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 28,
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
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 þ 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 þ 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
þ
Number
of
shares outstanding of the Company's common shares as of August 1,
2008
Common
Shares, $.005 par value: 207,269,130
Garmin
Ltd.
Form
10-Q
Quarter
Ended June 28, 2008
Table
of Contents
|
Page
|
Part
I - Financial Information
|
|
|
|
|
|
|
Item
1.
|
Condensed
Consolidated Financial Statements (Unaudited)
|
3
|
|
|
|
|
|
|
Introductory
Comments
|
3
|
|
|
|
|
|
|
Condensed
Consolidated Balance Sheets at June 28, 2008 and December 29,
2007
|
4
|
|
|
|
|
|
|
Condensed
Consolidated Statements of Income for the 13-weeks and 26-weeks ended
June
28, 2008 and June 30, 2007
|
5
|
|
|
|
|
|
|
Condensed
Consolidated Statements of Cash Flows for the 26-weeks ended June
28, 2008
and June 30, 2007
|
6
|
|
|
|
|
|
|
Notes
to Condensed Consolidated Financial Statements
|
7
|
|
|
|
|
|
Item
2.
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations
|
14
|
|
|
|
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
24
|
|
|
|
|
|
Item
4.
|
Controls
and Procedures
|
25
|
|
|
|
|
Part
II - Other Information
|
|
|
|
|
|
|
Item
1.
|
Legal
Proceedings
|
26
|
|
|
|
|
|
|
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
|
|
|
|
|
Signature
Page
|
30
|
|
|
Index
to Exhibits
|
31
|
Garmin
Ltd.
Form
10-Q
Quarter
Ended June 28, 2008
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 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 and 26-week periods ended June 28, 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)
|
|
|
|
|
|
June
28,
|
|
December
29,
|
|
|
|
2008
|
|
2007
|
|
Assets
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
624,482
|
|
$
|
707,689
|
|
Marketable
securities
|
|
|
36,335
|
|
|
37,551
|
|
Accounts
receivable, net
|
|
|
679,789
|
|
|
952,513
|
|
Inventories,
net
|
|
|
656,018
|
|
|
505,467
|
|
Deferred
income taxes
|
|
|
93,235
|
|
|
107,376
|
|
Prepaid
expenses and other current assets
|
|
|
27,712
|
|
|
22,179
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
2,117,571
|
|
|
2,332,775
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
449,727
|
|
|
374,147
|
|
|
|
|
|
|
|
|
|
Marketable
securities
|
|
|
348,997
|
|
|
386,954
|
|
Restricted
cash
|
|
|
1,550
|
|
|
1,554
|
|
Licensing
agreements, net
|
|
|
3,863
|
|
|
14,672
|
|
Other
intangible assets, net
|
|
|
210,323
|
|
|
181,358
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
3,132,031
|
|
$
|
3,291,460
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders' Equity
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
179,212
|
|
$
|
341,053
|
|
Salaries
and benefits payable
|
|
|
35,081
|
|
|
31,696
|
|
Accrued
warranty costs
|
|
|
83,918
|
|
|
71,636
|
|
Other
accrued expenses
|
|
|
166,655
|
|
|
280,603
|
|
Income
taxes payable
|
|
|
51,104
|
|
|
76,895
|
|
Dividend
payable
|
|
|
157,498
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
673,468
|
|
|
801,883
|
|
|
|
|
|
|
|
|
|
Deferred
income taxes
|
|
|
11,748
|
|
|
11,935
|
|
Non-current
taxes
|
|
|
136,137
|
|
|
126,593
|
|
Other
liabilities
|
|
|
1,025
|
|
|
435
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity:
|
|
|
|
|
|
|
|
Common
stock, $0.005 par value, 1,000,000,000 shares authorized:
|
|
|
|
|
|
|
|
Issued
and outstanding shares - 210,648,000 as of June 28, 2008 and 216,980,000
as of December 29, 2007
|
|
|
1,054
|
|
|
1,086
|
|
Additional
paid-in capital
|
|
|
-
|
|
|
132,264
|
|
Retained
earnings
|
|
|
2,258,730
|
|
|
2,171,134
|
|
Accumulated
other comprehensive income
|
|
|
49,869
|
|
|
46,130
|
|
|
|
|
|
|
|
|
|
Total
stockholders' equity
|
|
|
2,309,653
|
|
|
2,350,614
|
|
Total
liabilities and stockholders' equity
|
|
$
|
3,132,031
|
|
$
|
3,291,460
|
|
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
28,
|
|
June
30,
|
|
June
28,
|
|
June
30,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
911,671
|
|
$
|
742,466
|
|
$
|
1,575,476
|
|
$
|
1,234,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of goods sold
|
|
|
494,543
|
|
|
367,799
|
|
|
838,233
|
|
|
622,206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
417,128
|
|
|
374,667
|
|
|
737,243
|
|
|
612,419
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expense
|
|
|
125,028
|
|
|
95,373
|
|
|
222,853
|
|
|
161,297
|
|
Research
and development expense
|
|
|
53,597
|
|
|
37,727
|
|
|
103,154
|
|
|
71,230
|
|
|
|
|
178,625
|
|
|
133,100
|
|
|
326,007
|
|
|
232,527
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
238,503
|
|
|
241,567
|
|
|
411,236
|
|
|
379,892
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
9,656
|
|
|
10,841
|
|
|
18,060
|
|
|
20,199
|
|
Foreign
currency
|
|
|
21,561
|
|
|
(6,086
|
)
|
|
17,562
|
|
|
7,119
|
|
Gain
on sale of equity securities
|
|
|
45,686
|
|
|
-
|
|
|
50,949
|
|
|
-
|
|
Other
|
|
|
757
|
|
|
315
|
|
|
799
|
|
|
334
|
|
|
|
|
77,660
|
|
|
5,070
|
|
|
87,370
|
|
|
27,652
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
316,163
|
|
|
246,637
|
|
|
498,606
|
|
|
407,544
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax provision
|
|
|
60,071
|
|
|
32,260
|
|
|
94,735
|
|
|
53,307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
256,092
|
|
$
|
214,377
|
|
$
|
403,871
|
|
$
|
354,237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.20
|
|
$
|
0.99
|
|
$
|
1.88
|
|
$
|
1.64
|
|
Diluted
|
|
$
|
1.19
|
|
$
|
0.98
|
|
$
|
1.86
|
|
$
|
1.62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
213,756
|
|
|
216,380
|
|
|
215,130
|
|
|
216,298
|
|
Diluted
|
|
|
215,572
|
|
|
219,078
|
|
|
217,274
|
|
|
218,925
|
|
See
accompanying notes.
Condensed
Consolidated Statements of Cash Flows (Unaudited)
(In
thousands)
|
|
26-Weeks
Ended
|
|
|
|
June
28,
|
|
June
30,
|
|
|
|
2008
|
|
2007
|
|
Operating
Activities:
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
403,871
|
|
$
|
354,237
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
Depreciation
|
|
|
18,690
|
|
|
13,479
|
|
Amortization
|
|
|
8,430
|
|
|
15,856
|
|
Loss (gain) on sale of property and equipment
|
|
|
(208
|
)
|
|
18
|
|
Provision for doubtful accounts
|
|
|
3,977
|
|
|
1,808
|
|
Deferred income taxes
|
|
|
17,342
|
|
|
(725
|
)
|
Foreign currency transaction gains/losses
|
|
|
25,428
|
|
|
(10,358
|
)
|
Provision for obsolete and slow moving inventories
|
|
|
28,326
|
|
|
17,309
|
|
Stock compensation expense
|
|
|
18,253
|
|
|
7,196
|
|
Realized gains on marketable securities
|
|
|
(72,445
|
)
|
|
-
|
|
Changes
in operating assets and liabilities, net of acquisitions:
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
307,580
|
|
|
(88,405
|
)
|
Inventories
|
|
|
(141,180
|
)
|
|
(33,406
|
)
|
Other current assets
|
|
|
8,110
|
|
|
9,059
|
|
Accounts payable
|
|
|
(213,507
|
)
|
|
63,472
|
|
Other current and non-current liabilities
|
|
|
(102,909
|
)
|
|
101,826
|
|
Income taxes payable
|
|
|
(25,341
|
)
|
|
(6,937
|
)
|
Purchase of licenses
|
|
|
(4,236
|
)
|
|
(22,290
|
)
|
Net
cash provided by operating activities
|
|
|
280,181
|
|
|
422,139
|
|
|
|
|
|
|
|
|
|
Investing
activities:
|
|
|
|
|
|
|
|
Purchases
of property and equipment
|
|
|
(79,917
|
)
|
|
(112,020
|
)
|
Proceeds
from sale of property and equipment
|
|
|
8
|
|
|
-
|
|
Purchase
of intangible assets
|
|
|
(997
|
)
|
|
(1,881
|
)
|
Purchase
of marketable securities
|
|
|
(344,119
|
)
|
|
(378,909
|
)
|
Redemption
of marketable securities
|
|
|
390,179
|
|
|
455,598
|
|
Change
in restricted cash
|
|
|
14
|
|
|
(33
|
)
|
Acquisitions,
net of cash acquired
|
|
|
(34,768
|
)
|
|
(68,902
|
)
|
Net
cash used in investing activities
|
|
|
(69,600
|
)
|
|
(106,147
|
)
|
|
|
|
|
|
|
|
|
Financing
activities:
|
|
|
|
|
|
|
|
Proceeds
from issuance of common stock
|
|
|
7,194
|
|
|
7,534
|
|
Stock
repurchase
|
|
|
(318,471
|
)
|
|
-
|
|
Payments
on long term debt
|
|
|
-
|
|
|
(248
|
)
|
Tax
benefit related to stock option exercise
|
|
|
1,965
|
|
|
7,360
|
|
Net
cash (used in)/provided by financing activities
|
|
|
(309,312
|
)
|
|
14,646
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash and cash equivalents
|
|
|
15,524
|
|
|
(288
|
)
|
|
|
|
|
|
|
|
|
Net
(decrease)/increase in cash and cash equivalents
|
|
|
(83,207
|
)
|
|
330,350
|
|
Cash
and cash equivalents at beginning of period
|
|
|
707,689
|
|
|
337,321
|
|
Cash
and cash equivalents at end of period
|
|
$
|
624,482
|
|
$
|
667,671
|
|
|
|
|
|
|
|
|
|
See
accompanying notes.
|
|
|
|
|
|
|
|
Garmin
Ltd. and Subsidiaries
Notes
to Condensed Consolidated Financial Statements (Unaudited)
June
28, 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 and 26-week periods ended
June
28, 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 June 28, 2008 and June 30, 2007 both contain
operating results for 13-weeks for both quarter-to-date periods.
The
components of inventories consist of the following:
|
|
June 28, 2008
|
|
December 29, 2007
|
|
|
|
|
|
|
|
Raw
Materials
|
|
$
|
173,205
|
|
$
|
130,056
|
|
Work-in-process
|
|
|
56,628
|
|
|
57,622
|
|
Finished
goods
|
|
|
458,197
|
|
|
343,670
|
|
Inventory
Reserves
|
|
|
(32,012
|
)
|
|
(25,881
|
)
|
Inventory,
net of reserves
|
|
$
|
656,018
|
|
$
|
505,467
|
|
3. Stock
Purchase Plan
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 Garmin Ltd.’s
common stock as market and business conditions warrant. The Company had
repurchased 1,425,000 in first quarter 2008. As of June 28, 2008, the Company
had repurchased the remaining 3,575,000 shares using cash of
$158,317.
On
June
6, 2008 the Board of Directors approved a share repurchase program authorizing
the Company to repurchase up to 10,000,000 common shares of Garmin Ltd. and
that
it had adopted a Rule 10b5-1 plan covering 5,000,000 of such shares. The
repurchases may be made from time to time as market and business conditions
warrant on the open market or in negotiated transactions in compliance with
the
SEC’s Rule 10b-18. The timing and amounts of any repurchases will be determined
by the company’s management depending on market conditions and other factors
including price, regulatory requirements and capital availability. The program
does not require the purchase of any minimum number of shares and may be
suspended or discontinued at any time. The share repurchase authorization
expires on December 31, 2009. As of June 28, 2008, the Company had repurchased
1,600,000 shares using cash of $70,098.
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
28,
|
|
June
30,
|
|
|
|
2008
|
|
2007
|
|
Numerator:
|
|
|
|
|
|
|
|
Numerator
for basic and diluted net income per share - net income
|
|
$
|
256,092
|
|
$
|
214,377
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
Denominator
for basic net income per share – weighted-average common
shares
|
|
|
213,756
|
|
|
216,380
|
|
|
|
|
|
|
|
|
|
Effect
of dilutive securities – employee stock options and stock appreciation
rights
|
|
|
1,816
|
|
|
2,698
|
|
|
|
|
|
|
|
|
|
Denominator
for diluted net income per share – adjusted weighted-average common
shares
|
|
|
215,572
|
|
|
219,078
|
|
|
|
|
|
|
|
|
|
Basic
net income per share
|
|
$
|
1.20
|
|
$
|
0.99
|
|
|
|
|
|
|
|
|
|
Diluted
net income per share
|
|
$
|
1.19
|
|
$
|
0.98
|
|
|
|
26-Weeks
Ended
|
|
|
|
June
28,
|
|
June
30,
|
|
|
|
2008
|
|
2007
|
|
Numerator:
|
|
|
|
|
|
|
|
Numerator
for basic and diluted net income per share - net income
|
|
$
|
403,871
|
|
$
|
354,237
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
Denominator
for basic net income per share – weighted-average common
shares
|
|
|
215,130
|
|
|
216,298
|
|
|
|
|
|
|
|
|
|
Effect
of dilutive securities – employee stock options and stock appreciation
rights
|
|
|
2,143
|
|
|
2,627
|
|
|
|
|
|
|
|
|
|
Denominator
for diluted net income per share – adjusted weighted-average common
shares
|
|
|
217,274
|
|
|
218,925
|
|
|
|
|
|
|
|
|
|
Basic
net income per share
|
|
$
|
1.88
|
|
$
|
1.64
|
|
|
|
|
|
|
|
|
|
Diluted
net income per share
|
|
$
|
1.86
|
|
$
|
1.62
|
|
There
were 5,408,834 anti-dilutive options for the 13-week period ended June 28,
2008.
There were 2,706,424 anti-dilutive options for the 13-week period ended June
30,
2007.
There
were 5,049,164 anti-dilutive options for the 26-week period ended June 28,
2008.
There were 2,561,684 anti-dilutive options for the 26-week period ended June
30,
2007.
There
were 36,877 shares issued as a result of exercises of stock appreciation rights
and stock options for the 13-week period ended June 28, 2008.
There
were 129,710 shares issued as a result of exercises of stock appreciation rights
and stock options for the 26-week period ended June 28, 2008.
On
June
6, 2008, the Company’s Board of Directors approved an annual cash dividend of
$0.75 per share. The dividend is payable to shareholders of record on December
1, 2008 and will be paid on December 15, 2008.
Comprehensive
income is comprised of the following (in thousands):
|
|
13-Weeks
Ended
|
|
|
|
June
28,
|
|
June
30,
|
|
|
|
2008
|
|
2007
|
|
Net
income
|
|
$
|
256,092
|
|
$
|
214,377
|
|
Translation
adjustment
|
|
|
(18,790
|
)
|
|
2,345
|
|
Change
in fair value of available-for-sale marketable securities, net of
deferred
taxes
|
|
|
(24,291
|
)
|
|
(538
|
)
|
Comprehensive
income
|
|
$
|
213,011
|
|
$
|
216,184
|
|
|
|
26-Weeks
Ended
|
|
|
|
June
28,
|
|
June
30,
|
|
|
|
2008
|
|
2007
|
|
Net
income
|
|
$
|
403,871
|
|
$
|
354,237
|
|
Translation
adjustment
|
|
|
61,004
|
|
|
(10,537
|
)
|
Change
in fair value of available-for-sale marketable securities, net of
deferred
taxes
|
|
|
(57,265
|
)
|
|
1,280
|
|
Comprehensive
income
|
|
$
|
407,610
|
|
$
|
344,980
|
|
Net
sales, operating income, and income before taxes for each of the Company’s
reportable segments are presented below:
Garmin
Ltd. And Subsidiaries
Revenue,
Gross Profit, and Operating Income by Segment
|
|
Reportable
Segments
|
|
|
|
Outdoor/
|
|
|
|
Auto/
|
|
|
|
|
|
|
|
Fitness
|
|
Marine
|
|
Mobile
|
|
Aviation
|
|
Total
|
|
13-Weeks
Ended June 28, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
119,147
|
|
$
|
71,178
|
|
$
|
631,883
|
|
$
|
89,463
|
|
$
|
911,671
|
|
Operating
income
|
|
$
|
45,445
|
|
$
|
24,068
|
|
$
|
129,190
|
|
$
|
39,800
|
|
$
|
238,503
|
|
Income
before taxes
|
|
$
|
55,302
|
|
$
|
27,905
|
|
$
|
191,855
|
|
$
|
41,101
|
|
$
|
316,163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13-Weeks
Ended June 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26-Weeks
Ended June 28, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
189,641
|
|
$
|
127,185
|
|
$
|
1,083,742
|
|
$
|
174,908
|
|
$
|
1,575,476
|
|
Operating
income
|
|
$
|
64,756
|
|
$
|
41,904
|
|
$
|
236,831
|
|
$
|
67,745
|
|
$
|
411,236
|
|
Income
before taxes
|
|
$
|
75,749
|
|
$
|
47,238
|
|
$
|
304,159
|
|
$
|
71,460
|
|
$
|
498,606
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26-Weeks
Ended June 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
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
|
|
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 28, 2008 and June 30,
2007:
|
|
North
|
|
|
|
|
|
|
|
|
|
America
|
|
Asia
|
|
Europe
|
|
Total
|
|
June
28, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales to external customers
|
|
$
|
987,440
|
|
$
|
70,685
|
|
$
|
517,351
|
|
$
|
1,575,476
|
|
Long
lived assets
|
|
$
|
209,481
|
|
$
|
184,041
|
|
$
|
56,205
|
|
$
|
449,727
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
The
Company’s products sold are generally covered by a warranty for periods ranging
from one to three 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
|
|
|
|
June
28,
|
|
June
30,
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
Balance
- beginning of the period
|
|
$
|
72,751
|
|
$
|
39,281
|
|
Accrual
for products sold
|
|
|
|
|
|
|
|
during
the period
|
|
|
37,666
|
|
|
22,565
|
|
Expenditures
|
|
|
(26,499
|
)
|
|
(12,121
|
)
|
Balance
- end of the period
|
|
$
|
83,918
|
|
$
|
49,725
|
|
|
|
26-Weeks
Ended
|
|
|
|
June
28,
|
|
June
30,
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
Balance
- beginning of the period
|
|
$
|
71,636
|
|
$
|
37,639
|
|
Accrual
for products sold
|
|
|
|
|
|
|
|
during
the period
|
|
|
72,987
|
|
|
37,600
|
|
Expenditures
|
|
|
(60,705
|
)
|
|
(25,514
|
)
|
Balance
- end of the period
|
|
$
|
83,918
|
|
$
|
49,725
|
|
Pursuant
to certain supply agreements, the Company is contractually committed to make
purchases of approximately $28.2 million over the next 3 years.
Our
earnings before taxes increased 28.2% when compared to the same quarter in
2007,
and our income tax expense increased by $27.8 million, to $60.1 million, for
the
13-week period ended June 28, 2008, from $32.3 million for the 13-week period
ended June 30, 2007, due to our earnings before taxes growth and a higher
effective tax rate. The effective tax rate was 19.0% for both the 13-weeks
and 26-weeks ended June 28, 2008 compared to13.1% for both the 13-weeks and
26-weeks ended June 30, 2007. The higher tax rate in 2008 when
compared to 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
June 28, 2008
|
|
|
|
Total
|
|
Level
1
|
|
Level
2
|
|
Level
3
|
|
Description
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available
for-sale securites
|
|
$
|
299,863
|
|
$
|
299,863
|
|
|
-
|
|
|
-
|
|
Failed
Auction rate securities
|
|
|
85,469
|
|
|
-
|
|
|
-
|
|
|
85,469
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
385,332
|
|
$
|
299,863
|
|
$
|
-
|
|
$
|
85,469
|
|
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)
|
|
|
|
13-Weeks Ended
|
|
26-Weeks Ended
|
|
|
|
June 28, 2008
|
|
June 28, 2008
|
|
Beginning balance of
auction rate securities
|
|
$
|
88,208
|
|
$
|
0
|
|
Total
unrealized losses included in other comprehensive income
|
|
|
(2,739
|
)
|
|
(7,381
|
)
|
Purchases
in and/or out of Level 3
|
|
|
-
|
|
|
92,850
|
|
Transfers
in and/or out of Level 3
|
|
|
-
|
|
|
-
|
|
Ending
balance of auction rate securities
|
|
$
|
85,469
|
|
$
|
85,469
|
|
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
second quarter of 2008, Garmin Ltd. acquired Formar Electronics N.V./S.A. (the
distributor of Garmin’s consumer products in Belgium and Luxembourg). The
company has been renamed Garmin Belux N.V./S.A. The acquisition is not
considered to be material; therefore supplemental pro forma information is
not
presented.
On
May 1,
2008, Garmin Ltd. announced its intent to acquire Satsignal Equipamentos
de Comunicações e de Navegação S.A., the distributor of Garmin’s consumer
products in Portugal. This acquisition is not expected to be
material.
On
June
30, 2008, the acquisition of NavCor Oy, the distributor of Garmin’s consumer
products in Finland, was completed and the distributor has been renamed Garmin
Suomi Oy. This acquisition is not material; therefore supplemental pro forma
information will not be presented.
On
July
31, 2008, the acquisition of Puls Elektronik GmbH, the distributor of Garmin’s
consumer products in Austria, was completed and the distributor is expected
to
be renamed Garmin Austria GmbH. This acquisition is not material; therefore
supplemental pro forma information will not be presented.
Subsequent
to June 28, 2008, the Company repurchased the remaining 3,400,000 shares
pursuant to the Rule 10b5-1 plan adopted on June 6, 2008. This leaves an
additional 5,000,000 shares to be repurchased as market and business conditions
warrant.
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
|
|
|
|
June 28, 2008
|
|
June 30, 2007
|
|
|
|
|
|
|
|
Net
sales
|
|
|
100.0
|
%
|
|
100.0
|
%
|
Cost
of goods sold
|
|
|
54.2
|
%
|
|
49.5
|
%
|
Gross
profit
|
|
|
45.8
|
%
|
|
50.5
|
%
|
Research
and development
|
|
|
5.9
|
%
|
|
5.1
|
%
|
Selling,
general and administrative
|
|
|
13.7
|
%
|
|
12.8
|
%
|
Total
operating expenses
|
|
|
19.6
|
%
|
|
17.9
|
%
|
Operating
income
|
|
|
26.2
|
%
|
|
32.6
|
%
|
Other
income (expense), net
|
|
|
8.5
|
%
|
|
0.6
|
%
|
Income
before income taxes
|
|
|
34.7
|
%
|
|
33.2
|
%
|
Provision
for income taxes
|
|
|
6.6
|
%
|
|
4.3
|
%
|
Net
income
|
|
|
28.1
|
%
|
|
28.9
|
%
|
|
|
26-Weeks
Ended
|
|
|
|
June 28, 2008
|
|
June 30, 2007
|
|
|
|
|
|
|
|
Net
sales
|
|
|
100.0
|
%
|
|
100.0
|
%
|
Cost
of goods sold
|
|
|
53.2
|
%
|
|
50.4
|
%
|
Gross
profit
|
|
|
46.8
|
%
|
|
49.6
|
%
|
Research
and development
|
|
|
6.6
|
%
|
|
5.8
|
%
|
Selling,
general and administrative
|
|
|
14.1
|
%
|
|
13.0
|
%
|
Total
operating expenses
|
|
|
20.7
|
%
|
|
18.8
|
%
|
Operating
income
|
|
|
26.1
|
%
|
|
30.8
|
%
|
Other
income (expense), net
|
|
|
5.5
|
%
|
|
2.2
|
%
|
Income
before income taxes
|
|
|
31.6
|
%
|
|
33.0
|
%
|
Provision
for income taxes
|
|
|
6.0
|
%
|
|
4.3
|
%
|
Net
income
|
|
|
25.6
|
%
|
|
28.7
|
%
|
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.
|
|
Reporting
Segments
|
|
|
|
Outdoor/
|
|
|
|
Auto/
|
|
|
|
|
|
|
|
Fitness
|
|
Marine
|
|
Mobile
|
|
Aviation
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13-Weeks
Ended June 28, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
119,147
|
|
$
|
71,178
|
|
$
|
631,883
|
|
$
|
89,463
|
|
$
|
911,671
|
|
Gross
profit
|
|
$
|
67,908
|
|
$
|
40,120
|
|
$
|
243,720
|
|
$
|
65,380
|
|
$
|
417,128
|
|
Operating
income
|
|
$
|
45,445
|
|
$
|
24,068
|
|
$
|
129,190
|
|
$
|
39,800
|
|
$
|
238,503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26-Weeks
Ended June 28, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
189,641
|
|
$
|
127,185
|
|
$
|
1,083,742
|
|
$
|
174,908
|
|
$
|
1,575,476
|
|
Gross
profit
|
|
$
|
105,347
|
|
$
|
72,583
|
|
$
|
439,614
|
|
$
|
119,699
|
|
$
|
737,243
|
|
Operating
income
|
|
$
|
64,756
|
|
$
|
41,904
|
|
$
|
236,831
|
|
$
|
67,745
|
|
$
|
411,236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
Comparison
of 13-Weeks Ended June 28, 2008 and June 30, 2007
Net
Sales
|
|
13-weeks
ended June 28, 2008
|
|
|
13-weeks
ended June 30, 2007
|
|
|
Quarter
over Quarter
|
|
|
|
Net
Sales
|
|
%
of Revenues
|
|
|
Net
Sales
|
|
%
of Revenues
|
|
|
$
Change
|
|
%
Change
|
|
Outdoor/Fitness
|
|
$
|
119,147
|
|
|
13.1
|
%
|
|
$
|
77,163
|
|
|
10.4
|
%
|
|
$
|
41,984
|
|
|
54.4
|
%
|
Marine
|
|
|
71,178
|
|
|
7.8
|
%
|
|
|
79,771
|
|
|
10.7
|
%
|
|
|
(8,593
|
)
|
|
-10.8
|
%
|
Automotive/Mobile
|
|
|
631,883
|
|
|
69.3
|
%
|
|
|
507,895
|
|
|
68.4
|
%
|
|
|
123,988
|
|
|
24.4
|
%
|
Aviation
|
|
|
89,463
|
|
|
9.8
|
%
|
|
|
77,637
|
|
|
10.5
|
%
|
|
|
11,826
|
|
|
15.2
|
%
|
Total
|
|
$
|
911,671
|
|
|
100.0
|
%
|
|
$
|
742,466
|
|
|
100.0
|
%
|
|
$
|
169,205
|
|
|
22.8
|
%
|
Increases
in sales for the 13-week period ended June 28, 2008 were primarily due to a
strong response to automotive and outdoor/fitness product offerings. Aviation
revenues also grew but marine revenues declined on a year-over-year basis.
Automotive/mobile revenue remains a significantly larger portion of our revenue
mix, rising from 68.4% in the second quarter of 2007 to 69.3% in the second
quarter of 2008.
Total
unit sales increased 54% to 3,920,000 in the second quarter of 2008 from
2,544,000 in the second quarter of 2007. The higher unit sales volume in the
second quarter of fiscal 2008 was primarily attributable to strong sales of
automotive products during the seasonally higher second quarter, although unit
growth was also strong in the outdoor/fitness segment due to new product
offerings.
Automotive/mobile
segment revenue grew 24.4% from the year-ago quarter, on the strength of nüvi
and other personal navigation devices (PNDs). Revenues in our outdoor/fitness
segment grew the fastest due to the introduction of the Colorado™ series, the
Forerunner®
405 and
Edge®
705.
Our
aviation segment also performed well with 15.2% growth from the year ago
quarter. Growth in this segment is primarily driven by the demand for the G1000
in the OEM market and additional traction of our flight control products. The
marine segment slowed during the quarter when compared with the strong second
quarter of 2007 when many new products were introduced. The decline is primarily
related to less consumer spending in the marine industry due to macroeconomic
conditions and fuel prices.
Gross
Profit
|
|
13-weeks
ended June 28, 2008
|
|
|
13-weeks
ended June 30, 2007
|
|
|
Quarter
over Quarter
|
|
|
|
Gross
Profit
|
|
%
of Revenues
|
|
|
Gross
Profit
|
|
%
of Revenues
|
|
|
$
Change
|
|
%
Change
|
|
Outdoor/Fitness
|
|
$
|
67,908
|
|
|
57.0
|
%
|
|
$
|
43,648
|
|
|
56.6
|
%
|
|
$
|
24,260
|
|
|
55.6
|
%
|
Marine
|
|
$
|
40,120
|
|
|
56.4
|
%
|
|
|
46,381
|
|
|
58.1
|
%
|
|
|
(6,261
|
)
|
|
-13.5
|
%
|
Automotive/Mobile
|
|
$
|
243,720
|
|
|
38.6
|
%
|
|
|
233,520
|
|
|
46.0
|
%
|
|
|
10,200
|
|
|
4.4
|
%
|
Aviation
|
|
$
|
65,380
|
|
|
73.1
|
%
|
|
|
51,118
|
|
|
65.8
|
%
|
|
|
14,262
|
|
|
27.9
|
%
|
Total
|
|
$
|
417,128
|
|
|
45.8
|
%
|
|
$
|
374,667
|
|
|
50.5
|
%
|
|
$
|
42,461
|
|
|
11.3
|
%
|
Gross
profit dollars in the second quarter of 2008 grew 11.3% while gross profit
margin percentage decreased 470 basis points over the second quarter of 2007.
Second quarter gross profit margins increased to 57.0%, and 73.1% in the
outdoor/fitness and aviation segments respectively, when compared to the second
quarter of 2007. Second quarter 2008 gross profit margins decreased to 56.4%
and
38.6% in the marine and automotive/mobile segment respectively, when compared
with the second quarter of 2007.
Gross
profit margin percentage for the Company overall decreased primarily as a result
of the automotive/mobile segment remaining a significantly larger percentage
of
the Company’s product mix during a quarter when this segment’s margin fell by
740 basis points. The automotive/mobile segment is by nature a lower-margin
business and the Company has begun to see the impacts expected on gross margin
due to falling prices and a product mix shift toward lower end PNDs. Foreign
currency fluctuations resulted in 100 basis points of gross margin favorability
as the Company benefited from sales transacted in foreign currencies. Release
of
new products into the outdoor/fitness segment drove strong year-over-year
improvement in outdoor/fitness margins. Declines in gross margin in the marine
segment occurred as a result of more mature products. The aviation segment
saw a
730 basis point increase in gross margin due to growth in OEM sales in the
quarter. Aviation continued to be the Company’s highest gross margin segment.
Selling,
General and Administrative Expenses
|
|
13-weeks ended June 28, 2008
|
|
|
13-weeks ended June 30, 2007
|
|
|
|
|
|
|
Selling, General &
|
|
|
|
|
Selling, General &
|
|
|
|
|
|
|
|
|
Admin. Expenses
|
|
% of Revenues
|
|
|
Admin. Expenses
|
|
% of Revenues
|
|
|
$ Change
|
|
% Change
|
|
Outdoor/Fitness
|
|
$
|
15,833
|
|
|
13.3
|
%
|
|
$
|
9,310
|
|
|
12.1
|
%
|
|
$
|
6,523
|
|
|
70.1
|
%
|
Marine
|
|
$
|
11,215
|
|
|
15.8
|
%
|
|
|
8,748
|
|
|
11.0
|
%
|
|
|
2,467
|
|
|
28.2
|
%
|
Automotive/Mobile
|
|
$
|
91,149
|
|
|
14.4
|
%
|
|
|
71,445
|
|
|
14.1
|
%
|
|
|
19,704
|
|
|
27.6
|
%
|
Aviation
|
|
$
|
6,831
|
|
|
7.6
|
%
|
|
|
5,870
|
|
|
7.6
|
%
|
|
|
961
|
|
|
16.4
|
%
|
Total
|
|
$
|
125,028
|
|
|
13.7
|
%
|
|
$
|
95,373
|
|
|
12.8
|
%
|
|
$
|
29,655
|
|
|
31.1
|
%
|
The increase in selling, general and
administrative expense was driven primarily by costs associated with the
European distributors acquired in 2007 and 2008, increased staffing throughout
the organization to support our growth and increased advertising spending.
Other
selling, general and administrative expenses increased as a percent of sales
from 5.2% of sales in the second quarter of 2007 to 7.3% of sales in the second
quarter of 2008, as global staffing in marketing and administration were
increased to support our rapid growth. In absolute dollars, other selling,
general and administrative expenses increased $28.2 million when compared to
the
previous year quarter, with increases distributed across European distributors,
information technology, call center, operations, finance, administration, and
marketing administration areas to support the growth of our businesses.
Advertising spending, while up $1.5 million in absolute dollars, declined as
a
percent of revenues, to 6.4% of revenues compared to 7.7% of revenues in the
second quarter of 2007.
Research
and Development Expense
|
|
13-weeks ended June 28, 2008
|
|
|
13-weeks ended June 30, 2007
|
|
|
|
|
|
|
Research &
|
|
|
|
|
Research &
|
|
|
|
|
|
|
|
|
Development
|
|
% of Revenues
|
|
|
Development
|
|
% of Revenues
|
|
|
$ Change
|
|
% Change
|
|
Outdoor/Fitness
|
|
$
|
6,631
|
|
|
5.6
|
%
|
|
$
|
5,738
|
|
|
7.4
|
%
|
|
$
|
893
|
|
|
15.6
|
%
|
Marine
|
|
|
4,836
|
|
|
6.8
|
%
|
|
|
4,518
|
|
|
5.7
|
%
|
|
|
318
|
|
|
7.0
|
%
|
Automotive/Mobile
|
|
|
23,381
|
|
|
3.7
|
%
|
|
|
13,008
|
|
|
2.6
|
%
|
|
|
10,373
|
|
|
79.7
|
%
|
Aviation
|
|
|
18,749
|
|
|
21.0
|
%
|
|
|
14,463
|
|
|
18.6
|
%
|
|
|
4,286
|
|
|
29.6
|
%
|
Total
|
|
$
|
53,597
|
|
|
5.9
|
%
|
|
$
|
37,727
|
|
|
5.1
|
%
|
|
$
|
15,870
|
|
|
42.1
|
%
|
The
42.1%
increase in research and development expense was due to ongoing development
activities for new products, the addition of almost 300 new engineering
personnel to our staff during the quarter, and an increase in engineering
program costs during the second quarter of 2008 as a result of our continued
emphasis on product innovation. Research and development costs increased $15.9
million when compared with the second quarter of 2007 representing an 80 basis
point increase as a percent of revenue.
Operating
Income
|
|
13-weeks ended June 28, 2008
|
|
|
13-weeks ended June 30, 2007
|
|
|
Quarter over Quarter
|
|
|
|
Operating Income
|
|
% of Revenues
|
|
|
Operating Income
|
|
% of Revenues
|
|
|
$ Change
|
|
% Change
|
|
Outdoor/Fitness
|
|
$
|
45,445
|
|
|
38.1
|
%
|
|
$
|
28,600
|
|
|
37.1
|
%
|
|
$
|
16,845
|
|
|
58.9
|
%
|
Marine
|
|
|
24,068
|
|
|
33.8
|
%
|
|
|
33,115
|
|
|
41.5
|
%
|
|
|
(9,047
|
)
|
|
-27.3
|
%
|
Automotive/Mobile
|
|
|
129,190
|
|
|
20.4
|
%
|
|
|
149,067
|
|
|
29.3
|
%
|
|
|
(19,877
|
)
|
|
-13.3
|
%
|
Aviation
|
|
|
39,800
|
|
|
44.5
|
%
|
|
|
30,785
|
|
|
39.7
|
%
|
|
|
9,015
|
|
|
29.3
|
%
|
Total
|
|
$
|
238,503
|
|
|
26.2
|
%
|
|
$
|
241,567
|
|
|
32.5
|
%
|
|
$
|
($3,064
|
)
|
|
-1.3
|
%
|
Operating
margin declined 630 basis points as a percent of revenue when compared to the
second quarter of 2007 due to the decrease in gross margins, along with the
costs associated with the European distributors, increases in staffing to
support the growth of our businesses, and research and development expense
associated with ongoing development activities. Operating margins decreased
to
20.4% and 33.8% within our automotive/mobile and marine segments, respectively,
when compared with the second quarter of 2007. Operating margins increased
to
38.1% and 44.5% within our outdoor/fitness and aviation segments, respectively,
when compared with the second quarter of 2007. Our operating income decreased
as
a function of the gross profit margin percentage decrease described above,
as
well as declining operating margins in both the marine and automotive/mobile
segments.
Other
Income (Expense)
|
|
13-weeks
ended
|
|
13-weeks
ended
|
|
|
|
June
28, 2008
|
|
June
30, 2007
|
|
Interest
Income
|
|
$
|
9,656
|
|
$
|
10,841
|
|
Foreign
Currency Exchange
|
|
|
21,561
|
|
|
(6,086
|
)
|
Gain
on sale of equity securities
|
|
|
45,686
|
|
|
-
|
|
Other
|
|
|
757
|
|
|
315
|
|
Total
|
|
$
|
77,660
|
|
$
|
5,070
|
|
The
average taxable equivalent interest rate of return on invested cash during
the
second quarter of 2008 was 3.6% compared to 4.4% during the same quarter of
2007. The decrease in interest income is attributable to slightly lower 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 Belux. As these entities grow, Euro currency moves will generate material
gains and losses. Additionally, Euro-based inter-company transactions can also
generate currency gains and losses. The Canadian dollar and Danish Krone are
the
functional currency of Dynastream Innovations, Inc. and Garmin Danmark,
respectively; due to these entities’ relative size, currency moves do not have a
material impact on the Company’s financial statements.
The
majority of the $21.6 million currency gain in the second quarter of 2008 was
related to the tender of our Tele Atlas N.V. shares. This transaction generated
a realized gain of $20.4 million due to the strengthening of the Euro between
the date of purchase of the shares in October 2007 to the date of tender in
June
2008.
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.
Other
income of $46.3 million in the current quarter was primarily generated from
the
sale of our equity interest in Tele Atlas N.V.
Income
Tax Provision
Our
earnings before taxes increased 28.2% when compared to the second quarter of
2007, and our income tax expense increased by $27.8 million, to $60.1 million,
for the 13-week period ended June 28, 2008, from $32.3 million for the 13-week
period ended June 30, 2007, due to our earnings before taxes growth and a higher
effective tax rate. The effective tax rate was 19.0% in the second quarter
of 2008 and 13.1% in the second quarter of 2007. The higher
tax rate in the second 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 19.5% for the 13-week period ended
June 28, 2008 to $256.1 million compared to $214.4 million for the 13-week
period ended June 30, 2007.
Comparison
of 26-Weeks Ended June 28, 2008 and June 30, 2007
Net
Sales
|
|
26-weeks ended June 28, 2008
|
|
|
26-weeks ended June 30, 2007
|
|
|
Quarter over Quarter
|
|
|
|
Net Sales
|
|
% of Revenues
|
|
|
Net Sales
|
|
% of Revenues
|
|
|
$ Change
|
|
% Change
|
|
Outdoor/Fitness
|
|
$
|
189,641
|
|
|
12.0
|
%
|
|
$
|
137,690
|
|
|
11.2
|
%
|
|
$
|
51,951
|
|
|
37.7
|
%
|
Marine
|
|
|
127,185
|
|
|
8.1
|
%
|
|
|
122,775
|
|
|
9.9
|
%
|
|
|
4,410
|
|
|
3.6
|
%
|
Automotive/Mobile
|
|
|
1,083,742
|
|
|
68.8
|
%
|
|
|
824,520
|
|
|
66.8
|
%
|
|
|
259,222
|
|
|
31.4
|
%
|
Aviation
|
|
|
174,908
|
|
|
11.1
|
%
|
|
|
149,640
|
|
|
12.1
|
%
|
|
|
25,268
|
|
|
16.9
|
%
|
Total
|
|
$
|
1,575,476
|
|
|
100.0
|
%
|
|
$
|
1,234,625
|
|
|
100.0
|
%
|
|
$
|
340,851
|
|
|
27.6
|
%
|
Increases
in sales for the 26-week period ended June 28, 2008 were due to a strong
response to automotive, outdoor/fitness product offerings. Automotive/mobile
revenue remains a significantly larger portion of our revenue mix, rising from
66.8% in the first half of 2007 to 68.8% in the first half of 2008.
Total
unit sales increased 64% to 6,707,000 in the first half of 2008 from 4,095,000
in the same period of 2007. The higher unit sales volume in the first half
of
fiscal 2008 was primarily attributable to strong sales of automotive products,
particularly in North America, and outdoor/fitness products.
Automotive/mobile
segment revenue grew 31.4% from the year-ago period, on the strength of
nuvi®
and
other personal navigation devices (PNDs). On a percentage basis, revenues in
our
outdoor/fitness segment grew faster than any other segment in the first half
of
2008 due to the introduction of the Colorado™ series, the Forerunner®
405 and
Edge®
705.
Our
aviation segment continued to perform well on the strength of our G1000 cockpit.
Marine revenues were slightly higher in the first half of 2008 compared to
the
prior year due to strong growth in the first quarter of 2008 offset somewhat
by
a decline in the second quarter as previously discussed.
Gross
Profit
|
|
26-weeks ended June 28, 2008
|
|
|
26-weeks ended June 30, 2007
|
|
|
Quarter over Quarter
|
|
|
|
Gross Profit
|
|
% of Revenues
|
|
|
Gross Profit
|
|
% of Revenues
|
|
|
$ Change
|
|
% Change
|
|
Outdoor/Fitness
|
|
$
|
105,347
|
|
|
55.6
|
%
|
|
$
|
77,063
|
|
|
56.0
|
%
|
|
$
|
28,284
|
|
|
36.7
|
%
|
Marine
|
|
|
72,583
|
|
|
57.1
|
%
|
|
|
67,534
|
|
|
55.0
|
%
|
|
|
5,049
|
|
|
7.5
|
%
|
Automotive/Mobile
|
|
|
439,614
|
|
|
40.6
|
%
|
|
|
370,251
|
|
|
44.9
|
%
|
|
|
69,363
|
|
|
18.7
|
%
|
Aviation
|
|
|
119,699
|
|
|
68.4
|
%
|
|
|
97,571
|
|
|
65.2
|
%
|
|
|
22,128
|
|
|
22.7
|
%
|
Total
|
|
$
|
737,243
|
|
|
46.8
|
%
|
|
$
|
612,419
|
|
|
49.6
|
%
|
|
$
|
124,824
|
|
|
20.4
|
%
|
Gross
profit dollars in the first half of 2008 grew 20.4% and gross profit margin
percentage declined 280 basis points over the same period of the previous year.
First half gross profit margins decreased to 55.6% and 40.6% in the
outdoor/fitness and automotive/mobile segments respectively, when compared
to
the same period in 2007. First half 2008 gross profit margins increased to
57.1%
and 68.4% within the marine and aviation segments, when compared with the first
half of 2007.
Gross
profit margin percentage for the Company overall decreased 280 basis points
primarily as a result of the automotive/mobile segment decline of 430 basis
points. The automotive/mobile segment is by nature a lower-margin business
and
the Company has begun to see the impacts expected on gross margin due to falling
prices and a product mix shift toward lower end PNDs. Foreign currency
fluctuations resulted in 200 basis points of gross margin favorability as the
Company benefited from sales transacted in foreign currencies. Strong demand
for
the high margin G1000 in the aviation segment resulted in favorable product
mix
and margins for the aviation segment in the first half of the year. Marine
gross
margin increased compared to the first half of 2007 as the new products
introduced in second quarter of 2007 continue to provide high gross margins.
Outdoor/fitness gross margin was relatively stable and remained within historic
ranges.
Selling,
General and Administrative Expenses
|
|
26-weeks ended June 28, 2008
|
|
|
26-weeks ended June 30, 2007
|
|
|
|
|
|
|
Selling, General &
|
|
|
|
|
Selling, General &
|
|
|
|
|
|
|
|
|
Admin. Expenses
|
|
% of Revenues
|
|
|
Admin. Expenses
|
|
% of Revenues
|
|
|
$ Change
|
|
% Change
|
|
Outdoor/Fitness
|
|
$
|
27,762
|
|
|
14.6
|
%
|
|
$
|
16,599
|
|
|
12.1
|
%
|
|
$
|
11,163
|
|
|
67.3
|
%
|
Marine
|
|
|
20,487
|
|
|
16.1
|
%
|
|
|
14,785
|
|
|
12.0
|
%
|
|
|
5,702
|
|
|
38.6
|
%
|
Automotive/Mobile
|
|
|
160,178
|
|
|
14.8
|
%
|
|
|
117,259
|
|
|
14.2
|
%
|
|
|
42,919
|
|
|
36.6
|
%
|
Aviation
|
|
|
14,426
|
|
|
8.2
|
%
|
|
|
12,654
|
|
|
8.5
|
%
|
|
|
1,772
|
|
|
14.0
|
%
|
Total
|
|
$
|
222,853
|
|
|
14.1
|
%
|
|
$
|
161,297
|
|
|
13.1
|
%
|
|
$
|
61,556
|
|
|
38.2
|
%
|
The
increase in selling, general and administrative expense was driven primarily
by
costs associated with the European distributors acquired in 2007 and 2008,
increased staffing to support our growth and increased advertising spending.
Other selling, general and administrative expenses increased as a percent of
revenues from 6.1% in the first half of 2007 to 8.0% in the first half of 2008.
In absolute dollars, other expenses increased $51.2 million when compared to
the
same period in 2007, with increases distributed across European distributors,
call center, operations, information technology, administration, and marketing
administration areas to support the growth of our businesses. Advertising
spending, which included increases in cooperative advertising costs and
television and print advertising placements, increased 12% or $10.3 million
when
compared to the first half of 2007. As a percent of revenues, advertising fell
to 6.1% in first half of 2008 compared to 7.0% in first half of 2007.
Research
and Development Expense
|
|
26-weeks ended June 28, 2008
|
|
|
26-weeks ended June 30, 2007
|
|
|
|
|
|
|
Research &
|
|
|
|
|
Research &
|
|
|
|
|
|
|
|
|
Development
|
|
% of Revenues
|
|
|
Development
|
|
% of Revenues
|
|
|
$ Change
|
|
% Change
|
|
Outdoor/Fitness
|
|
$
|
12,829
|
|
|
6.8
|
%
|
|
$
|
10,655
|
|
|
7.7
|
%
|
|
$
|
2,174
|
|
|
20.4
|
%
|
Marine
|
|
|
10,192
|
|
|
8.0
|
%
|
|
|
8,339
|
|
|
6.8
|
%
|
|
|
1,853
|
|
|
22.2
|
%
|
Automotive/Mobile
|
|
|
42,604
|
|
|
3.9
|
%
|
|
|
24,401
|
|
|
3.0
|
%
|
|
|
18,203
|
|
|
74.6
|
%
|
Aviation
|
|
|
37,529
|
|
|
21.5
|
%
|
|
|
27,835
|
|
|
18.6
|
%
|
|
|
9,694
|
|
|
34.8
|
%
|
Total
|
|
$
|
103,154
|
|
|
6.5
|
%
|
|
$
|
71,230
|
|
|
5.8
|
%
|
|
$
|
31,924
|
|
|
44.8
|
%
|
The
increase in research and development expense dollars was due to ongoing
development activities for new products, the addition of 350 new engineering
personnel to our staff during the period, and an increase in engineering program
costs during the first half of 2008 as a result of our continued emphasis on
product innovation. Research and development costs increased $31.9 million
when
compared with the year-ago period and increased 70 basis points as a percent
of
revenue as research and development growth outpaced revenue growth.
Operating
Income
|
|
26-weeks ended June 28, 2008
|
|
|
26-weeks ended June 30, 2007
|
|
|
Quarter over Quarter
|
|
|
|
Operating Income
|
|
% of Revenues
|
|
|
Operating Income
|
|
% of Revenues
|
|
|
$ Change
|
|
% Change
|
|
Outdoor/Fitness
|
|
$
|
64,756
|
|
|
34.1
|
%
|
|
$
|
49,809
|
|
|
36.2
|
%
|
|
$
|
14,947
|
|
|
30.0
|
%
|
Marine
|
|
|
41,904
|
|
|
32.9
|
%
|
|
|
44,410
|
|
|
36.2
|
%
|
|
|
(2,506
|
)
|
|
-5.6
|
%
|
Automotive/Mobile
|
|
|
236,831
|
|
|
21.9
|
%
|
|
|
228,591
|
|
|
27.7
|
%
|
|
|
8,240
|
|
|
3.6
|
%
|
Aviation
|
|
|
67,745
|
|
|
38.7
|
%
|
|
|
57,082
|
|
|
38.1
|
%
|
|
|
10,663
|
|
|
18.7
|
%
|
Total
|
|
$
|
411,236
|
|
|
26.1
|
%
|
|
$
|
379,892
|
|
|
30.8
|
%
|
|
$
|
31,344
|
|
|
8.3
|
%
|
Operating
income was down 470 basis points as a percent of revenue when compared to the
year-ago period due to the decrease in gross margins, along with the costs
associated with the European distributors, increases in staffing to support
the
growth of our businesses, and research and development expense associated with
ongoing development activities. Operating margins decreased to 34.1%, 32.9%,
and
21.9% in our outdoor/fitness, marine, and automotive/mobile segments,
respectively, while operating margins increased to 38.7% within our aviation
segment.
Other
Income (Expense)
|
|
26-weeks ended
|
|
26-weeks ended
|
|
|
|
June 28, 2008
|
|
June 30, 2007
|
|
Interest
Income
|
|
$
|
18,060
|
|
$
|
20,199
|
|
Foreign
Currency Exchange
|
|
$
|
17,562
|
|
$
|
7,119
|
|
Gain
on sale of equity securities
|
|
$
|
50,949
|
|
|
-
|
|
Other
|
|
$
|
799
|
|
$
|
334
|
|
Total
|
|
$
|
87,370
|
|
$
|
27,652
|
|
The
average taxable equivalent interest rate return on invested cash during the
first half of 2008 was 3.4% compared to 4.3% during the same period of 2007.
The
decrease in interest income is attributable to a decline in our 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 Belux. 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 and Danish
Krone are the functional currency of Dynastream Innovations, Inc. and Garmin
Danmark, respectively; due to these entities’ relative size, currency moves do
not have a material impact on the Company’s financial statements.
The
majority of the $17.6 million currency gain in the first half of 2008 was
related to the tender of our Tele Atlas N.V. shares. This transaction generated
a realized gain of $21.5 million due to the strengthening of the Euro between
the date of purchase of the shares in October 2007 to the dates of tender in
February, March, and June 2008. The remainder of the $3.9 million currency
loss
in the first half of 2008 was primarily due to the weakening of the U.S. Dollar
compared to the Taiwan Dollar. During the first half of fiscal 2008
the Taiwan Dollar exchange rate increased 6.8% in comparison to the USD,
resulting in a $38.2 million loss. Offsetting this impact, the Euro has
strengthened 7.1% relative to the U.S. Dollar during the first half which
resulted in a $34.0 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 gain of
$0.3
million.
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.
Other
income of $51.7 million in the first half of 2008 was primarily generated from
the sale of our equity interest in Tele Atlas N.V.
Income
Tax Provision
Our
earnings before taxes increased 22.3% when compared to the same period in 2007,
and our income tax expense increased by $41.4 million, to $94.7 million, for
the
26-week period ended June 28, 2008, from $53.3 million for the 26-week period
ended June 30, 2007, due to earnings growth and our higher tax rate. The
effective tax rate was 19.0% in the first half of 2008 and 13.1% in the first
half of 2007. The higher tax rate in the first half of 2008 when compared to
the
same period 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 14.0% for the 26-week period ended
June 28, 2008 to $403.9 million compared to $354.2 million for the 26-week
period ended June 30, 2007.
Liquidity
and Capital Resources
Net
cash
generated by operating activities was $280.2 million for the 26-week period
ended June 28, 2008 compared to $422.1 million for the 26-week period ended
June
30, 2007. We experienced a $112.9 million year-to-date increase in net
inventories in this 26-week period of 2008, an increase required to fill strong
orders for our products and to address overall growing demand for our products.
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. Accounts receivable
decreased $311.6 million, net of bad debts, during the first half of 2008 due
to
lower shipments compared to the seasonally strong fourth quarter.
Cash
flow
used in investing activities during the 26-week period ending June 28, 2008
was
$69.6 million. Cash flow used in investing activities included $79.9 million
in
capital expenditures related to the build-out of our Linkou manufacturing
facility, completion of our expanded North American distribution facility and
maintenance activities, and the acquisition of European distributors for $34.8
million. In addition, the net sale of securities provided $46.1 million of
cash
flow. The net sale was primarily related to $72.4 million of cash generated
from
the tender of our shares of Tele Atlas N.V. offset by the purchase 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 3.4%.
Net
cash
used by financing activities during the period was $309.3 million resulting
from
the use of $318.5 million for stock repurchased under our stock repurchase
plans, offset by $9.2 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, to
support our working capital requirements and to repurchase shares. 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 agreements, the Company has contractual commitments of approximately
$28.2 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 an increase in raw
materials costs and an increase in the sale of lower-margin products as a part
of the product mix, resulting in reduced gross margins.
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 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 Belux. 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 and Danish
Krone are the functional currency of Dynastream Innovations, Inc. and Garmin
Danmark, respectively; due to these entities’ relative size, currency moves do
not have a material impact on the Company’s financial statements.
Interest
Rate Risk
As
of
June 28, 2008, we have minimal interest rate risk as we have no material
outstanding long term debt and we intend to hold marketable securities until
they mature.
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 28, 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 June 28, 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 June 28, 2008 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 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, we believe that the claims are without merit and intend to vigorously
defend these actions.
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.
SP
Technologies, LLC v. Garmin Ltd., Garmin International, Inc., TomTom, Inc.,
and
Magellan Navigation, Inc. On
June
5, 2008, SP Technologies, LLC filed a lawsuit in the United States District
Court for the Northern District of Illinois against Garmin Ltd. and Garmin
International, Inc. alleging infringement of U.S. Patent No. 6,784,873 (“the
’873 patent”). On July 7, 2008, SP Technologies, LLC filed an amended complaint
alleging infringement of the ’873 patent against additional defendants TomTom,
Inc. and Magellan Navigation, Inc. 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 believes
that
it should not be found liable for infringement of the ’873 patent and
additionally that the ’873 patent is invalid.
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
and 26-week periods ended June 28, 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 repurchase up to 5,000,000 shares of the Company
as
market and business conditions warrant. This share repurchase program was
completed in second quarter 2008.
The
Board
of Directors approved a share repurchase program on June 6, 2008, authorizing
the company to repurchase up to 10,000,000 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 second 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June
30, 2007
|
|
|
5,175,000
|
|
$
|
44.14
|
|
|
5,175,000
|
|
|
8,400,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
5,175,000
|
|
$
|
44.14
|
|
|
5,175,000
|
|
|
8,400,000
|
|
None
Item
4. Submission
of Matters to a Vote of Security Holders
The
Company held its Annual General Meeting of Shareholders on June 6, 2008. 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 203,491,406 common shares or
approximately 94% 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
|
|
|
|
|
|
|
|
|
|
Donald
H. Eller
|
|
|
202,569,883
|
|
|
921.523
|
|
Clifton
A. Pemble
|
|
|
202,547,667
|
|
|
943,739
|
|
The
terms
of office of Directors Donald H. Eller and Clifton A. Pemble will continue
until
the Annual General Meeting in 2011. 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.
Ratification
of the Appointment of Ernst & Young LLP as the Company’s independent
registered public accounting firm for the 2008 Fiscal Year:
For
|
|
Against
|
|
Abstain
|
|
203,004,117
|
|
|
272,075
|
|
|
215,214
|
|
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 6, 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
|