,332 102,675 96,598 376,566 154,097 Operating income 159,197 120,250 18,493 188,517 87,575
Other income / (expense), net 9,352 11,161
7,500 46,005 5,508
Income before income taxes
$ 168,549 $ 131,411 $ 25,993 $ 234,522 $ 93,083Automotive/
Fiscal year ended
Mobile Aviation Net sales
$ 401,747 $ 321,788 $ 208,136 $ 1,492,440 $ 291,564Cost of goods sold 141,183 117,173 82,935 849,527 86,377 Gross profit 260,564 204,615 125,201 642,913 205,187 Advertising 20,812 25,322 14,804 72,817 5,002 Selling, general and administrative expenses 54,535 43,943 33,540 220,669 17,103 Research and development 20,606 23,543 42,857 128,661 110,106 Total expenses 95,953 92,808 91,201 422,147 132,211 Operating income 164,611 111,807 34,000 220,766 72,976
Other income / (expense), net 3,123 2,467 1,725
10,852 2,201 Income before income taxes
$ 167,734 $ 114,274 $ 35,725 $ 231,618 $ 75,177Automotive/
Fiscal year ended
Mobile Aviation Net sales
$ 363,223 $ 298,163 $ 221,730 $ 1,590,598 $ 284,855Cost of goods sold 124,373 116,404 92,077 993,581 93,542 Gross profit 238,850 181,759 129,653 597,017 191,313 Advertising 16,739 18,831 11,310 93,456 4,688 Selling, general and administrative expenses 43,181 38,495 30,990 212,545 16,006 Research and development 17,419 22,332 29,708 130,179 98,946 Total expenses 77,339 79,658 72,008 436,180 119,640 Operating income 161,511 102,101 57,645 160,837 71,673 Other income / (expense), net 9,734 5,780 2,447 10,880 1,553 Income before income taxes $ 171,245 $ 107,881 $ 60,092 $ 171,717 $ 73,22646
Comparison of 52-Weeks Ended
52-weeks ended December 28, 2013 52-weeks ended December 29, 2012 Year over Year Net Sales % of Revenues Net Sales % of Revenues $ Change % Change Outdoor
$ 410,98916 % $ 401,74715 % $ 9,2422 % Fitness 356,283 14 % 321,788 12 % 34,495 11 % Marine 222,928 8 % 208,136 7 % 14,792 7 % Automotive/Mobile 1,302,314 49 % 1,492,440 55 % (190,126) -13 % Aviation 339,337 13 % 291,564 11 % 47,773 16 % Total $ 2,631,851100 % $ 2,715,675100 % $ (83,824)-3 % Net sales decreased 3% in 2013 when compared to the year-ago period. The decrease was driven by the automotive/mobile segment which posted a 13% decline with offsetting growth in outdoor, fitness, marine and aviation. Automotive/mobile revenue remains the largest portion of our revenue mix at 49% in 2013, compared to 55% in 2012. Total unit sales decreased 10% to 13.9 million units in 2013 from 15.4 million units in 2012. The decrease in unit sales volume was attributable to reduced automotive/mobile volumes due to penetration rates and competing technologies. This decline was partially offset by growth in each of the other segments. Automotive/mobile segment revenue decreased 13% from the year-ago period, as volumes decreased 17% partially offset by average selling price (ASP) improvement due to the amortization of previously deferred revenue exceeding current year revenue deferrals in 2013 and increased auto OEM contribution with a higher ASP. Aviation revenues increased 16% from the year-ago period as the OEM market improved in some aircraft categories, as well as contribution from recent share gains and aftermarket products. Fitness revenues increased 11% on the strength of our cycling products, power meter, and the Forerunner 10 with strong volume growth partially offset by reduced ASPs associated with the Forerunner 10. Revenues in our marine segment increased 7% as new product introductions were partially offset by a weak first quarter when we discounted many products in advance of new products and a global marine electronics industry that continues to be weak due to macroeconomic instability. The Company anticipates revenue of $2.6- $2.7 billionin 2014 driven by growth in the outdoor, fitness, aviation and marine segments offset by ongoing declines in the automotive/mobile segment. In general, management believes that continuous innovation and the introduction of new products are essential for future revenue growth.
Cost of Goods Sold
52-weeks ended December 28, 2013 52-weeks ended December 29, 2012 Year over Year Cost of Goods % of Revenues Cost of Goods % of Revenues $ Change % Change Outdoor
$ 148,46036 % $ 141,18335 % $ 7,2775 % Fitness 133,358 37 % 117,173 36 % 16,185 14 % Marine 107,837 48 % 82,935 40 % 24,902 30 % Automotive/Mobile 737,231 57 % 849,527 57 % (112,296) -13 % Aviation 97,665 29 % 86,377 30 % 11,288 13 % Total $ 1,224,55147 % $ 1,277,19547 % $ (52,644)-4 % 47
Cost of goods sold decreased 4% when compared to the year ago period. As a percentage of revenue, cost of goods sold decreased 50 basis points from the year ago period. Cost of goods as a percentage of revenue for outdoor and fitness were negatively impacted by product mix and slight ASP declines. Cost of goods as a percentage of revenues increased by 850 basis points in marine due to significant pricing discounts on legacy inventory in the first half of 2013, competitive pricing dynamics on new products and rising component costs. The automotive/mobile segment recorded a 13% decline in cost of goods in absolute dollars as revenues declined 13%. Cost of goods as a percentage of revenues for the automotive/mobile segment decreased by 30 basis points as the effect of a
$21 millionone-time royalty fee benefit related to license fee overpayments recorded in the second quarter of 2012 was offset by the benefit from the amortization of previously deferred high margin revenue and the associated costs exceeding new deferrals on current period sales in 2013. The aviation segment experienced an absolute dollar cost of goods sold increase generally commensurate with the sales increase discussed above. Management believes that cost of goods sold as a percentage of sales will be relatively stable in 2014 given the growth in segments with higher margin profiles than corporate average, product mix within those segments and current component pricing. Gross Profit 52-weeks ended December 28, 2013 52-weeks ended December 29, 2012 Year over Year Gross Profit % of Revenues Gross Profit % of Revenues $ Change % Change Outdoor $ 262,52964 % $ 260,56465 % $ 1,9651 % Fitness 222,925 63 % 204,615 64 % 18,310 9 % Marine 115,091 52 % 125,201 60 % (10,110) -8 % Automotive/Mobile 565,083 43 % 642,913 43 % (77,830) -12 % Aviation 241,672 71 % 205,187 70 % 36,485 18 % Total $ 1,407,30053 % $ 1,438,48053 % $ (31,180)-2 % Gross profit dollars in 2013 decreased 2% while gross profit margin increased 50 basis points compared to 2012 driven primarily by the automotive/mobile and aviation segments. The automotive/mobile gross margin was stable at 43% as the royalty benefit recorded in the second quarter of 2012 was offset by increased amortization of previously deferred high margin revenues in 2013, as discussed above. The gross profit margin percentage for the marine segment declined by 850 basis points as discussed above.
Management believes that total company gross margins will be relatively stable in 2014 as discussed above.
Advertising Expenses 52-weeks ended December 28, 2013 52-weeks ended December 29, 2012 Year over Year Advertising Advertising Expense % of Revenues Expense % of Revenues $ Change % Change Outdoor
$ 19,8055 % $ 20,8125 % $ (1,007)-5 % Fitness 24,153 7 % 25,322 8 % (1,169) -5 % Marine 11,435 5 % 14,804 7 % (3,369) -23 % Automotive/Mobile 52,478 4 % 72,817 5 % (20,339) -28 % Aviation 5,034 1 % 5,002 2 % 32 1 % Total $ 112,9054 % $ 138,7575 % $ (25,852)-19 % Advertising expense decreased 19% in absolute dollars and 80 basis points as a percent of revenue compared to the year-ago period. The decrease occurred primarily in the automotive/mobile and marine segments due to reduced cooperative advertising associated with lower volumes in automotive/mobile and a newer product line in marine requiring less promotional activity. Management expects to increase advertising as a percentage of sales in 2014 with incremental spending associated with new product categories partially offset by decreased spending in the automotive/mobile segment. 48
Selling, General and Administrative Expenses
52-weeks ended December 28, 2013 52-weeks ended December 29, 2012 Year over Year Selling, General & Selling, General & Admin. Expenses % of Revenues Admin. Expenses % of Revenues $ Change % Change Outdoor $ 59,058 14 % $ 54,535 14 %
$ 4,5238 % Fitness 50,765 14 % 43,943 14 % 6,822 16 % Marine 38,578 17 % 33,540 16 % 5,038 15 % Automotive/Mobile 187,449 14 % 220,669 15 % (33,220) -15 % Aviation 19,590 6 % 17,103 6 % 2,487 15 % Total $ 355,440 14 % $ 369,790 14 % $ (14,350)-4 % Selling, general and administrative expense decreased 4% in absolute dollars and 10 basis points as a percent of revenues compared to the year-ago period. The absolute dollar decrease is primarily related to reduced legal settlements and legal fees in the automotive/mobile segment. The increase in aviation is partially related to an increase in bad debt expense. Variances by segment are primarily due to the allocation of certain selling, general and administrative expenses based on percentage of total revenues.
Management expects selling, general and administrative expenses to be relatively stable as a percentage of sales in 2014.
Research and Development Expense
52-weeks ended December 28, 2013 52-weeks ended December 29, 2012 Year over Year Research & Research & Development % of Revenues Development % of Revenues $ Change % Change Outdoor
$ 24,4696 % $ 20,6065 % $ 3,86319 % Fitness 27,757 8 % 23,543 7 % 4,214 18 % Marine 46,585 21 % 42,857 21 % 3,728 9 % Automotive/Mobile 136,639 10 % 128,661 9 % 7,978 6 % Aviation 129,473 38 % 110,106 38 % 19,367 18 % Total $ 364,92314 % $ 325,77312 % $ 39,15012 % Research and development expense increased 12% due to ongoing development activities for new products and the addition of over 200 new engineering personnel to our staff since 2012. In absolute dollars, research and development costs increased $39.2 millionwhen compared with 2012 representing a 190 basis point increase as a percent of revenue. Aviation had the largest increase in absolute dollars as we are investing heavily in OEM opportunities. Marine and automotive/mobile investment is focused on marine product enhancements and automotive OEM opportunities, respectively. Within outdoor and fitness, we launched a number of new product categories in 2013. We are also exploring new categories within these segments. Management believes that one of the key strategic initiatives for future growth and success of Garmin is continuous innovation, development, and introduction of new products. Management expects that its research and development expenses will increase during fiscal 2014 on an absolute dollar basis and as a percent of revenue in order to deliver innovative new products and technologies.
52-weeks ended December 28, 2013 52-weeks ended December 29, 2012 Year over Year Operating Income % of Revenues Operating Income % of Revenues $ Change % Change Outdoor $ 159,197 39 % $ 164,611 41 %
$ (5,414)-3 % Fitness 120,250 34 % 111,807 35 % 8,443 8 % Marine 18,493 8 % 34,000 16 % (15,507) -46 % Automotive/Mobile 188,517 14 % 220,766 15 % (32,249) -15 % Aviation 87,575 26 % 72,976 25 % 14,599 20 % Total $ 574,032 22 % $ 604,160 22 % $ (30,128)-5 % 49
Operating income decreased 5% in absolute dollars and 40 basis points as a percent of revenue when compared to 2012 due to declining revenues and increased research and development expense offset by a slight improvement in gross margins and cost reductions in advertising and selling, general and administrative expenses, as discussed above. Other Income (Expense) 52-weeks ended 52-weeks ended December 28, 2013 December 29, 2012 Interest Income $ 35,271 $ 35,108 Foreign Currency Exchange 35,538 (20,022) Other 8,717 5,282 Total $ 79,526 $ 20,368
Other income (expense) principally consists of interest income and foreign currency exchange gains and losses. Interest income for fiscal 2013 increased slightly due to increasing cash and marketable securities balances during the year. Foreign currency gains and losses for the Company are primarily tied to movements by the Taiwan Dollar, the Euro, and the British Pound Sterling in relation to the U.S. Dollar. The Taiwan Dollar is the functional currency of
Garmin Corporation. The U.S. Dollar remains the functional currency of Garmin ( Europe) Ltd. The Euro is the functional currency of most European subsidiaries. As these entities have grown, currency fluctuations can generate material gains and losses. Additionally, Euro-based inter-company transactions can also generate currency gains and losses. Due to the relative size of the entities using a functional currency other than the Taiwan Dollar, the Euro and the British Pound Sterling, currency fluctuations related to these entities are not expected to have a material impact on the Company's financial statements. The majority of the $35.5 millioncurrency gain in 2013 was due to the strengthening of the U.S. Dollar compared to the Taiwan Dollar. The weakening of the U.S. Dollar compared to the Euro and British Pound Sterling contributed additional gains. The movements of the Taiwan Dollar and Euro/British Pound Sterling have offsetting impacts due to the use of the Taiwan Dollar for manufacturing costs and cash held in non-functional currency while the Euro and British Pound Sterling transactions relate to revenue. During 2013, the U.S. Dollar weakened 4.1% and 2.2%, respectively, relative to the Euro and British Pound Sterling resulting in a foreign currency gain of $7.5 millionin Garmin Ltd.and our European subsidiaries. The U.S. Dollar strengthened 3.3% against the Taiwan Dollar resulting in a $30.2 millionforeign currency gain due to the fluctuation of asset balances throughout the year. The net result of these currency moves combined with other losses of $2.1 million, and the timing of transactions during the year was a net gain of $35.5 millionfor the Company. The $20.0 millioncurrency loss in 2012 was due primarily to weakening of the U.S. Dollar compared to the Taiwan Dollar. During 2012, the U.S. Dollar weakened 3.8% compared to the Taiwan Dollar resulting in a loss of $31.3 million. This was partially offset by the U.S. Dollar weakening 2.1% and 4.3%, respectively, compared to the Euro and the British Pound Sterling, resulting in a $10.4 milliongain. The remaining net currency gain of $0.8 millionis related to other currencies and timing of transactions.
Income Tax Provision
Our earnings before taxes increased 5% when compared to 2012, while our income tax expense decreased by
$41.0 million, to $41.1 millionfor 2013, compared to $82.1 millionfor 2012. The significant decline was due to the impact of a $68.7 millionbenefit, which includes the release of uncertain tax position reserves from 2009 offset by Taiwansurtax expense due to this reserve release. Excluding these items, we would have reported an effective tax rate of 16.8% for fiscal year 2013 compared to 13.1% for fiscal year 2012. This increase was primarily driven by an unfavorable income mix across tax jurisdictions, reduced Taiwanese tax incentives, and the release of other uncertain tax position reserves, amounting to approximately $11.2 millionfor 2013 and $13.0 millionfor 2012 that are considered immaterial, tend to be more recurring in nature and are comparable between periods. These factors were partially offset by the impact of $6.3 millionof research and development tax credits related to 2012 which were recognized when the related legislation was enacted in January 2013. 50 Net Income
As a result of the various factors noted above, net income increased 13% to
Comparison of 52-Weeks Ended
December 29, 2012and 53-Weeks Ended December 31, 2011Net Sales 52-weeks ended December 28, 52-weeks ended December 29, Year over Year 2012 2011 % of % of Net Sales Revenues Net Sales Revenues $ Change % Change Outdoor $ 401,74715 % $ 363,22313 % $ 38,52411 % Fitness 321,788 12 % 298,163 11 % 23,625 8 % Marine 208,136 7 % 221,730 8 % (13,594) -6 %
Automotive/Mobile 1,492,440 55 % 1,590,598
58 % (98,158) -6 % Aviation 291,564 11 % 284,855 10 % 6,709 2 % Total
$ 2,715,675100 % $ 2,758,569100 % $ (42,894)-2 % Net sales decreased 2% in 2012 when compared to the year-ago period. The decrease was driven by automotive/mobile and marine with offsetting growth in outdoor, fitness and aviation. The outdoor segment experienced the greatest increase at 11% with fitness contributing 8% growth. Automotive/mobile revenue remains the largest portion of our revenue mix, but declined from 58% in 2011 to 55% in 2012. Total unit sales decreased 3% to 15.4 million units in 2012 from 15.8 million units in 2011. The declining unit sales volume in 2012 was primarily attributable to a decline in automotive/mobile units as the North American and European PND markets slowed due to penetration rates and competing technologies. This decline was partially offset by increasing volumes in the outdoor and fitness segments, as well as auto OEM units. Automotive/mobile segment revenue declined 6% in 2012, as the average selling price (ASP) was flat and volumes declined 6%. ASP was stable due to the substantial increase in our bundled product offerings, which include lifetime map updates and premium traffic services, as a percentage of total units sold, offset by a decrease in the ASP of comparable models from the previous year. The increase in product mix toward bundled offerings required us to defer $68.3 millionof net sales in 2012 compared to $179.3 millionof net sales in 2011. The reduced impact of deferred revenue is related to increased amortization of previously deferred revenues and costs and a reduced per unit revenue deferral rate due to a change in accounting estimate in the third quarter of 2011, as previously discussed, offset by the impact of increased sales of bundled units requiring deferral. Outdoor revenue increased 11% driven by market share gains in the GPS-enabled golf category and the dog tracking and training portfolio including the benefit of an acquisition completed in the second half of 2011. Fitness segment revenue increased 8% on the strength of recent product introductions and ongoing global penetration though slowing from 24% growth in the prior year when we had significant promotional activity on discontinued products. Marine revenues decreased 6% due to a difficult international marine environment. Aviation revenues increased 2% as the Company's OEM business began to recover but was partially offset by declining sales of retrofit and portable products. 51 Cost of Goods Sold 52-weeks ended December 29, 2012 53-weeks ended December 31, 2011 Year over Year Cost of Goods % of Revenues Cost of Goods % of Revenues $ Change % Change Outdoor $ 141,183 35 % $ 124,37334 % $ 16,81014 % Fitness 117,173 36 % 116,404 39 % 769 1 % Marine 82,935 40 % 92,077 42 % (9,142) -10 % Automotive/Mobile 849,527 57 % 993,581 62 % (144,054) -14 % Aviation 86,377 30 % 93,542 33 % (7,165) -8 % Total $ 1,277,19547 % $ 1,419,97751 % $ (142,782)-10 % Cost of goods sold decreased 10% in 2012 when compared to the year-ago period primarily due to unit volume declines discussed above, component cost reductions, a mix shift toward higher margin new products and certain factors specific to the automotive/mobile segment discussed below. The cost of goods sold as a percentage of revenues for the automotive/mobile segment decreased by 560 basis points. The decline principally resulted from a $21 millionone-time royalty fee benefit recorded in second quarter (140 basis points) and subsequent impact of reduced royalty costs, a reduction in the year-over-year impact of deferred revenue and costs including the reduced per unit deferral rate as discussed above (280 basis points), component price reductions and product mix shifting toward more recently introduced products carrying a higher margin profile. Fitness and marine posted declines in cost of goods sold as a percentage of revenue due to product mix moving toward newer products with increased features, functionality and higher per unit margins, as well as decreased promotional activities. Aviation posted a decline in cost of goods sold as a percentage of revenue due primarily to product mix and a prior year OEM contribution that negatively impacted revenues.
52-weeks ended December 29, 2012 53-weeks ended December 31, 2011 Year over Year Gross Profit % of Revenues Gross Profit % of Revenues $ Change % Change Outdoor
$ 260,56465 % $ 238,85066 % $ 21,7149 % Fitness 204,615 64 % 181,759 61 % 22,856 13 % Marine 125,201 60 % 129,653 58 % (4,452) -3 % Automotive/Mobile 642,913 43 % 597,017 38 % 45,896 8 % Aviation 205,187 70 % 191,313 67 % 13,874 7 % Total $ 1,438,48053 % $ 1,338,59249 % $ 99,8887 % Gross profit dollars in 2012 increased 7% while gross profit margin percentage increased 450 basis points compared to 2011. Gross profit margins increased in all segments, excluding outdoor, when compared to 2011. The automotive/mobile segment gross profit margin percentage increased 560 basis points driven primarily by the one-time royalty fee adjustment, a $90 millionreduction in the year-over-year impact of deferred revenue and cost including the reduced per unit deferral rate partially offset by the impact of increased sales of bundled units requiring deferral, reduced component pricing and improved product mix, as discussed above. Fitness and marine gross profit margin percentage increased 260 basis points and 170 basis points, respectively, from the prior year driven primarily by product mix improvement and less promotional activity in the current year, as discussed above. Aviation gross profit margin percentage increased 320 basis points driven primarily by product mix and a prior year OEM contribution, as discussed above. 52 Advertising Expenses
52-weeks ended December 29, 53-weeks ended December 31, 2012 2011 Year over Year Advertising Advertising % of % of Expense Revenues Expense Revenues $ Change % Change Outdoor
$ 20,8125 % $ 16,7395 % $ 4,07324 % Fitness 25,322 8 % 18,831 6 % 6,491 34 % Marine 14,804 7 % 11,310 5 % 3,494 31 % Automotive/Mobile 72,817 5 % 93,456 6 % (20,639) -22 % Aviation 5,002 2 % 4,688 2 % 314 7 % Total $ 138,7575 % $ 145,0245 % $ (6,267)-4 % Advertising expense decreased in absolute dollars and was flat as a percentage of revenues when compared to 2011. The decrease in absolute dollars resulted from reduced cooperative advertising on lower sales in the PND category partially offset by increased cooperative advertising and media placement within the outdoor, fitness and marine segments.
Selling, General and Administrative Expenses
52-weeks ended December 53-weeks ended December 29, 2012 31, 2011 Year over Year Selling, Selling, General & General & Admin. % of Admin. % of Expenses Revenues Expenses Revenues $ Change % Change Outdoor
$ 54,53514 % $ 43,18112 % $ 11,35426 % Fitness 43,943 14 % 38,495 13 % 5,448 14 % Marine 33,540 16 % 30,990 14 % 2,550 8 % Automotive/Mobile 220,669 15 % 212,545 13 % 8,124 4 % Aviation 17,103 6 % 16,006 6 % 1,097 7 % Total $ 369,79014 % $ 341,21712 % $ 28,5738 % Selling, general and administrative expense increased in both absolute dollars and as a percentage of revenues compared to 2011. As a percent of revenues, selling, general and administrative expenses increased 120 basis points in 2012. The expense increase was primarily driven by full year expense for acquisitions completed in the second half of 2011, which added almost $20 million, and increased legal costs and reserves partially offset by a reduction in bad debt expense and commissions expense.
Research and Development Expense
52-weeks ended December 29, 2012 53-weeks ended December 31, 2011 Year over Year Research & Research & Development % of Revenues Development % of Revenues $ Change % Change Outdoor
$ 20,6065 % $ 17,4195 % $ 3,18718 % Fitness 23,543 7 % 22,332 7 % 1,211 5 % Marine 42,857 21 % 29,708 13 % 13,149 44 % Automotive/Mobile 128,661 9 % 130,179 8 % (1,518) -1 % Aviation 110,106 38 % 98,946 35 % 11,160 11 % Total $ 325,77312 % $ 298,58411 % $ 27,1899 % Research and development expense increased 9% due to ongoing development activities for new products and the addition of over 375 new engineering personnel with an emphasis on OEM opportunities within aviation, auto and marine. In absolute dollars, research and development costs increased $27.2 millionwhen compared with the year-ago period and increased 120 basis points as a percent of revenue. 53 Operating Income 52-weeks ended December 29, 2012 53-weeks ended December 31, 2011 Year over Year Operating Income % of Revenues Operating Income % of Revenues $ Change % Change Outdoor $ 164,611 41 % $ 161,511 44 % $ 3,1002 % Fitness 111,807 35 % 102,101 34 % 9,706 10 % Marine 34,000 16 % 57,645 26 % (23,645) -41 % Automotive/Mobile 220,766 15 % 160,837 10 % 59,929 37 % Aviation 72,976 25 % 71,673 25 % 1,303 2 % Total $ 604,160 22 % $ 553,767 20 % $ 50,3939 %
Operating income increased 210 basis points as a percent of revenue and 9% in absolute dollars when compared to the year-ago period as gross margin improvement was only partially offset by increased operating expenses.
Other Income (Expense) 52-weeks ended 53-weeks ended December 29, 2012 December 31, 2011 Interest Income $ 35,108 $ 32,812 Foreign Currency Exchange (20,022)
(12,100) Other 5,282 9,682 Total $ 20,368 $ 30,394
Other income (expense) principally consists of interest income and foreign currency exchange gains and losses. Interest income for fiscal 2012 increased due to increasing cash and marketable securities balances during the year offset by a slight decline in interest rates. The
$20.0 millioncurrency loss in 2012 was due primarily to weakening of the U.S. Dollar compared to the Taiwan Dollar. The movements of the Taiwan Dollar and Euro/British Pound Sterling have offsetting impacts due to the use of the Taiwan Dollar for manufacturing costs and cash held in non-functional currency while the Euro and British Pound Sterling transactions relate to revenue. During 2012, the U.S. Dollar weakened 3.8% compared to the Taiwan Dollar resulting in a loss of $31.3 million. This was partially offset by the U.S. Dollar weakening 2.1% and 4.3%, respectively, compared to the Euro and the British Pound Sterling, resulting in a $10.4 milliongain. The remaining net currency gain of $0.8 millionis related to other currencies and timing of transactions.
$4.1 millionresulted due to the U.S. Dollar weakening 1.2% against the Taiwan Dollar as the asset balances fluctuated throughout the year. The remaining net currency loss of $3.2 millionis related to other currencies
and timing of transactions. Income Tax Provision Our earnings before taxes increased 7% when compared to 2011 while our income tax expense increased by 30% to
$82.1 million, compared to $63.3 millionfor fiscal year 2011. The significant increase in income tax expense was primarily due to a decrease in the income eligible for tax holiday in Taiwan, unfavorable income mix toward higher tax jurisdictions and an increase in uncertain tax position reserves, net of amounts released due to expiration of statutes of limitations, and the impact of no research and development credit in 2012.
As a result of the various factors noted above, net income increased 4% to
Liquidity and Capital Resources
Operating Activities Fiscal Year Ended Dec 28, Dec 29, Dec 31, (In thousands) 2013 2012 2011
Net cash provided by operating activities
· the impact of increasing unrealized foreign currency gains providing
million less cash due primarily to foreign currency rate fluctuations related
currency resulting in translation of assets and liabilities to U.S. Dollar
· deferred revenue/costs providing
to the increased amortization of previously deferred revenue/cost exceeding
current period revenue deferrals as discussed in the Results of Operations
· other current and noncurrent assets providing
due to the reimbursement of tax withholdings of
· inventories and related provisions for obsolete and slow moving inventories
inventories held in foreign currencies
· the impact of decreasing depreciation and amortization providing
less non-cash adjustment to net income and
· the impact of decreasing stock compensation expense providing
non-cash adjustment to net income
Partially offset by:
· net income increasing by
Operations section above
· accounts payable providing
of lower revenues and associated expenses in 2013
· deferred income taxes providing
impact of decreased deferred revenue/costs and
· accounts receivable and related provision for doubtful accounts providing
million more cash primarily due to the impact of lower revenues and the associated decline in receivables
· accounts receivable and related provision for doubtful accounts providing
of the 53-week fiscal year in 2011 which allowed for additional collections
· deferred revenue/costs providing
to the increased amortization of previously deferred revenue/cost and reduced
per unit revenue deferrals, offset by the impact of increased sales of bundled
units requiring deferral, all of which is discussed in the Results of
Operations section above, and
· income taxes payable providing
payments and the timing of disbursements during the year 55 Partially offset by:
· other current and non-current assets providing
primarily to the payment of tax withholdings of
· other current and non-current liabilities providing
to lower royalty costs and the timing of such payments
· net income increasing by
Operations section above, and
· the impact of increasing unrealized foreign currency losses providing
million more cash We expect to generate
$550- $600 millionof cash flow from operations in 2014 with ongoing net income. Investing Activities Fiscal Year Ended Dec 28, Dec 29, Dec 31, (In thousands) 2013 2012 2011
Net cash used in investing activities
· decreased net investments in marketable securities providing cash of
million Partially offset by:
· increased cash advanced under a loan receivable commitment with Bombardier of
· increased purchases of property and equipment of
· increased investments in marketable securities using cash of
Partially offset by:
· decreased cash paid for acquisitions of
We have budgeted approximately
$50 millionof capital expenditures during fiscal 2014 to include normal ongoing capital expenditures and maintenance activities. It is management's goal to invest the on-hand cash consistent with Garmin's investment policy, which has been approved by the Board of Directors. The investment policy's primary purpose is to preserve capital, maintain an acceptable degree of liquidity, and maximize yield within the constraint of low credit risk. Garmin's average return on cash and investments during fiscal 2013, 2012, and 2011 were approximately 1.4%, 1.4% and 1.6%, respectively. The fair value of our securities varies from period to period due to changes in interest rates, in the performance of the underlying collateral and in the credit performance of the underlying issuer, among other factors. In 2013, Garmin experienced unrealized, non-cash losses on its investment portfolio resulting in a balance of $57,356of gross other-than-temporary impairment and $4,377of other unrealized losses on marketable securities at December 28, 2013. The amortized cost and estimated fair value of the securities at an unrealized loss position at December 28, 2013were $1,215,498and $1,153,765, respectively. This decrease in estimated fair value is primarily due to market valuations on mortgage-backed securities and obligations of states and political subdivisions declining. The decline was due to increases in the 10 Year Treasury Bond Yield during 2013, which caused market valuations of securities in our investment portfolios to decline. Approximately 50% of securities in our portfolio were at an unrealized loss position at December 28, 2013. An immaterial amount of those securities have been in a continuous unrealized loss position for 12 months or longer. We have the ability to hold these securities until maturity or their value is recovered. We do not consider these unrealized losses to be other than temporary credit losses because there has been no deterioration in credit quality and no change in the cash flows of the underlying securities. We do not intend to sell the securities and it is not more likely than not that we will be required to sell the securities; therefore, no impairment has been recorded in the accompanying condensed consolidated
statement of income. 56 Financing Activities Fiscal Year Ended Dec 28, Dec 29, Dec 31, (In thousands) 2013 2012 2011
Net cash used in financing activities
· increased dividend payments of
fourth quarter 2012 dividend occurring after the close of our fiscal year and
the increase in our year-over-year dividend rate (our dividend has
progressively increased from
· increased purchase of treasury stock of
· decreased dividend payments of
fourth quarter 2012 dividend occurring after the close of our fiscal year
Our dividend has progressively increased from
We currently use cash flow from operations to fund our capital expenditures, to support our working capital requirements, and to pay dividends. We expect that future cash requirements will principally be for capital expenditures, working capital, payment of dividends declared, share repurchases and the funding of strategic acquisitions. We believe that our existing cash balances and cash flow from operations will be sufficient to meet our long-term projected capital expenditures, working capital and other cash requirements.
Contractual Obligations and Commercial Commitments
Future commitments of Garmin, as of
Payments due by period Less than More than Contractual Obligations Total 1 year 1-3 years 3-5 years 5 years Operating Leases
$ 69.7 $ 15.5 $ 25.5 $ 14.6 $ 14.1The Company is a party to certain commitments, which includes raw materials, advertising and other indirect purchases in connection with conducting our business. Pursuant to these agreements, the Company is contractually committed to make purchases of approximately $225.6 millionover the next five years.
We may be required to make significant cash outlays related to unrecognized tax benefits. However, due to the uncertainty of the timing of future cash flows associated with our unrecognized tax benefits, we are unable to make reasonably reliable estimates of the period of cash settlement, if any, with the respective taxing authorities. Accordingly, unrecognized tax benefits of
$133.0 millionas of December 28, 2013, have been excluded from the contractual obligations table above. For further information related to unrecognized tax benefits, see Note 2, "Income Taxes," to the consolidated financial statements included in this Report.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.