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 March 29,
2008
|
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.)
|
P.O.
Box 10670, Grand Cayman KY1-1006
Suite
3206B, 45 Market Street, Gardenia Court
Camana
Bay, Cayman Islands
(Address
of principal executive offices)
|
N/A
(Zip
Code)
|
Company's
telephone number, including area code: (345)
640-9050
(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 x
Accelerated
Filer o
Non-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 May 2, 2008
Common
Shares, $.005 par value: 215,664,004
Garmin
Ltd.
Form
10-Q
Quarter
Ended March 29, 2008
Table
of Contents
Part
I -
|
Financial
Information
|
|
Page
|
|
|
|
|
|
|
Item
1.
|
Condensed
Consolidated Financial Statements
|
|
3
|
|
|
|
|
|
|
|
Introductory
Comments
|
|
3
|
|
|
|
|
|
|
|
Condensed
Consolidated Balance Sheets at March 29, 2008 (Unaudited) and December
29,
2007
|
|
4
|
|
|
|
|
|
|
|
Condensed
Consolidated Statements of Income for the 13-weeks ended March 29,
2008
and March 31, 2007 (Unaudited)
|
|
5
|
|
|
|
|
|
|
|
Condensed
Consolidated Statements of Cash Flows for the 13-weeks ended March
29,
2008 and March 31, 2007 (Unaudited)
|
|
6
|
|
|
|
|
|
|
|
Notes
to Condensed Consolidated Financial Statements (Unaudited)
|
|
7
|
|
|
|
|
|
|
Item
2.
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations
|
|
12
|
|
|
|
|
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
|
18
|
|
|
|
|
|
|
Item
4.
|
Controls
and Procedures
|
|
19
|
|
|
|
|
|
Part
II -
|
Other
Information
|
|
|
|
|
|
|
|
|
Item
1.
|
Legal
Proceedings
|
|
20
|
|
|
|
|
|
|
Item
1A.
|
Risk
Factors
|
|
21
|
|
|
|
|
|
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
|
21
|
|
|
|
|
|
|
Item
3.
|
Defaults
Upon Senior Securities
|
|
21
|
|
|
|
|
|
|
Item
4.
|
Submission
of Matters to a Vote of Securities Holders
|
|
21
|
|
|
|
|
|
|
Item
5.
|
Other
Information
|
|
21
|
|
|
|
|
|
|
Item
6.
|
Exhibits
|
|
22
|
|
|
|
|
|
Signature
Page
|
|
23
|
|
|
|
|
|
Index
to Exhibits
|
|
24
|
Garmin
Ltd.
Form
10-Q
Quarter
Ended March 29, 2008
Part
I - Financial Information
Item
1. Condensed Consolidated Financial Statements
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 29,
2007.
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 period ended March 29, 2008 are not
necessarily indicative of the results to be expected for the full year
2008.
|
|
Condensed
Consolidated Balance Sheets
|
|
(In
thousands, except share information)
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
March
29,
|
|
December
29,
|
|
|
|
2008
|
|
2007
|
|
Assets
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
598,815
|
|
$
|
707,689
|
|
Marketable
securities
|
|
|
17,976
|
|
|
37,551
|
|
Accounts
receivable, net
|
|
|
515,648
|
|
|
952,513
|
|
Inventories,
net
|
|
|
676,051
|
|
|
505,467
|
|
Deferred
income taxes
|
|
|
98,506
|
|
|
107,376
|
|
Prepaid
expenses and other current assets
|
|
|
24,129
|
|
|
22,179
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
1,931,125
|
|
|
2,332,775
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
392,001
|
|
|
374,147
|
|
|
|
|
|
|
|
|
|
Marketable
securities
|
|
|
542,937
|
|
|
386,954
|
|
Restricted
cash
|
|
|
1,565
|
|
|
1,554
|
|
Licensing
agreements, net
|
|
|
13,236
|
|
|
14,672
|
|
Other
intangible assets, net
|
|
|
202,534
|
|
|
181,358
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
3,083,398
|
|
$
|
3,291,460
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders' Equity
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
213,766
|
|
$
|
341,053
|
|
Salaries
and benefits payable
|
|
|
34,618
|
|
|
31,696
|
|
Accrued
warranty costs
|
|
|
72,751
|
|
|
71,636
|
|
Other
accrued expenses
|
|
|
129,415
|
|
|
280,603
|
|
Income
taxes payable
|
|
|
16,163
|
|
|
76,895
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
466,713
|
|
|
801,883
|
|
|
|
|
|
|
|
|
|
Deferred
income taxes
|
|
|
12,123
|
|
|
11,935
|
|
Non-current
taxes
|
|
|
136,137
|
|
|
126,593
|
|
Other
liabilities
|
|
|
980
|
|
|
435
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity:
|
|
|
|
|
|
|
|
Common
stock, $0.005 par value, 1,000,000,000 shares authorized:
|
|
|
|
|
|
|
|
Issued
and outstanding shares - 215,648,000 as of
|
|
|
|
|
|
|
|
March
29, 2008 and 216,980,000 as of
|
|
|
|
|
|
|
|
December
29, 2007
|
|
|
1,079
|
|
|
1,086
|
|
Additional
paid-in capital
|
|
|
54,502
|
|
|
132,264
|
|
Retained
earnings
|
|
|
2,318,914
|
|
|
2,171,134
|
|
Accumulated
other comprehensive income
|
|
|
92,950
|
|
|
46,130
|
|
|
|
|
|
|
|
|
|
Total
stockholders' equity
|
|
|
2,467,445
|
|
|
2,350,614
|
|
Total
liabilities and stockholders' equity
|
|
$
|
3,083,398
|
|
$
|
3,291,460
|
|
Garmin
Ltd. And Subsidiaries
|
|
Condensed
Consolidated Statements of Income (Unaudited)
|
|
(In
thousands, except per share information)
|
|
|
|
|
|
|
|
|
|
13-Weeks
Ended
|
|
|
|
March
29,
|
|
March
31,
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
663,805
|
|
$
|
492,159
|
|
|
|
|
|
|
|
|
|
Cost
of goods sold
|
|
|
343,690
|
|
|
254,407
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
320,115
|
|
|
237,752
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expense
|
|
|
97,825
|
|
|
65,925
|
|
Research
and development expense
|
|
|
49,558
|
|
|
33,503
|
|
|
|
|
147,383
|
|
|
99,428
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
172,732
|
|
|
138,324
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
Interest
income
|
|
|
8,404
|
|
|
9,359
|
|
Interest
expense
|
|
|
(77
|
)
|
|
(32
|
)
|
Foreign
currency
|
|
|
(3,999
|
)
|
|
13,205
|
|
Other
|
|
|
5,383
|
|
|
51
|
|
|
|
|
9,711
|
|
|
22,583
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
182,443
|
|
|
160,907
|
|
|
|
|
|
|
|
|
|
Income
tax provision
|
|
|
34,664
|
|
|
21,047
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
147,779
|
|
$
|
139,860
|
|
|
|
|
|
|
|
|
|
Net
income per share:
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.68
|
|
$
|
0.65
|
|
Diluted
|
|
$
|
0.67
|
|
$
|
0.64
|
|
|
|
|
|
|
|
|
|
Weighted
average common
|
|
|
|
|
|
|
|
shares
outstanding:
|
|
|
|
|
|
|
|
Basic
|
|
|
216,505
|
|
|
216,215
|
|
Diluted
|
|
|
218,979
|
|
|
218,704
|
|
|
|
|
|
|
|
|
|
See
accompanying notes.
|
|
|
|
|
|
|
|
Garmin
Ltd. And Subsidiaries
|
Condensed
Consolidated Statements of Cash Flows
(Unaudited)
|
(In
thousands)
|
|
|
|
13-Weeks
Ended
|
|
|
|
March
29,
|
|
March
31,
|
|
|
|
2008
|
|
2007
|
|
Operating
Activities:
|
|
|
|
|
|
Net
income
|
|
$
|
147,779
|
|
$
|
139,860
|
|
Adjustments
to reconcile net income to net cash
|
|
|
|
|
|
|
|
provided
by operating activities:
|
|
|
|
|
|
|
|
Depreciation
|
|
|
9,861
|
|
|
6,213
|
|
Amortization
|
|
|
7,775
|
|
|
9,872
|
|
Loss
(gain) on sale of property and equipment
|
|
|
(1
|
)
|
|
27
|
|
Provision
for doubtful accounts
|
|
|
350
|
|
|
991
|
|
Deferred
income taxes
|
|
|
17,067
|
|
|
2,159
|
|
Foreign
currency transaction gains/losses
|
|
|
64,946
|
|
|
(13,052
|
)
|
Provision
for obsolete and slow moving inventories
|
|
|
11,669
|
|
|
8,156
|
|
Stock
compensation expense
|
|
|
9,124
|
|
|
3,955
|
|
Realized
gains on marketable securities
|
|
|
(5,245
|
)
|
|
-
|
|
Changes
in operating assets and liabilities, net of acquisitions:
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
458,821
|
|
|
84,886
|
|
Inventories
|
|
|
(169,501
|
)
|
|
(16,772
|
)
|
Other
current assets
|
|
|
9,946
|
|
|
2,947
|
|
Accounts
payable
|
|
|
(159,590
|
)
|
|
6,252
|
|
Other
current and non-current liabilities
|
|
|
(137,588
|
)
|
|
(34,628
|
)
|
Income
taxes payable
|
|
|
(60,701
|
)
|
|
(11,993
|
)
|
Purchase
of licenses
|
|
|
(12,247
|
)
|
|
(20,203
|
)
|
Net
cash provided by operating activities
|
|
|
192,465
|
|
|
168,670
|
|
|
|
|
|
|
|
|
|
Investing
activities:
|
|
|
|
|
|
|
|
Purchases
of property and equipment
|
|
|
(26,690
|
)
|
|
(12,399
|
)
|
Proceeds
from sale of property and equipment
|
|
|
8
|
|
|
-
|
|
Purchase
of intangible assets
|
|
|
(2,562
|
)
|
|
(1,564
|
)
|
Purchase
of marketable securities
|
|
|
(265,758
|
)
|
|
(102,197
|
)
|
Redemption
of marketable securities
|
|
|
102,374
|
|
|
153,924
|
|
Change
in restricted cash
|
|
|
(11
|
)
|
|
(4
|
)
|
Acquisitions,
net of cash acquired
|
|
|
(23,725
|
)
|
|
(68,902
|
)
|
Net
cash used in investing activities
|
|
|
(216,364
|
)
|
|
(31,142
|
)
|
|
|
|
|
|
|
|
|
Financing
activities:
|
|
|
|
|
|
|
|
Proceeds
from issuance of common stock
|
|
|
1,524
|
|
|
2,842
|
|
Stock
repurchase
|
|
|
(90,050
|
)
|
|
-
|
|
Payments
on long term debt
|
|
|
-
|
|
|
(14
|
)
|
Tax
benefit related to stock option exercise
|
|
|
1,633
|
|
|
2,190
|
|
Net
cash provided by/(used in) financing activities
|
|
|
(86,893
|
)
|
|
5,018
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash and cash equivalents
|
|
|
1,918
|
|
|
(487
|
)
|
|
|
|
|
|
|
|
|
Net
increase/(decrease) in cash and cash equivalents
|
|
|
(108,874
|
)
|
|
142,059
|
|
Cash
and cash equivalents at beginning of period
|
|
|
707,689
|
|
|
337,321
|
|
Cash
and cash equivalents at end of period
|
|
$
|
598,815
|
|
$
|
479,380
|
|
|
|
|
|
|
|
|
|
See
accompanying notes.
|
|
|
|
|
|
|
|
Garmin
Ltd. and Subsidiaries
Notes
to Condensed Consolidated Financial Statements (Unaudited)
March
29, 2008
(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 period ended March 29, 2008
are
not necessarily indicative of the results that may be expected for the year
ending December 27, 2008.
The
condensed consolidated balance sheet at December 29, 2007 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 29,
2007.
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 March 29, 2008 and March 31, 2007 both contain
operating results for 13-weeks for both year-to-date periods.
The
components of inventories consist of the following:
|
|
March
29, 2008
|
|
December
29, 2007
|
|
|
|
|
|
|
|
Raw
Materials
|
|
$
|
193,824
|
|
$
|
130,056
|
|
Work-in-process
|
|
|
49,155
|
|
|
57,622
|
|
Finished
goods
|
|
|
461,757
|
|
|
348,975
|
|
Inventory
Reserves
|
|
|
(28,685
|
)
|
|
(31,186
|
)
|
Inventory,
net of reserves
|
|
$
|
676,051
|
|
$
|
505,467
|
|
The
Board
of Directors approved a share repurchase program on February 4, 2008,
authorizing the Company to purchase up to 5.0 million shares of Garmin Ltd.’s
common stock as market and business conditions warrant. The share repurchase
authorization expires on December 31, 2009. As of March 29, 2008, the Company
had repurchased 1,425,000 shares using cash of $90,050.
The
following table sets forth the computation of basic and diluted net income
per
share:
|
|
13-Weeks
Ended
|
|
|
|
March
29,
|
|
March
31,
|
|
|
|
2008
|
|
2007
|
|
Numerator:
|
|
|
|
|
|
Numerator
for basic and diluted net income
|
|
|
|
|
|
per
share - net income
|
|
$
|
147,779
|
|
$
|
139,860
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
Denominator
for basic net income per share –
|
|
|
|
|
|
|
|
weighted-average
common shares (in thousands)
|
|
|
216,505
|
|
|
216,215
|
|
|
|
|
|
|
|
|
|
Effect
of dilutive securities –
|
|
|
|
|
|
|
|
employee
stock options (in thousands)
|
|
|
2,474
|
|
|
2,489
|
|
|
|
|
|
|
|
|
|
Denominator
for diluted net income per share –
|
|
|
|
|
|
|
|
adjusted
weighted-average common shares (in thousands)
|
|
|
218,979
|
|
|
218,704
|
|
|
|
|
|
|
|
|
|
Basic
net income per share
|
|
$
|
0.68
|
|
$
|
0.65
|
|
|
|
|
|
|
|
|
|
Diluted
net income per share
|
|
$
|
0.67
|
|
$
|
0.64
|
|
There
were 3,107,431 anti-dilutive options for the 13-week period ended March 29,
2008. There were 2,391,766 anti-dilutive options for the 13-week period ended
March 31, 2007.
There
were 92,833 shares issued as a result of exercises of stock appreciation rights
and stock options for the 13-week period ended March 29, 2008.
Comprehensive
income is comprised of the following:
|
|
13-Weeks
Ended
|
|
|
|
March
29,
|
|
March
31,
|
|
|
|
2008
|
|
2007
|
|
Net
income
|
|
$
|
147,779
|
|
$
|
139,860
|
|
Translation
adjustment
|
|
|
79,794
|
|
|
(12,881
|
)
|
Change
in fair value of available-for-sale
|
|
|
|
|
|
|
|
marketable
securities, net of deferred taxes
|
|
|
(32,974
|
)
|
|
1,817
|
|
Comprehensive
income
|
|
$
|
194,599
|
|
$
|
128,796
|
|
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 March 29, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
70,495
|
|
$
|
56,006
|
|
$
|
451,859
|
|
$
|
85,445
|
|
$
|
663,805
|
|
Operating
income
|
|
$
|
19,311
|
|
$
|
17,836
|
|
$
|
107,641
|
|
$
|
27,944
|
|
$
|
172,732
|
|
Income
before taxes
|
|
$
|
20,447
|
|
$
|
19,333
|
|
$
|
112,304
|
|
$
|
30,359
|
|
$
|
182,443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13-Weeks
Ended March 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
60,527
|
|
$
|
43,004
|
|
$
|
316,626
|
|
$
|
72,002
|
|
$
|
492,159
|
|
Operating
income
|
|
$
|
21,209
|
|
$
|
11,294
|
|
$
|
79,525
|
|
$
|
26,296
|
|
$
|
138,324
|
|
Income
before taxes
|
|
$
|
24,783
|
|
$
|
13,085
|
|
$
|
95,145
|
|
$
|
27,894
|
|
$
|
160,907
|
|
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 13-week periods ended March 29, 2008 and March 31,
2007:
|
|
North
|
|
|
|
|
|
|
|
|
|
America
|
|
Asia
|
|
Europe
|
|
Total
|
|
March
29, 2008
|
|
|
|
|
|
|
|
|
|
Net
sales to external customers
|
|
$
|
411,432
|
|
$
|
41,786
|
|
$
|
210,587
|
|
$
|
663,805
|
|
Long
lived assets
|
|
$
|
195,784
|
|
$
|
150,324
|
|
$
|
45,893
|
|
$
|
392,001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales to external customers
|
|
$
|
322,624
|
|
$
|
21,460
|
|
$
|
148,075
|
|
$
|
492,159
|
|
Long
lived assets
|
|
$
|
154,962
|
|
$
|
62,895
|
|
$
|
40,078
|
|
$
|
257,935
|
|
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
|
|
|
|
March
29,
|
|
March
31,
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
Balance
- beginning of the period
|
|
$
|
71,636
|
|
$
|
37,639
|
|
Accrual
for products sold
|
|
|
|
|
|
|
|
during
the period
|
|
|
35,321
|
|
|
15,035
|
|
Expenditures
|
|
|
(34,206
|
)
|
|
(13,393
|
)
|
Balance
- end of the period
|
|
$
|
72,751
|
|
$
|
39,281
|
|
Pursuant
to certain supply agreements, the Company is contractually committed to make
purchases of approximately $22.3 million over the next 5 years.
Our
earnings before taxes increased 13% when compared to the same quarter in 2007,
and our income tax expense increased by $13.6 million, to $34.7 million, for
the
13-week period ended March 29, 2008, from $21.0 million for the 13-week period
ended March 31, 2007, due to our strong revenue growth and a higher effective
tax rate. The effective tax rate was 19.0% in the first quarter of 2008 and
13.1% in the first quarter of 2007. The higher tax rate in the first quarter
of
2008 when compared to the same quarter in 2007 was driven by a change in tax
law
related to the repatriation of earnings from our Taiwan subsidiary and the
unfavorable mix of taxable income among Company entities.
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 adopted SFAS No. 157 effective December 30,
2007.
SFAS
No.
157 defines fair value as the price that would be received to sell an asset
or
paid to transfer a liability in an orderly transaction between market
participants at the measurement date (exit price). SFAS No. 157 classifies
the
inputs used to measure fair value into the following hierarchy:
Level
1
|
Unadjusted
quoted prices in active markets for identical assets or
liability
|
|
|
Level
2
|
Unadjusted
quoted prices in active markets for similar assets or liabilities,
or
|
|
|
|
Unadjusted
quoted prices for identical or similar assets
|
|
|
Level
3
|
Unobservable
inputs for the asset or liability
|
The
Company endeavors to utilize the best available information in measuring fair
value. Financial assets and liabilities are classified in their entirety based
on the lowest level of input that is significant to the fair value
measurement.
Assets
and liabilities measured at estimated fair value on a recurring basis are
summarized below:
|
|
Fair
Value Measurements as
|
|
|
|
of
March 29, 2008
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
Total
|
|
Level
1
|
|
Level
2
|
|
Level
3
|
|
|
|
|
|
|
|
|
|
|
|
Available
for-sale securites
|
|
$
|
472,705
|
|
$
|
472,705
|
|
|
-
|
|
|
-
|
|
Failed
Auction rate securities
|
|
|
88,208
|
|
|
-
|
|
|
-
|
|
|
88,208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
560,913
|
|
$
|
472,705
|
|
$
|
-
|
|
$
|
88,208
|
|
For
assets and liabilities measured at fair value on a recurring basis using
significant unobservable inputs (Level 3) during the period, SFAS No. 157
requires a reconciliation of the beginning and ending balances, separately
for
each major category of assets. The reconciliation is as follows:
|
|
Fair
Value Measurements Using
|
|
|
|
Significant
Unobservable Inputs (Level 3)
|
|
|
|
|
|
Beginning
balance of auction rate securities
|
|
$ |
0 |
|
Total
unrealized losses included in other
|
|
|
|
|
comprehensive
income
|
|
|
(4,642 |
) |
Purchases
in and/or out of Level 3
|
|
|
92,850
|
|
Transfers
in and/or out of Level 3
|
|
|
- |
|
Ending
balance of auction rate securities
|
|
$ |
88,208 |
|
In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements (“SFAS 160”). SFAS 160 outlines the accounting
and reporting for ownership interests in subsidiaries held by parties other
than
the parent, the amount of consolidated net income attributable to the parent
and
to the noncontrolling interest, changes in a parent’s ownership interest, and
the valuation of retained noncontrolling equity investments when a subsidiary
is
deconsolidated. SFAS 160 also establishes disclosure requirements that clearly
identify and distinguish between the interests of the parent and the interests
of the noncontrolling owners. The statement is effective for fiscal years
beginning on or after December 15, 2008. We do not expect the adoption of
SFAS No. 160 to have a material impact on our financial reporting and
disclosure.
In
December 2007, the FASB issued SFAS No. 141 (revised 2007), Business
Combinations (“SFAS 141R”). This standard establishes principles and
requirements for how an acquirer recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed, any
non-controlling interest in the acquiree and the goodwill acquired. SFAS 141R
also establishes disclosure requirements that will enable users to evaluate
the
nature and financial effects of the business combination. The statement is
effective for financial statements issued for fiscal years beginning on or
after
December 15, 2008 and interim periods within those fiscal years. The
Company will determine the impact of adopting SFAS 141R on its consolidated
financial statements should applicable transactions occur in the future.
In
March 2008, the FASB issued Statement of Financial Accounting Standards No.
161,
Disclosures about Derivative Instruments and Hedging Activities (“SFAS No.
161”). This statement will require holders of derivative instruments to provide
qualitative disclosures about objectives and strategies for using derivatives,
quantitative disclosures about fair value amounts of gains and losses from
derivative instruments, and disclosures about credit-risk-related contingent
features in derivative agreements. This statement is effective for interim
and
annual periods beginning after November 15, 2008. The company is not currently
the holder of any derivative instruments; thus, currently adoption of this
statement would not have any effect on the Company’s results of operations,
financial condition, or cash flows.
In
the
first quarter of 2008, Garmin Ltd. acquired Fairpoint Navigation A/S (the
distributor of Garmin’s consumer products in Denmark). The company has been
renamed Garmin Danmark A/S. The acquisition is not considered to be material,
therefore supplemental pro forma information is not presented.
On
March
3, 2008, Garmin Ltd. announced its intent to acquire Formar Electronics N.V./
S.A., the distributor of Garmin’s consumer products in Belgium and Luxembourg,
and NavCor Oy the distributor of Garmin’s consumer products in Finland. These
acquisitions are not expected to be material.
On
May 1,
2008, Garmin Ltd. announced its intent to acquire Puls Elektronik GmbH, the
distributor of Garmin’s consumer products in Austria and Satsignal Equipamentos
de Comunicação S.A., the distributor of Garmin’s consumer products in Portugal.
These acquisitions are not expected to be material.
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 29, 2007. 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 29,
2007.
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
|
|
|
|
March
29, 2008
|
|
March
31, 2007
|
|
|
|
|
|
|
|
Net
sales
|
|
|
100.0
|
%
|
|
100.0
|
%
|
Cost
of goods sold
|
|
|
51.8
|
%
|
|
51.7
|
%
|
Gross
profit
|
|
|
48.2
|
%
|
|
48.3
|
%
|
Research
and development
|
|
|
7.5
|
%
|
|
6.8
|
%
|
Selling,
general and administrative
|
|
|
14.7
|
%
|
|
13.4
|
%
|
Total
operating expenses
|
|
|
22.2
|
%
|
|
20.2
|
%
|
Operating
income
|
|
|
26.0
|
%
|
|
28.1
|
%
|
Other
income (expense), net
|
|
|
1.5
|
%
|
|
4.6
|
%
|
Income
before income taxes
|
|
|
27.5
|
%
|
|
32.7
|
%
|
Provision
for income taxes
|
|
|
5.2
|
%
|
|
4.3
|
%
|
Net
income
|
|
|
22.3
|
%
|
|
28.4
|
%
|
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 (net sales), gross profit, and
operating income 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 March 29, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
70,495
|
|
$
|
56,006
|
|
$
|
451,859
|
|
$
|
85,445
|
|
$
|
663,805
|
|
Operating
income
|
|
$
|
19,311
|
|
$
|
17,836
|
|
$
|
107,641
|
|
$
|
27,944
|
|
$
|
172,732
|
|
Income
before taxes
|
|
$
|
20,447
|
|
$
|
19,333
|
|
$
|
112,304
|
|
$
|
30,359
|
|
$
|
182,443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13-Weeks
Ended March 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
60,527
|
|
$
|
43,004
|
|
$
|
316,626
|
|
$
|
72,002
|
|
$
|
492,159
|
|
Operating
income
|
|
$
|
21,209
|
|
$
|
11,294
|
|
$
|
79,525
|
|
$
|
26,296
|
|
$
|
138,324
|
|
Income
before taxes
|
|
$
|
24,783
|
|
$
|
13,085
|
|
$
|
95,145
|
|
$
|
27,894
|
|
$
|
160,907
|
|
Comparison
of 13-Weeks Ended March 29, 2008 and March 31, 2007
Net
Sales
|
|
13-weeks
ended March 29, 2008
|
|
13-weeks
ended March 31, 2007
|
|
Quarter
over Quarter
|
|
|
|
Net
Sales
|
|
%
of Revenues
|
|
Net
Sales
|
|
%
of Revenues
|
|
$
Change
|
|
%
Change
|
|
Outdoor/Fitness
|
$
|
70,495
|
|
|
10.6
|
%
|
$
|
60,527
|
|
|
12.3
|
%
|
$
|
9,968
|
|
|
16.5
|
%
|
Marine
|
|
56,006
|
|
|
8.4
|
%
|
|
43,004
|
|
|
8.7
|
%
|
|
13,002
|
|
|
30.2
|
%
|
Automotive/Mobile
|
|
451,859
|
|
|
68.1
|
%
|
|
316,626
|
|
|
64.4
|
%
|
|
135,233
|
|
|
42.7
|
%
|
Aviation
|
|
85,445
|
|
|
12.9
|
%
|
|
72,002
|
|
|
14.6
|
%
|
|
13,443
|
|
|
18.7
|
%
|
Total
|
$
|
663,805
|
|
|
100.0
|
%
|
$
|
492,159
|
|
|
100.0
|
%
|
$
|
171,646
|
|
|
34.9
|
%
|
Increases
in sales of 34.9% for the 13-week period ended March 29, 2008 were primarily
due
to a strong response to automotive product offerings. However, the aviation,
marine, and outdoor/fitness segments all showed growth in absolute dollars
during the quarter as well. Automotive/mobile revenue remains a significantly
larger portion of our revenue mix, rising from 64.4% in the first quarter of
2007 to 68.1% in the first quarter of 2008.
Total
unit sales increased 80% to 2,787,000 in the first quarter of 2008 from
1,551,000 in the same period of 2007. The higher unit sales volume in the first
quarter of fiscal 2008 was primarily attributable to strong sales of automotive
products during the first quarter, although unit growth also occurred in the
outdoor/fitness and aviation segments during the quarter.
Automotive/mobile
segment revenue grew the most during the quarter, up 43% from the year-ago
quarter, on the strength of nüvi and other personal navigation devices (PNDs).
Our aviation segment also performed well, as demand for our retrofit products
and G1000 integrated cockpit continued to be strong. Revenues in our
outdoor/fitness segment grew relative to the first quarter of 2007 due to
positive customer response to the new product offerings, including the Colorado
series. The marine segment showed strong growth during the quarter when compared
with the first quarter of 2007, driven by continued customer acceptance of
new
products.
Gross
Profit
|
|
13-weeks
ended March 29, 2008
|
|
13-weeks
ended March 31, 2007
|
|
Quarter
over Quarter
|
|
|
|
Gross
Profit
|
|
%
of Revenues
|
|
Gross
Profit
|
|
%
of Revenues
|
|
$
Change
|
|
%
Change
|
|
Outdoor/Fitness
|
$
|
37,439
|
|
|
53.1
|
%
|
$
|
33,415
|
|
|
55.2
|
%
|
$
|
4,024
|
|
|
12.0
|
%
|
Marine
|
$
|
32,463
|
|
|
58.0
|
%
|
|
21,153
|
|
|
49.2
|
%
|
|
11,310
|
|
|
53.5
|
%
|
Automotive/Mobile
|
$
|
195,894
|
|
|
43.4
|
%
|
|
136,731
|
|
|
43.2
|
%
|
|
59,163
|
|
|
43.3
|
%
|
Aviation
|
$
|
54,319
|
|
|
63.6
|
%
|
|
46,453
|
|
|
64.5
|
%
|
|
7,866
|
|
|
16.9
|
%
|
Total
|
$
|
320,115
|
|
|
48.2
|
%
|
$
|
237,752
|
|
|
48.3
|
%
|
$
|
82,363
|
|
|
34.6
|
%
|
Gross
profit dollars in the first quarter of 2008 grew 34.6% and gross profit margin
remained relatively steady over the first quarter of 2007. First quarter gross
profit margins decreased to 53.1% and 63.6% in the outdoor/fitness and aviation
segments respectively, when compared to the same quarter in 2007. First quarter
2008 gross profit margins increased to 58.0% and 43.4% in the marine and
automotive/mobile segments, respectively, when compared with the first quarter
of 2007.
Gross
profit margin percentage for the Company overall remained steady primarily
as a
result of positive results in the automotive/mobile and marine segments. The
automotive/mobile segment’s margin improved 20 basis points though it remains
the lowest gross margin of our four businesses. The slight gross margin
improvement is due to better component pricing which is significant as the
segment continued to grow to 61.2% of total gross margin from 57.5% in the
year
ago quarter. The Company also benefited from increased revenues outside of
the
U.S. resulting in a 300 basis point increase to gross margins related to foreign
currency fluctuations in the quarter. Continued strong sales of new products
in
the marine retail channel provided off-season support for marine margins, which
remained within historic ranges. While the prior year margins in this segment
had been negatively impacted by efforts to clear the marine retail channel
by
discounting older products. Declines in gross margin in the outdoor/fitness
and
aviation segments are a result of a more mature product mix for the Company
during the quarter. Overall, 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 March 29, 2008
|
|
13-weeks
ended March 31, 2007
|
|
|
|
|
|
Selling,
General &
|
|
|
|
Selling,
General &
|
|
|
|
Quarter
over Quarter
|
|
|
|
Admin.
Expenses
|
|
%
of Revenues
|
|
Admin.
Expenses
|
|
%
of Revenues
|
|
$
Change
|
|
%
Change
|
|
Outdoor/Fitness
|
$
|
11,930
|
|
|
16.9
|
%
|
$
|
7,289
|
|
|
12.0
|
%
|
$
|
4,641
|
|
|
63.7
|
%
|
Marine
|
$
|
9,271
|
|
|
16.6
|
%
|
|
6,037
|
|
|
14.0
|
%
|
|
3,234
|
|
|
53.6
|
%
|
Automotive/Mobile
|
$
|
69,029
|
|
|
15.3
|
%
|
|
45,814
|
|
|
14.5
|
%
|
|
23,215
|
|
|
50.7
|
%
|
Aviation
|
$
|
7,595
|
|
|
8.9
|
%
|
|
6,785
|
|
|
9.4
|
%
|
|
810
|
|
|
11.9
|
%
|
Total
|
$
|
97,825
|
|
|
14.7
|
%
|
$
|
65,925
|
|
|
13.4
|
%
|
$
|
31,900
|
|
|
48.4
|
%
|
The
increase in expense was driven primarily by increased costs associated with
the
European distributors acquired in 2007, 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 30% or $8.8
million when compared to the first quarter of 2007. As a percent of sales,
advertising declined to 5.7% of sales in the first quarter of 2008, down from
6.0% in the first quarter of 2007. Other selling, general and administrative
expenses increased as a percent of sales from 7.4% of sales in the first quarter
of 2007 to 9.0% of sales in the first quarter of 2008, as staffing in marketing
and administration were increased to support our rapid growth. In absolute
dollars, other selling, general and administrative expenses increased $23.1
million when compared to the previous year quarter, with increases distributed
across European distributors, call center, information technology, operations,
and marketing administration areas to support the growth of our businesses.
Research
and Development Expense
|
|
13-weeks
ended March 29, 2008
|
|
13-weeks
ended March 31, 2007
|
|
|
|
|
|
Research
&
|
|
|
|
Research
&
|
|
|
|
Quarter
over Quarter
|
|
|
|
Development
|
|
%
of Revenues
|
|
Development
|
|
%
of Revenues
|
|
$
Change
|
|
%
Change
|
|
Outdoor/Fitness
|
$
|
6,198
|
|
|
8.8
|
%
|
$
|
4,917
|
|
|
8.1
|
%
|
$
|
1,281
|
|
|
26.1
|
%
|
Marine
|
|
5,356
|
|
|
9.6
|
%
|
|
3,822
|
|
|
8.9
|
%
|
|
1,534
|
|
|
40.1
|
%
|
Automotive/Mobile
|
|
19,223
|
|
|
4.3
|
%
|
|
11,392
|
|
|
3.6
|
%
|
|
7,831
|
|
|
68.7
|
%
|
Aviation
|
|
18,781
|
|
|
22.0
|
%
|
|
13,372
|
|
|
18.6
|
%
|
|
5,409
|
|
|
40.5
|
%
|
Total
|
$
|
49,558
|
|
|
7.5
|
%
|
$
|
33,503
|
|
|
6.8
|
%
|
$
|
16,055
|
|
|
47.9
|
%
|
The
47.9%
increase in research and development expense was due to ongoing development
activities for new products, the addition of over 400 new engineering personnel
to our staff since the year-ago quarter, and an increase in engineering program
costs during the first quarter of 2008 as a result of our continued emphasis
on
product innovation. Research and development costs increased $16.1 million
when
compared with the year-ago quarter representing a 70 basis point increase as
a
percent of revenue.
Operating
Income
|
|
13-weeks
ended March 29, 2008
|
|
13-weeks
ended March 31, 2007
|
|
Quarter
over Quarter
|
|
|
|
Operating
Income
|
|
%
of Revenues
|
|
Operating
Income
|
|
%
of Revenues
|
|
$
Change
|
|
%
Change
|
|
Outdoor/Fitness
|
$
|
19,311
|
|
|
27.4
|
%
|
$
|
21,209
|
|
|
35.0
|
%
|
|
($1,898
|
)
|
|
-8.9
|
%
|
Marine
|
|
17,836
|
|
|
31.8
|
%
|
|
11,294
|
|
|
26.3
|
%
|
|
6,542
|
|
|
57.9
|
%
|
Automotive/Mobile
|
|
107,641
|
|
|
23.8
|
%
|
|
79,525
|
|
|
25.1
|
%
|
|
28,116
|
|
|
35.4
|
%
|
Aviation
|
|
27,944
|
|
|
32.7
|
%
|
|
26,296
|
|
|
36.5
|
%
|
|
1,648
|
|
|
6.3
|
%
|
Total
|
$
|
172,732
|
|
|
26.0
|
%
|
$
|
138,324
|
|
|
28.1
|
%
|
$
|
34,408
|
|
|
24.9
|
%
|
Operating
income was down 210 basis points as a percent of revenue when compared to the
first quarter of 2007 due to increased marketing and advertising activities,
increased staffing throughout the organization to support our growth and
continued research and development expense associated with ongoing development
activities. Operating margins decreased to 27.4%, 23.8%, and 32.7% within our
outdoor/fitness, automotive/mobile and aviation segments, respectively, when
compared with the first quarter in 2007. Operating margins increased to 31.8%
within our marine segment. Our operating margin percentage decreased as a
function of a slight decline in the gross profit margin percentage enhanced
by
increased spending as a percentage of net sales in selling, general and
administrative expense and research and development expense, as discussed
above.
Other
Income (Expense)
|
|
13-weeks
ended
|
|
13-weeks
ended
|
|
|
|
March
29, 2008
|
|
March
31, 2007
|
|
Interest
Income
|
|
$
|
8,404
|
|
$
|
9,359
|
|
Interest
Expense
|
|
|
(77
|
)
|
|
(32
|
)
|
Foreign
Currency Exchange
|
|
|
(3,999
|
)
|
|
13,205
|
|
Other
|
|
|
5,383
|
|
|
51
|
|
Total
|
|
$
|
9,711
|
|
$
|
22,583
|
|
The
average interest rate return on cash and investments during the first quarter
of
2008 was 2.9% compared to 4.3% during the same quarter of 2007. The decrease
in
interest income is attributable to a decline in cash balances and decreasing
interest rates.
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 U.S. Dollar remains
the functional currency of Garmin (Europe) Ltd. The Euro is the functional
currency of Garmin France, Garmin Deutschland, Garmin Iberia, Garmin Italia,
and
Garmin Danmark. As these entities grow, Euro currency moves will generate
material gains and losses. Additionally, Euro-based inter-company transactions
in Garmin Ltd. can also generate currency gains and losses. The Canadian dollar
is the functional currency of Dynastream Innovations, Inc.; due to this entity’s
relative size, its currency moves do not have a material impact on the Company’s
financial statements.
The
majority of the $4.0 million currency loss in the first quarter of 2008 was
due
to the weakening of the U.S. Dollar compared to the Taiwan Dollar.
During the first quarter of fiscal 2008 the Taiwan Dollar exchange rate
increased 6.4% in comparison to the USD, resulting in a $43.7 million loss.
Offsetting this impact, the Euro has strengthened 7.6% relative to the U.S.
Dollar during the first quarter which resulted in a $39.9 million gain. The
relative strength of the Taiwan Dollar and Euro have offsetting impacts due
to
the use of the Taiwan Dollar for manufacturing costs while the Euro transactions
relate to revenue. Other net currency gains and the timing of transactions
created the remaining loss of $0.2 million.
The
majority of the $13.2 million currency gain in the first quarter of 2007 was
due
to the strengthening of the U.S. Dollar compared to the Taiwan Dollar. During
the first quarter of fiscal 2007 the exchange rate increased 1.5% to $33.09
TD/USD at March 31, 2007 from $32.60 TD/USD at December 30, 2006, resulting
in
$12.1 million of the quarter’s gain. While the British Pound Sterling
strengthened relative to the U.S. Dollar during the quarter, the timing of
the
transactions during the period resulted in Garmin Europe recording a $1.0
million gain.
Other
income of $5.4 million in the current quarter was primarily generated from
the
sale of a portion of our equity interest in Tele Atlas N.V.
Income
Tax Provision
Our
earnings before taxes increased 13% when compared to the same quarter in 2007,
and our income tax expense increased by $13.6 million, to $34.7 million, for
the
13-week period ended March 29, 2008, from $21.0 million for the 13-week period
ended March 31, 2007, due to our strong revenue growth and a higher effective
tax rate. The effective tax rate was 19.0% in the first quarter of 2008 and
13.1% in the first quarter of 2007. The higher tax rate in the first quarter
of
2008 when compared to the same quarter in 2007 was driven by a change in tax
law
related to the repatriation of earnings from our Taiwan subsidiary and the
unfavorable mix of taxable income among Company entities.
Net
Income
As
a
result of the above, net income increased 5.7% for the 13-week period ended
March 29, 2008 to $147.8 million compared to $139.9 million for the 13-week
period ended March 31, 2007.
Liquidity
and Capital Resources
Net
cash
generated by operating activities was $192.5 million for the 13-week period
ended March 29, 2008 compared to $168.7 million for the 13-week period ended
March 31, 2007. 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 $170.6 million year-to-date increase in net inventories in this
13-week period of 2008, an increase required to fill strong orders for our
products and to address overall growing demand for our products. Accounts
receivable decreased $436.9 million, net of bad debts, during the first quarter
of 2008 due to lower shipments in the seasonally slower period.
Cash
flow
used in investing activities during the 13-week period ending March 29, 2008
was
$216.4 million. Cash flow used in investing activities principally related
to
$26.7 million in capital expenditures primarily related to business operation
and maintenance activities, the net purchase of $163.4 million of fixed income
securities associated with the investment of our on-hand cash balances, and
the
acquisition of European distributors for $23.7 million. 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
average interest rate return on cash and investments during the first quarter
of
2008 was 2.9%
Net
cash
used in financing activities during the period was $86.9 million resulting
from
the use of $90.1 million for stock repurchased under our stock repurchase plan,
offset by $3.2 million from the 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 2008.
Contractual
Obligations and Commercial Commitments
Pursuant
to certain supply agreements, the Company is contractually committed to make
purchases of approximately $22.3 million over the next 5 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-period 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, of the Euro which is the functional currency of Garmin France, Garmin
Deutschland, Garmin Iberia (Spain) and Garmin Italia and of the British Pound
Sterling, which is used by Garmin Europe, located in the U.K. While the Canadian
dollar is the functional currency of Dynastream Innovations, Inc. due to this
entity’s relative size, the currency moves do not have a material impact on the
Company’s financials.
Interest
Rate Risk
As
of
March 29, 2008, 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 March 29, 2008, 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 March 29, 2008 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 March 29, 2008 that has
materially affected, or is reasonably likely to materially affect, the Company’s
internal control over financial reporting.
Part
II - Other Information
Item
1. Legal
Proceedings
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 Garmin’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’s summary judgment motion and the court’s claim construction
order. On May 23, 2006, Encyclopaedia Britannica filed an amended complaint
claiming 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 claiming 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. Encyclopaedia
Britannica has asserted the ’018 and ’437 patents against other parties in
Encyclopaedia Britannica v. Magellan Navigation, Inc., et al., Case No.
07-CA-787 (LY)(W.D. Tex). On October 5, 2007, the defendants in that case filed
a Motion for Summary Judgment of Invalidity of the ’018 and ’437 patents and the
parties await a hearing and/or the court’s ruling on that motion. 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, Garmin International believes that the claims are without merit and
intends to vigorously defend these actions.
Mobile
Traffic Systems Corporation v. Cobra Electronics Corp., Garmin USA, Inc.,
Magellan Navigation, Inc., and TomTom, Inc. This
patent infringement lawsuit has been dismissed against Garmin USA, Inc. pursuant
to a settlement agreement under which Garmin licensed the patents in suit
pursuant to a paid-up license agreement for an immaterial amount.
Nuvio
Corporation v. Garmin International, Inc. and Garmin Ltd. On
February 26, 2008, Nuvio Corporation filed a lawsuit in the United States
District Court for the District of Kansas claiming that Garmin’s use of its
nüvi®
trademark in connection with the sale of personal navigation devices and
Garmin’s use of its nüvifone™
trademark in connection with the announcement of its new wireless handset
infringe U.S. Service Mark Registration No. 3,074,020 for the service mark
nuvio
for use in connection with the provision of internet telephony services
(“Asserted Mark”). Garmin believes that it should not be found liable for
infringement of the Asserted Mark. 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.
From
time
to time the Company and its subsidiaries are 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 29, 2007. There have been no material changes during the 13-week
period ended March 29, 2008 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 February 4, 2008,
authorizing the Company to purchase up to 5,000,000 shares of the Company as
market and business conditions warrant. The share repurchase authorization
expires on December 31, 2009. The following table lists the Company’s share
purchases during the first quarter of fiscal 2008:
|
|
|
|
|
|
Total
Number of Shares
|
|
Maximum
Number of
|
|
|
|
|
|
|
|
Purchased
as Part of
|
|
Shares
That May Yet
|
|
|
|
Total
# of
|
|
Average
Price
|
|
Publicly
Announced
|
|
Be
Purchased Under
|
|
Period
|
|
Shares
Purchased
|
|
Paid
Per Share
|
|
Plans
or Programs
|
|
the
Plans or Programs
|
|
|
|
|
|
|
|
|
|
|
|
13-weeks
ended
|
|
|
|
|
|
|
|
|
|
March
29, 2008
|
|
|
1,425,000
|
|
$
|
62.88
|
|
|
1,425,000
|
|
|
3,575,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,425,000
|
|
$
|
62.88
|
|
|
1,425,000
|
|
|
3,575,000
|
|
None
None
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:
May 7, 2008
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
|