Garmin Ltd. reported outdoor/fitness segment
revenue increased 13% to $80 million in first quarter 2009 due to ongoing
channel penetration and market share gains of its fitness products. But
weakness in its automotive segment sent overall sales down 34% to $437 million
from $664 million.

 

Marine segment revenue decreased 32% to $38 million
while aviation segment revenue decreased 31% to $59 million in first quarter
2009.

 

Earnings fell 67.2% to $48.5 million, or xx a
share, from $147.8 million, or xx, a year ago.

 

By region, North America revenue was $265 million
compared to $411 million, down 36%; Europe revenue was $144 million compared to
$211 million, down 32%; and Asia revenue was
$28 million compared to $42 million, down 33%.

 

Gross margin increased sequentially to 44.9% for
the first quarter 2009 from 41.1% in fourth quarter 2008 and declined compared
to 48.2% in first quarter 2008 Operating margin decreased sequentially and
year-over-year, with first quarter 2009 at 13.3%, compared to 26.0% in first
quarter 2008 and 22.6% in fourth quarter 2008

 

Garmin generated $286 million of free cash flow in
first quarter 2009 for a cash and marketable securities balance of over $1.2
billion.

 

Business Highlights:

 

    *
Continued to lead the PND industry with sustained market share on a worldwide
basis growing to 37% in the fourth quarter 2008 according to third party
research.

    * Posted
strong growth in the outdoor/fitness category driven by further penetration of
our fitness products and market share gains across the category.

    *
Showcased the Garmin-Asus nüvifone products, G60 and M20, at both Mobile World
Congress in Barcelona and CTIA Wireless in Las Vegas. The products
continue to receive favorable reviews as analysts and customers experience the
differentiation of the location-centric devices.

    *
Announced a number of marine OEM partnerships, including EdgeWater Power Boats,
Fairline Boats and Gulf Craft Inc., strengthening our position in the marine
industry.

    * Achieved
supplemental type certification and began initial shipments of the G1000
avionics suite on the King Air 200 and B200.

    *
Announced our first major automotive navigation system to be factory-installed
on Chrysler‘s 2011 Grand Cherokee.

    *
Continued to progress with development of nüvifones and to work with carriers
and retailers on distribution and pricing.

 

Executive overview from Dr. Min Kao, Chairman and
Chief Executive Officer:

 

“The first quarter of 2009 represented
Garmin’s most challenging quarter since becoming a public company in December
2000. Macroeconomic factors have contributed to a significant slowdown in
consumer discretionary spending which has been further exacerbated by ongoing
channel inventory reductions by our retail partners in the PND industry.

 

As we look specifically at the auto/mobile segment,
we believe that inventory levels have reached their low point and that sell-in
to the channel will begin to more closely follow sell-through trends in coming
quarters. This is a promising factor given that sell-through trends in the United States
have continued to show growth in the first quarter. The same cannot be said of Europe where sell-through has declined on a
year-over-year basis. Our focus moving forward for this segment will be on
improving pricing trends and profitability, which were negatively impacted in
the first quarter due to price protection offered to our major retailers and
inventory reductions of older models, and maintaining and growing market share
where appropriate. We will leverage the strength of our balance sheet to
outperform competitors through product innovation and customer service in this
difficult market and be better positioned when consumer confidence returns.

 

Our aviation and marine segments also struggled in
the quarter as both industries face significant challenges in 2009. In the
aviation segment, we will focus on stabilizing our sales and margins in this
business and continuing to gain market share through certification of our G1000
and penetration of the G600 as a retrofit solution. On the marine front, we did
see a sequential increase as the marine season approaches but this seasonal
increase was not at a level experienced in the past. We continue to gain market
share as an OEM partner but these gains are not enough to offset the
industry-wide declines. Again, we will focus our efforts on gaining market
share and bringing to bear the most innovative products in both of these
segments so we are well-positioned for growth when the industries begin to recover.

 

The outdoor/fitness segment posted growth of 13% in
the quarter driven by the ongoing channel penetration and market share gains of
our fitness products. We continue to build on the strength of our brand in this
category and a growing base of loyal customers and are planning exciting new
product introductions in the second quarter.

 

As we turn to the second quarter, we have an array
of new portable navigation and outdoor/fitness devices becoming available,
including:

 

    * The
nüvi® 1200 and 1300 series, as well as the 1490T, which offer a new ultra-thin
design and pedestrian navigation enabled through optional CityXplorer™ maps

    * The
Approach™, Garmin’s first branded handheld designed specifically for the golfer
targets a new segment of sports enthusiasts

    * The
Forerunner® 405CX, which offers increased accuracy in heart rate-based calorie
computation and improved comfort as requested by our loyal customers

    * The
Forerunner® 310XT designed with the triathlete in mind, a waterproof
multi-sport solution with improved design and usability

 

We expect that these products, along with further
steps to reduce costs, will help us to see improvement to our profitability
levels in the second quarter. As always, we remain committed to taking
appropriate steps to reduce costs while maintaining our aggressive approach to
the development of new products and technology.”

 

Financial
overview from Kevin Rauckman, Chief Financial Officer:

 

“Our financial results for the first quarter
clearly reflect the difficult end markets we are facing but we remain focused
on generating improved results from the top line to the bottom line over the
remainder of 2009,” said Kevin Rauckman, chief financial officer of Garmin Ltd.
“Our revenue and earnings per share during the first quarter fell 34% and 64%
respectively. Revenue in the outdoor/fitness segment increased 13% over first
quarter of 2008 and was the only segment to post revenue growth compared to the
prior year. Auto/mobile, aviation and marine segment revenues declined 43%, 31%
and 32%, respectively.

 

Gross margin for the overall business remained
stronger than we had anticipated at 45% as the lower margin auto/mobile segment
contributed less revenue in the quarter. The auto/mobile segment margin fell to
32% when compared to 43% in the first quarter of 2008, as the average selling
price was negatively impacted by price protection credits offered to our retail
partners and significant channel inventory reductions. This was offset by increasing
gross margins in our aviation, outdoor/fitness and marine segments due to
improved product mix and steady pricing. Outdoor/fitness margins improved most
dramatically to 61% in first quarter compared to 53% in the year-ago quarter,
while aviation improved 500 basis points to 69%.

 

Operating margin for the overall business declined
12.7% when compared with the year-ago quarter to 13.3% driven largely by the
decreased revenues in our auto/mobile segment in the first quarter of 2009.
Total operating expenses decreased $56 million on a sequential basis. We
reduced advertising expense by almost 40% and held other selling, general and
administrative costs flat when compared to the year-ago quarter which was
beneficial but it could not offset the steep decline in revenues. We will
continue to evaluate our expenses closely in these categories and will take
further actions as needed. Research and development costs increased by $5
million or 11% when compared to the year-ago quarter. This is a result of our
continued commitment to product innovation and long-term growth strategies.
Operating margins declined in all segments excluding outdoor/fitness where we
continue to experience growth. We believe that this marks the low point for
operating margins and with increased sales volumes during the remainder of the
year, profitability levels will improve.

 

We maintained our strong cash flow generation and
cash position. We generated $286 million of free cash flow in the first quarter
of 2009, resulting in a cash and marketable securities balance of $1.2 billion
at the end of the quarter. This strong cash flow generation is attributable to
ongoing balance sheet improvements in both accounts receivable and inventories.”