Unassociated Document
United
States
Securities
and Exchange Commission
Washington,
D.C. 20549
FORM
10-Q
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
|
For
the
quarterly period ended June 30, 2007
or
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
|
For
the
transition period from ____________
to
____________
Commission
file number 0-31983
________________
GARMIN
LTD.
(Exact
name of Company as specified in its charter)
Cayman
Islands
(State
or other jurisdiction
of
incorporation or organization)
|
98-0229227
(I.R.S.
Employer identification no.)
|
5th
Floor, Harbour Place, P.O. Box 30464 SMB,
103
South Church Street
George
Town, Grand Cayman, Cayman Islands
(Address
of principal executive offices)
|
N/A
(Zip
Code)
|
Company's
telephone number, including area code: (345)
946-5203
No
Changes
(Former
name, former address and former fiscal year, if changed since last
report)
Indicate
by check mark whether the Company (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Company was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES x
NO o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange
Act.
Large
Accelerated Filer xAccelerated
Filer oNon-accelerated
Filer o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). YES o NO
x
Number
of
shares outstanding of the Company's common shares as of July 31,
2007
Common
Shares, $.005 par value:
216,640,909
Garmin
Ltd.
Form
10-Q
Quarter
Ended June 30, 2007
Table
of Contents
Part
I - Financial Information
|
Page
|
|
|
|
Item
1.
|
Condensed
Consolidated Financial Statements (Unaudited)
|
3
|
|
|
|
|
Introductory
Comments
|
3
|
|
|
|
|
Condensed
Consolidated Balance Sheets at June 30, 2007 and December 30,
2006
|
4
|
|
|
|
|
Condensed
Consolidated Statements of Income for the 13-weeks and 26-weeks ended
June
30, 2007 and July 1, 2006
|
5
|
|
|
|
|
Condensed
Consolidated Statements of Cash Flows for the 26-weeks ended June
30, 2007
and July 1, 2006
|
6
|
|
|
|
|
Notes
to Condensed Consolidated Financial Statements
|
7
|
|
|
|
Item
2.
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations
|
13
|
|
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
23
|
|
|
|
Item
4.
|
Controls
and Procedures
|
24
|
|
|
|
Part
II - Other Information
|
|
|
|
|
Item
1.
|
Legal
Proceedings
|
25
|
|
|
|
Item
1A.
|
Risk
Factors
|
27
|
|
|
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
27
|
|
|
|
Item
3.
|
Defaults
Upon Senior Securities
|
27
|
|
|
|
Item
4.
|
Submission
of Matters to a Vote of Securities Holders
|
28
|
|
|
|
Item
5.
|
Other
Information
|
28
|
|
|
|
Item
6.
|
Exhibits
|
29
|
|
|
|
|
30
|
|
|
|
Index
to Exhibits
|
31
|
Garmin
Ltd.
Form
10-Q
Quarter
Ended June 30, 2007
Part
I - Financial Information
Item
1. Condensed Consolidated Financial Statements (Unaudited)
Introductory
Comments
The
Condensed Consolidated Financial Statements of Garmin Ltd. ("Garmin" or the
"Company") included herein have been prepared by the Company, without audit,
pursuant to the rules and regulations of the United States Securities and
Exchange Commission. Certain information and note disclosures normally included
in financial statements prepared in accordance with U.S. generally accepted
accounting principles have been condensed or omitted pursuant to such rules
and
regulations, although the Company believes that the disclosures are adequate
to
enable a reasonable understanding of the information presented. These Condensed
Consolidated Financial Statements should be read in conjunction with the audited
financial statements and the notes thereto for the year ended December 30,
2006.
Additionally, the Condensed Consolidated Financial Statements should be read
in
conjunction with Item 2 of Management's Discussion and Analysis of Financial
Condition and Results of Operations, included in this Form 10-Q.
The
results of operations for the 13-week and 26-week periods ended June 30, 2007
are not necessarily indicative of the results to be expected for the full year
2007.
Garmin
Ltd. And Subsidiaries
Condensed
Consolidated Balance Sheets (Unaudited)
(In
thousands, except share information)
|
|
|
|
|
|
|
|
June
30,
|
|
December
30,
|
|
|
|
2007
|
|
2006
|
|
Assets
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
667,671
|
|
$
|
337,321
|
|
Marketable
securities
|
|
|
147,435
|
|
|
73,033
|
|
Accounts
receivable, net
|
|
|
506,483
|
|
|
403,524
|
|
Inventories,
net
|
|
|
290,682
|
|
|
271,008
|
|
Deferred
income taxes
|
|
|
56,934
|
|
|
55,996
|
|
Prepaid
expenses and other current assets
|
|
|
19,104
|
|
|
28,202
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
1,688,309
|
|
|
1,169,084
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
350,299
|
|
|
250,988
|
|
|
|
|
|
|
|
|
|
Marketable
securities
|
|
|
258,445
|
|
|
407,843
|
|
Restricted
cash
|
|
|
1,558
|
|
|
1,525
|
|
Licensing
agreements, net
|
|
|
14,804
|
|
|
3,307
|
|
Other
intangible assets, net
|
|
|
131,186
|
|
|
64,273
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
2,444,601
|
|
$
|
1,897,020
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders' Equity
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
167,339
|
|
$
|
88,375
|
|
Salaries
and benefits payable
|
|
|
26,056
|
|
|
16,268
|
|
Accrued
sales programs
|
|
|
52,849
|
|
|
-
|
|
Accrued
warranty costs
|
|
|
49,725
|
|
|
37,639
|
|
Other
accrued expenses
|
|
|
115,208
|
|
|
100,732
|
|
Income
taxes payable
|
|
|
16,975
|
|
|
94,668
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
428,152
|
|
|
337,682
|
|
|
|
|
|
|
|
|
|
Long-term
debt, less current portion
|
|
|
-
|
|
|
248
|
|
Deferred
income taxes
|
|
|
1,010
|
|
|
1,191
|
|
Other
liabilities
|
|
|
90,470
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity:
|
|
|
|
|
|
|
|
Common
stock, $0.005 par value, 1,000,000,000
|
|
|
|
|
|
|
|
Issued
and outstanding shares - 216,588,000 as of
|
|
|
|
|
|
|
|
June
30, 2007 and 216,098,000 as of
|
|
|
|
|
|
|
|
December
30, 2006
|
|
|
1,085
|
|
|
1,082
|
|
Additional
paid-in capital
|
|
|
105,525
|
|
|
83,438
|
|
Retained
earnings
|
|
|
1,832,891
|
|
|
1,478,654
|
|
Accumulated
other comprehensive loss
|
|
|
(14,532
|
)
|
|
(5,275
|
)
|
|
|
|
|
|
|
|
|
Total
stockholders' equity
|
|
|
1,924,969
|
|
|
1,557,899
|
|
Total
liabilities and stockholders' equity
|
|
$
|
2,444,601
|
|
$
|
1,897,020
|
|
See
accompanying notes.
Garmin
Ltd. And Subsidiaries
Condensed
Consolidated Statements of Income (Unaudited)
(In
thousands, except per share information)
|
|
13-Weeks
Ended
|
|
26-Weeks
Ended
|
|
|
|
June
30,
|
|
July
1,
|
|
June
30,
|
|
July
1,
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
742,466
|
|
$
|
432,468
|
|
$
|
1,234,625
|
|
$
|
754,779
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of goods sold
|
|
|
367,799
|
|
|
216,184
|
|
|
622,206
|
|
|
375,706
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
374,667
|
|
|
216,284
|
|
|
612,419
|
|
|
379,073
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
|
|
95,373
|
|
|
54,915
|
|
|
161,297
|
|
|
92,678
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development expense
|
|
|
37,727
|
|
|
26,793
|
|
|
71,230
|
|
|
51,707
|
|
|
|
|
133,100
|
|
|
81,708
|
|
|
232,527
|
|
|
144,385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
241,567
|
|
|
134,576
|
|
|
379,892
|
|
|
234,688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
10,841
|
|
|
8,538
|
|
|
20,199
|
|
|
15,843
|
|
Interest
expense
|
|
|
(23
|
)
|
|
(5
|
)
|
|
(55
|
)
|
|
(12
|
)
|
Foreign
currency
|
|
|
(6,086
|
)
|
|
2,958
|
|
|
7,119
|
|
|
(4,488
|
)
|
Other
|
|
|
338
|
|
|
(167
|
)
|
|
389
|
|
|
3,437
|
|
|
|
|
5,070
|
|
|
11,324
|
|
|
27,652
|
|
|
14,780
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
246,637
|
|
|
145,900
|
|
|
407,544
|
|
|
249,468
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax provision
|
|
|
32,260
|
|
|
22,614
|
|
|
53,307
|
|
|
38,668
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
214,377
|
|
$
|
123,286
|
|
$
|
354,237
|
|
$
|
210,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.99
|
|
$
|
0.57
|
|
$
|
1.64
|
|
$
|
0.97
|
|
Diluted
|
|
$
|
0.98
|
|
$
|
0.56
|
|
$
|
1.62
|
|
$
|
0.96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares
outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
216,380
|
|
|
216,818
|
|
|
216,298
|
|
|
216,594
|
|
Diluted
|
|
|
219,078
|
|
|
219,344
|
|
|
218,925
|
|
|
218,868
|
|
See
accompanying notes.
Garmin
Ltd. And Subsidiaries
Condensed
Consolidated Statements of Cash Flows (Unaudited)
(In
thousands)
|
|
26-Weeks
Ended
|
|
|
|
June
30,
|
|
July
1,
|
|
|
|
2007
|
|
2006
|
|
Operating
Activities:
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
354,237
|
|
$
|
210,800
|
|
Adjustments
to reconcile net income to net cash
|
|
|
|
|
|
|
|
provided
by operating activities:
|
|
|
|
|
|
|
|
Depreciation
|
|
|
13,479
|
|
|
10,211
|
|
Amortization
|
|
|
15,856
|
|
|
17,055
|
|
Loss
on sale of property and equipment
|
|
|
18
|
|
|
191
|
|
Provision
for doubtful accounts
|
|
|
1,808
|
|
|
2,038
|
|
Deferred
income taxes
|
|
|
(725
|
)
|
|
(13,478
|
)
|
Foreign
currency transaction gains/losses
|
|
|
(10,358
|
)
|
|
2,392
|
|
Provision
for obsolete and slow moving inventories
|
|
|
17,309
|
|
|
9,336
|
|
Stock
compensation expense
|
|
|
7,196
|
|
|
4,759
|
|
Realized
gains on marketable securities
|
|
|
-
|
|
|
(3,852
|
)
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(88,405
|
)
|
|
(126,836
|
)
|
Inventories
|
|
|
(33,406
|
)
|
|
(37,408
|
)
|
Other
current assets
|
|
|
9,059
|
|
|
(11,135
|
)
|
Accounts
payable
|
|
|
63,472
|
|
|
13,119
|
|
Other
current and non-current liabilities
|
|
|
101,826
|
|
|
56,503
|
|
Income
taxes
|
|
|
(6,937
|
)
|
|
143
|
|
Purchase
of licenses
|
|
|
(22,290
|
)
|
|
(1,462
|
)
|
Net
cash provided by operating activities
|
|
|
422,139
|
|
|
132,376
|
|
|
|
|
|
|
|
|
|
Investing
activities:
|
|
|
|
|
|
|
|
Purchases
of property and equipment
|
|
|
(112,020
|
)
|
|
(26,612
|
)
|
Purchase
of intangible assets
|
|
|
(1,881
|
)
|
|
(1,115
|
)
|
Purchase
of marketable securities
|
|
|
(378,909
|
)
|
|
(231,870
|
)
|
Redemption
of marketable securities
|
|
|
455,598
|
|
|
150,222
|
|
Change
in restricted cash
|
|
|
(33
|
)
|
|
(92
|
)
|
Net
cash paid for acquisition of businesses and other
intangibles
|
|
|
(68,902
|
)
|
|
-
|
|
Net
cash used in investing activities
|
|
|
(106,147
|
)
|
|
(109,467
|
)
|
|
|
|
|
|
|
|
|
Financing
activities:
|
|
|
|
|
|
|
|
Proceeds
from issuance of common stock
|
|
|
7,534
|
|
|
9,479
|
|
Payments
on long term debt
|
|
|
(248
|
)
|
|
-
|
|
Tax
benefit related to stock option exercise
|
|
|
7,360
|
|
|
6,988
|
|
Net
cash provided by financing activities
|
|
|
14,646
|
|
|
16,467
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash and cash equivalents
|
|
|
(288
|
)
|
|
216
|
|
|
|
|
|
|
|
|
|
Net
increase in cash and cash equivalents
|
|
|
330,350
|
|
|
39,592
|
|
Cash
and cash equivalents at beginning of period
|
|
|
337,321
|
|
|
334,352
|
|
Cash
and cash equivalents at end of period
|
|
$
|
667,671
|
|
$
|
373,944
|
|
See
accompanying notes.
Garmin
Ltd. and Subsidiaries
Notes
to Condensed Consolidated Financial Statements (Unaudited)
June
30, 2007
(In
thousands, except share and per share information)
The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10
of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation
have
been included. Operating results for the 13-week and 26-week periods ended
June
30, 2007 are not necessarily indicative of the results that may be expected
for
the year ending December 29, 2007.
The
condensed consolidated balance sheet at December 30, 2006 has been derived
from
the audited financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company’s Annual Report on Form 10-K for the year ended December 30,
2006.
The
Company’s fiscal year is based on a 52-53 week period ending on the last
Saturday of the calendar year. Therefore the financial results of certain fiscal
years, and the associated 14-week quarters, will not be exactly comparable
to
the prior and subsequent 52-week fiscal years and the associated quarters having
only 13-weeks. The quarters ended June 30, 2007 and July 1, 2006 both contain
operating results for 13-weeks for both year-to-date periods.
Stock
Split (“Split”) - All July 1, 2006 common stock and applicable share and per
share amounts have been retroactively adjusted to reflect a 2-for-1 split of
the
Company’s Common Stock effective August 15, 2006.
The
components of inventories consist of the following:
|
|
June
30, 2007
|
|
December
30, 2006
|
|
Raw
materials
|
|
$
|
92,239
|
|
$
|
85,040
|
|
Work-in-process
|
|
|
50,453
|
|
|
42,450
|
|
Finished
goods
|
|
|
170,292
|
|
|
160,748
|
|
Inventory
reserves
|
|
|
(22,302
|
)
|
|
(17,230
|
)
|
|
|
|
|
|
|
|
|
Inventory,
net of reserves
|
|
$
|
290,682
|
|
$
|
271,008
|
|
The
Board
of Directors approved a share repurchase program on August 3, 2006, authorizing
the Company to purchase up to 3.0 million shares of Garmin Ltd.’s common stock
as market and business conditions warrant. The share repurchase authorization
expires on December 31, 2007. There were no shares purchased during the 26-week
period ending June 30, 2007.
The
following table sets forth the computation of basic and diluted net income
per
share (in thousands, except per share information):
|
|
13-Weeks
Ended
|
|
|
|
June
30,
|
|
July
1,
|
|
|
|
2007
|
|
2006
|
|
Numerator:
|
|
|
|
|
|
|
|
Numerator
for basic and diluted net income per share - net
income
|
|
$
|
214,377
|
|
$
|
123,286
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
Denominator
for basic net income per share - weighted-average common
shares
|
|
|
216,380
|
|
|
216,818
|
|
|
|
|
|
|
|
|
|
Effect
of dilutive securities - employee stock options
|
|
|
2,698
|
|
|
2,526
|
|
|
|
|
|
|
|
|
|
Denominator
for diluted net income per share - adjusted weighted-average common
shares
|
|
|
219,078
|
|
|
219,344
|
|
|
|
|
|
|
|
|
|
Basic
net income per share
|
|
$
|
0.99
|
|
$
|
0.57
|
|
|
|
|
|
|
|
|
|
Diluted
net income per share
|
|
$
|
0.98
|
|
$
|
0.56
|
|
|
|
|
26-Weeks
Ended
|
|
|
|
|
June
30,
|
|
|
July
1,
|
|
|
|
|
2007
|
|
|
2006
|
|
Numerator:
|
|
|
|
|
|
|
|
Numerator
for basic and diluted net income per share - net
income
|
|
$
|
354,237
|
|
$
|
210,800
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
Denominator
for basic net income per share - weighted-average common
shares
|
|
|
216,298
|
|
|
216,594
|
|
|
|
|
|
|
|
|
|
Effect
of dilutive securities - employee stock options
|
|
|
2,627
|
|
|
2,274
|
|
|
|
|
|
|
|
|
|
Denominator
for diluted net income per share - adjusted weighted-average common
shares
|
|
|
218,925
|
|
|
218,868
|
|
|
|
|
|
|
|
|
|
Basic
net income per share
|
|
$
|
1.64
|
|
$
|
0.97
|
|
|
|
|
|
|
|
|
|
Diluted
net income per share
|
|
$
|
1.62
|
|
$
|
0.96
|
|
There
were no anti-dilutive options for the 13-week period ended June 30, 2007. There
were 1,130,830 anti-dilutive options for the 13-week period ended July 1, 2006.
There
were no anti-dilutive options for the 26-week period ended June 30, 2007. There
were 1,140,550 anti-dilutive options for the 26-week period ended July 1, 2006.
Comprehensive
income is comprised of the following (in thousands):
|
|
13-Weeks
Ended
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
214,377
|
|
$
|
123,286
|
|
Translation
adjustment
|
|
|
2,345
|
|
|
(7,641
|
)
|
Change
in fair value of available-for-sale marketable securities, net of
deferred taxes
|
|
|
(538
|
)
|
|
(2,760
|
)
|
Comprehensive
income
|
|
$
|
216,184
|
|
$
|
112,885
|
|
|
|
26-Weeks
Ended
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
354,237
|
|
$
|
210,800
|
|
Translation
adjustment
|
|
|
(10,537
|
)
|
|
1,568
|
|
Change
in fair value of available-for-sale marketable securities, net of
deferred taxes
|
|
|
1,280
|
|
|
(5,604
|
)
|
Comprehensive
income
|
|
$
|
344,980
|
|
$
|
206,764
|
|
Net
sales, operating income, and income before taxes for each of the Company’s
reportable segments are presented below:
|
|
Reportable
Segments
|
|
|
|
Outdoor/
|
|
|
|
Auto/
|
|
|
|
|
|
|
|
Fitness
|
|
Marine
|
|
Mobile
|
|
Aviation
|
|
Total
|
|
13-Weeks
Ended June 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales to external customers
|
|
$
|
77,163
|
|
$
|
79,771
|
|
$
|
507,895
|
|
$
|
77,637
|
|
$
|
742,466
|
|
Operating
income
|
|
$
|
28,600
|
|
$
|
33,115
|
|
$
|
149,067
|
|
$
|
30,785
|
|
$
|
241,567
|
|
Income
before taxes
|
|
$
|
28,812
|
|
$
|
34,065
|
|
$
|
153,109
|
|
$
|
30,651
|
|
$
|
246,637
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13-Weeks
Ended July 1, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales to external customers
|
|
$
|
71,115
|
|
$
|
50,115
|
|
$
|
255,387
|
|
$
|
55,851
|
|
$
|
432,468
|
|
Operating
income
|
|
$
|
31,617
|
|
$
|
21,146
|
|
$
|
59,974
|
|
$
|
21,839
|
|
$
|
134,576
|
|
Income
before taxes
|
|
$
|
32,883
|
|
$
|
21,647
|
|
$
|
69,251
|
|
$
|
22,119
|
|
$
|
145,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26-Weeks
Ended June 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales to external customers
|
|
$
|
137,690
|
|
$
|
122,775
|
|
$
|
824,520
|
|
$
|
149,640
|
|
$
|
1,234,625
|
|
Operating
income
|
|
$
|
49,809
|
|
$
|
44,410
|
|
$
|
228,591
|
|
$
|
57,082
|
|
$
|
379,892
|
|
Income
before taxes
|
|
$
|
53,595
|
|
$
|
47,150
|
|
$
|
248,253
|
|
$
|
58,546
|
|
$
|
407,544
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26-Weeks
Ended July 1, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales to external customers
|
|
$
|
134,761
|
|
$
|
100,818
|
|
$
|
406,116
|
|
$
|
113,084
|
|
$
|
754,779
|
|
Operating
income
|
|
$
|
56,298
|
|
$
|
40,059
|
|
$
|
96,264
|
|
$
|
42,067
|
|
$
|
234,688
|
|
Income
before taxes
|
|
$
|
57,040
|
|
$
|
42,293
|
|
$
|
108,491
|
|
$
|
41,644
|
|
$
|
249,468
|
|
Allocation
of certain research and development expenses, and selling, general, and
administrative expenses are made to each segment on a percent of revenue
basis.
Net
Sales
and long-lived assets (property and equipment) by geographic area are as follows
as of and for the 26-week periods ended June 30, 2007 and July 1,
2006:
|
|
North
|
|
|
|
|
|
|
|
|
|
America
|
|
Asia
|
|
Europe
|
|
Total
|
|
June
30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales to external customers
|
|
$
|
777,515
|
|
$
|
52,474
|
|
$
|
404,636
|
|
$
|
1,234,625
|
|
Long-lived
assets
|
|
$
|
162,536
|
|
$
|
143,819
|
|
$
|
43,944
|
|
$
|
350,299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July
1, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales to external customers
|
|
$
|
435,264
|
|
$
|
39,839
|
|
$
|
279,676
|
|
$
|
754,779
|
|
Long-lived
assets
|
|
$
|
138,499
|
|
$
|
56,363
|
|
$
|
521
|
|
$
|
195,383
|
|
The
Company adopted the provisions of FASB Interpretation No. 48, Accounting
for Uncertainty in Income Taxes (FIN
48),
on December 31, 2006, the beginning of fiscal year 2007. As a result of the
implementation of FIN 48, the Company has not recognized a material increase
or
decrease in the liability for unrecognized tax benefits. The total amount of
unrecognized tax benefits as of the date of adoption is $70.5 million including
interest of $3.3 million. The total amount of unrecognized tax benefits as
of
June 30, 2007 is $90.3 million including interest of $5.4 million. The June
30,
2007 balance of $90.3 million of unrecognized tax benefits, if recognized,
would
reduce the effective tax rate. None of the unrecognized tax benefits are due
to
uncertainty in the timing of deductibility.
FIN
48
requires unrecognized tax benefits to be classified as non-current liabilities,
except for the portion that is expected to be paid within one year of the
balance sheet date. The Company previously classified these amounts as current
liabilities, however after the adoption, the entire $90.3 million is required
to
be classified as non-current at June 30, 2007.
Interest
expense and penalties, if any, accrued on the unrecognized tax benefits are
reflected in income tax expense. $0.5 million of interest is included in income
tax expense for the quarter ending June 30, 2007. At June 30, 2007 and at
December 30, 2006, the Company had accrued approximately $4.3 million and $3.3
million respectively for interest. The Company had no amounts accrued for
penalties as the nature of the unrecognized tax benefits, if recognized, would
not warrant the imposition of penalties.
The
Company files income tax returns in the U.S. federal jurisdiction, and various
state and foreign jurisdictions. The Company is no longer subject to US federal,
state, or local tax examinations by tax authorities for years prior to 2003.
The
Company also considers 2003 and 2004 US federal returns to have been effectively
settled due to the completion of audit examination by the Internal Revenue
Service. The Company is no longer subject to Taiwan income tax examinations
by
tax authorities for years prior to 2001. The Company is no longer subject to
United Kingdom tax examinations by tax authorities for years prior to 2005.
The
Company believes that it is reasonably possible that $5.0 million of its
reserves for certain unrecognized tax benefits will decrease within the next
12
months as the result of the statute of limitations expiring related to an
uncertain tax benefit associated with transfer pricing. This potential decrease
in unrecognized tax benefits would impact the Company’s effective tax rate
within the next 12 months.
The
Company’s products sold are generally covered by a warranty for periods ranging
from one to two years. The Company’s estimate of costs to service its warranty
obligations are based on historical experience and expectation of future
conditions and are recorded as a liability on the balance sheet. The following
reconciliation provides an illustration of changes in the aggregate warranty
reserve.
|
|
13-Weeks
Ended
|
|
|
|
|
|
|
|
Balance
- beginning of the period
|
|
$
|
39,281
|
|
$
|
20,179
|
|
Accrual
for products sold
|
|
|
|
|
|
|
|
during
the period
|
|
|
22,565
|
|
|
11,464
|
|
Expenditures
|
|
|
(12,121
|
)
|
|
(6,737
|
)
|
Balance
- end of the period
|
|
$
|
49,725
|
|
$
|
24,906
|
|
|
|
26-Weeks
Ended
|
|
|
|
|
|
|
|
Balance
- beginning of the period
|
|
$
|
37,639
|
|
$
|
18,817
|
|
Accrual
for products sold
|
|
|
|
|
|
|
|
during
the period
|
|
|
37,600
|
|
|
17,597
|
|
Expenditures
|
|
|
(25,514
|
)
|
|
(11,508
|
)
|
Balance
- end of the period
|
|
$
|
49,725
|
|
$
|
24,906
|
|
Pursuant
to certain supply agreements, the Company is contractually committed to make
purchases of approximately $15.8 million over the next 3 years.
10. |
Recent
Accounting Pronouncements
|
In
September 2006, the FASB issued Statement of Financial Accounting Standards
No.
157, Fair Value Measurements (“SFAS No. 157”). SFAS No. 157 establishes a
framework for measuring fair value in GAAP, and expands disclosures about fair
value measurements. SFAS No. 157 applies under other accounting pronouncements
that require or permit fair value measurements. This statement is effective
for
fiscal years beginning after November 15, 2007, and interim periods within
those fiscal years. The Company will be required to adopt SFAS No. 157 in
the first quarter of fiscal year 2008. We
do not
expect the adoption of SFAS No. 157 to have a material impact on our financial
reporting and disclosure.
In
February 2007, the FASB issued Statement of Financial Accounting Standards
(“SFAS No. 159”), “The Fair Value Option for Financial Assets and Financial
Liabilities.” SFAS No. 159 allows entities the option to measure eligible
financial instruments at fair value as of specified dates. Such election, which
may be applied on an instrument by instrument basis, is typically irrevocable
once elected. SFAS No. 159 is effective for fiscal years beginning
after November 15, 2007, and early application is allowed under certain
circumstances. Management is currently evaluating the requirements of SFAS
No. 159 and has not yet determined the impact, if any, on the Company’s
consolidated financial statements.
In
the
first quarter of 2007, Garmin Ltd. acquired EME Tec Sat SAS (the exclusive
distributor of Garmin’s consumer products in France and now renamed Garmin
France SAS), Digital Cyclone, Inc. (a location based services provider), and
the
assets of Nautamatic Marine Systems, Inc. (a manufacturer of the TR-1 Gold
and
Gladiator marine autopilots) for $72.1 million less $3.2 million cash acquired.
The preliminary purchase price allocation resulted in an increase in goodwill
and intangible assets of $68.6 million. These acquisitions are not material,
either individually or in aggregate, therefore supplemental pro forma
information is not presented.
In
the
second quarter of 2007, Garmin Ltd. announced its intent to acquire GPS
Gesellschaft für Professionelle Satellitennavigation mbH (the exclusive
distributor of Garmin’s consumer products in Germany).
On
July
2, 2007 the acquisition of GPS Gesellschaft für Professionelle
Satellitennavigation mbH was completed and the distributor has been renamed
Garmin Deutschland GmbH. This acquisition is not material, therefore
supplemental pro forma information will not be presented.
On
July
17, 2007, Garmin
Ltd. announced its intent to acquire Electronica Trepat SA, the distributor
of
Garmin’s consumer products in Spain.
This
acquisition is not expected to be material.
On
August
3, 2007, Garmin Ltd. announced its intent to acquire Synergy S.p.A, the
distributor of Garmin’s consumer products in Italy. This acquisition is not
expected to be material.
The
Garmin Board of Directors has approved an annual cash dividend of $0.75 per
share payable to shareholders of record on August 15, 2007. This dividend will
be paid on September 14, 2007.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of
Operations
The
discussion set forth below, as well as other portions of this Quarterly Report,
contains statements concerning potential future events. Such forward-looking
statements are based upon assumptions by our management, as of the date of
this
Quarterly Report, including assumptions about risks and uncertainties faced
by
the Company. 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 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 factors identified in the Company’s Annual Report on Form 10-K for the
year ended December 30, 2006. This report has been filed with the Securities
and
Exchange Commission (the "SEC" or the "Commission") in Washington, D.C. and
can
be obtained by contacting the SEC's public reference operations or obtaining
it
through the SEC's web site on the World Wide Web at http://www.sec.gov. Readers
are strongly encouraged to consider those factors when evaluating any
forward-looking statement concerning the Company. The Company will not update
any forward-looking statements in this Quarterly Report to reflect future events
or developments.
The
information contained in this Management’s Discussion and Analysis of Financial
Condition and Results of Operations should be read in conjunction with the
Condensed Consolidated Financial Statements and Notes thereto included in this
Form 10-Q and the audited financial statements and notes thereto in the
Company’s Annual Report on Form 10-K for the year ended December 30,
2006.
The
Company is 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 four business segments, the outdoor/fitness,
marine, automotive/mobile and aviation markets. Our segments offer products
through our network of independent dealers and distributors. However, the nature
of products and types of customers for the four segments may vary significantly.
As such, the segments are managed separately.
Results
of Operations
The
following table sets forth our results of operations as a percentage of net
sales during the periods shown:
|
|
13-Weeks
Ended
|
|
|
|
June
30, 2007
|
|
July
1, 2006
|
|
Net
sales
|
|
|
100.0 |
% |
|
100.0
|
%
|
Cost
of goods sold
|
|
|
49.5 |
% |
|
50.0
|
%
|
Gross
profit
|
|
|
50.5 |
% |
|
50.0
|
%
|
Research
and development
|
|
|
5.1 |
% |
|
6.2
|
%
|
Selling,
general and administrative
|
|
|
12.8 |
% |
|
12.7
|
%
|
Total
operating expenses
|
|
|
17.9 |
% |
|
18.9
|
%
|
Operating
income
|
|
|
32.6 |
% |
|
31.1
|
%
|
Other
income (expense), net
|
|
|
0.6 |
% |
|
2.6
|
%
|
Income
before income taxes
|
|
|
33.2 |
% |
|
33.7
|
%
|
Provision
for income taxes
|
|
|
4.3 |
% |
|
5.2
|
%
|
Net
income
|
|
|
28.9 |
% |
|
28.5
|
%
|
|
|
26-Weeks
Ended
|
|
|
|
June
30, 2007
|
|
July
1, 2006
|
|
Net
sales
|
|
|
100.0 |
% |
|
100.0
|
%
|
Cost
of goods sold
|
|
|
50.4 |
% |
|
49.8
|
%
|
Gross
profit
|
|
|
49.6 |
% |
|
50.2
|
%
|
Research
and development
|
|
|
5.8 |
% |
|
6.9
|
%
|
Selling,
general and administrative
|
|
|
13.0 |
% |
|
12.2
|
%
|
Total
operating expenses
|
|
|
18.8 |
% |
|
19.1
|
%
|
Operating
income
|
|
|
30.8 |
% |
|
31.1
|
%
|
Other
income (expense), net
|
|
|
2.2 |
% |
|
2.0
|
%
|
Income
before income taxes
|
|
|
33.0 |
% |
|
33.1
|
%
|
Provision
for income taxes
|
|
|
4.3 |
% |
|
5.1
|
%
|
Net
income
|
|
|
28.7 |
% |
|
28.0
|
%
|
The
Company manages its operations in four segments: outdoor/fitness, marine,
automotive/mobile, and aviation, and each of its segments employs the same
accounting policies. Allocation of certain research and development expenses,
and selling, general, and administrative expenses are made to each segment
on a
percent of revenue basis. The following table sets forth our results of
operations (in thousands) including revenue, gross profit, and operating profit
for each of our four segments during the periods shown. For each line item
in
the table, the total of the outdoor/fitness, marine, automotive/mobile, and
aviation segments' amounts equals the amount in the condensed consolidated
statements of income included in Item 1.
|
|
Reportable
Segments
|
|
|
|
Outdoor/
|
|
|
|
Auto/
|
|
|
|
|
|
|
|
Fitness
|
|
Marine
|
|
Mobile
|
|
Aviation
|
|
Total
|
|
13-Weeks
Ended June 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
77,163
|
|
$
|
79,771
|
|
$
|
507,895
|
|
$
|
77,637
|
|
$
|
742,466
|
|
Gross
profit
|
|
$
|
43,648
|
|
$
|
46,381
|
|
$
|
233,520
|
|
$
|
51,118
|
|
$
|
374,667
|
|
Operating
income
|
|
$
|
28,600
|
|
$
|
33,115
|
|
$
|
149,067
|
|
$
|
30,785
|
|
$
|
241,567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13-Weeks
Ended July 1, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
71,115
|
|
$
|
50,115
|
|
$
|
255,387
|
|
$
|
55,851
|
|
$
|
432,468
|
|
Gross
profit
|
|
$
|
42,469
|
|
$
|
29,823
|
|
$
|
107,061
|
|
$
|
36,931
|
|
$
|
216,284
|
|
Operating
income
|
|
$
|
31,617
|
|
$
|
21,146
|
|
$
|
59,974
|
|
$
|
21,839
|
|
$
|
134,576
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26-Weeks
Ended June 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
137,690
|
|
$
|
122,775
|
|
$
|
824,520
|
|
$
|
149,640
|
|
$
|
1,234,625
|
|
Gross
profit
|
|
$
|
77,063
|
|
$
|
67,534
|
|
$
|
370,251
|
|
$
|
97,571
|
|
$
|
612,419
|
|
Operating
income
|
|
$
|
49,809
|
|
$
|
44,410
|
|
$
|
228,591
|
|
$
|
57,082
|
|
$
|
379,892
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26-Weeks
Ended July 1, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
134,761
|
|
$
|
100,818
|
|
$
|
406,116
|
|
$
|
113,084
|
|
$
|
754,779
|
|
Gross
profit
|
|
$
|
78,812
|
|
$
|
57,839
|
|
$
|
170,147
|
|
$
|
72,275
|
|
$
|
379,073
|
|
Operating
income
|
|
$
|
56,298
|
|
$
|
40,059
|
|
$
|
96,264
|
|
$
|
42,067
|
|
$
|
234,688
|
|
Comparison
of 13-Weeks Ended June 30, 2007 and July 1, 2006
Net
Sales
|
|
13-weeks
ended June 30, 2007
|
|
13-weeks
ended July 1, 2006
|
|
Quarter
over Quarter
|
|
|
|
Net
Sales
|
|
%
of Revenues
|
|
Net
Sales
|
|
%
of Revenues
|
|
$
Change
|
|
%
Change
|
|
Outdoor/Fitness
|
|
$
|
77,163
|
|
|
10.4
|
%
|
$
|
71,115
|
|
|
16.4
|
%
|
$
|
6,048
|
|
|
8.5
|
%
|
Marine
|
|
|
79,771
|
|
|
10.7
|
%
|
|
50,115
|
|
|
11.6
|
%
|
|
29,656
|
|
|
59.2
|
%
|
Automotive/Mobile
|
|
|
507,895
|
|
|
68.4
|
%
|
|
255,387
|
|
|
59.1
|
%
|
|
252,508
|
|
|
98.9
|
%
|
Aviation
|
|
|
77,637
|
|
|
10.5
|
%
|
|
55,851
|
|
|
12.9
|
%
|
|
21,786
|
|
|
39.0
|
%
|
Total
|
|
$
|
742,466
|
|
|
100.0
|
%
|
$
|
432,468
|
|
|
100.0
|
%
|
$
|
309,998
|
|
|
71.7
|
%
|
Increases
in sales for the 13-week period ended June 30, 2007 were primarily due to a
strong response to automotive and aviation product offerings. Automotive/mobile
revenue became a significantly larger portion of our revenue mix, rising from
59.1% in the second quarter of 2006 to 68.4% in the second quarter of 2007.
Approximately 19% of sales in the second quarter of 2007 were generated from
products introduced in the last twelve months.
Total
unit sales increased 99% to 2,544,000 in the second quarter of 2007 from
1,281,000 in the same period of 2006. The higher unit sales volume in the second
quarter of fiscal 2007 was primarily attributable to strong sales of automotive
products during the seasonally higher second quarter, although unit growth
occurred across all segments of the business during the quarter.
Automotive/mobile
segment revenue grew the fastest during the quarter, nearly doubling from the
year-ago quarter, on the strength of nüvi, c-series, and other personal
navigation devices (PNDs). Our aviation segment also performed well, as demand
for our GMX 200, WAAS-enabled retrofit products, and WAAS upgrades to previously
installed products continued to be strong. The marine segment showed strong
growth during the quarter when compared with the second quarter of 2006, driven
by new products released in late first quarter and during the second quarter.
Revenues in our outdoor/fitness segment grew relative to the second quarter
of
2006 due to seasonal demand for the products, dampened by the overall maturity
of products in the segment’s portfolio.
Gross
Profit
|
|
13-weeks
ended June 30, 2007
|
|
13-weeks
ended July 1, 2006
|
|
Quarter
over Quarter
|
|
|
|
Gross
Profit
|
|
%
of Revenues
|
|
Gross
Profit
|
|
%
of Revenues
|
|
$
Change
|
|
%
Change
|
|
Outdoor/Fitness
|
|
$
|
43,648
|
|
|
56.6
|
%
|
$
|
42,469
|
|
|
59.7
|
%
|
$
|
1,179
|
|
|
2.8
|
%
|
Marine
|
|
|
46,381
|
|
|
58.1
|
%
|
|
29,823
|
|
|
59.5
|
%
|
|
16,558
|
|
|
55.5
|
%
|
Automotive/Mobile
|
|
|
233,520
|
|
|
46.0
|
%
|
|
107,061
|
|
|
41.9
|
%
|
|
126,459
|
|
|
118.1
|
%
|
Aviation
|
|
|
51,118
|
|
|
65.8
|
%
|
|
36,931
|
|
|
66.1
|
%
|
|
14,187
|
|
|
38.4
|
%
|
Total
|
|
$
|
374,667
|
|
|
50.5
|
%
|
$
|
216,284
|
|
|
50.0
|
%
|
$
|
158,383
|
|
|
73.2
|
%
|
Gross
profit dollars in the second quarter of 2007 grew 73.2% and gross profit margin
percentage increased 50 basis points over the second quarter of 2006. Second
quarter gross profit margins decreased to 56.6%, 58.1%, and 65.8% in the
outdoor/fitness, marine and aviation segments respectively, when compared to
the
same quarter in 2006. Second quarter 2007 gross profit margins increased to
46.0% in the automotive/mobile segment, when compared with the second quarter
of
2006.
Gross
profit margin percentage for the Company overall increased primarily as a result
of the automotive/mobile segment becoming a significantly larger percentage
of
the Company’s product mix during a quarter when this segment’s margin improved
over 400 basis points. While the automotive/mobile segment is by nature a
lower-margin business, strong sales of our higher priced and more fully featured
products, declining component pricing, and a less aggressive than anticipated
pricing environment for the segment supported both gross margin improvement
and
gross margin dollar growth within the segment. Release of new products into
the
marine retail channel drove strong sequential improvement in marine margins,
returning them to historic ranges. Declines in gross margin in the
outdoor/fitness segment as a result of a more mature product mix pressured
gross
margins for the Company during the quarter. While product mix in the aviation
segment resulted in a small margin decline for the segment relative to the
year-ago quarter, the aviation segment’s strong gross margin profile continued
to provide gross margin support for the Company.
Selling,
General and Administrative Expenses
|
|
13-weeks
ended June 30, 2007
|
|
13-weeks
ended July 1, 2006
|
|
|
|
|
|
Selling,
General
|
|
|
|
Selling,
General
|
|
|
|
Quarter
over Quarter
|
|
|
|
&
Admin. Expenses
|
|
%
of Revenues
|
|
&
Admin. Expenses
|
|
%
of Revenues
|
|
$
Change
|
|
%
Change
|
|
Outdoor/Fitness
|
|
$
|
9,310
|
|
|
12.1
|
%
|
$
|
6,900
|
|
|
9.7
|
%
|
$
|
2,410
|
|
|
34.9
|
%
|
Marine
|
|
|
8,748
|
|
|
11.0
|
%
|
|
5,611
|
|
|
11.2
|
%
|
|
3,137
|
|
|
55.9
|
%
|
Automotive/Mobile
|
|
|
71,445
|
|
|
14.1
|
%
|
|
38,018
|
|
|
14.9
|
%
|
|
33,427
|
|
|
87.9
|
%
|
Aviation
|
|
|
5,870
|
|
|
7.6
|
%
|
|
4,386
|
|
|
7.9
|
%
|
|
1,484
|
|
|
33.8
|
%
|
Total
|
|
$
|
95,373
|
|
|
12.8
|
%
|
$
|
54,915
|
|
|
12.7
|
%
|
$
|
40,458
|
|
|
73.7
|
%
|
The
increase in expense was driven primarily by increased advertising spending
and
increased staffing throughout the organization to support our growth.
Advertising spending, which included increases in both cooperative advertising
costs and television and print advertising placements, increased 70% or $23.3
million when compared to the second quarter of 2006. As a percent of sales,
advertising held steady at 7.7% of sales in both the second quarter of 2007
and
the second quarter of 2006. Other selling, general and administrative expenses
increased slightly as a percent of sales from 5.0% of sales in the second
quarter of 2006 to 5.2% of sales in the second quarter of 2007, as staffing
in
marketing and administration were increased to support our rapid growth. In
absolute dollars, other selling, general and administrative expenses increased
$17.1 million when compared to the previous year quarter, with increases
distributed across call center, operations, finance, administration, and
marketing administration areas to support the growth of our businesses.
Research
and Development Expense
|
|
13-weeks
ended June 30, 2007
|
|
13-weeks
ended July 1, 2006
|
|
|
|
|
|
|
|
%
of Revenues
|
|
|
|
%
of Revenues
|
|
$
Change
|
|
%
Change
|
|
Outdoor/Fitness
|
|
$
|
5,738
|
|
|
7.4
|
%
|
$
|
3,952
|
|
|
5.6
|
%
|
$
|
1,786
|
|
|
45.2
|
%
|
Marine
|
|
|
4,518
|
|
|
5.7
|
%
|
|
3,066
|
|
|
6.1
|
%
|
|
1,452
|
|
|
47.4
|
%
|
Automotive/Mobile
|
|
|
13,008
|
|
|
2.6
|
%
|
|
9,069
|
|
|
3.6
|
%
|
|
3,939
|
|
|
43.4
|
%
|
Aviation
|
|
|
14,463
|
|
|
18.6
|
%
|
|
10,706
|
|
|
19.2
|
%
|
|
3,757
|
|
|
35.1
|
%
|
Total
|
|
$
|
37,727
|
|
|
5.1
|
%
|
$
|
26,793
|
|
|
6.2
|
%
|
$
|
10,934
|
|
|
40.8
|
%
|
The
40.8%
increase in research and development expense was due to ongoing development
activities for new products, the addition of 200 new engineering personnel
to
our staff during the quarter, and an increase in engineering program costs
during the second quarter of 2007 as a result of our continued emphasis on
product innovation. Research and development costs increased $10.9 million
when
compared with the year-ago quarter, but declined 110 basis points as a percent
of revenue primarily due to the fact that the growth rate of research and
development expenditures for the period (40.8%) was slower than the growth
rate
of revenues (71.7%).
Operating
Income
|
|
13-weeks
ended June 30, 2007
|
|
13-weeks
ended July 1, 2006
|
|
Quarter
over Quarter
|
|
|
|
Operating
Income
|
|
%
of Revenues
|
|
Operating
Income
|
|
%
of Revenues
|
|
$
Change
|
|
%
Change
|
|
Outdoor/Fitness
|
|
$
|
28,600
|
|
|
37.1
|
%
|
$
|
31,617
|
|
|
44.5
|
%
|
|
($3,017
|
)
|
|
-9.5
|
%
|
Marine
|
|
|
33,115
|
|
|
41.5
|
%
|
|
21,146
|
|
|
42.2
|
%
|
|
11,969
|
|
|
56.6
|
%
|
Automotive/Mobile
|
|
|
149,067
|
|
|
29.3
|
%
|
|
59,974
|
|
|
23.5
|
%
|
|
89,093
|
|
|
148.6
|
%
|
Aviation
|
|
|
30,785
|
|
|
39.7
|
%
|
|
21,839
|
|
|
39.1
|
%
|
|
8,946
|
|
|
41.0
|
%
|
Total
|
|
$
|
241,567
|
|
|
32.5
|
%
|
$
|
134,576
|
|
|
31.1
|
%
|
$
|
106,991
|
|
|
79.5
|
%
|
Operating
income was up 140 basis points as a percent of revenue when compared to the
second quarter of 2006 due to the increase in gross margins, which in part
offset additions to finance, technology, and administrative expenditures, and
personnel additions in the call center to support the growth of our businesses.
Operating margins decreased to 37.1% and 41.5% within our outdoor/fitness and
marine segments, respectively, when compared with the second quarter in 2006.
Operating margins increased to 29.3% and 39.7% within our automotive/mobile
and
aviation segments, respectively. Our operating margin percentage increased
in
part as a function of the gross profit margin percentage increase described
above, as well as improvements in the operating margins of both the aviation
and
automotive/mobile segments, offset somewhat by operating margin declines in
the
marine and outdoor/fitness segments.
Other
Income (Expense)
|
|
13-weeks
ended
|
|
13-weeks
ended
|
|
|
|
June
30, 2007
|
|
July
1, 2006
|
|
Interest
Income
|
|
$
|
10,841
|
|
$
|
8,538
|
|
Interest
Expense
|
|
|
(23
|
)
|
|
(5
|
)
|
Foreign
Currency Exchange
|
|
|
(6,086
|
)
|
|
2,958
|
|
Other
|
|
|
338
|
|
|
(167
|
)
|
Total
|
|
$
|
5,070
|
|
$
|
11,324
|
|
The
average taxable equivalent interest rate return on invested cash during the
second quarter of 2007 was 4.4% compared to 4.3% during the same quarter of
2006. The increase in interest income is attributable to our growing cash
balances, increasing interest rates, and more active management of our cash
balances.
Foreign
currency gains and losses for the Company are primarily tied to movements by
the
Taiwan Dollar, and secondarily to the British Pound Sterling. While the Canadian
dollar and the Euro are the respective functional currencies of Dynastream
Innovations, Inc. and Garmin France, due to these entities relative sizes,
their
respective currency moves do not have a material impact on the Company’s
financial statements.
The
majority of the $6.1 million currency loss in the second quarter of 2007 was
due
to the weakening of the U.S. Dollar compared to the Taiwan Dollar. During the
second quarter of fiscal 2007 the exchange rate decreased 0.7% to $32.86 TD/USD
at June 30, 2007 from $33.09 TD/USD at March 31, 2007, resulting in $5.8 million
of the quarter’s loss. While the British Pound Sterling strengthened relative to
the U.S. Dollar during the quarter, the timing of transactions during the period
resulted in Garmin Europe recording a $0.6 million gain.
The
U.S.
Dollar weakened when compared to the Taiwan Dollar during the second quarter
of
2006, when the exchange rate increased to $32.37 TD/USD at July 1, 2006 from
$32.46 TD/USD at April 1, 2006. While the U.S. dollar weakened relative to
the
Taiwan Dollar by the close of the quarter, the $3.0 million currency gain
reflected in the second quarter 2006 financials was the result of the timing
of
transactions during the period. During the second quarter of 2006, British
Pound
Sterling currency moves had no material impact, and Dynastream and Garmin France
had not yet been acquired.
Income
Tax Provision
Our
earnings before taxes increased 69.0% when compared to the same quarter in
2006,
and our income tax expense increased by $9.7 million, to $32.3 million, for
the
13-week period ended June 30, 2007, from $22.6 million for the 13-week period
ended July 1, 2006, due to our strong revenue growth, enhanced by a lower
effective tax rate. The effective tax rate was 13.1% in the second quarter
of
2007 and 15.5% in the second quarter of 2006. The lower tax rate in the second
quarter of 2007 when compared to the same quarter in 2006 was related to tax
holidays/credits and the favorable mix of taxable income among Company
entities.
Net
Income
As
a
result of the above, net income increased 73.9% for the 13-week period ended
June 30, 2007 to $214.4 million compared to $123.3 million for the 13-week
period ended July 1, 2006.
Comparison
of 26-Weeks Ended June 30, 2007 and July 1, 2006
Net
Sales
|
|
26-weeks
ended June 30, 2007
|
|
26-weeks
ended July 1, 2006
|
|
Period
over Period
|
|
|
|
Net
Sales
|
|
%
of Revenues
|
|
Net
Sales
|
|
%
of Revenues
|
|
$
Change
|
|
%
Change
|
|
Outdoor/Fitness
|
|
$
|
137,690
|
|
|
11.2
|
%
|
$
|
134,761
|
|
|
17.9
|
%
|
$
|
2,929
|
|
|
2.2
|
%
|
Marine
|
|
|
122,775
|
|
|
9.9
|
%
|
|
100,818
|
|
|
13.4
|
%
|
|
21,957
|
|
|
21.8
|
%
|
Automotive/Mobile
|
|
|
824,520
|
|
|
66.8
|
%
|
|
406,116
|
|
|
53.8
|
%
|
|
418,404
|
|
|
103.0
|
%
|
Aviation
|
|
|
149,640
|
|
|
12.1
|
%
|
|
113,084
|
|
|
15.0
|
%
|
|
36,556
|
|
|
32.3
|
%
|
Total
|
|
$
|
1,234,625
|
|
|
100.0
|
%
|
$
|
754,779
|
|
|
100.0
|
%
|
$
|
479,846
|
|
|
63.6
|
%
|
Increases
in sales for the 26-week period ended June 30, 2007 were due to a strong
response to automotive, aviation, and marine product offerings.
Automotive/mobile revenue became a significantly larger portion of our revenue
mix, rising from 53.8% in the first half of 2006 to 66.8% in the first half
of
2007.
Total
unit sales increased 85% to 4,095,000 in the first half of 2007 from 2,210,000
in the same period of 2006. The higher unit sales volume in the first half
of
fiscal 2007 was primarily attributable to strong sales of automotive products,
particularly in North America.
Automotive/mobile
segment revenue grew the fastest during the period, doubling from the year-ago
period, on the strength of nüvi, c-series, and other personal navigation devices
(PNDs). Our aviation segment also performed well, as demand for our GMX 200,
WAAS-enabled retrofit products, and WAAS upgrades to previously installed
products all continued strong. The release of new marine products to the marine
retail channel during the period drove strong revenue growth for the segment
when compared with the same period of 2006. Revenues in our outdoor/fitness
segment were slightly higher than the first half of 2006, but growth for the
segment was dampened by the fact that older products are becoming a larger
part
of the segment’s product portfolio.
Gross
Profit
|
|
26-weeks
ended June 30, 2007
|
|
26-weeks
ended July 1, 2006
|
|
Period
over Period
|
|
|
|
Gross
Profit
|
|
%
of Revenues
|
|
Gross
Profit
|
|
%
of Revenues
|
|
$
Change
|
|
%
Change
|
|
Outdoor/Fitness
|
|
$
|
77,063
|
|
|
56.0
|
%
|
$
|
78,812
|
|
|
58.5
|
%
|
|
($1,749
|
)
|
|
-2.2
|
%
|
Marine
|
|
|
67,534
|
|
|
55.0
|
%
|
|
57,839
|
|
|
57.4
|
%
|
|
9,695
|
|
|
16.8
|
%
|
Automotive/Mobile
|
|
|
370,251
|
|
|
44.9
|
%
|
|
170,147
|
|
|
41.9
|
%
|
|
200,104
|
|
|
117.6
|
%
|
Aviation
|
|
|
97,571
|
|
|
65.2
|
%
|
|
72,275
|
|
|
63.9
|
%
|
|
25,296
|
|
|
35.0
|
%
|
Total
|
|
$
|
612,419
|
|
|
49.6
|
%
|
$
|
379,073
|
|
|
50.2
|
%
|
$
|
233,346
|
|
|
61.6
|
%
|
Gross
profit dollars in the first half of 2007 grew 61.6% and gross profit margin
percentage declined 60 basis points over the same period of the previous year.
First half gross profit margins decreased to 56.0% and 55.0% in the
outdoor/fitness and marine segments respectively, when compared to the same
period in 2006. First half 2007 gross profit margins increased to 44.9% and
65.2% within the automotive/mobile and aviation segments, when compared with
the
first half of 2006.
Gross
profit margin percentage for the Company overall decreased primarily as a result
of the automotive/mobile segment becoming a significantly larger percentage
of
the Company’s product mix. While the automotive/mobile segment is by nature a
lower-margin business, strong sales of our higher priced and more fully featured
products, favorable component pricing, and a less aggressive than anticipated
pricing environment for the segment supported gross margin improvement and
gross
margin dollar growth within the segment. Strong demand for popular retrofit
products in the aviation segment resulted in favorable product mix and margins
for the aviation segment particularly in the first half of the quarter. Declines
in gross margin in both the outdoor/fitness and marine segments pressured gross
margins for the Company during the period, although the marine segment showed
significant margin improvement in the second half of the period as a result
of
new product releases.
Selling,
General and Administrative Expenses
|
|
26-weeks
ended June 30, 2007
|
|
26-weeks
ended July 1, 2006
|
|
|
|
|
|
Selling,
General
|
|
|
|
Selling,
General
|
|
|
|
Period
over Period
|
|
|
|
&
Admin. Expenses
|
|
%
of Revenues
|
|
&
Admin. Expenses
|
|
%
of Revenues
|
|
$
Change
|
|
%
Change
|
|
Outdoor/Fitness
|
|
$
|
16,599
|
|
|
12.1
|
%
|
$
|
13,845
|
|
|
10.3
|
%
|
$
|
2,754
|
|
|
19.9
|
%
|
Marine
|
|
|
14,785
|
|
|
12.0
|
%
|
|
11,564
|
|
|
11.5
|
%
|
|
3,221
|
|
|
27.9
|
%
|
Automotive/Mobile
|
|
|
117,259
|
|
|
14.2
|
%
|
|
57,548
|
|
|
14.2
|
%
|
|
59,711
|
|
|
103.8
|
%
|
Aviation
|
|
|
12,654
|
|
|
8.5
|
%
|
|
9,721
|
|
|
8.6
|
%
|
|
2,933
|
|
|
30.2
|
%
|
Total
|
|
$
|
161,297
|
|
|
13.1
|
%
|
$
|
92,678
|
|
|
12.3
|
%
|
$
|
68,619
|
|
|
74.0
|
%
|
The
increase in expense was driven primarily by increased advertising spending
and
increased staffing to support our growth. Advertising spending, which included
increases in both cooperative advertising costs and television and print
advertising placements, increased 66% or $34.3 million when compared to the
first half of 2006. As a percent of sales, advertising remained nearly flat,
increasing from 6.9% of sales in first half of 2006 to 7.0% of sales in first
half of 2007. Other selling, general and administrative expenses increased
as a
percent of sales from 5.4% of sales in the first half of 2006 to 6.1% of sales
in the first half of 2007. In absolute dollars, other expenses increased $34.4
million when compared to the previous year period, with increases distributed
across call center, operations, finance, administration, and marketing
administration areas to support the growth of our businesses.
Research
and Development Expense
|
|
26-weeks
ended June 30, 2007
|
|
26-weeks
ended July 1, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
Change
|
|
%
Change
|
|
Outdoor/Fitness
|
|
$
|
10,655
|
|
|
7.7
|
%
|
$
|
8,669
|
|
|
6.4
|
%
|
$
|
1,986
|
|
|
22.9
|
%
|
Marine
|
|
|
8,339
|
|
|
6.8
|
%
|
|
6,216
|
|
|
6.2
|
%
|
|
2,123
|
|
|
34.2
|
%
|
Automotive/Mobile
|
|
|
24,401
|
|
|
3.0
|
%
|
|
16,335
|
|
|
4.0
|
%
|
|
8,066
|
|
|
49.4
|
%
|
Aviation
|
|
|
27,835
|
|
|
18.6
|
%
|
|
20,487
|
|
|
18.1
|
%
|
|
7,348
|
|
|
35.9
|
%
|
Total
|
|
$
|
71,230
|
|
|
5.8
|
%
|
$
|
51,707
|
|
|
6.9
|
%
|
$
|
19,523
|
|
|
37.8
|
%
|
The
37.8%
increase in research and development expense dollars was due to ongoing
development activities for new products, the addition of 280 new engineering
personnel to our staff during the period, and an increase in engineering program
costs during the first half of 2007 as a result of our continued emphasis on
product innovation. Research and development costs increased $19.5 million
when
compared with the year-ago period, but declined 110 basis points as a percent
of
revenue primarily due to the fact that the growth rate of research and
development expenditures for the period (37.8%) was slower than the growth
rate
of revenues (63.6%).
Operating
Income
|
|
26-weeks
ended June 30, 2007
|
|
26-weeks
ended July 1, 2006
|
|
Period
over Period
|
|
|
|
Operating
Income
|
|
%
of Revenues
|
|
Operating
Income
|
|
%
of Revenues
|
|
$
Change
|
|
%
Change
|
|
Outdoor/Fitness
|
|
$
|
49,809
|
|
|
36.2
|
%
|
$
|
56,298
|
|
|
41.8
|
%
|
|
($6,489
|
)
|
|
-11.5
|
%
|
Marine
|
|
|
44,410
|
|
|
36.2
|
%
|
|
40,059
|
|
|
39.7
|
%
|
|
4,351
|
|
|
10.9
|
%
|
Automotive/Mobile
|
|
|
228,591
|
|
|
27.7
|
%
|
|
96,264
|
|
|
23.7
|
%
|
|
132,327
|
|
|
137.5
|
%
|
Aviation
|
|
|
57,082
|
|
|
38.1
|
%
|
|
42,067
|
|
|
37.2
|
%
|
|
15,015
|
|
|
35.7
|
%
|
Total
|
|
$
|
379,892
|
|
|
30.8
|
%
|
$
|
234,688
|
|
|
31.1
|
%
|
$
|
145,204
|
|
|
61.9
|
%
|
Operating
income was down 30 basis points as a percent of revenue when compared to the
year-ago period due to the decline in gross margins, increased marketing
activities, additions to finance, technology, and administrative expenditures,
and personnel additions in the call center to support the growth of our
businesses. Operating margins decreased to 36.2% in both our outdoor/fitness
and
marine segments, while operating margins increased to 27.7% and 38.1% within
our
automotive/mobile and aviation segments, respectively. Our operating margin
percentage decreased as a function of product mix, and the fact that marine
and
outdoor/fitness segment gross margins declined while operating and R&D costs
for these segments continued to grow to support these businesses and their
upcoming new product introductions.
Other
Income (Expense)
|
|
26-weeks
ended
|
|
26-weeks
ended
|
|
|
|
June
30, 2007
|
|
July
1, 2006
|
|
Interest
Income
|
|
$
|
20,199
|
|
$
|
15,843
|
|
Interest
Expense
|
|
|
(55
|
)
|
|
(12
|
)
|
Foreign
Currency Exchange
|
|
|
7,119
|
|
|
(4,488
|
)
|
Other
|
|
|
389
|
|
|
3,437
|
|
Total
|
|
$
|
27,652
|
|
$
|
14,780
|
|
The
average taxable equivalent interest rate return on invested cash during the
first half of 2007 was 4.3% compared to 4.1% during the same period of 2006.
The
increase in interest income is attributable to our growing cash balances,
increasing interest rates, and more active management of our cash balances.
Foreign
currency gains and losses for the Company are primarily tied to movements by
the
Taiwan Dollar, and secondarily to the British Pound Sterling. While the Canadian
dollar and the Euro are the respective functional currencies of Dynastream
Innovations, Inc. and Garmin France, due to these entities relative sizes,
their
respective currency moves do not have a material impact on the Company’s
financial statements.
The
majority of the $7.1 million currency gain in the first half of 2007 was due
to
the strengthening of the U.S. Dollar compared to the Taiwan Dollar. During
the
first half of fiscal 2007 the exchange rate increased 0.8% to $32.86 TD/USD
at
June 30, 2007 from $32.60 TD/USD at December 30, 2006, resulting in $4.9 million
of the period’s gain. While the British Pound Sterling strengthened relative to
the U.S. Dollar during the period, the timing of transactions during the period
resulted in Garmin Europe recording a $1.6 million gain.
The
$4.5
million currency loss in the first half of 2006 was due to the weakening of
the
U.S. Dollar compared to the Taiwan Dollar during the first half of fiscal 2006,
when the exchange rate decreased to $32.37 TD/USD at July 1, 2006 from $32.84
TD/USD at December 31, 2005. During the first half of 2006, British Pound
Sterling currency moves had no material impact, and Dynastream and Garmin France
had not yet been acquired.
Income
Tax Provision
Our
earnings before taxes increased 63.0% when compared to the same period in 2006,
and our income tax expense increased by $14.6 million, to $53.3 million, for
the
26-week period ended June 30, 2007, from $38.7 million for the 26-week period
ended July 1, 2006, due to strong earnings growth enhanced by our lower tax
rate. The effective tax rate was 13.1% in the first half of 2007 and 15.5%
in
the first half of 2006. The lower tax rate in the first half of 2007 when
compared to the same period in 2006 was related to tax holidays/credits and
the
favorable mix of taxable income among Company entities.
Net
Income
As
a
result of the above, net income increased 68.3% for the 26-week period ended
June 30, 2007 to $354.2 million compared to $210.8 million for the 26-week
period ended July 1, 2006.
Liquidity
and Capital Resources
Net
cash
generated by operating activities was $422.1 million for the 26-week period
ended June 30, 2007 compared to $132.4 million for the 26-week period ended
July
1, 2006. We attempt to carry sufficient inventory levels of finished goods
and
key components so that potential supplier shortages have as minimal an impact
as
possible on our ability to deliver our finished products. We experienced a
$19.7
million year-to-date increase in net inventories in this 26-week period of
2007,
an increase required to fill strong orders for our products and to address
overall growing demand for our products. Accounts receivable increased $103.0
million, net of bad debts, during the first half of 2007 due to increasing
shipments during the period.
Cash
flow
used in investing activities during the 26-week period ending June 30, 2007
was
$106.2 million. Cash flow used in investing activities principally related
to
$112.0 million in capital expenditures related to the build-out of our Jhongli
manufacturing facility, purchase of the Linkou manufacturing facility, business
operation and maintenance activities, the purchase of EME Tec Sat SAS., Digital
Cyclone, Inc., and the assets of Nautamatic Marine Systems for a combined total
of $68.9 million, and the net sale of $76.7 million of fixed income securities
associated with the management of our on-hand cash balances. It is management’s
goal to invest the on-hand cash consistent with the Company’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 maximum safety. The
Company’s average taxable equivalent return on its investments during the period
was approximately 4.3%.
Net
cash
provided by financing activities during the period was $14.6 million resulting
from issuance of common stock related to our Company stock option plan and
stock
based compensation tax benefits.
We
currently use cash flow from operations to fund our capital expenditures and
to
support our working capital requirements. We expect that future cash
requirements will principally be for capital expenditures, working capital
requirements, repurchase of shares, and payment of dividends declared.
We
believe that our existing cash balances and cash flow from operations will
be
sufficient to meet our projected capital expenditures, working capital,
repurchase of shares, and other cash requirements at least through the end
of
fiscal 2007.
Contractual
Obligations and Commercial Commitments
Pursuant
to certain supply agreements, the Company is contractually committed to make
purchases of approximately $15.8 million over the next 3 years.
Off-Balance
Sheet Arrangements
We
do not
have any off-balance sheet arrangements.
Item
3. Quantitative and Qualitative Disclosures About Market
Risk
Market
Sensitivity
We
have
market risk primarily in connection with the pricing of our products and
services and the purchase of raw materials. Product pricing and raw material
costs are both significantly influenced by semiconductor market conditions.
Historically, during cyclical economic downturns, we have been able to offset
pricing declines for our products through a combination of introducing new
products with higher margins and success in obtaining price reductions in raw
material costs. In recent quarters we have experienced a decrease in raw
materials costs offset by an increase in the sale of lower-margin products
as a
part of the product mix.
Inflation
We
do not
believe that inflation has had a material effect on our business, financial
condition or results of operations. If our costs were to become subject to
significant inflationary pressures, we may not be able to fully offset such
higher costs through price increases. Our inability or failure to do so could
adversely affect our business, financial condition and results of
operations.
Foreign
Currency Exchange Rate Risk
The
operation of the Company’s subsidiaries in international markets results in
exposure to movements in currency exchange rates. The potential of volatile
foreign exchange rate fluctuations in the future could have a significant effect
on our results of operations. In accordance with Statement of Financial
Accounting Standards (SFAS) No. 52, Foreign Currency Translation, the financial
statements of all Company entities with functional currencies that are not
United States dollars (USD) are translated for consolidation purposes into
USD,
the functional currency of Garmin Ltd. and Garmin International, Inc. Sales,
costs, and expenses are translated at rates prevailing during the reporting
periods and at end-of-year rates for all assets and liabilities. The effect
of
this translation is recorded in a separate component of stockholders’ equity and
have been included in accumulated other comprehensive gain/(loss) in the
accompanying consolidated balance sheets.
Foreign
currency gains and losses for the Company are primarily tied to movements of
the
Taiwan Dollar, which is the functional currency of Garmin Corporation, located
in Taiwan, and secondarily to the British Pound Sterling, which is used by
Garmin Europe, located in Southampton in the U.K. While the Canadian dollar
and
the Euro are the functional currencies of Dynastream Innovations, Inc. and
Garmin France, due to these entities relative sizes, their respective currency
moves do not have a material impact on the Company’s financials.
Interest
Rate Risk
As
of
June 30, 2007, we are exposed to interest rate risk in connection with our
investments in marketable securities. As interest rates change, the unrealized
gains and losses associated with those securities will fluctuate accordingly.
As
we have no outstanding long term debt we have no meaningful debt-related
interest rate risk.
Item
4. Controls and Procedures
(a) Evaluation
of disclosure controls and procedures. The
Company maintains a system of disclosure controls and procedures that are
designed to provide reasonable assurance that information, which is required
to
be timely disclosed, is accumulated and communicated to management in a timely
fashion. A control system, no matter how well conceived and operated, can
provide only reasonable, not absolute, assurance that the objectives of the
control system are met. As of June 30, 2007, the Company carried out an
evaluation, under the supervision and with the participation of the Company’s
management, including the Company’s Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the Company’s disclosure controls and
procedures. Based upon that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded as of June 30, 2007 that our disclosure controls
and
procedures were effective such that the information relating to the Company,
required to be disclosed in our Securities and Exchange Commission ("SEC")
reports (i) is recorded, processed, summarized and reported within the time
periods specified in SEC rules and forms, and (ii) is accumulated and
communicated to the Company's management, including our Chief Executive Officer
and Chief Financial Officer, as appropriate to allow timely decisions regarding
required disclosure.
(b)
Changes in internal control over financial reporting.
There
has been no change in the Company’s internal controls over financial reporting
that occurred during the Company’s fiscal quarter ended June 30, 2007 that has
materially affected, or is reasonably likely to materially affect, the Company’s
internal control over financial reporting.
Part
II - Other Information
Encyclopaedia
Britannica, Inc. v. Alpine Electronics of America, Inc., Alpine Electronics,
Inc., Denso Corporation, Toyota Motor Sales, U.S.A., Inc., American Honda Motor
Co., Inc., and Garmin International, Inc. On
May
16, 2005, Encyclopaedia Britannica, Inc. (“Encyclopaedia Britannica”) filed suit
in the United States District Court for the Western District of Texas, Austin
Division, against the Company’s wholly owned subsidiary Garmin International,
Inc. (“Garmin International”) and five other unrelated companies, alleging
infringement of U.S. Patent No. 5,241,671 (“the ‘671 patent”). Garmin
International believes that it should not be found liable for infringement
of
the ‘671 patent and additionally that the ‘671 patent is invalid. On December
30, 2005, Garmin International filed a Motion for Summary Judgment for Claim
Invalidity Based on Indefiniteness. On March 1, 2006, the court held a hearing
on construction of the claims of the ‘671 patent. The parties await the court’s
ruling on Garmin International’s summary judgment motion and the court’s claim
construction order. On May 23, 2006, Encyclopaedia Britannica filed an amended
complaint alleging that Garmin International and the other defendants also
infringe U.S. Patent No. 7,051,018 (“the ‘018 patent”), a continuation patent of
the ‘671 patent, which issued on May 23, 2006. Garmin International believes
that it should not be found liable for infringement of the ‘018 patent and
additionally that the ‘018 patent is invalid. On July 25, 2006, Encyclopaedia
Britannica filed a new complaint alleging that Garmin International and the
other defendants also infringe U.S. Patent No. 7,082,437 (“the ‘437 patent”), a
continuation patent of the ‘671 patent, which issued on July 25, 2006. Garmin
International believes that it should not be found liable for infringement
of
the ‘437 patent and additionally that the ‘437 patent is invalid. Although there
can be no assurance that an unfavorable outcome of this litigation would not
have a material adverse effect on our operating results, liquidity or financial
position, we believe that the claims are without merit and we will vigorously
defend these actions.
Mobile
Traffic Systems Corporation v. Cobra Electronics Corp., Garmin USA, Inc.,
Magellan Navigation, Inc., and TomTom, Inc. On
July
11, 2007, Mobile Traffic Systems Corporation filed a lawsuit in the United
States District Court for the Northern District of Alabama claiming that certain
products of Garmin and the other defendants infringe U.S. Patents Nos. 7,069,143
and 6,728,628 (the “Asserted Patents”). Garmin USA, Inc. believes that it should
not be found liable for infringement of the Asserted Patents and additionally
that the Asserted Patents are invalid. Although there can be no assurance that
an unfavorable outcome of this litigation would not have a material adverse
effect on our operating results, liquidity or financial position, we believe
that the claims are without merit and we will vigorously defend this
lawsuit.
Garmin
Ltd. v. TomTom, Inc. (Texas) On
August
23, 2006, Garmin Ltd. filed a lawsuit in the United States District Court for
the Eastern District of Texas claiming that certain TomTom products infringe
U.S. Patent No. 7,062,378 (“the ‘378 Patent”) owned by Garmin Ltd. On October
20, 2006, TomTom filed an answer denying infringement and also filed a motion
to
transfer the lawsuit to the United States District Court for the Western
District of Wisconsin, which motion was denied by the court on March 5, 2007.
On
March 14, 2007, TomTom filed an amended answer and counterclaims alleging that
the ‘378 Patent is unenforceable due to alleged inequitable conduct and also
asserting alleged violations of antitrust laws by Garmin based upon alleged
intentional failure to disclose alleged prior art to the U.S. Patent Office.
On
April 23, 2007, Garmin filed a motion to dismiss these counterclaims due to
TomTom’s failure to state a claim on which relief can be granted. The case is
currently in the early stages of discovery. The court has scheduled the trial
for November 2008. Although there can be no assurance that an unfavorable
outcome of this litigation would not have a material adverse effect on our
operating results, liquidity or financial position, we believe that the
counterclaims are without merit and we intend to vigorously prosecute the
lawsuit for infringement of our ‘378 Patent.
Garmin
Ltd. v. TomTom, Inc.; Garmin Corporation v. TomTom, Inc.
(Wisconsin) These lawsuits were filed by Garmin Ltd. and Garmin Corporation
against TomTom, Inc. (“TomTom”) on January 31, 2006 and February 1, 2006,
respectively, in the United States District Court for the Western District
of
Wisconsin. The lawsuits were consolidated. Garmin Ltd. and Garmin Corporation
filed an amended complaint on May 5, 2006. The amended complaint claims that
certain TomTom products infringe U.S. Patents Nos. 6,188,956 and 6,222,485
owned
by Garmin Corporation and U.S. Patents Nos. 6,901,330, 6,687,615 and 6,999,873
owned by Garmin Ltd. On April 27, 2006, TomTom served amended answers and
counterclaims on Garmin Ltd. and Garmin Corporation which claim that certain
products sold by these companies are infringing three U.S. patents that were
purchased by an affiliate of TomTom International, B.V. from Horizon Navigation,
Inc. on April 21, 2006. The three patents are U.S. Patents 5,291,412, 5,550,538
and 5,922,042. The amended answers and counterclaims also added Garmin
International, Inc. as a counterclaim defendant. On December 22, 2006, the
court
ruled on summary judgment motions filed by the parties. The court ruled that
Garmin Ltd. and its subsidiaries did not infringe any claim of any of the three
patents asserted by TomTom in its counterclaims, that TomTom did not infringe
certain claims of the patents asserted by Garmin and that certain claims of
some
of the patents asserted by Garmin were invalid. Garmin filed a motion to reopen
the case to address the remaining claims asserted by Garmin against TomTom.
On
April 25, 2007, the court issued a ruling on summary judgment that the remaining
patent claims asserted by Garmin were either not infringed or invalid. On May
24, 2007, Garmin filed a notice of appeal appealing this decision to the United
States Court of Appeals for the Federal Circuit. On June 6, 2007, TomTom filed
a
notice of cross-appeal. These appeals remain pending.
Garmin
(Europe) Ltd., Garmin International, Inc, Garmin Corporation and Garmin Ltd.
v.
TomTom International B.V. Garmin
Ltd. and the above-named subsidiaries of Garmin Ltd. filed a lawsuit against
TomTom International B.V. in the District Court in The Hague, Netherlands,
on
June 27, 2006. The lawsuit seeks a declaration of non-infringement of
TomTom’s European Community Registered Design No. 000267968-001 (the “Registered
Design”). TomTom responded on July 14, 2006 by filing an action for
preliminary relief in the District Court in The Hague, Netherlands, claiming
that certain models of Garmin’s StreetPilot products infringe the Registered
Design. TomTom has also filed a counterclaim for infringement of the
Registered Design in the main lawsuit. On November 2, 2006, the court
issued a judgment in the preliminary relief proceedings finding that Garmin’s
products do not infringe the Registered Design and denying TomTom’s claim for
preliminary relief. The court also awarded Garmin approximately 37,000 euros
for
attorneys’ fees and costs. TomTom has filed an appeal of this
judgment. Garmin believes that none of its products infringe the
Registered Design and Garmin is prosecuting vigorously its action for a
declaration of non-infringement. Although there can be no assurance that an
unfavorable outcome of this litigation would not have a material adverse effect
on our operating results, liquidity or financial position, we believe that
our
products do not infringe the Registered Design and we intend to vigorously
prosecute our lawsuit seeking a declaration of non-infringement.
Garmin
(Europe) Ltd. v. TomTom International B.V.
On July
17, 2006, Garmin (Europe) Ltd. filed a lawsuit against TomTom International
B.V.
(“TomTom”), in the High Court of Justice in London, England. The
lawsuit seeks a declaration that United Kingdom Patent No. GB 2400293 B (“the
’293 Patent”) owned by TomTom is invalid and an order that the ‘293 patent be
revoked. On July 31, 2006, TomTom filed a defense indicating that it
intended to defend this lawsuit and also filed a counterclaim alleging that
certain models of Garmin’s StreetPilot products and Garmin’s nüvi products
infringe the ‘293 Patent. Garmin (Europe) Ltd. believes that none of its
products infringe the ‘293 Patent and that the ‘293 Patent is invalid. On
December 20, 2006, Garmin (Europe) Ltd. filed a second lawsuit against TomTom
in
the High Court of Justice in London, England. This lawsuit seeks
declarations that United Kingdom Patent Nos. GB 2400292 B (“the ’292 Patent”)
and GB 2400294 B (“the ’294 Patent”), owned by TomTom are invalid and seeks
orders that the ’292 Patent and the ’294 Patent be revoked. On January 17,
2007, TomTom filed a defense indicating that it intended to defend this
lawsuit. On March 30, 2007, TomTom filed an application with the court for
permission to amend the ‘293 Patent. On July 10, 2007, Garmin (Europe) Ltd.
filed a third lawsuit against TomTom in the High Court of Justice in London,
England. This lawsuit seeks declarations that United Kingdom Patent No. GB
2421160 B (“the 160 Patent”) and European Patent (UK) Nos. EP 1599703 B1 (the
‘703 Patent”) and EP 1611416 B1 (“the ‘416 Patent”) owned by TomTom are invalid
and seeks orders that the ‘160 Patent, the ‘703 Patent and the ‘416 Patent be
revoked. Garmin (Europe) Ltd. intends to prosecute vigorously its actions
seeking declarations of invalidity and revocation of the ’292, ‘293,’294, ‘160,
‘703, and ‘416 Patents and to defend vigorously TomTom’s allegation of
infringement of the’293 Patent. Although there can be no assurance that an
unfavorable outcome of this litigation would not have a material adverse effect
on our operating results, liquidity or financial position, we believe that
TomTom’s counterclaim under the ’293 Patent is without merit and we intend to
vigorously defend it.
From
time
to time the Company is involved in other legal actions arising in the ordinary
course of our business. We believe that the ultimate outcome of these actions
will not have a material adverse effect on our operating results, liquidity
or
financial position.
Item
1A. Risk Factors
There
are
many risks and uncertainties that can affect our future business, financial
performance or share price. In addition to the other information set forth
in
this report, you should carefully consider the factors discussed in Part I,
“Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year
ended December 30, 2006. There have been no material changes during the 13-week
and 26-week periods ended June 30, 2007 in the risks described in our Annual
Report on Form 10-K. These risks, however, are not the only risks facing our
Company. Additional risks and uncertainties not currently known to us or that
we
currently deem to be immaterial also may materially adversely affect our
business, financial condition and/or operating results.
Items
(a)
and (b) are not applicable.
(c)
Issuer Purchases of Equity Securities
The
Board
of Directors approved a share repurchase program on August 3, 2006, authorizing
the Company to purchase up to 3,000,000 shares of the Company as market and
business conditions warrant. The share repurchase authorization expires on
December 31, 2007. The following table lists the Company’s share purchases
during the second quarter of fiscal 2007:
Period
|
Total
# of
Shares
Purchased
|
Average
Price
Paid
Per Share
|
Total
Number of Shares
Purchased
as Part of
Publicly
Announced
Plans
or Programs
|
Maximum
Number of
Shares
That May Yet
Be
Purchased Under
the
Plans or Programs
|
13-weeks
ended
June
30, 2007
|
0
|
$0.00
|
0
|
1,844,700
|
Total
|
0
|
$0.00
|
0
|
1,844,700
|
None
Item
4. Submission
of Matters to a Vote of Security Holders
The
Company held its Annual General Meeting of Shareholders on June 8, 2007. Proxies
for the meeting were solicited pursuant to Regulation 14A. There was no
solicitation in opposition to the Board of Directors’ nominees for election as
directors as listed in the Proxy Statement and all such nominees were elected.
Listed below is each matter voted on at the Company’s Annual General Meeting.
All such matters were approved. A total of 205,238,155 common shares or
approximately 95% of the common shares outstanding on the record date, were
present in person or by proxy at the Annual General Meeting. These shares were
voted as follows:
Election
of Two Directors of the Company:
Nominee
|
|
For
|
|
Withheld
|
|
|
|
|
|
|
|
Gene
M. Betts
|
|
|
203,495,368
|
|
|
1,742,787
|
|
Thomas
A. McDonnell
|
|
|
192,344,024
|
|
|
12,894,131
|
|
The
terms
of office of Directors Gene M. Betts and Thomas A. McDonnell will continue
until
the Annual General Meeting of Shareholders in 2010. The terms of office of
Directors Min H. Kao and Charles W. Peffer will continue until the Annual
General Meeting of Shareholders in 2009. The terms of office of Directors Donald
H. Eller and Clifton A. Pemble will continue until the Annual General Meeting
in
2008.
Item
5. Other
Information
Not
applicable
Item
6. Exhibits
Exhibit
31.1
|
Certification
of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a)
or
15d-14(a).
|
|
|
Exhibit
31.2
|
Certification
of Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a)
or
15d-14(a).
|
|
|
Exhibit
32.1
|
Certification
of Chief Executive Officer pursuant to 18 U.S.C. Section 1350,
as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
|
Exhibit
32.2
|
Certification
of Chief Financial Officer pursuant to 18 U.S.C. Section 1350,
as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Company has
duly
caused this report to be signed on its behalf by the undersigned, thereunto
duly
authorized.
|
|
|
|
GARMIN
LTD. |
|
|
|
|
By: |
/s/ Kevin
Rauckman |
|
Kevin
Rauckman |
|
Chief
Financial Officer
(Principal
Financial Officer and
Principal
Accounting Officer)
|
Dated:
August 7, 2007
INDEX
TO EXHIBITS
Exhibit
No.
|
Description
|
|
|
Exhibit
31.1
|
Certification
of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a)
or
15d-14(a).
|
|
|
Exhibit
31.2
|
Certification
of Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a)
or
15d-14(a).
|
|
|
Exhibit
32.1
|
Certification
of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as
adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
|
|
Exhibit
32.2
|
Certification
of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|