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 September 27,
2008
|
or
¨
|
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
¨
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 ¨
Non-accelerated Filer ¨
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). YES ¨ NO
þ
Number
of
shares outstanding of the Company's common shares as of November 3,
2008
Common
Shares, $.005 par value: 202,540,334
Garmin
Ltd.
Form
10-Q
Quarter
Ended September 27, 2008
Table
of Contents
Part
I - Financial Information |
Page
|
|
|
|
|
|
|
Item
1.
|
Condensed
Consolidated Financial Statements (Unaudited)
|
3
|
|
|
|
|
|
|
|
|
Introductory
Comments
|
3
|
|
|
|
|
|
|
|
|
Condensed
Consolidated Balance Sheets at September 27, 2008
|
|
|
|
|
and
December 29, 2007
|
4
|
|
|
|
|
|
|
|
|
Condensed
Consolidated Statements of Income for the
|
|
|
|
|
13-weeks
and 26-weeks ended September 27, 2008 and September 29,
2007
|
5
|
|
|
|
|
|
|
|
|
Condensed
Consolidated Statements of Cash Flows for the
|
|
|
|
|
26-weeks
ended September 27, 2008 and September 29, 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
|
28
|
|
|
|
|
|
|
|
Item
4.
|
Submission
of Matters to a Vote of Securities Holders
|
29
|
|
|
|
|
|
|
|
Item
5.
|
Other
Information
|
29
|
|
|
|
|
|
|
|
Item
6.
|
Exhibits
|
30
|
|
|
|
|
|
|
Signature
Page |
31
|
|
|
|
|
|
|
Index
to Exhibits |
32
|
|
Garmin
Ltd.
Form
10-Q
Quarter
Ended September 27, 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 39-week periods ended September 27,
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)
|
|
|
|
|
|
September 27,
|
|
December 29,
|
|
|
|
2008
|
|
2007
|
|
Assets
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
521,540
|
|
$
|
707,689
|
|
Marketable
securities
|
|
|
18,048
|
|
|
37,551
|
|
Accounts
receivable, net
|
|
|
678,750
|
|
|
952,513
|
|
Inventories,
net
|
|
|
698,927
|
|
|
505,467
|
|
Deferred
income taxes
|
|
|
87,109
|
|
|
107,376
|
|
Prepaid
expenses and other current assets
|
|
|
32,204
|
|
|
22,179
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
2,036,578
|
|
|
2,332,775
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
453,419
|
|
|
374,147
|
|
|
|
|
|
|
|
|
|
Marketable
securities
|
|
|
309,492
|
|
|
386,954
|
|
Restricted
cash
|
|
|
1,452
|
|
|
1,554
|
|
Licensing
agreements, net
|
|
|
6,483
|
|
|
14,672
|
|
Other
intangible assets, net
|
|
|
207,889
|
|
|
181,358
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
3,015,313
|
|
$
|
3,291,460
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders' Equity
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
217,122
|
|
$
|
341,053
|
|
Salaries
and benefits payable
|
|
|
41,633
|
|
|
31,696
|
|
Accrued
warranty costs
|
|
|
81,291
|
|
|
71,636
|
|
Other
accrued expenses
|
|
|
154,102
|
|
|
280,603
|
|
Income
taxes payable
|
|
|
50,994
|
|
|
76,895
|
|
Dividend
payable
|
|
|
151,900
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
697,042
|
|
|
801,883
|
|
|
|
|
|
|
|
|
|
Deferred
income taxes
|
|
|
11,298
|
|
|
11,935
|
|
Non-current
taxes
|
|
|
166,075
|
|
|
126,593
|
|
Other
liabilities
|
|
|
1,058
|
|
|
435
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity:
|
|
|
|
|
|
|
|
Common
stock, $0.005 par value, 1,000,000,000 shares authorized: Issued and
outstanding shares - 202,533,000 as of September 27, 2008 and
216,980,000
as of December 29, 2007
|
|
|
1,511
|
|
|
1,086
|
|
Additional
paid-in capital
|
|
|
-
|
|
|
132,264
|
|
Retained
earnings
|
|
|
2,139,214
|
|
|
2,171,134
|
|
Accumulated
other comprehensive income/(loss)
|
|
|
(885
|
)
|
|
46,130
|
|
|
|
|
|
|
|
|
|
Total
stockholders' equity
|
|
|
2,139,840
|
|
|
2,350,614
|
|
Total
liabilities and stockholders' equity
|
|
$
|
3,015,313
|
|
$
|
3,291,460
|
|
See
accompanying notes
|
|
(Unaudited)
|
|
|
|
|
|
September 27,
|
|
December 29,
|
|
|
|
|
2008
|
|
|
2007
|
|
Assets
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
521,540
|
|
$
|
707,689
|
|
Marketable
securities
|
|
|
18,048
|
|
|
37,551
|
|
Accounts
receivable, net
|
|
|
678,750
|
|
|
952,513
|
|
Inventories,
net
|
|
|
698,927
|
|
|
505,467
|
|
Deferred
income taxes
|
|
|
87,109
|
|
|
107,376
|
|
Prepaid
expenses and other current assets
|
|
|
32,204
|
|
|
22,179
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
2,036,578
|
|
|
2,332,775
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
453,419
|
|
|
374,147
|
|
|
|
|
|
|
|
|
|
Marketable
securities
|
|
|
309,492
|
|
|
386,954
|
|
Restricted
cash
|
|
|
1,452
|
|
|
1,554
|
|
Licensing
agreements, net
|
|
|
6,483
|
|
|
14,672
|
|
Other
intangible assets, net
|
|
|
207,889
|
|
|
181,358
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
3,015,313
|
|
$
|
3,291,460
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders' Equity
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
217,122
|
|
$
|
341,053
|
|
Salaries
and benefits payable
|
|
|
41,633
|
|
|
31,696
|
|
Accrued
warranty costs
|
|
|
81,291
|
|
|
71,636
|
|
Other
accrued expenses
|
|
|
154,102
|
|
|
280,603
|
|
Income
taxes payable
|
|
|
50,994
|
|
|
76,895
|
|
Dividend
payable
|
|
|
151,900
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
697,042
|
|
|
801,883
|
|
|
|
|
|
|
|
|
|
Deferred
income taxes
|
|
|
11,298
|
|
|
11,935
|
|
Non-current
taxes
|
|
|
166,075
|
|
|
126,593
|
|
Other
liabilities
|
|
|
1,058
|
|
|
435
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity:
|
|
|
|
|
|
|
|
Common
stock, $0.005 par value, 1,000,000,000 shares authorized:
Issued
and outstanding shares - 202,533,000 as of September 27, 2008
and
216,980,000 as
of
December 29, 2007
|
|
|
1,511
|
|
|
1,086
|
|
Additional
paid-in capital
|
|
|
-
|
|
|
132,264
|
|
Retained
earnings
|
|
|
2,139,214
|
|
|
2,171,134
|
|
Accumulated
other comprehensive income/(loss)
|
|
|
(885
|
)
|
|
46,130
|
|
|
|
|
|
|
|
|
|
Total
stockholders' equity
|
|
|
2,139,840
|
|
|
2,350,614
|
|
Total
liabilities and stockholders' equity
|
|
$
|
3,015,313
|
|
$
|
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
|
|
39-Weeks Ended
|
|
|
|
September 27,
|
|
September 29,
|
|
September 27,
|
|
September 29,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
870,355
|
|
$
|
728,673
|
|
$
|
2,445,830
|
|
$
|
1,963,298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of goods sold
|
|
|
484,716
|
|
|
386,822
|
|
|
1,322,948
|
|
|
1,009,028
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
385,639
|
|
|
341,851
|
|
|
1,122,882
|
|
|
954,270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expense
|
|
|
118,527
|
|
|
87,060
|
|
|
341,380
|
|
|
248,358
|
|
Research
and development expense
|
|
|
52,749
|
|
|
40,634
|
|
|
155,904
|
|
|
111,863
|
|
|
|
|
171,276
|
|
|
127,694
|
|
|
497,284
|
|
|
360,221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
214,363
|
|
|
214,157
|
|
|
625,598
|
|
|
594,049
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
8,770
|
|
|
11,798
|
|
|
26,830
|
|
|
31,997
|
|
Foreign
currency
|
|
|
(12,744
|
)
|
|
(3,626
|
)
|
|
4,818
|
|
|
3,493
|
|
Gain
on sale of equity securities
|
|
|
-
|
|
|
-
|
|
|
50,949
|
|
|
-
|
|
Other
|
|
|
1,023
|
|
|
297
|
|
|
1,824
|
|
|
631
|
|
|
|
|
(2,951
|
)
|
|
8,469
|
|
|
84,421
|
|
|
36,121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
211,412
|
|
|
222,626
|
|
|
710,019
|
|
|
630,170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax provision
|
|
|
40,168
|
|
|
29,119
|
|
|
134,904
|
|
|
82,426
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
171,244
|
|
$
|
193,507
|
|
$
|
575,115
|
|
$
|
547,744
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.83
|
|
$
|
0.89
|
|
$
|
2.71
|
|
$
|
2.53
|
|
Diluted
|
|
$
|
0.82
|
|
$
|
0.88
|
|
$
|
2.68
|
|
$
|
2.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
206,634
|
|
|
216,773
|
|
|
212,299
|
|
|
216,456
|
|
Diluted
|
|
|
208,107
|
|
|
220,644
|
|
|
214,252
|
|
|
219,482
|
|
See
accompanying notes.
|
Condensed
Consolidated Statements of Cash Flows
(Unaudited)
|
(In
thousands)
|
|
|
39-Weeks Ended
|
|
|
|
September 27,
|
|
September 29,
|
|
|
|
2008
|
|
2007
|
|
Operating
Activities:
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
575,115
|
|
$
|
547,744
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
Depreciation
|
|
|
33,797
|
|
|
22,786
|
|
Amortization
|
|
|
20,823
|
|
|
18,803
|
|
Loss
(gain) on sale of property and equipment
|
|
|
(243
|
)
|
|
71
|
|
Provision
for doubtful accounts
|
|
|
4,289
|
|
|
3,467
|
|
Deferred
income taxes
|
|
|
28,623
|
|
|
(1,157
|
)
|
Unrealized
foreign currency losses
|
|
|
11,266
|
|
|
3,232
|
|
Provision
for obsolete and slow moving inventories
|
|
|
29,439
|
|
|
21,502
|
|
Stock
compensation expense
|
|
|
28,815
|
|
|
8,830
|
|
Realized
gains on marketable securities
|
|
|
(50,884
|
)
|
|
-
|
|
Changes
in operating assets and liabilities, net of acquisitions:
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
302,012
|
|
|
(90,497
|
)
|
Inventories
|
|
|
(196,471
|
)
|
|
(234,920
|
)
|
Other
current assets
|
|
|
(977
|
)
|
|
4,510
|
|
Accounts
payable
|
|
|
(175,715
|
)
|
|
117,034
|
|
Other
current and non-current liabilities
|
|
|
(95,588
|
)
|
|
147,608
|
|
Income
taxes payable
|
|
|
1,593
|
|
|
9,486
|
|
Purchase
of licenses
|
|
|
(3,191
|
)
|
|
(22,594
|
)
|
Net
cash provided by operating activities
|
|
|
512,703
|
|
|
555,905
|
|
|
|
|
|
|
|
|
|
Investing
activities:
|
|
|
|
|
|
|
|
Purchases
of property and equipment
|
|
|
(110,480
|
)
|
|
(128,893
|
)
|
Proceeds
from sale of property and equipment
|
|
|
8
|
|
|
4
|
|
Purchase
of intangible assets
|
|
|
(4,061
|
)
|
|
(2,481
|
)
|
Purchase
of marketable securities
|
|
|
(366,336
|
)
|
|
(983,716
|
)
|
Redemption
of marketable securities
|
|
|
444,102
|
|
|
1,141,431
|
|
Change
in restricted cash
|
|
|
106
|
|
|
(56
|
)
|
Acquisitions,
net of cash acquired
|
|
|
(50,497
|
)
|
|
(84,126
|
)
|
Net
cash used in investing activities
|
|
|
(87,158
|
)
|
|
(57,837
|
)
|
|
|
|
|
|
|
|
|
Financing
activities:
|
|
|
|
|
|
|
|
Proceeds
from issuance of common stock
|
|
|
7,703
|
|
|
15,358
|
|
Stock
repurchase
|
|
|
(624,688
|
)
|
|
-
|
|
Dividends
|
|
|
-
|
|
|
(162,531
|
)
|
Payments
on long term debt
|
|
|
-
|
|
|
(218
|
)
|
Tax
benefit related to stock option exercise
|
|
|
2,309
|
|
|
15,776
|
|
Net
cash used in financing activities
|
|
|
(614,676
|
)
|
|
(131,617
|
)
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash and cash equivalents
|
|
|
2,982
|
|
|
(25
|
)
|
|
|
|
|
|
|
|
|
Net
(decrease)/increase in cash and cash equivalents
|
|
|
(186,149
|
)
|
|
366,428
|
|
Cash
and cash equivalents at beginning of period
|
|
|
707,689
|
|
|
337,321
|
|
Cash
and cash equivalents at end of period
|
|
$
|
521,540
|
|
$
|
703,749
|
|
See
accompanying notes.
Garmin
Ltd. and Subsidiaries
Notes
to Condensed Consolidated Financial Statements (Unaudited)
September
27, 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
September 27, 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 September 27, 2008 and September 29, 2007
both
contain operating results for 13-weeks for both quarter-to-date
periods.
The
components of inventories consist of the following:
|
|
September 27, 2008
|
|
December 29, 2007
|
|
|
|
|
|
|
|
Raw
Materials
|
|
$
|
150,663
|
|
$
|
130,056
|
|
Work-in-process
|
|
|
44,968
|
|
|
57,622
|
|
Finished
goods
|
|
|
531,332
|
|
|
343,670
|
|
Inventory
Reserves
|
|
|
(28,036
|
)
|
|
(25,881
|
)
|
Inventory,
net of reserves
|
|
$
|
698,927
|
|
$
|
505,467
|
|
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
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. During the third quarter, the Company repurchased 8,158,000 shares
using cash of $306,217. There remain approximately 200,000 shares available
for
repurchase under this authorization given the 1,600,000 purchased in second
quarter.
The
following table sets forth the computation of basic and diluted net income
per
share (in thousands, except per share information):
|
|
13-Weeks Ended
|
|
|
|
September 27,
|
|
September 29,
|
|
|
|
2008
|
|
2007
|
|
Numerator:
|
|
|
|
|
|
|
|
Numerator for
basic and diluted net income per share - net income
|
|
$
|
171,244
|
|
$
|
193,507
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
Denominator
for basic net income per share – weighted-average common
shares
|
|
|
206,634
|
|
|
216,773
|
|
|
|
|
|
|
|
|
|
Effect
of dilutive securities – employee stock options and stock appreciation
rights
|
|
|
1,473
|
|
|
3,871
|
|
|
|
|
|
|
|
|
|
Denominator
for diluted net income per share – adjusted weighted-average common
shares
|
|
|
208,107
|
|
|
220,644
|
|
|
|
|
|
|
|
|
|
Basic
net income per share
|
|
$
|
0.83
|
|
$
|
0.89
|
|
|
|
|
|
|
|
|
|
Diluted
net income per share
|
|
$
|
0.82
|
|
$
|
0.88
|
|
|
|
39-Weeks Ended
|
|
|
|
September 27,
|
|
September 29,
|
|
|
|
2008
|
|
2007
|
|
Numerator:
|
|
|
|
|
|
|
|
Numerator
for basic and diluted net income per share - net
income
|
|
$
|
575,115
|
|
$
|
547,744
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
Denominator
for basic net income per share – weighted-average common
shares
|
|
|
212,299
|
|
|
216,456
|
|
|
|
|
|
|
|
|
|
Effect
of dilutive securities – employee stock options and stock appreciation
rights
|
|
|
1,953
|
|
|
3,026
|
|
|
|
|
|
|
|
|
|
Denominator
for diluted net income per share – adjusted weighted-average common
shares
|
|
|
214,252
|
|
|
219,482
|
|
|
|
|
|
|
|
|
|
Basic
net income per share
|
|
$
|
2.71
|
|
$
|
2.53
|
|
|
|
|
|
|
|
|
|
Diluted
net income per share
|
|
$
|
2.68
|
|
$
|
2.50
|
|
There
were 6,497,596 anti-dilutive options for the 13-week period ended September
27,
2008. There were 13,615 anti-dilutive options for the 13-week period ended
September 29, 2007.
There
were 5,655,282 anti-dilutive options for the 39-week period ended September
27,
2008. There were 605,174 anti-dilutive options for the 39-week period ended
September 29, 2007.
There
were 42,109 shares issued as a result of exercises of stock appreciation rights
and stock options for the 13-week period ended September 27, 2008.
There
were 171,819 shares issued as a result of exercises of stock appreciation rights
and stock options for the 39-week period ended September 27, 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
|
|
|
|
September 27,
|
|
September 29,
|
|
|
|
2008
|
|
2007
|
|
Net income
|
|
$
|
171,244
|
|
$
|
193,507
|
|
Translation
adjustment
|
|
|
(46,610
|
)
|
|
9,981
|
|
Change
in fair value of available-for-sale marketable securities, net of
deferred
taxes
|
|
|
(4,144
|
)
|
|
1,781
|
|
Comprehensive
income
|
|
$
|
120,490
|
|
$
|
205,269
|
|
|
|
39-Weeks Ended
|
|
|
|
September 27,
|
|
September 29,
|
|
|
|
2008
|
|
2007
|
|
Net
income
|
|
$
|
575,115
|
|
$
|
547,744
|
|
Translation
adjustment
|
|
|
14,394
|
|
|
(555
|
)
|
Change
in fair value of available-for-sale marketable securities, net of
deferred
taxes
|
|
|
(61,409
|
)
|
|
3,061
|
|
Comprehensive
income
|
|
$
|
528,100
|
|
$
|
550,250
|
|
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 (Unaudited)
|
|
Reporting Segments
|
|
|
|
Outdoor/
|
|
|
|
Auto/
|
|
|
|
|
|
|
|
Fitness
|
|
Marine
|
|
Mobile
|
|
Aviation
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13-Weeks
Ended September 27, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
118,614
|
|
$
|
44,048
|
|
$
|
626,506
|
|
$
|
81,187
|
|
$
|
870,355
|
|
Gross
profit
|
|
$
|
74,487
|
|
$
|
21,714
|
|
$
|
236,339
|
|
$
|
53,099
|
|
$
|
385,639
|
|
Operating
income
|
|
$
|
52,136
|
|
$
|
10,606
|
|
$
|
124,359
|
|
$
|
27,262
|
|
$
|
214,363
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13-Weeks
Ended September 29, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
87,747
|
|
$
|
47,659
|
|
$
|
518,939
|
|
$
|
74,328
|
|
$
|
728,673
|
|
Gross
profit
|
|
$
|
46,553
|
|
$
|
25,170
|
|
$
|
221,148
|
|
$
|
48,980
|
|
$
|
341,851
|
|
Operating
income
|
|
$
|
30,178
|
|
$
|
15,623
|
|
$
|
141,855
|
|
$
|
26,501
|
|
$
|
214,157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39-Weeks
Ended September 27, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
308,255
|
|
$
|
171,232
|
|
$
|
1,710,248
|
|
$
|
256,095
|
|
$
|
2,445,830
|
|
Gross
profit
|
|
$
|
179,834
|
|
$
|
94,296
|
|
$
|
675,953
|
|
$
|
172,799
|
|
$
|
1,122,882
|
|
Operating
income
|
|
$
|
116,892
|
|
$
|
52,510
|
|
$
|
361,190
|
|
$
|
95,006
|
|
$
|
625,598
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39-Weeks
Ended September 29, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
225,437
|
|
$
|
170,433
|
|
$
|
1,343,460
|
|
$
|
223,968
|
|
$
|
1,963,298
|
|
Gross
profit
|
|
$
|
123,616
|
|
$
|
92,704
|
|
$
|
591,400
|
|
$
|
146,550
|
|
$
|
954,270
|
|
Operating
income
|
|
$
|
79,986
|
|
$
|
60,033
|
|
$
|
370,448
|
|
$
|
83,582
|
|
$
|
594,049
|
|
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 39-week periods ended September 27, 2008 and September 29,
2007:
|
|
North
|
|
|
|
|
|
|
|
|
|
America
|
|
Asia
|
|
Europe
|
|
Total
|
|
September
27, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales to external customers
|
|
$
|
1,572,042
|
|
$
|
108,962
|
|
$
|
764,826
|
|
$
|
2,445,830
|
|
Long
lived assets
|
|
$
|
220,246
|
|
$
|
176,194
|
|
$
|
56,979
|
|
$
|
453,419
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September
29, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales to external customers
|
|
$
|
1,231,341
|
|
$
|
100,900
|
|
$
|
631,057
|
|
$
|
1,963,298
|
|
Long
lived assets
|
|
$
|
169,828
|
|
$
|
143,895
|
|
$
|
44,855
|
|
$
|
358,578
|
|
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
|
|
|
|
Septmber 27,
|
|
September 29,
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
Balance -
beginning of the period
|
|
$
|
83,918
|
|
$
|
49,725
|
|
Accrual
for products sold during the period
|
|
|
21,659
|
|
|
28,379
|
|
Expenditures
|
|
|
(24,286
|
)
|
|
(22,879
|
)
|
Balance
- end of the period
|
|
$
|
81,291
|
|
$
|
55,225
|
|
|
|
39-Weeks Ended
|
|
|
|
Septmber 27,
|
|
September 29,
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
Balance
- beginning of the period
|
|
$
|
71,636
|
|
$
|
37,639
|
|
Accrual
for products sold during the period
|
|
|
94,646
|
|
|
65,979
|
|
Expenditures
|
|
|
(84,991
|
)
|
|
(48,393
|
)
|
Balance
- end of the period
|
|
$
|
81,291
|
|
$
|
55,225
|
|
Pursuant
to certain supply agreements, the Company is contractually committed to make
purchases of approximately $47.5 million over the next 3 years.
Our
earnings before taxes decreased 5.0% when compared to the same quarter in 2007,
yet our income tax expense increased by $11.1 million, to $40.2 million, for
the
13-week period ended September 27, 2008, from $29.1 million for the 13-week
period ended September 29, 2007, due to a higher effective tax rate. The
effective tax rate was 19.0% for both the 13-weeks and 39-weeks ended September
27, 2008 compared to13.1% for both the 13-weeks and 39-weeks ended September
29,
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 September 27, 2008
|
|
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Description
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available
for-sale securites
|
|
$
|
244,400
|
|
$
|
244,400
|
|
|
-
|
|
|
-
|
|
Failed
Auction rate securities
|
|
|
83,140
|
|
|
-
|
|
|
-
|
|
|
83,140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
327,540
|
|
$
|
244,400
|
|
$
|
-
|
|
$
|
83,140
|
|
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
|
|
39-Weeks Ended
|
|
|
|
Sept 27, 2008
|
|
Sept 27, 2008
|
|
|
|
|
|
|
|
Beginning
balance of auction rate securities
|
|
$
|
85,469
|
|
$
|
0
|
|
Total
unrealized losses included in other comprehensive
income
|
|
|
(2,329
|
)
|
|
(9,710
|
)
|
Purchases
in and/or out of Level 3
|
|
|
-
|
|
|
92,850
|
|
Transfers
in and/or out of Level 3
|
|
|
-
|
|
|
-
|
|
Ending
balance of auction rate securities
|
|
$
|
83,140
|
|
$
|
83,140
|
|
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.
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.
In
the
third quarter of 2008, Garmin Ltd. acquired NavCor Oy, the distributor of
Garmin’s consumer products in Finland; Puls Elektronik GmbH, the distributor of
Garmin’s consumer products in Austria; and Satsignal Equipamentos
de Comunicações e de Navegação S.A., the distributor of Garmin’s consumer
products in Portugal. NavCor Oy has been renamed Garmin Suomi Oy. Puls
Elektronik GmbH has been renamed Garmin Austria GmbH.
In
aggregate, these acquisitions are not considered to be material; therefore
supplemental pro forma information is not presented.
On
October 3, 2008, Garmin Ltd. announced its intent to acquire Sportsmanship
International AB, the distributor of Garmin’s consumer products in Sweden. This
acquisition is not expected to be material.
On
October 22, 2008, the Board of Directors approved a share repurchase program
authorizing the Company to repurchase up to $300 million of the common shares
of
Garmin Ltd. This repurchase is in addition to outstanding shares under the
June
2008 plan described in Note 3. 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.
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
|
|
|
|
|
|
|
|
Net sales
|
|
|
100.0
|
%
|
|
100.0
|
%
|
Cost
of goods sold
|
|
|
55.7
|
%
|
|
53.1
|
%
|
Gross
profit
|
|
|
44.3
|
%
|
|
46.9
|
%
|
Research
and development
|
|
|
6.1
|
%
|
|
5.6
|
%
|
Selling,
general and administrative
|
|
|
13.6
|
%
|
|
11.9
|
%
|
Total
operating expenses
|
|
|
19.7
|
%
|
|
17.5
|
%
|
Operating
income
|
|
|
24.6
|
%
|
|
29.4
|
%
|
Other
income (expense), net
|
|
|
-0.3
|
%
|
|
1.2
|
%
|
Income
before income taxes
|
|
|
24.3
|
%
|
|
30.6
|
%
|
Provision
for income taxes
|
|
|
4.6
|
%
|
|
4.0
|
%
|
Net
income
|
|
|
19.7
|
%
|
|
26.6
|
%
|
|
|
39-Weeks Ended
|
|
|
|
|
|
|
|
Net
sales
|
|
|
100.0
|
%
|
|
100.0
|
%
|
Cost
of goods sold
|
|
|
54.1
|
%
|
|
51.4
|
%
|
Gross
profit
|
|
|
45.9
|
%
|
|
48.6
|
%
|
Research
and development
|
|
|
6.3
|
%
|
|
5.7
|
%
|
Selling,
general and administrative
|
|
|
14.0
|
%
|
|
12.6
|
%
|
Total
operating expenses
|
|
|
20.3
|
%
|
|
18.3
|
%
|
Operating
income
|
|
|
25.6
|
%
|
|
30.3
|
%
|
Other
income (expense), net
|
|
|
3.6
|
%
|
|
1.8
|
%
|
Income
before income taxes
|
|
|
29.0
|
%
|
|
32.1
|
%
|
Provision
for income taxes
|
|
|
5.5
|
%
|
|
4.2
|
%
|
Net
income
|
|
|
23.5
|
%
|
|
27.9
|
%
|
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.
Garmin
Ltd. And Subsidiaries
|
Revenue,
Gross Profit, and Operating Income by Segment
(Unaudited)
|
|
|
Reporting
Segments
|
|
|
|
Outdoor/
|
|
|
|
Auto/
|
|
|
|
|
|
|
|
Fitness
|
|
Marine
|
|
Mobile
|
|
Aviation
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13-Weeks
Ended September 27, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
118,614
|
|
$
|
44,048
|
|
$
|
626,506
|
|
$
|
81,187
|
|
$
|
870,355
|
|
Gross
profit
|
|
$
|
74,487
|
|
$
|
21,714
|
|
$
|
236,339
|
|
$
|
53,099
|
|
$
|
385,639
|
|
Operating
income
|
|
$
|
52,136
|
|
$
|
10,606
|
|
$
|
124,359
|
|
$
|
27,262
|
|
$
|
214,363
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13-Weeks
Ended September 29, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
87,747
|
|
$
|
47,659
|
|
$
|
518,939
|
|
$
|
74,328
|
|
$
|
728,673
|
|
Gross
profit
|
|
$
|
46,553
|
|
$
|
25,170
|
|
$
|
221,148
|
|
$
|
48,980
|
|
$
|
341,851
|
|
Operating
income
|
|
$
|
30,178
|
|
$
|
15,623
|
|
$
|
141,855
|
|
$
|
26,501
|
|
$
|
214,157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39-Weeks
Ended September 27, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
308,255
|
|
$
|
171,232
|
|
$
|
1,710,248
|
|
$
|
256,095
|
|
$
|
2,445,830
|
|
Gross
profit
|
|
$
|
179,834
|
|
$
|
94,296
|
|
$
|
675,953
|
|
$
|
172,799
|
|
$
|
1,122,882
|
|
Operating
income
|
|
$
|
116,892
|
|
$
|
52,510
|
|
$
|
361,190
|
|
$
|
95,006
|
|
$
|
625,598
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39-Weeks
Ended September 29, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
225,437
|
|
$
|
170,433
|
|
$
|
1,343,460
|
|
$
|
223,968
|
|
$
|
1,963,298
|
|
Gross
profit
|
|
$
|
123,616
|
|
$
|
92,704
|
|
$
|
591,400
|
|
$
|
146,550
|
|
$
|
954,270
|
|
Operating
income
|
|
$
|
79,986
|
|
$
|
60,033
|
|
$
|
370,448
|
|
$
|
83,582
|
|
$
|
594,049
|
|
Comparison
of 13-Weeks Ended September 27, 2008 and September 29,
2007
Net
Sales
|
|
13-weeks ended September 27, 2008
|
|
13-weeks ended September 29, 2007
|
|
Quarter over Quarter
|
|
|
|
Net Sales
|
|
% of Revenues
|
|
Net Sales
|
|
% of Revenues
|
|
$ Change
|
|
% Change
|
|
Outdoor/Fitness
|
|
$
|
118,614
|
|
|
13.6
|
%
|
$
|
87,747
|
|
|
12.1
|
%
|
$
|
30,867
|
|
|
35.2
|
%
|
Marine
|
|
|
44,048
|
|
|
5.1
|
%
|
|
47,659
|
|
|
6.5
|
%
|
|
(3,611
|
)
|
|
-7.6
|
%
|
Automotive/Mobile
|
|
|
626,506
|
|
|
72.0
|
%
|
|
518,939
|
|
|
71.2
|
%
|
|
107,567
|
|
|
20.7
|
%
|
Aviation
|
|
|
81,187
|
|
|
9.3
|
%
|
|
74,328
|
|
|
10.2
|
%
|
|
6,859
|
|
|
9.2
|
%
|
Total
|
|
$
|
870,355
|
|
|
100.0
|
%
|
$
|
728,673
|
|
|
100.0
|
%
|
$
|
141,682
|
|
|
19.4
|
%
|
Increases
in sales for the 13-week period ended September 27, 2008 were primarily due
to
growth in our automotive and outdoor/fitness segments. 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
71.2% in the third quarter of 2007 to 72.0% in the third quarter of 2008.
Total
unit sales increased 43% to 3,855,000 in the third quarter of 2008 from
2,688,000 in the third quarter of 2007. The higher unit sales volume in the
third quarter of fiscal 2008 was primarily attributable to ongoing growth in
demand for automotive products, although unit growth was also strong in the
outdoor/fitness segment due to the strong product line-up.
Automotive/mobile
segment revenue grew 20.7% from the year-ago quarter, on the strength of the
nüvi series of personal navigation devices (PNDs). Revenues in our
outdoor/fitness segment grew the fastest due to the strong product line-up
including the Oregon™ series, the Forerunner®
405 and
Edge®
705
along
with a stable average selling price. Our aviation segment grew 9.2% from the
year ago quarter. Growth in this segment is primarily driven by the demand
for
the G1000 in the OEM market. The marine segment continued to slow during the
quarter when compared with the third quarter of 2007. 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 September 27, 2008
|
|
13-weeks
ended September 29, 2007
|
|
Quarter
over Quarter
|
|
|
|
Gross
Profit
|
|
%
of Revenues
|
|
Gross
Profit
|
|
%
of Revenues
|
|
$
Change
|
|
%
Change
|
|
Outdoor/Fitness
|
|
$
|
74,487
|
|
|
62.8
|
%
|
$
|
46,553
|
|
|
53.1
|
%
|
$
|
27,934
|
|
|
60.0
|
%
|
Marine
|
|
$
|
21,714
|
|
|
49.3
|
%
|
|
25,170
|
|
|
52.8
|
%
|
|
(3,456
|
)
|
|
-13.7
|
%
|
Automotive/Mobile
|
|
$
|
236,339
|
|
|
37.7
|
%
|
|
221,148
|
|
|
42.6
|
%
|
|
15,191
|
|
|
6.9
|
%
|
Aviation
|
|
$
|
53,099
|
|
|
65.4
|
%
|
|
48,980
|
|
|
65.9
|
%
|
|
4,119
|
|
|
8.4
|
%
|
Total
|
|
$
|
385,639
|
|
|
44.3
|
%
|
$
|
341,851
|
|
|
46.9
|
%
|
$
|
43,788
|
|
|
12.8
|
%
|
Gross
profit dollars in the third quarter of 2008 grew 12.8% while gross profit margin
percentage decreased 260 basis points over the third quarter of 2007. Third
quarter gross profit margin increased to 62.8% in the outdoor/fitness segment
when compared to the third quarter of 2007. Third quarter 2008 gross profit
margins decreased to 49.3%, 37.7%, and 65.4% in the marine, automotive/mobile,
and aviation segments respectively, when compared with the third 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
490 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 125 basis points of gross margin compression
due to sales transacted in foreign currencies. A newer suite of products in
the
outdoor/fitness segment drove strong year-over-year improvement in
outdoor/fitness margins. Declines in gross margin in the marine segment occurred
due to reduced volumes and product mix shift toward lower margin products.
The
aviation segment saw a 50 basis point decrease in gross margin due to changes
in
our warranty programs. Aviation continued to be the Company’s highest gross
margin segment.
Selling,
General and Administrative Expenses
|
|
13-weeks ended September 27, 2008
|
|
13-weeks ended September 29, 2007
|
|
|
|
|
|
Selling, General &
|
|
|
|
Selling, General &
|
|
|
|
Quarter over Quarter
|
|
|
|
Admin. Expenses
|
|
% of Revenues
|
|
Admin. Expenses
|
|
% of Revenues
|
|
$ Change
|
|
% Change
|
|
Outdoor/Fitness
|
|
$
|
15,868
|
|
|
13.4
|
%
|
$
|
11,468
|
|
|
13.1
|
%
|
$
|
4,400
|
|
|
38.4
|
%
|
Marine
|
|
$
|
6,175
|
|
|
14.0
|
%
|
|
5,635
|
|
|
11.8
|
%
|
|
540
|
|
|
9.6
|
%
|
Automotive/Mobile
|
|
$
|
90,256
|
|
|
14.4
|
%
|
|
63,988
|
|
|
12.3
|
%
|
|
26,268
|
|
|
41.1
|
%
|
Aviation
|
|
$
|
6,228
|
|
|
7.7
|
%
|
|
5,969
|
|
|
8.0
|
%
|
|
259
|
|
|
4.3
|
%
|
Total
|
|
$
|
118,527
|
|
|
13.6
|
%
|
$
|
87,060
|
|
|
11.9
|
%
|
$
|
31,467
|
|
|
36.1
|
%
|
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. Selling, general and administrative expenses
excluding advertising increased as a percent of sales from 6.6% of sales in
the
third quarter of 2007 to 7.8% of sales in the third quarter of 2008. In absolute
dollars, selling, general and administrative expenses excluding advertising
increased $19.4 million when compared to the previous year quarter, with
increases distributed across European distributors, call center, information
technology, operations, finance, human resources, administration, and marketing
administration areas to support the growth of our businesses. Advertising
spending increased $12.1 million and 50 basis points as a percent of sales
from
5.3% in third quarter 2007 to 5.8% in third quarter 2008.
Research
and Development Expense
|
|
13-weeks ended September 27, 2008
|
|
13-weeks ended September 29, 2007
|
|
|
|
|
|
Research &
|
|
|
|
Research &
|
|
|
|
Quarter over Quarter
|
|
|
|
Development
|
|
% of Revenues
|
|
Development
|
|
% of Revenues
|
|
$ Change
|
|
% Change
|
|
Outdoor/Fitness
|
|
$
|
6,483
|
|
|
5.5
|
%
|
$
|
4,907
|
|
|
5.6
|
%
|
$
|
1,576
|
|
|
32.1
|
%
|
Marine
|
|
|
4,932
|
|
|
11.2
|
%
|
|
3,912
|
|
|
8.2
|
%
|
|
1,020
|
|
|
26.1
|
%
|
Automotive/Mobile
|
|
|
21,724
|
|
|
3.5
|
%
|
|
15,305
|
|
|
2.9
|
%
|
|
6,419
|
|
|
41.9
|
%
|
Aviation
|
|
|
19,610
|
|
|
24.2
|
%
|
|
16,510
|
|
|
22.2
|
%
|
|
3,100
|
|
|
18.8
|
%
|
Total
|
|
$
|
52,749
|
|
|
6.1
|
%
|
$
|
40,634
|
|
|
5.6
|
%
|
$
|
12,115
|
|
|
29.8
|
%
|
The
29.8%
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 same period last year, and an increase in engineering
program costs during the third quarter of 2008 as a result of our continued
emphasis on product innovation. Research and development costs increased $12.1
million when compared with the third quarter of 2007 representing a 50 basis
point increase as a percent of revenue.
Operating
Income
|
|
13-weeks ended September 27, 2008
|
|
13-weeks ended September 29, 2007
|
|
Quarter over Quarter
|
|
|
|
Operating Income
|
|
% of Revenues
|
|
Operating Income
|
|
% of Revenues
|
|
$ Change
|
|
% Change
|
|
Outdoor/Fitness
|
|
$
|
52,136
|
|
|
44.0
|
%
|
$
|
30,178
|
|
|
34.4
|
%
|
$
|
21,958
|
|
|
72.8
|
%
|
Marine
|
|
|
10,606
|
|
|
24.1
|
%
|
|
15,623
|
|
|
32.8
|
%
|
|
(5,017
|
)
|
|
-32.1
|
%
|
Automotive/Mobile
|
|
|
124,359
|
|
|
19.8
|
%
|
|
141,855
|
|
|
27.3
|
%
|
|
(17,496
|
)
|
|
-12.3
|
%
|
Aviation
|
|
|
27,262
|
|
|
33.6
|
%
|
|
26,501
|
|
|
35.7
|
%
|
|
761
|
|
|
2.9
|
%
|
Total
|
|
$
|
214,363
|
|
|
24.6
|
%
|
$
|
214,157
|
|
|
29.4
|
%
|
$
|
206
|
|
|
0.1
|
%
|
Operating
margin declined 480 basis points as a percent of revenue when compared to the
third 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, increases in advertising, and research and development
expense associated with ongoing development activities. Operating margin
increased to 44.0% within our outdoor/fitness segment when compared with the
third quarter of 2007. Operating margins decreased to 19.8%, 24.1% and 33.6%
within our automotive/mobile, marine, and aviation segments, respectively,
when
compared with the third quarter of 2007. Our operating income was basically
flat
as increases in the outdoor/fitness and aviation segments offset declining
margins in automotive/mobile and marine.
Other
Income (Expense)
|
|
13-weeks ended
|
|
13-weeks ended
|
|
|
|
September 27, 2008
|
|
September 29, 2007
|
|
Interest Income
|
|
$
|
8,770
|
|
$
|
11,798
|
|
Foreign Currency Exchange
|
|
|
(12,744
|
)
|
|
(3,626
|
)
|
Gain
on sale of equity securities
|
|
|
0
|
|
|
-
|
|
Other
|
|
|
1,023
|
|
|
297
|
|
Total
|
|
$ |
(2,951
|
)
|
$
|
8,469
|
|
The
average interest rate of return on cash and investments during the third quarter
of 2008 was 3.8% compared to 4.5% 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 (TD), the Euro, and the British Pound Sterling. The U.S. Dollar
(USD) remains the functional currency of Garmin (Europe) Ltd. The Euro is the
functional currency of Garmin France, Garmin Deutschland, Garmin Iberia, Garmin
Italia, Garmin Belux, Garmin Suomi Oy, Garmin Austria GmbH and Satsignal
Equipamentos de Comunicações e de Navegação S.A.. 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 are not expected to have a material
impact on the Company’s financial statements.
The
majority of the $12.7 million currency loss in the third quarter of 2008 was
due
to the strengthening of the USD. During the third quarter of fiscal 2008, the
TD
weakened 5.0% in comparison to the USD, resulting in a $38.5 million gain.
Offsetting this impact, the Euro has weakened 6.5% relative to the USD resulting
in a $51.2 million loss. The weakness of the TD and Euro have offsetting impacts
due to the use of the TD for manufacturing cost while the Euro transactions
relate to revenue.
The
majority of the $3.6 million currency loss in the third quarter of 2007 was
due
to the weakening of the USD compared to the TD. During the third quarter of
fiscal 2007 the exchange rate increased resulting in a $5.4 million loss. The
British Pound Sterling and the Euro strengthened 1.5% and 4.9% respectively
relative to the USD during the quarter which resulted in a $0.4 million gain
related to movements in the British Pound Sterling and a $1.2 million gain
related to movements in the Euro. Other net currency gains and the timing of
transactions created the remaining gain of $0.2 million.
Income
Tax Provision
Our
earnings before taxes fell 5% when compared to the third quarter of 2007, yet
our income tax expense increased by $11.0 million, to $40.2 million, for the
13-week period ended September 27, 2008, from $29.1 million for the 13-week
period ended September 29, 2007, due to a higher effective tax rate. The
effective tax rate was 19.0% in the third quarter of 2008 and 13.1% in the
third
quarter of 2007. The higher tax rate in the third 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 decreased 11.5% for the 13-week period ended
September 27, 2008 to $171.2 million compared to $193.5 million for the 13-week
period ended September 29, 2007.
Comparison
of 39-Weeks Ended September 27, 2008 and September 29,
2007
Net
Sales
|
|
39-weeks
ended September 27, 2008
|
|
39-weeks
ended September 29, 2007
|
|
Quarter
over Quarter
|
|
|
|
Net
Sales
|
|
%
of Revenues
|
|
Net
Sales
|
|
%
of Revenues
|
|
$
Change
|
|
%
Change
|
|
Outdoor/Fitness
|
|
$
|
308,255
|
|
|
12.6
|
%
|
$
|
225,437
|
|
|
11.5
|
%
|
$
|
82,818
|
|
|
36.7
|
%
|
Marine
|
|
|
171,232
|
|
|
7.0
|
%
|
|
170,433
|
|
|
8.7
|
%
|
|
799
|
|
|
0.5
|
%
|
Automotive/Mobile
|
|
|
1,710,248
|
|
|
69.9
|
%
|
|
1,343,460
|
|
|
68.4
|
%
|
|
366,788
|
|
|
27.3
|
%
|
Aviation
|
|
|
256,095
|
|
|
10.5
|
%
|
|
223,968
|
|
|
11.4
|
%
|
|
32,127
|
|
|
14.3
|
%
|
Total
|
|
$
|
2,445,830
|
|
|
100.0
|
%
|
$
|
1,963,298
|
|
|
100.0
|
%
|
$
|
482,532
|
|
|
24.6
|
%
|
Increases
in sales for the 39-week period ended September 27, 2008 continue to be driven
by automotive and outdoor/fitness product offerings. Automotive/mobile revenue
remains a significantly larger portion of our revenue mix, rising from 68.4%
year to date in 2007 to 69.9% year to date in 2008.
Total
unit sales increased 56% to 10,563,000 year to date in 2008 from 6,784,000
in
the same period of 2007. The higher unit sales volume in year to date 2008
was
primarily attributable to strong sales of automotive products, particularly
in
North America, and outdoor/fitness products.
Automotive/mobile
segment revenue grew 27.3% from the year-ago period, on the strength of the
nuvi®
series
of personal navigation devices (PNDs). On a percentage basis, revenues in our
outdoor/fitness segment grew faster than any other segment from the year ago
period due to the introduction of the Colorado™ series, the Oregon ™ series, the
Forerunner®
405 and
Edge®
705.
Our
aviation segment continued to grow on the strength of our G1000 cockpit as
an
OEM solution. Marine revenues were slightly higher than the year ago period
due
to strong growth in the first quarter of 2008 offset by a decline in the second
and third quarters due to macroeconomic conditions and fuel prices.
Gross
Profit
|
|
39-weeks
ended September 27, 2008
|
|
39-weeks
ended September 29, 2007
|
|
Quarter
over Quarter
|
|
|
|
Gross
Profit
|
|
%
of Revenues
|
|
Gross
Profit
|
|
%
of Revenues
|
|
$
Change
|
|
%
Change
|
|
Outdoor/Fitness
|
|
$
|
179,834
|
|
|
58.3
|
%
|
$
|
123,616
|
|
|
54.8
|
%
|
$
|
56,218
|
|
|
45.5
|
%
|
Marine
|
|
|
94,296
|
|
|
55.1
|
%
|
|
92,704
|
|
|
54.4
|
%
|
|
1,592
|
|
|
1.7
|
%
|
Automotive/Mobile
|
|
|
675,953
|
|
|
39.5
|
%
|
|
591,400
|
|
|
44.0
|
%
|
|
84,553
|
|
|
14.3
|
%
|
Aviation
|
|
|
172,799
|
|
|
67.5
|
%
|
|
146,550
|
|
|
65.4
|
%
|
|
26,249
|
|
|
17.9
|
%
|
Total
|
|
$
|
1,122,882
|
|
|
45.9
|
%
|
$
|
954,270
|
|
|
48.6
|
%
|
$
|
168,612
|
|
|
17.7
|
%
|
Gross
profit dollars in the 39-weeks ended September 27, 2008 grew 17.7% and gross
profit margin percentage declined 270 basis points over the same period of
the
previous year. Year to date 2008 gross profit margins decreased to 39.5% in
the
automotive/mobile segment when compared to the same period in 2007. Year to
date
2008 gross profit margins increased to 58.3%, 55.1%, and 67.5% within the
outdoor/fitness, marine and aviation segments, respectively, when compared
with
the same period of 2007.
Gross
profit margin percentage for the Company overall decreased 270 basis points
as a
result of the automotive/mobile segment decline of 450 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. A product mix favoring the high
margin G1000 in the aviation segment resulted in favorable gross margins for
the
aviation segment year to date in 2008. Outdoor/fitness gross margin has
increased due to a newer suite of products. Marine gross margin remains
relatively stable on a year-over-year basis and within historic ranges.
Selling,
General and Administrative Expenses
|
|
39-weeks ended September 27, 2008
|
|
39-weeks ended September 29, 2007
|
|
|
|
|
|
Selling, General &
|
|
|
|
Selling, General &
|
|
|
|
Quarter over Quarter
|
|
|
|
Admin. Expenses
|
|
% of Revenues
|
|
Admin. Expenses
|
|
% of Revenues
|
|
$ Change
|
|
% Change
|
|
Outdoor/Fitness
|
|
$
|
43,631
|
|
|
14.2
|
%
|
$
|
28,068
|
|
|
12.5
|
%
|
$
|
15,563
|
|
|
55.4
|
%
|
Marine
|
|
|
26,662
|
|
|
15.6
|
%
|
|
20,421
|
|
|
12.0
|
%
|
|
6,241
|
|
|
30.6
|
%
|
Automotive/Mobile
|
|
|
250,434
|
|
|
14.6
|
%
|
|
181,246
|
|
|
13.5
|
%
|
|
69,188
|
|
|
38.2
|
%
|
Aviation
|
|
|
20,653
|
|
|
8.1
|
%
|
|
18,623
|
|
|
8.3
|
%
|
|
2,030
|
|
|
10.9
|
%
|
Total
|
|
$
|
341,380
|
|
|
14.0
|
%
|
$
|
248,358
|
|
|
12.7
|
%
|
$
|
93,022
|
|
|
37.5
|
%
|
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.
Selling, general and administrative expenses excluding advertising increased
as
a percent of revenues from 6.3% year to date in 2007 to 7.9% year to date in
2008. In absolute dollars, selling, general and administrative expenses
excluding advertising increased $70.6 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 18% or $22.4 million when compared to the
year
ago period. As a percent of revenues, advertising fell to 6.1% in the 39-weeks
ended September 27, 2008 compared to 6.4% in the year ago period.
Research
and Development Expense
|
|
39-weeks ended September 27, 2008
|
|
39-weeks ended September 29, 2007
|
|
|
|
|
|
Research &
|
|
|
|
Research &
|
|
|
|
Quarter over Quarter
|
|
|
|
Development
|
|
% of Revenues
|
|
Development
|
|
% of Revenues
|
|
$ Change
|
|
% Change
|
|
Outdoor/Fitness
|
|
$
|
19,312
|
|
|
6.3
|
%
|
$
|
15,562
|
|
|
6.9
|
%
|
$
|
3,750
|
|
|
24.1
|
%
|
Marine
|
|
|
15,125
|
|
|
8.8
|
%
|
|
12,250
|
|
|
7.2
|
%
|
|
2,875
|
|
|
23.5
|
%
|
Automotive/Mobile
|
|
|
64,328
|
|
|
3.8
|
%
|
|
39,706
|
|
|
3.0
|
%
|
|
24,622
|
|
|
62.0
|
%
|
Aviation
|
|
|
57,139
|
|
|
22.3
|
%
|
|
44,345
|
|
|
19.8
|
%
|
|
12,794
|
|
|
28.9
|
%
|
Total
|
|
$
|
155,904
|
|
|
6.4
|
%
|
$
|
111,863
|
|
|
5.7
|
%
|
$
|
44,041
|
|
|
39.4
|
%
|
The
increase in research and development expense dollars was due to ongoing
development activities for new products, the addition of 400 new engineering
personnel to our staff during the period, and an increase in engineering program
costs year to date in 2008 as a result of our continued emphasis on product
innovation. Research and development costs increased $44.0 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
|
|
39-weeks ended September 27, 2008
|
|
39-weeks ended September 29, 2007
|
|
Quarter over Quarter
|
|
|
|
Operating Income
|
|
% of Revenues
|
|
Operating Income
|
|
% of Revenues
|
|
$ Change
|
|
% Change
|
|
Outdoor/Fitness
|
|
$
|
116,892
|
|
|
37.9
|
%
|
$
|
79,986
|
|
|
35.5
|
%
|
$
|
36,906
|
|
|
46.1
|
%
|
Marine
|
|
|
52,510
|
|
|
30.7
|
%
|
|
60,033
|
|
|
35.2
|
%
|
|
(7,523
|
)
|
|
-12.5
|
%
|
Automotive/Mobile
|
|
|
361,190
|
|
|
21.1
|
%
|
|
370,448
|
|
|
27.6
|
%
|
|
(9,258
|
)
|
|
-2.5
|
%
|
Aviation
|
|
|
95,006
|
|
|
37.1
|
%
|
|
83,582
|
|
|
37.3
|
%
|
|
11,424
|
|
|
13.7
|
%
|
Total
|
|
$
|
625,598
|
|
|
25.6
|
%
|
$
|
594,049
|
|
|
30.3
|
%
|
$
|
31,549
|
|
|
5.3
|
%
|
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 30.7%, 21.1%,
and
37.1% in our marine, automotive/mobile, and aviation segments, respectively,
while operating margins increased to 37.9% within our outdoor/fitness segment.
Other
Income (Expense)
|
|
39-weeks ended
|
|
39-weeks ended
|
|
|
|
September 27, 2008
|
|
September 29, 2007
|
|
Interest
Income
|
|
$
|
26,830
|
|
$
|
31,997
|
|
Foreign
Currency Exchange
|
|
$
|
4,818
|
|
$
|
3,493
|
|
Gain
on sale of equity securities
|
|
$
|
50,949
|
|
|
-
|
|
Other
|
|
$
|
1,824
|
|
$
|
631
|
|
Total
|
|
$
|
84,421
|
|
$
|
36,121
|
|
The
average interest rate of return on cash and investments during the 39-weeks
ended September 27, 2008 was 3.6% compared to 4.6% 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 (TD), the Euro, and the British Pound Sterling. The U.S. Dollar
(USD) remains the functional currency of Garmin (Europe) Ltd. The Euro is the
functional currency of Garmin France, Garmin Deutschland, Garmin Iberia, Garmin
Italia, Garmin Belux, Garmin Suomi Oy, Garmin Austria GmbH and Satsignal
Equipamentos de Comunicações e de Navegação S.A.. 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 are not expected to have a
material impact on the Company’s financial statements.
The
majority of the $4.8 million currency gain for the 39-weeks ended September
27,
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 offsetting $16.7 million currency
loss in the same period of 2008 was primarily due to the timing of fluctuations
between the USD compared to the TD and the Euro. On a year to date
basis, the TD strengthened 1.4% in comparison to the USD, resulting in a $0.3
million gain. The Euro has strengthened 0.1% relative to the U.S. Dollar year
to
date in 2008 which resulted in a $17.2 million loss. 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 $0.2 million.
The
$3.5
million currency gain in the 39-week period ended September 29, 2007 was driven
by the movement of the British Pound Sterling and Euro, which strengthened
3.9%
and 7.3%, respectively, resulting in gains of $2.0 million and $1.9 million,
respectively. While the U.S. Dollar/Taiwan Dollar exchange rate fluctuated
meaningfully during the period, by the end of the period there was a net 0.2%
strengthening of the Taiwan dollar, which resulted in a $0.5 million currency
loss. Other net currency gains and the timing of transactions created the
remaining gain of $0.1 million.
Other
income of $52.8 million in the 39-weeks ended September 27, 2008 was primarily
generated from the sale of our equity interest in Tele Atlas N.V.
Income
Tax Provision
Our
earnings before taxes increased 12.7% when compared to the same period in 2007,
and our income tax expense increased by $52.5 million, to $134.9 million, for
the 39-week period ended September 27, 2008, from $82.4 million for the 26-week
period ended September 29, 2007, due to earnings growth and our higher tax
rate.
The effective tax rate was 19.0% year to date in 2008 and 13.1% year to date
in
2007. The higher tax rate in 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 5.0% for the 39-week period ended
September 27, 2008 to $575.1 million compared to $547.7 million for the 39-week
period ended September 29, 2007.
Liquidity
and Capital Resources
Net
cash
generated by operating activities was $512.7 million for the 39-week period
ended September 27, 2008 compared to $555.9 million for the 39-week period
ended
September 29, 2007. We experienced a $167.0 million year-to-date increase in
net
inventories in this 39-week period of 2008, an increase required to fill 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 $306.3 million, net of bad debts, during this 39-week period of 2008
due to lower shipments compared to the seasonally strong fourth quarter.
Cash
flow
used in investing activities during the 39-week period ending September 27,
2008
was $87.1 million. Cash flow used in investing activities included $110.5
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. In addition, the acquisition of European
distributors for $50.5 million is included in cash flow used in investing
activities. In addition, the net sale of securities provided $77.8 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 interest rate of return on cash and
investments during the period was approximately 3.6%.
Net
cash
used by financing activities during the period was $614.7 million resulting
from
the use of $624.7 million for stock repurchased under our stock repurchase
plans, offset by $10.0 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
$47.5 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,
Garmin Belux, Garmin Suomi Oy, Garmin Austria GmbH and Satsignal Equipamentos
de Comunicações e de Navegação S.A.. 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 are not expected to have a material
impact on the Company’s financial statements.
Interest
Rate Risk
As
of
September 27, 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 or can be sold at a profit or minimal loss.
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 September 27, 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 September 27, 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 September 27, 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”). 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. On September 30, 2008, the court granted Garmin International’s
Motion for Summary Judgment for Claim Invalidity Based on Indefiniteness with
respect to the ’671 patent. On October 8, 2008, the court issued an Order
dismissing Encyclopaedia Britannica’s amended complaint with respect to the ’018
patent without prejudice. On October 8, 2008, the court also issued a final
judgment ordering that Encyclopaedia Britannica take nothing from its action
against Garmin International with respect to the ’671 and ’018 patents and
closed that case. 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. This lawsuit was dismissed with prejudice on September
3,
2008 pursuant to a settlement agreement.
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. On August 18, 2008, Garmin filed its answer
to the amended complaint along with a motion for dismissal of SP Technologies,
LLC’s claims of willful and inducement infringement of the ’873 patent. On
October 16, 2008, the court granted Garmin’s motion for partial dismissal,
striking the willful and inducement infringement allegations from the amended
complaint. 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.
Scott
C. Harris and Memory Control Enterprise, LLC v. Dash Navigation, Inc., Garmin
International, Inc., Lowrance Electronics, Inc., Magellan Navigation, Inc.,
Mio
Technology USA, Navigon Inc., Netropa Corporation, and Sony Electronics,
Inc.
On
September 4, 2008, Scott C. Harris and Memory Control Enterprise, LLC filed
a
lawsuit in the United States District Court for the Northern District of
Illinois against Garmin International, Inc., Dash Navigation, Inc., Lowrance
Electronics, Inc., Magellan Navigation, Inc., Mio Technology USA, Navigon Inc.,
Netropa Corporation, and Sony Electronics, Inc. The complaint against Garmin
International, Inc. alleges infringement of claim 34 of U.S. Patent No.
6,892,136 (“the ’136 patent”). Although there can be no assurance that an
unfavorable outcome of this litigation would not have a material adverse effect
on our operating results, liquidity or financial position, Garmin believes
that
it should not be found liable of infringement of the ’136 patent and
additionally that the ’136 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
Information
regarding the Company’s risk factors appears 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 from the risk factors previously
disclosed in our Annual Report on Form 10-K for the fiscal year ended December
29, 2007 other than as set forth below:
Our
financial results are highly dependent on the automotive/mobile segment, which
now represents over 70% of our revenues and may be maturing leading to lesser
growth than we have experienced in the past.
We
have
experienced substantial growth in the automotive/mobile segment of our business
in recent years as the products have become mass-market consumer electronics
in
both Europe and North America. This market growth may now be slowing as
penetration rates increase and competing technologies emerge. Slowing growth,
along with the significant price reductions that have occurred during the past
two years, could result in lower revenues. As margins have also declined in
this
segment, slowing growth may also result in lower earnings per share.
The
demand for personal navigation devices (PNDs) may be eroded by replacement
technologies becoming available on mobile handsets and factory-installed systems
in new autos.
We
have
experienced substantial growth in the automotive/mobile segment which has
resulted in GPS/navigation technologies being incorporated into competing
devices such as mobile handsets and new automobiles through factory-installed
systems. Mobile handsets are frequently GPS-enabled and many companies are
now
offering navigation software for mobile devices. The acceptance of this
technology by consumers could slow our growth and further reduce margins.
Navigation systems are becoming more prevalent as optional equipment on new
automobiles. Increased navigation penetration on new automobiles could slow
our
growth and further reduce margins.
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 Company repurchased 1,600,000 shares and
8,158,000 shares in second and third quarter of 2008, respectively. The share
repurchase authorization expires on December 31, 2009.
The
Board
of Directors approved a share repurchase program on October 22, 2008,
authorizing the Company to repurchase up to $300 million of the company’s shares
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 third quarter of
fiscal 2008:
|
|
|
|
|
|
|
|
Maximum Number of Shares
|
|
|
|
|
|
|
|
Total Number of Shares
|
|
(or Approx. Dollar Value of
|
|
|
|
|
|
|
|
Purchased as Part of
|
|
Shares in Thousands) That
|
|
|
|
Total # of
|
|
Average Price
|
|
Publicly Announced
|
|
May Yet Be Purchased Under
|
|
Period
|
|
Shares Purchased
|
|
Paid Per Share
|
|
Plans or Programs
|
|
the Plans or Programs
|
|
|
|
|
|
|
|
|
|
|
|
13-weeks
ended
|
|
|
|
|
|
|
|
|
|
|
|
242,000
shares and
|
|
September
27, 2008
|
|
|
8,158,000
|
|
$
|
37.54
|
|
|
8,158,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
242,000
shares and
|
|
Total
|
|
|
8,158,000
|
|
$
|
37.54
|
|
|
8,158,000
|
|
|
$300,000
|
|
None
Item
4. Submission
of Matters to a Vote of Security Holders
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:
November 5, 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
|