Unassociated Document
United
States
Securities
and Exchange Commission
Washington, D.C.
20549
FORM
10-Q
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
quarterly period ended June 26, 2010
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)
Switzerland
|
98-0229227
|
(State
or other jurisdiction
|
(I.R.S.
Employer identification no.)
|
of
incorporation or organization)
|
|
Vorstadt
40/42
|
N/A
|
8200
Schaffhausen
|
(Zip
Code)
|
Switzerland
|
|
(Address
of principal executive offices)
|
|
Company's
telephone number, including area code: +41 52 620 1401
P.O.
Box 10670, Grand Cayman KY1-1006, Suite 3206B, 45 Market Street, Gardenia Court,
Camana Bay, Cayman Islands
(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 has submitted electronically and posted on
its corporate web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). 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 August 2, 2010
Common Shares, $.005 par
value: 194,596,361
Garmin
Ltd.
Form
10-Q
Quarter
Ended June 26, 2010
Table
of Contents
|
|
Page
|
Part
I - Financial Information
|
|
|
|
|
|
|
Item
1.
|
Condensed
Consolidated Financial Statements
|
|
3
|
|
|
|
|
|
Introductory
Comments
|
|
3
|
|
|
|
|
|
Condensed
Consolidated Balance Sheets at June 26, 2010 (Unaudited) and December 26,
2009
|
|
4
|
|
|
|
|
|
Condensed
Consolidated Statements of Income for the 13-weeks and 26-weeks ended June
26, 2010 and June 27, 2009 (Unaudited)
|
|
5
|
|
|
|
|
|
Condensed
Consolidated Statements of Cash Flows for the 26-weeks ended June 26, 2010
and June 27, 2009 (Unaudited)
|
|
6
|
|
|
|
|
|
Notes
to Condensed Consolidated Financial Statements (Unaudited)
|
|
7
|
|
|
|
|
Item
2.
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations
|
|
15
|
|
|
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market
Risk
|
|
25
|
|
|
|
|
Item
4.
|
Controls
and Procedures
|
|
26
|
|
|
|
|
Part
II - Other Information
|
|
|
|
|
|
|
Item
1.
|
Legal
Proceedings
|
|
27
|
|
|
|
|
Item 1A.
|
Risk
Factors
|
|
29
|
|
|
|
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
|
40
|
|
|
|
|
Item
3.
|
Defaults
Upon Senior Securities
|
|
40
|
|
|
|
|
Item
5.
|
Other
Information
|
|
40
|
|
|
|
|
Item
6.
|
Exhibits
|
|
41
|
|
|
|
|
Signature
Page
|
|
42
|
|
|
|
Index
to Exhibits
|
|
43
|
Garmin
Ltd.
Form
10-Q
Quarter
Ended June 26, 2010
Part
I – Financial Information
Item
1. Condensed Consolidated Financial Statements
Introductory
Comments
The Condensed Consolidated Financial
Statements of Garmin Ltd. ("Garmin" or the "Company") included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the United States Securities and Exchange Commission. Certain
information and note disclosures normally included in financial statements
prepared in accordance with U.S. generally accepted accounting principles have
been condensed or omitted pursuant to such rules and regulations, although the
Company believes that the disclosures are adequate to enable a reasonable
understanding of the information presented. These Condensed
Consolidated Financial Statements should be read in conjunction with the audited
financial statements and the notes thereto for the year ended December 26,
2009. 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 26, 2010 are not necessarily indicative
of the results to be expected for the full year 2010.
Condensed
Consolidated Balance Sheets
(In
thousands, except share information)
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
June 26,
|
|
|
December 26,
|
|
|
|
2010
|
|
|
2009
|
|
Assets
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
1,173,169 |
|
|
$ |
1,091,581 |
|
Marketable
securities
|
|
|
18,622 |
|
|
|
19,583 |
|
Accounts
receivable, net
|
|
|
499,324 |
|
|
|
874,110 |
|
Inventories,
net
|
|
|
358,576 |
|
|
|
309,938 |
|
Deferred
income taxes
|
|
|
57,068 |
|
|
|
59,189 |
|
Prepaid
expenses and other current assets
|
|
|
52,758 |
|
|
|
39,470 |
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
2,159,517 |
|
|
|
2,393,871 |
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
426,805 |
|
|
|
441,338 |
|
|
|
|
|
|
|
|
|
|
Marketable
securities
|
|
|
636,184 |
|
|
|
746,464 |
|
Restricted
cash
|
|
|
936 |
|
|
|
2,047 |
|
Licensing
agreements, net
|
|
|
2,531 |
|
|
|
15,400 |
|
Noncurrent
deferred income tax
|
|
|
20,498 |
|
|
|
20,498 |
|
Other
intangible assets, net
|
|
|
184,888 |
|
|
|
206,256 |
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
3,431,359 |
|
|
$ |
3,825,874 |
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders' Equity
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
150,519 |
|
|
$ |
203,388 |
|
Salaries
and benefits payable
|
|
|
36,568 |
|
|
|
45,236 |
|
Accrued
warranty costs
|
|
|
41,445 |
|
|
|
87,424 |
|
Accrued
sales program costs
|
|
|
46,656 |
|
|
|
119,150 |
|
Deferred
revenue
|
|
|
46,620 |
|
|
|
27,910 |
|
Accrued
advertising expense
|
|
|
22,154 |
|
|
|
34,146 |
|
Other
accrued expenses
|
|
|
81,162 |
|
|
|
143,568 |
|
Income
taxes payable
|
|
|
11,312 |
|
|
|
22,846 |
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
436,436 |
|
|
|
683,668 |
|
|
|
|
|
|
|
|
|
|
Deferred
income taxes
|
|
|
8,521 |
|
|
|
10,170 |
|
Non-current
income taxes
|
|
|
275,876 |
|
|
|
255,748 |
|
Non-current
deferred revenue
|
|
|
57,595 |
|
|
|
38,574 |
|
Other
liabilities
|
|
|
1,317 |
|
|
|
1,267 |
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity:
|
|
|
|
|
|
|
|
|
Common
stock, $0.005 par value, 1,000,000,000 shares authorized:
|
|
|
|
|
|
Issued
and outstanding shares - 197,554,000 as of June 26, 2010 and 200,274,000
as of December 26, 2009
|
|
|
987 |
|
|
|
1,001 |
|
Additional
paid-in capital
|
|
|
- |
|
|
|
32,221 |
|
Retained
earnings
|
|
|
2,648,589 |
|
|
|
2,816,607 |
|
Accumulated
other comprehensive income/(loss)
|
|
|
2,038 |
|
|
|
(13,382 |
) |
|
|
|
|
|
|
|
|
|
Total
stockholders' equity
|
|
|
2,651,614 |
|
|
|
2,836,447 |
|
Total
liabilities and stockholders' equity
|
|
$ |
3,431,359 |
|
|
$ |
3,825,874 |
|
See
accompanying notes.
Condensed
Consolidated Statements of Income (Unaudited)
(In
thousands, except per share information)
|
|
13-Weeks Ended
|
|
|
26-Weeks Ended
|
|
|
|
June 26,
|
|
|
June 27,
|
|
|
June 26,
|
|
|
June 27,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
728,765 |
|
|
$ |
669,104 |
|
|
$ |
1,159,833 |
|
|
$ |
1,105,803 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of
goods sold
|
|
|
337,113 |
|
|
|
317,490 |
|
|
|
537,272 |
|
|
|
558,194 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
391,652 |
|
|
|
351,614 |
|
|
|
622,561 |
|
|
|
547,609 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising
expense
|
|
|
42,440 |
|
|
|
34,023 |
|
|
|
59,841 |
|
|
|
57,248 |
|
Selling,
general and administrative expense
|
|
|
73,832 |
|
|
|
62,186 |
|
|
|
141,509 |
|
|
|
121,963 |
|
Research
and development expense
|
|
|
73,337 |
|
|
|
56,253 |
|
|
|
135,820 |
|
|
|
111,287 |
|
Total
operating expense
|
|
|
189,609 |
|
|
|
152,462 |
|
|
|
337,170 |
|
|
|
290,498 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
202,043 |
|
|
|
199,152 |
|
|
|
285,391 |
|
|
|
257,111 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
5,791 |
|
|
|
5,190 |
|
|
|
12,669 |
|
|
|
10,286 |
|
Foreign
currency
|
|
|
(43,605 |
) |
|
|
(4,836 |
) |
|
|
(90,141 |
) |
|
|
(7,274 |
) |
Other
|
|
|
180 |
|
|
|
335 |
|
|
|
2,013 |
|
|
|
(359 |
) |
Total
other income (expense)
|
|
|
(37,634 |
) |
|
|
689 |
|
|
|
(75,459 |
) |
|
|
2,653 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
164,409 |
|
|
|
199,841 |
|
|
|
209,932 |
|
|
|
259,764 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax provision
|
|
|
29,593 |
|
|
|
37,970 |
|
|
|
37,788 |
|
|
|
49,355 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
134,816 |
|
|
$ |
161,871 |
|
|
$ |
172,144 |
|
|
$ |
210,409 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.68 |
|
|
$ |
0.81 |
|
|
$ |
0.86 |
|
|
$ |
1.05 |
|
Diluted
|
|
$ |
0.67 |
|
|
$ |
0.81 |
|
|
$ |
0.86 |
|
|
$ |
1.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
198,948 |
|
|
|
200,296 |
|
|
|
199,437 |
|
|
|
200,364 |
|
Diluted
|
|
|
200,102 |
|
|
|
200,853 |
|
|
|
200,626 |
|
|
|
200,814 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends declared per common share
|
|
$ |
1.50 |
|
|
$ |
0.75 |
|
|
$ |
1.50 |
|
|
$ |
0.75 |
|
See
accompanying notes.
Condensed
Consolidated Statements of Cash Flows (Unaudited)
(In
thousands)
|
|
26-Weeks Ended
|
|
|
|
June 26,
|
|
|
June 27,
|
|
|
|
2010
|
|
|
2009
|
|
Operating
Activities:
|
|
|
|
|
|
|
Net
income
|
|
$ |
172,144 |
|
|
$ |
210,409 |
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
26,746 |
|
|
|
26,335 |
|
Amortization
|
|
|
24,809 |
|
|
|
15,914 |
|
Gain
on sale of property and equipment
|
|
|
(6 |
) |
|
|
(108 |
) |
Provision
for doubtful accounts
|
|
|
(552 |
) |
|
|
(5,223 |
) |
Deferred
income taxes
|
|
|
(30 |
) |
|
|
(718 |
) |
Foreign
currency transaction gains/losses
|
|
|
47,880 |
|
|
|
(4,493 |
) |
Provision
for obsolete and slow moving inventories
|
|
|
10,309 |
|
|
|
14,111 |
|
Stock
compensation expense
|
|
|
19,099 |
|
|
|
21,029 |
|
Realized
gains on marketable securities
|
|
|
(470 |
) |
|
|
(1,274 |
) |
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
364,401 |
|
|
|
233,166 |
|
Inventories
|
|
|
(64,272 |
) |
|
|
89,044 |
|
Other
current assets
|
|
|
(1,468 |
) |
|
|
(2,415 |
) |
Accounts
payable
|
|
|
(52,248 |
) |
|
|
(23,175 |
) |
Other
current and non-current liabilities
|
|
|
(193,657 |
) |
|
|
(4,838 |
) |
Deferred
revenue
|
|
|
37,425 |
|
|
|
- |
|
Income
taxes payable
|
|
|
(7,771 |
) |
|
|
(5,140 |
) |
Purchase
of licenses
|
|
|
(472 |
) |
|
|
(6,936 |
) |
Net
cash provided by operating activities
|
|
|
381,867 |
|
|
|
555,688 |
|
|
|
|
|
|
|
|
|
|
Investing
activities:
|
|
|
|
|
|
|
|
|
Purchases
of property and equipment
|
|
|
(13,220 |
) |
|
|
(23,343 |
) |
Proceeds
from sale of property and equipment
|
|
|
- |
|
|
|
(7 |
) |
Purchase
of intangible assets
|
|
|
(8,229 |
) |
|
|
(3,496 |
) |
Purchase
of marketable securities
|
|
|
(169,062 |
) |
|
|
(341,423 |
) |
Redemption
of marketable securities
|
|
|
294,350 |
|
|
|
68,173 |
|
Change
in restricted cash
|
|
|
1,111 |
|
|
|
(125 |
) |
Net
cash provided by/(used in) investing activities
|
|
|
104,950 |
|
|
|
(300,221 |
) |
|
|
|
|
|
|
|
|
|
Financing
activities:
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of common stock from exercise of stock
options
|
|
|
5,452 |
|
|
|
310 |
|
Proceeds
from issuance of common stock from stock purchase plan
|
|
|
- |
|
|
|
3,712 |
|
Stock
repurchase
|
|
|
(84,328 |
) |
|
|
(1,849 |
) |
Dividends
paid
|
|
|
(299,103 |
) |
|
|
- |
|
Tax
benefit related to stock option exercise
|
|
|
1,898 |
|
|
|
65 |
|
Net
cash provided by/(used in) financing activities
|
|
|
(376,081 |
) |
|
|
2,238 |
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash and cash equivalents
|
|
|
(29,148 |
) |
|
|
4,869 |
|
|
|
|
|
|
|
|
|
|
Net
increase in cash and cash equivalents
|
|
|
81,588 |
|
|
|
262,574 |
|
Cash
and cash equivalents at beginning of period
|
|
|
1,091,581 |
|
|
|
696,335 |
|
Cash
and cash equivalents at end of period
|
|
$ |
1,173,169 |
|
|
$ |
958,909 |
|
See
accompanying notes.
Garmin
Ltd. and Subsidiaries
Notes
to Condensed Consolidated Financial Statements (Unaudited)
June
26, 2010
(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 26, 2010 are not necessarily indicative
of the results that may be expected for the year ending December 25,
2010.
The
condensed consolidated balance sheet at December 26, 2009 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 26,
2009.
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 26, 2010 and
June 27, 2009 both contain operating results for 13-weeks for both year-to-date
periods.
The
components of inventories consist of the following:
|
|
June 26,
2010
|
|
|
December 26,
2009
|
|
|
|
|
|
|
|
|
Raw
Materials
|
|
$ |
107,121 |
|
|
$ |
80,963 |
|
Work-in-process
|
|
|
39,517 |
|
|
|
32,587 |
|
Finished
goods
|
|
|
245,353 |
|
|
|
235,286 |
|
Inventory
Reserves
|
|
|
(18,701 |
) |
|
|
(38,898 |
) |
Inventory,
net of reserves
|
|
$ |
373,290 |
|
|
$ |
309,938 |
|
The Board
of Directors approved a share repurchase program on February 12, 2010,
authorizing the Company to purchase up to $300,000 of its common shares as
market and business conditions warrant on the open market or in negotiated
transactions in compliance with the SEC’s Rule 10b-18. The
share repurchase authorization expires on December 31, 2010. As
of June 26, 2010, the Company had repurchased 3,085,107 shares using cash of
$99,586. Of this amount, approximately $15,491 of repurchase trades
remained unsettled at June 26, 2010. After settlement of these
trades, there remains approximately $200,414 available for repurchase under this
authorization.
The
following table sets forth the computation of basic and diluted net income per
share:
|
|
13-Weeks Ended
|
|
|
|
June
26,
|
|
|
June
27,
|
|
|
|
2010
|
|
|
2009
|
|
Numerator:
|
|
|
|
|
|
|
Numerator
for basic and diluted net income per share - net income
|
|
$ |
134,816 |
|
|
$ |
161,871 |
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Denominator
for basic net income per share – weighted-average common
shares
|
|
|
198,948 |
|
|
|
200,296 |
|
|
|
|
|
|
|
|
|
|
Effect
of dilutive securities – employee stock options
|
|
|
1,154 |
|
|
|
557 |
|
|
|
|
|
|
|
|
|
|
Denominator
for diluted net income per share – adjusted weighted-average common
shares
|
|
|
200,102 |
|
|
|
200,853 |
|
|
|
|
|
|
|
|
|
|
Basic
net income per share
|
|
$ |
0.68 |
|
|
$ |
0.81 |
|
|
|
|
|
|
|
|
|
|
Diluted
net income per share
|
|
$ |
0.67 |
|
|
$ |
0.81 |
|
|
|
|
|
|
|
|
|
|
|
|
26-Weeks Ended
|
|
|
|
June
26,
|
|
|
June
27,
|
|
|
|
2010
|
|
|
2009
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Numerator
for basic and diluted net income per share - net income
|
|
$ |
172,144 |
|
|
$ |
210,409 |
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Denominator
for basic net income per share – weighted-average common
shares
|
|
|
199,437 |
|
|
|
200,364 |
|
|
|
|
|
|
|
|
|
|
Effect
of dilutive securities – employee stock options
|
|
|
1,189 |
|
|
|
450 |
|
|
|
|
|
|
|
|
|
|
Denominator
for diluted net income per share – adjusted weighted-average common
shares
|
|
|
200,626 |
|
|
|
200,814 |
|
|
|
|
|
|
|
|
|
|
Basic
net income per share
|
|
$ |
0.86 |
|
|
$ |
1.05 |
|
|
|
|
|
|
|
|
|
|
Diluted
net income per share
|
|
$ |
0.86 |
|
|
$ |
1.05 |
|
There
were 6,186,519 anti-dilutive options for the 13-week period ended June 26,
2010. There were 7,948,978 anti-dilutive options for the
13-week period ended June 27, 2009.
There
were 6,198,202 anti-dilutive options for the 26-week period ended June 26,
2010. There were 8,548,181 anti-dilutive options for the
26-week period ended June 27, 2009.
There
were 73,574 shares issued as a result of exercises of stock appreciation rights
and stock options for the 13-week period ended June 26, 2010. There
were 12,622 shares issued as a result of exercises of stock appreciation rights
and stock options for the 13-week period ended June 27, 2009.
There
were 365,288 shares issued as a result of exercises of stock appreciation rights
and stock options for the 26-week period ended June 26, 2010. There
were 24,720 shares issued as a result of exercises of stock appreciation rights
and stock options for the 26-week period ended June 27, 2009.
Comprehensive
income is comprised of the following:
|
|
13-Weeks Ended
|
|
|
|
June 26,
|
|
|
June 27,
|
|
|
|
2010
|
|
|
2009
|
|
Net
income
|
|
$ |
134,816 |
|
|
$ |
161,871 |
|
Translation
adjustment
|
|
|
(7,821 |
) |
|
|
26,236 |
|
Change
in fair value of available-for-sale marketable securities, net of deferred
taxes
|
|
|
8,838 |
|
|
|
1,199 |
|
Comprehensive
income
|
|
$ |
135,833 |
|
|
$ |
189,306 |
|
|
|
26-Weeks Ended
|
|
|
|
June 26,
|
|
|
June 27,
|
|
|
|
2010
|
|
|
2009
|
|
Net
income
|
|
$ |
172,144 |
|
|
$ |
210,409 |
|
Translation
adjustment
|
|
|
218 |
|
|
|
7,473 |
|
Change
in fair value of available-for-sale marketable securities, net of deferred
taxes
|
|
|
15,201 |
|
|
|
(4,842 |
) |
Comprehensive
income
|
|
$ |
187,563 |
|
|
$ |
213,040 |
|
Net
sales, operating income, and income before taxes for each of the Company’s
reportable segments are presented below:
|
|
Reportable Segments
|
|
|
|
Outdoor/
|
|
|
|
|
|
Auto/
|
|
|
|
|
|
|
|
|
|
Fitness
|
|
|
Marine
|
|
|
Mobile
|
|
|
Aviation
|
|
|
Total
|
|
13-Weeks
Ended June 26, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
142,316 |
|
|
$ |
74,310 |
|
|
$ |
447,225 |
|
|
$ |
64,914 |
|
|
$ |
728,765 |
|
Operating
income
|
|
$ |
62,759 |
|
|
$ |
32,146 |
|
|
$ |
88,548 |
|
|
$ |
18,590 |
|
|
$ |
202,043 |
|
Income
before taxes
|
|
$ |
55,650 |
|
|
$ |
28,616 |
|
|
$ |
62,419 |
|
|
$ |
17,724 |
|
|
$ |
164,409 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13-Weeks
Ended June 27, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
108,009 |
|
|
$ |
60,198 |
|
|
$ |
436,718 |
|
|
$ |
64,179 |
|
|
$ |
669,104 |
|
Operating
income
|
|
$ |
50,416 |
|
|
$ |
21,342 |
|
|
$ |
106,712 |
|
|
$ |
20,682 |
|
|
$ |
199,152 |
|
Income
before taxes
|
|
$ |
51,255 |
|
|
$ |
21,722 |
|
|
$ |
105,474 |
|
|
$ |
21,390 |
|
|
$ |
199,841 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26-Weeks
Ended June 26, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
245,052 |
|
|
$ |
115,625 |
|
|
$ |
668,149 |
|
|
$ |
131,007 |
|
|
$ |
1,159,833 |
|
Operating
income
|
|
$ |
101,327 |
|
|
$ |
41,075 |
|
|
$ |
105,530 |
|
|
$ |
37,459 |
|
|
$ |
285,391 |
|
Income
before taxes
|
|
$ |
86,815 |
|
|
$ |
35,244 |
|
|
$ |
52,163 |
|
|
$ |
35,710 |
|
|
$ |
209,932 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26-Weeks
Ended June 27, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
188,013 |
|
|
$ |
98,215 |
|
|
$ |
696,304 |
|
|
$ |
123,271 |
|
|
$ |
1,105,803 |
|
Operating
income
|
|
$ |
78,920 |
|
|
$ |
31,914 |
|
|
$ |
111,318 |
|
|
$ |
34,959 |
|
|
$ |
257,111 |
|
Income
before taxes
|
|
$ |
78,915 |
|
|
$ |
31,444 |
|
|
$ |
114,632 |
|
|
$ |
34,773 |
|
|
$ |
259,764 |
|
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 property and equipment, net by geographic area are as follows as of and for
the 26-week periods ended June 26, 2010 and June 27, 2009:
|
|
Americas
|
|
|
Asia
|
|
|
Europe
|
|
|
Total
|
|
June
26, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales to external customers
|
|
$ |
696,120 |
|
|
$ |
91,681 |
|
|
$ |
372,032 |
|
|
$ |
1,159,833 |
|
Property
and equipment, net
|
|
$ |
231,064 |
|
|
$ |
146,087 |
|
|
$ |
49,654 |
|
|
$ |
426,805 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June
27, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales to external customers
|
|
$ |
701,603 |
|
|
$ |
64,026 |
|
|
$ |
340,174 |
|
|
$ |
1,105,803 |
|
Property
and equipment, net
|
|
$ |
228,976 |
|
|
$ |
159,931 |
|
|
$ |
54,119 |
|
|
$ |
443,026 |
|
The
Company’s products sold are generally covered by a warranty for periods ranging
from one to two years. The Company’s estimate of costs to
service its warranty obligations are based on historical experience and
expectation of future conditions and are recorded as a liability on the balance
sheet. The following reconciliation provides an illustration of
changes in the aggregate warranty reserve.
|
|
13-Weeks Ended
|
|
|
|
June 26,
|
|
|
June 27,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
Balance
- beginning of the period
|
|
$ |
58,814 |
|
|
$ |
68,847 |
|
Change
in accrual for products sold in prior periods
|
|
$ |
(21,000 |
) |
|
|
- |
|
Accrual
for products sold during the period
|
|
|
15,705 |
|
|
|
31,106 |
|
Expenditures
|
|
|
(12,074 |
) |
|
|
(19,985 |
) |
Balance
- end of the period
|
|
$ |
41,445 |
|
|
$ |
79,968 |
|
|
|
26-Weeks Ended
|
|
|
|
June 26,
|
|
|
June 27,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
Balance
- beginning of the period
|
|
$ |
87,424 |
|
|
$ |
87,408 |
|
Change
in accrual for products sold in prior periods
|
|
$ |
(42,776 |
) |
|
|
- |
|
Accrual
for products sold during the period
|
|
|
30,618 |
|
|
|
49,621 |
|
Expenditures
|
|
|
(33,821 |
) |
|
|
(57,061 |
) |
Balance
- end of the period
|
|
$ |
41,445 |
|
|
$ |
79,968 |
|
The 13-weeks and 26-weeks ended June
26, 2010 include the effect of a refinement in the estimated warranty reserve
which decreased the accrual for the periods by $21,000 and $42,776,
respectively.
We are a
party to certain commitments, which includes raw materials, advertising and
other indirect purchases in connection with conducting out business. Pursuant to these
agreements, the Company is contractually committed to make purchases of
approximately $70,142 over the next 5 years.
9. Income
Taxes
Our
earnings before taxes decreased 18% when compared to the same quarter in 2009,
and our income tax expense decreased by $8,377 or 22%, to $29,593, for the
13-week period ended June 26, 2010, from $37,970 for the 13-week period ended
June 27, 2009, due to our earnings before taxes decline. The effective tax
rate was 18.0% for both the 13-weeks and 26-weeks ended June 26, 2010 and 19.0%
for the 13-weeks and 26-weeks ended June 27, 2009. The slight
decrease is due to the mix of income by tax jurisdiction. We have
experienced a relatively low effective corporate tax rate due to the proportion
of our revenue generated by entities in tax jurisdictions with low statutory
rates. In particular, the profit entitlement
afforded our parent company based on its intellectual property rights ownership
of our consumer products along with substantial tax incentives offered by the
Taiwanese government on certain high-technology capital investments have
continued to generate a relatively low tax rate.
10. Fair
Value Measurements
The
Accounting Standards Code (ASC) 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). The ASC 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
|
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.
For fair
value measurements using significant unobservable inputs, an independent third
party provided the valuation. The collateral composition was used to
estimate Weighted Average Life based on historical and projected payment
information. Cash flows were projected for the issuing trusts, taking
into account underlying loan principal, bonds outstanding, and payout
formulas. Taking this information into account, assumptions were made
as to the yields likely to be required, based upon then current market
conditions for comparable or similar term Asset Based Securities as well as
other fixed income securities.
Assets
and liabilities measured at estimated fair value on a recurring basis are
summarized below:
|
|
Fair Value Measurements as
|
|
|
|
of June 26, 2010
|
|
Description
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available
for-sale securities
|
|
$ |
590,260 |
|
|
$ |
590,260 |
|
|
$ |
- |
|
|
$ |
- |
|
Failed
Auction rate securities
|
|
|
64,546 |
|
|
|
- |
|
|
|
- |
|
|
|
64,546 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
654,806 |
|
|
$ |
590,260 |
|
|
$ |
- |
|
|
$ |
64,546 |
|
|
|
Fair Value Measurements as
|
|
|
|
of December 26, 2009
|
|
Description
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available
for-sale securities
|
|
$ |
695,795 |
|
|
$ |
695,795 |
|
|
$ |
- |
|
|
$ |
- |
|
Failed
Auction rate securities
|
|
|
70,252 |
|
|
|
- |
|
|
|
- |
|
|
|
70,252 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
766,047 |
|
|
$ |
695,795 |
|
|
$ |
- |
|
|
$ |
70,252 |
|
All Level
3 investments have been in a continuous unrealized loss position for 12 months
or longer. However, it is the Company’s intent to hold these
securities until they recover their value. For assets and liabilities
measured at fair value on a recurring basis using significant unobservable
inputs (Level 3) during the period, the ASC 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 26, 2010
|
|
|
June 26, 2010
|
|
|
|
|
|
|
|
|
Beginning
balance of auction rate securities
|
|
$ |
70,558 |
|
|
$ |
70,252 |
|
Total
unrealized gains included in other comprehensive income
|
|
|
3,988 |
|
|
|
4,844 |
|
Sales
out of Level 3
|
|
|
(10,000 |
) |
|
|
(10,550 |
) |
Transfers
in and/or out of Level 3
|
|
|
- |
|
|
|
- |
|
Ending
balance of auction rate securities
|
|
$ |
64,546 |
|
|
$ |
64,546 |
|
The following is a summary of the
company’s marketable securities classified as available-for-sale securities at
June 26, 2010:
|
|
|
|
|
|
|
|
Gross
|
|
|
Other Than
|
|
|
Estimated Fair
|
|
|
|
|
|
|
Gross
|
|
|
Unrealized
|
|
|
Temporary
|
|
|
Value (Net Carrying
|
|
|
|
Amortized Cost
|
|
|
Unrealized Gains
|
|
|
Losses
|
|
|
Impairment
|
|
|
Amount)
|
|
Mortgage-backed
securities
|
|
$ |
423,312 |
|
|
$ |
7,866 |
|
|
$ |
(343 |
) |
|
$ |
- |
|
|
$ |
430,835 |
|
Auction
Rate Securities
|
|
|
81,150 |
|
|
|
- |
|
|
|
(16,604 |
) |
|
|
- |
|
|
$ |
64,546 |
|
Obligations
of states and political subdivisions
|
|
|
95,981 |
|
|
|
1,407 |
|
|
|
(42 |
) |
|
|
- |
|
|
$ |
97,346 |
|
U.S.
corporate bonds
|
|
|
38,597 |
|
|
|
1,001 |
|
|
|
(290 |
) |
|
|
(1,274 |
) |
|
$ |
38,034 |
|
Other
|
|
|
23,810 |
|
|
|
372 |
|
|
|
(137 |
) |
|
|
- |
|
|
$ |
24,045 |
|
Total
|
|
$ |
662,850 |
|
|
$ |
10,646 |
|
|
$ |
(17,416 |
) |
|
$ |
(1,274 |
) |
|
$ |
654,806 |
|
The
following is a summary of the company’s marketable securities classified as
available-for-sale securities at December 26, 2009:
|
|
|
|
|
|
|
|
Gross
|
|
|
Other Than
|
|
|
Estimated Fair
|
|
|
|
|
|
|
Gross
|
|
|
Unrealized
|
|
|
Temporary
|
|
|
Value (Net Carrying
|
|
|
|
Amortized Cost
|
|
|
Unrealized Gains
|
|
|
Losses
|
|
|
Impairment
|
|
|
Amount)
|
|
Mortgage-backed
securities
|
|
$ |
515,200 |
|
|
$ |
2,682 |
|
|
$ |
(4,674 |
) |
|
$ |
- |
|
|
$ |
513,208 |
|
Auction
Rate Securities
|
|
|
91,700 |
|
|
|
- |
|
|
|
(21,448 |
) |
|
|
- |
|
|
$ |
70,252 |
|
Obligations
of states and political subdivisions
|
|
|
112,419 |
|
|
|
908 |
|
|
|
(181 |
) |
|
|
- |
|
|
$ |
113,146 |
|
U.S.
corporate bonds
|
|
|
35,883 |
|
|
|
768 |
|
|
|
(701 |
) |
|
|
(1,274 |
) |
|
$ |
34,676 |
|
Other
|
|
|
33,903 |
|
|
|
1,070 |
|
|
|
(208 |
) |
|
|
- |
|
|
$ |
34,765 |
|
Total
|
|
$ |
789,105 |
|
|
$ |
5,428 |
|
|
$ |
(27,212 |
) |
|
$ |
(1,274 |
) |
|
$ |
766,047 |
|
The cost
of securities sold is based on the specific identification method.
The
amortized cost and estimated fair value of marketable securities at June 26,
2010, by contractual maturity, are shown below. Expected maturities will differ
from contractual maturities because the issuers of the securities may have the
right to prepay obligations without prepayment penalties.
|
|
|
|
|
Estimated
|
|
|
|
Cost
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
Due
in one year or less (2010)
|
|
$ |
18,535 |
|
|
$ |
18,622 |
|
Due
after one year through five years (2011-2015)
|
|
|
182,853 |
|
|
|
183,659 |
|
Due
after five years through ten years (2016-2020)
|
|
|
181,957 |
|
|
|
184,147 |
|
Due
after ten years (2021 and thereafter)
|
|
|
263,811 |
|
|
|
252,320 |
|
Other
(No contractual maturity dates)
|
|
|
15,694 |
|
|
|
16,058 |
|
|
|
$ |
662,850 |
|
|
$ |
654,806 |
|
11. Recently
Issued Accounting Pronouncements
In
January 2010, the FASB issued ASU No. 2010-06, "Improving Disclosures about Fair
Value Measurements" ("ASU 2010-06"), which is included in the ASC Topic 820
(Fair Value Measurements and Disclosures). ASU 2010-06 requires new disclosures
on the amount and reason for transfers in and out of Level 1 and 2 fair value
measurements. ASU 2010-06 also requires disclosure of activities,
including purchases, sales, issuances, and settlements within the Level 3 fair
value measurements and clarifies existing disclosure requirements on levels of
disaggregation and disclosures about inputs and valuation
techniques. ASU 2010-06 is effective for interim and annual reporting
periods beginning after December 15, 2009. The adoption of this standard did not
have a material effect on our financial statements.
In
February 2010, the FASB issued ASU No. 2010-09, "Amendments to Certain
Recognition and Disclosure Requirements" ("ASU 2010-09"), which is included in
the FASB Accounting Standards Codification (the "ASC") Topic 855 (Subsequent
Events). ASU 2010-09 clarifies that an SEC filer is required to
evaluate subsequent events through the date that the financial statements are
issued. ASU 2010-09 is effective upon the issuance of the final
update and did not have a significant impact on the Company's financial
statements.
12. Subsequent
Events
Subsequent
to quarter end, the Company completed the redomestication of its headquarters to
Switzerland from the Cayman Islands. The redomestication is not
expected to have a significant impact on the Company’s financial
statements.
Subsequent
to quarter end, the Company repurchased 3,000,000 shares pursuant to the Rule
10b5-1 plan adopted on March 24, 2010. There remains approximately
$111,637 available for repurchase under the authorization.
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 26, 2009. 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 26,
2009.
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 26, 2010
|
|
|
June 27, 2009
|
|
|
|
|
|
|
|
|
Net
sales
|
|
|
100.0 |
% |
|
|
100.0 |
% |
Cost
of goods sold
|
|
|
46.3 |
% |
|
|
47.4 |
% |
Gross
profit
|
|
|
53.7 |
% |
|
|
52.6 |
% |
Advertising
|
|
|
5.8 |
% |
|
|
5.1 |
% |
Selling,
general and administrative
|
|
|
10.1 |
% |
|
|
9.3 |
% |
Research
and development
|
|
|
10.1 |
% |
|
|
8.4 |
% |
Total
operating expenses
|
|
|
26.0 |
% |
|
|
22.8 |
% |
Operating
income
|
|
|
27.7 |
% |
|
|
29.8 |
% |
Other
income (expense), net
|
|
|
-5.2 |
% |
|
|
0.1 |
% |
Income
before income taxes
|
|
|
22.5 |
% |
|
|
29.9 |
% |
Provision
for income taxes
|
|
|
4.0 |
% |
|
|
5.7 |
% |
Net
income
|
|
|
18.5 |
% |
|
|
24.2 |
% |
|
|
26-Weeks Ended
|
|
|
|
June 26, 2010 |
|
|
June 27,
2009
|
|
|
|
|
|
|
|
|
Net
sales
|
|
|
100.0 |
% |
|
|
100.0 |
% |
Cost
of goods sold
|
|
|
46.3 |
% |
|
|
50.5 |
% |
Gross
profit
|
|
|
53.7 |
% |
|
|
49.5 |
% |
Advertising
|
|
|
5.2 |
% |
|
|
5.2 |
% |
Selling,
general and administrative
|
|
|
12.2 |
% |
|
|
11.0 |
% |
Research
and development
|
|
|
11.7 |
% |
|
|
10.1 |
% |
Total
operating expenses
|
|
|
29.1 |
% |
|
|
26.3 |
% |
Operating
income
|
|
|
24.6 |
% |
|
|
23.2 |
% |
Other
income (expense), net
|
|
|
-6.5 |
% |
|
|
0.2 |
% |
Income
before income taxes
|
|
|
18.1 |
% |
|
|
23.4 |
% |
Provision
for income taxes
|
|
|
3.3 |
% |
|
|
4.4 |
% |
Net
income
|
|
|
14.8 |
% |
|
|
19.0 |
% |
The
Company manages its operations in four segments: outdoor/fitness, marine,
automotive/mobile, and aviation, and each of its segments employs the same
accounting policies. Allocation of certain research and development expenses,
and selling, general, and administrative expenses are made to each segment on a
percent of revenue basis. The following table sets forth our
results of operations (in thousands) including revenue (net sales), operating
income, and income before taxes for each of our four segments during the periods
shown. For each line item in the table, the total of the
outdoor/fitness, marine, automotive/mobile, and aviation segments' amounts
equals the amount in the condensed consolidated statements of income included in
Item 1.
|
|
Reportable Segments
|
|
|
|
Outdoor/
|
|
|
|
|
|
Auto/
|
|
|
|
|
|
|
|
|
|
Fitness
|
|
|
Marine
|
|
|
Mobile
|
|
|
Aviation
|
|
|
Total
|
|
13-Weeks
Ended June 26, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
142,316 |
|
|
$ |
74,310 |
|
|
$ |
447,225 |
|
|
$ |
64,914 |
|
|
$ |
728,765 |
|
Operating
income
|
|
$ |
62,759 |
|
|
$ |
32,146 |
|
|
$ |
88,548 |
|
|
$ |
18,590 |
|
|
$ |
202,043 |
|
Income
before taxes
|
|
$ |
55,650 |
|
|
$ |
28,616 |
|
|
$ |
62,419 |
|
|
$ |
17,724 |
|
|
$ |
164,409 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13-Weeks
Ended June 27, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
108,009 |
|
|
$ |
60,198 |
|
|
$ |
436,718 |
|
|
$ |
64,179 |
|
|
$ |
669,104 |
|
Operating
income
|
|
$ |
50,416 |
|
|
$ |
21,342 |
|
|
$ |
106,712 |
|
|
$ |
20,682 |
|
|
$ |
199,152 |
|
Income
before taxes
|
|
$ |
51,255 |
|
|
$ |
21,722 |
|
|
$ |
105,474 |
|
|
$ |
21,390 |
|
|
$ |
199,841 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26-Weeks
Ended June 26, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
245,052 |
|
|
$ |
115,625 |
|
|
$ |
668,149 |
|
|
$ |
131,007 |
|
|
$ |
1,159,833 |
|
Operating
income
|
|
$ |
101,327 |
|
|
$ |
41,075 |
|
|
$ |
105,530 |
|
|
$ |
37,459 |
|
|
$ |
285,391 |
|
Income
before taxes
|
|
$ |
86,815 |
|
|
$ |
35,244 |
|
|
$ |
52,163 |
|
|
$ |
35,710 |
|
|
$ |
209,932 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26-Weeks
Ended June 27, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
188,013 |
|
|
$ |
98,215 |
|
|
$ |
696,304 |
|
|
$ |
123,271 |
|
|
$ |
1,105,803 |
|
Operating
income
|
|
$ |
78,920 |
|
|
$ |
31,914 |
|
|
$ |
111,318 |
|
|
$ |
34,959 |
|
|
$ |
257,111 |
|
Income
before taxes
|
|
$ |
78,915 |
|
|
$ |
31,444 |
|
|
$ |
114,632 |
|
|
$ |
34,773 |
|
|
$ |
259,764 |
|
Comparison
of 13-Weeks Ended June 26, 2010 and June 27, 2009
(Amounts
included in the following discussion are stated in thousands unless otherwise
indicated)
Net
Sales
|
|
13-weeks ended June 26, 2010
|
|
|
13-weeks ended June 27, 2009
|
|
|
Quarter over Quarter
|
|
|
|
Net Sales
|
|
|
% of Revenues
|
|
|
Net Sales
|
|
|
% of Revenues
|
|
|
$ Change
|
|
|
% Change
|
|
Outdoor/Fitness
|
|
$ |
142,316 |
|
|
|
19.5 |
% |
|
$ |
108,009 |
|
|
|
16.1 |
% |
|
$ |
34,307 |
|
|
|
31.8 |
% |
Marine
|
|
|
74,310 |
|
|
|
10.2 |
% |
|
|
60,198 |
|
|
|
9.0 |
% |
|
|
14,112 |
|
|
|
23.4 |
% |
Automotive/Mobile
|
|
|
447,225 |
|
|
|
61.4 |
% |
|
|
436,718 |
|
|
|
65.3 |
% |
|
|
10,507 |
|
|
|
2.4 |
% |
Aviation
|
|
|
64,914 |
|
|
|
8.9 |
% |
|
|
64,179 |
|
|
|
9.6 |
% |
|
|
735 |
|
|
|
1.1 |
% |
Total
|
|
$ |
728,765 |
|
|
|
100.0 |
% |
|
$ |
669,104 |
|
|
|
100.0 |
% |
|
$ |
59,661 |
|
|
|
8.9 |
% |
Net sales increased 8.9% for the
13-week period ended June 26, 2010 when compared to the year-ago
quarter. The increase occurred across all segments with the greatest
increase in the outdoor/fitness segment, as well as
marine. Automotive/mobile revenue remains the largest portion of our
revenue mix, but declined from 65.3% in the second quarter of 2009 to 61.4% in
the second quarter of 2010.
Total
unit sales increased 8% to 4,001,000 in the second quarter of 2010 from
3,715,000 in the same period of 2009. The improved unit sales
volume in the second quarter of fiscal 2010 was attributable to increasing
volumes across all segments with the greatest percentage increases occurring in
outdoor/fitness and aviation.
Automotive/mobile
segment revenue increased 2.4% from the year-ago quarter, as volumes increased
4% and the average selling price declined 1%. Volume gains in the
segment were due primarily to growth in our mobile handset and OEM
business. Revenues in our outdoor/fitness segment increased 31.8%
from the year-ago quarter on the strength of recent product introductions and
ongoing penetration in the segment. Marine revenues increased 23.4%
from the year-ago quarter as the industry has begun to recover and the Company
has gained market share. Aviation revenues increased 1.1% from the
year-ago quarter due to gains in retrofit and portable products.
Gross
Profit
|
|
13-weeks ended June 26, 2010
|
|
|
13-weeks ended June 27, 2009
|
|
|
Quarter over Quarter
|
|
|
|
Gross Profit
|
|
|
% of Revenues
|
|
|
Gross Profit
|
|
|
% of Revenues
|
|
|
$ Change
|
|
|
% Change
|
|
Outdoor/Fitness
|
|
$ |
91,763 |
|
|
|
64.5 |
% |
|
$ |
73,215 |
|
|
|
67.8 |
% |
|
$ |
18,548 |
|
|
|
25.3 |
% |
Marine
|
|
|
49,108 |
|
|
|
66.1 |
% |
|
|
35,780 |
|
|
|
59.4 |
% |
|
|
13,328 |
|
|
|
37.2 |
% |
Automotive/Mobile
|
|
|
205,336 |
|
|
|
45.9 |
% |
|
|
195,075 |
|
|
|
44.7 |
% |
|
|
10,261 |
|
|
|
5.3 |
% |
Aviation
|
|
|
45,445 |
|
|
|
70.0 |
% |
|
|
47,544 |
|
|
|
74.1 |
% |
|
|
(2,099 |
) |
|
|
-4.4 |
% |
Total
|
|
$ |
391,652 |
|
|
|
53.7 |
% |
|
$ |
351,614 |
|
|
|
52.6 |
% |
|
$ |
40,038 |
|
|
|
11.4 |
% |
Gross
profit dollars in the second quarter of 2010 increased 11.4% while gross profit
margin increased 110 basis points compared to the second quarter of
2009. Gross margins were positively impacted by 290 basis points due
to a $21.0 million warranty adjustment related to further refinement in the
estimated warranty reserve. This adjustment impacted all segments
with the consumer segments including automotive/mobile, outdoor/fitness and
marine having the largest benefits.
The
automotive/mobile segment’s margin increased 120 basis points as a decrease in
per unit cost including the warranty benefit was only partially offset by a
slight average selling price reduction. The impact to total company
gross margin of the automotive/mobile segment declined to 52.4% of total gross
margin from 55.5% in the year-ago quarter. The Company also benefited
from increased margins in the marine segment due the product mix shifting toward
higher margin units including chartplotters and networked
solutions. Aviation and outdoor/fitness gross margins decreased 410
basis points and 330 basis points, respectively, from the year-ago
quarter.
Advertising
Expense
|
|
13-weeks ended June 26, 2010
|
|
|
13-weeks ended June 27, 2009
|
|
|
Quarter over Quarter
|
|
|
|
Advertising
|
|
|
% of Revenues
|
|
|
Advertising
|
|
|
% of Revenues
|
|
|
$ Change
|
|
|
% Change
|
|
Outdoor/Fitness
|
|
$ |
7,483 |
|
|
|
5.3 |
% |
|
$ |
6,133 |
|
|
|
5.7 |
% |
|
$ |
1,350 |
|
|
|
22.0 |
% |
Marine
|
|
|
3,349 |
|
|
|
4.5 |
% |
|
|
3,253 |
|
|
|
5.4 |
% |
|
|
96 |
|
|
|
2.9 |
% |
Automotive/Mobile
|
|
|
30,658 |
|
|
|
6.9 |
% |
|
|
23,520 |
|
|
|
5.4 |
% |
|
|
7,138 |
|
|
|
30.4 |
% |
Aviation
|
|
|
950 |
|
|
|
1.5 |
% |
|
|
1,117 |
|
|
|
1.7 |
% |
|
|
(167 |
) |
|
|
-14.9 |
% |
Total
|
|
$ |
42,440 |
|
|
|
5.8 |
% |
|
$ |
34,023 |
|
|
|
5.1 |
% |
|
$ |
8,417 |
|
|
|
24.7 |
% |
Advertising
expense increased both as a percentage of sales and in absolute dollars when
compared with the year-ago period. As a percent of sales, advertising
expenses increased to 5.8% in the second quarter of 2010 compared to 5.1% in
second quarter of 2009. The increase was driven by mobile handset
specific advertising in the automotive/mobile segment. Advertising as
a percentage of sales decreased in all other segments with revenue growth
outpacing expense growth in outdoor/fitness and marine while absolute spending
decreased in aviation.
Selling,
General and Administrative Expense
|
|
13-weeks ended June 26, 2010
|
|
|
13-weeks ended June 27, 2009
|
|
|
|
|
|
|
Selling, General &
|
|
|
|
|
|
Selling, General &
|
|
|
|
|
|
Quarter over Quarter
|
|
|
|
Admin. Expenses
|
|
|
% of Revenues
|
|
|
Admin. Expenses
|
|
|
% of Revenues
|
|
|
$ Change
|
|
|
% Change
|
|
Outdoor/Fitness
|
|
$ |
14,190 |
|
|
|
10.0 |
% |
|
$ |
10,834 |
|
|
|
10.0 |
% |
|
$ |
3,356 |
|
|
|
31.0 |
% |
Marine
|
|
|
7,674 |
|
|
|
10.3 |
% |
|
|
5,797 |
|
|
|
9.6 |
% |
|
|
1,877 |
|
|
|
32.4 |
% |
Automotive/Mobile
|
|
|
48,429 |
|
|
|
10.8 |
% |
|
|
40,016 |
|
|
|
9.2 |
% |
|
|
8,413 |
|
|
|
21.0 |
% |
Aviation
|
|
|
3,539 |
|
|
|
5.5 |
% |
|
|
5,539 |
|
|
|
8.6 |
% |
|
|
(2,000 |
) |
|
|
-36.1 |
% |
Total
|
|
$ |
73,832 |
|
|
|
10.1 |
% |
|
$ |
62,186 |
|
|
|
9.3 |
% |
|
$ |
11,646 |
|
|
|
18.7 |
% |
Selling, general and administrative
expense increased both in absolute dollars and as a percentage of sales compared
to the year-ago quarter. As a percent of sales, selling, general and
administrative expenses increased from 9.3% of sales in the second quarter of
2009 to 10.1% of sales in the second quarter of 2010. The expense
increase was primarily driven by fees associated with the Swiss redomestication,
as well as growth in product support and information technology.
Research
and Development Expense
|
|
13-weeks ended June 26, 2010
|
|
|
13-weeks ended June 27, 2009
|
|
|
|
|
|
|
Research &
|
|
|
|
|
|
Research &
|
|
|
|
|
|
Quarter over Quarter
|
|
|
|
Development
|
|
|
% of Revenues
|
|
|
Development
|
|
|
% of Revenues
|
|
|
$ Change
|
|
|
% Change
|
|
Outdoor/Fitness
|
|
$ |
7,331 |
|
|
|
5.2 |
% |
|
$ |
5,832 |
|
|
|
5.4 |
% |
|
$ |
1,499 |
|
|
|
25.7 |
% |
Marine
|
|
|
5,939 |
|
|
|
8.0 |
% |
|
|
5,388 |
|
|
|
9.0 |
% |
|
|
551 |
|
|
|
10.2 |
% |
Automotive/Mobile
|
|
|
37,701 |
|
|
|
8.4 |
% |
|
|
24,827 |
|
|
|
5.7 |
% |
|
|
12,874 |
|
|
|
51.9 |
% |
Aviation
|
|
|
22,366 |
|
|
|
34.5 |
% |
|
|
20,206 |
|
|
|
31.5 |
% |
|
|
2,160 |
|
|
|
10.7 |
% |
Total
|
|
$ |
73,337 |
|
|
|
10.1 |
% |
|
$ |
56,253 |
|
|
|
8.4 |
% |
|
$ |
17,084 |
|
|
|
30.4 |
% |
Research and development expense
increased 30.4% due to ongoing development activities for new products and the
addition of over 500 new engineering personnel to our staff since the year-ago
quarter as a result of our continued emphasis on product innovation including
the mobile handset initiative. Research and development costs
increased $17.1 million when compared with the year-ago quarter representing a
170 basis point increase as a percent of revenue as research and development
growth outpaced revenue growth.
Operating
Income
|
|
13-weeks ended June 26, 2010
|
|
|
13-weeks ended June 27, 2009
|
|
|
Quarter over Quarter
|
|
|
|
Operating Income
|
|
|
% of Revenues
|
|
|
Operating Income
|
|
|
% of Revenues
|
|
|
$ Change
|
|
|
% Change
|
|
Outdoor/Fitness
|
|
$ |
62,759 |
|
|
|
44.1 |
% |
|
$ |
50,416 |
|
|
|
46.7 |
% |
|
$ |
12,343 |
|
|
|
24.5 |
% |
Marine
|
|
|
32,146 |
|
|
|
43.3 |
% |
|
|
21,342 |
|
|
|
35.5 |
% |
|
|
10,804 |
|
|
|
50.6 |
% |
Automotive/Mobile
|
|
|
88,548 |
|
|
|
19.8 |
% |
|
|
106,712 |
|
|
|
24.4 |
% |
|
|
(18,164 |
) |
|
|
-17.0 |
% |
Aviation
|
|
|
18,590 |
|
|
|
28.6 |
% |
|
|
20,682 |
|
|
|
32.2 |
% |
|
|
(2,092 |
) |
|
|
-10.1 |
% |
Total
|
|
$ |
202,043 |
|
|
|
27.7 |
% |
|
$ |
199,152 |
|
|
|
29.8 |
% |
|
$ |
2,891 |
|
|
|
1.5 |
% |
Operating
income increased 1.5% in absolute dollars but declined 210 basis points as a
percent of revenue when compared to the second quarter of
2009. Revenue growth and improved gross margins were substantially
offset by growth in all operating expense categories.
Other
Income (Expense)
|
|
13-weeks ended
|
|
|
13-weeks ended
|
|
|
|
June 26, 2010
|
|
|
June 27, 2009
|
|
Interest
Income
|
|
$ |
5,791 |
|
|
$ |
5,190 |
|
Foreign
Currency Exchange
|
|
|
(43,605 |
) |
|
|
(4,836 |
) |
Other
|
|
|
180 |
|
|
|
335 |
|
Total
|
|
$ |
(37,634 |
) |
|
$ |
689 |
|
The
average interest rate return on cash and investments during the second quarter
of 2010 was 1.2% compared to 1.5% during the same quarter of
2009. The increase in interest income is attributable to increasing
cash balances offset by 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 all other European
subsidiaries excluding Garmin Danmark, Garmin Sweden and Garmin
Polska. As these entities have grown, Euro currency moves generate
material gains and losses. Additionally, Euro-based
inter-company transactions in Garmin Ltd. can also generate currency gains and
losses. The Canadian Dollar, Danish Krone, Swedish Krona, Australian
Dollar and Polish Zloty are the functional currency of Dynastream Innovations,
Inc., Garmin Danmark, Garmin Sweden, Garmin Australasia and Garmin Polska
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 $43.6 million currency loss in the second quarter of 2010 was
due to the strengthening of the U.S. Dollar compared to the Euro. The
strengthening of the U.S. Dollar compared to the Taiwan Dollar contributed a
slight gain. The currency movement of the Euro and Taiwan Dollar
generate gains and losses due to the revaluation of EUR denominated assets (cash
and receivables) in Garmin Ltd. and Garmin Europe, and also the revaluation of
the USD denominated assets/liabilities (cash, receivables and payables) in
Garmin Corp. (Taiwan). During the second quarter of 2010, the U.S.
Dollar strengthened 7.9% and weakened 0.6%, respectively, compared to the Euro
and the British Pound Sterling, resulting in a loss of $46.6
million. In addition, the U.S. Dollar strengthened 0.5% against the
Taiwan Dollar, resulting in a $3.4 million gain. The remaining net
currency loss of $0.4 million related to other currencies and timing of
transactions.
The
majority of the $4.8 million currency loss in the second quarter of 2009 was due
to the weakening of the U.S. Dollar compared to the Euro, the British Pound
Sterling, and the Taiwan Dollar. 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. During the second quarter of 2009, the U.S. Dollar weakened
4.4% and 14.3%, respectively, compared to the Euro and the British Pound
Sterling, resulting in a gain of $12.9 million. Offsetting this gain
was a loss of $16.4 million due to the U.S. Dollar weakening 2.6% against the
Taiwan Dollar. The remaining net currency loss of $1.3 million
related to other currencies and timing of transactions.
Income
Tax Provision
Our
earnings before taxes decreased 18% when compared to the same quarter in 2009,
and our income tax expense decreased similarly by $8.4 million or 22%, to $29.6
million, for the 13-week period ended June 26, 2010, from $38.0 million for the
13-week period ended June 27, 2009. The effective tax rate was 18.0%
in the second quarter of 2010 and 19.0% in the second quarter of
2009. The slight decrease is due to the mix of income by tax
jurisdiction.
Net
Income
As a
result of the above, net income decreased 17% for the 13-week period ended June
26, 2010 to $134.8 million compared to $161.9 million for the 13-week period
ended June 27, 2009.
Comparison
of 26-Weeks Ended June 26, 2010 and June 27, 2009
(Amounts
included in the following discussion are stated in thousands unless otherwise
indicated)
Net
Sales
|
|
26-weeks ended June 26, 2010
|
|
|
26-weeks ended June 27, 2009
|
|
|
Quarter over Quarter
|
|
|
|
Net Sales
|
|
|
% of Revenues
|
|
|
Net Sales
|
|
|
% of Revenues
|
|
|
$ Change
|
|
|
% Change
|
|
Outdoor/Fitness
|
|
$ |
245,052 |
|
|
|
21.1 |
% |
|
$ |
188,013 |
|
|
|
17.0 |
% |
|
$ |
57,039 |
|
|
|
30.3 |
% |
Marine
|
|
|
115,625 |
|
|
|
10.0 |
% |
|
|
98,215 |
|
|
|
8.9 |
% |
|
|
17,410 |
|
|
|
17.7 |
% |
Automotive/Mobile
|
|
|
668,149 |
|
|
|
57.6 |
% |
|
|
696,304 |
|
|
|
63.0 |
% |
|
|
(28,155 |
) |
|
|
-4.0 |
% |
Aviation
|
|
|
131,007 |
|
|
|
11.3 |
% |
|
|
123,271 |
|
|
|
11.1 |
% |
|
|
7,736 |
|
|
|
6.3 |
% |
Total
|
|
$ |
1,159,833 |
|
|
|
100.0 |
% |
|
$ |
1,105,803 |
|
|
|
100.0 |
% |
|
$ |
54,030 |
|
|
|
4.9 |
% |
Net sales
increased 4.9% for the 26-week period ended June 26, 2010 when compared to the
year-ago period. The increase occurred across all segments excluding
automotive/mobile with the greatest increase in the outdoor/fitness segment, as
well as marine. Automotive/mobile revenue remains the largest portion
of our revenue mix, but declined from 63.0% in the first half of 2009 to 57.6%
in the first half of 2010.
Total
unit sales were flat at 6,138,000 in the first half of 2010 compared to
6,132,000 in the same period of 2009. The flat unit sales
volume in the first half of fiscal 2010 was attributable to increasing volumes
in the outdoor/fitness, marine and aviation segments offset by a first quarter
decline in automotive/mobile units as excess retail inventory cleared the
channel.
Automotive/mobile
segment revenue declined 4.0% from the year-ago period, as the average selling
price increased slightly but volumes declined
6%. Outdoor/fitness segment revenue increased 30.3% on the
strength of recent product introductions and ongoing global
penetration. Marine revenues increased 17.7% due to industry recovery
and market share gains. Aviation revenues increased 6.3% as the
industry has begun to recover from the weak macroeconomic conditions of
2009.
Gross
Profit
|
|
26-weeks ended June 26, 2010
|
|
|
26-weeks ended June 27, 2009
|
|
|
Quarter over Quarter
|
|
|
|
Gross Profit
|
|
|
% of Revenues
|
|
|
Gross Profit
|
|
|
% of Revenues
|
|
|
$ Change
|
|
|
% Change
|
|
Outdoor/Fitness
|
|
$ |
157,325 |
|
|
|
64.2 |
% |
|
$ |
121,639 |
|
|
|
64.7 |
% |
|
$ |
35,686 |
|
|
|
29.3 |
% |
Marine
|
|
|
73,338 |
|
|
|
63.4 |
% |
|
|
58,658 |
|
|
|
59.7 |
% |
|
|
14,680 |
|
|
|
25.0 |
% |
Automotive/Mobile
|
|
|
300,110 |
|
|
|
44.9 |
% |
|
|
279,258 |
|
|
|
40.1 |
% |
|
|
20,852 |
|
|
|
7.5 |
% |
Aviation
|
|
|
91,788 |
|
|
|
70.1 |
% |
|
|
88,054 |
|
|
|
71.4 |
% |
|
|
3,734 |
|
|
|
4.2 |
% |
Total
|
|
$ |
622,561 |
|
|
|
53.7 |
% |
|
$ |
547,609 |
|
|
|
49.5 |
% |
|
$ |
74,952 |
|
|
|
13.7 |
% |
Gross
profit dollars in the first half of 2010 increased 13.7% while gross profit
margin percentage increased 420 basis points over the same period of the
previous year. First half gross profit margins increased in the
automotive/mobile and marine segments while decreasing slightly in the
outdoor/fitness and aviation segments, when compared to the same period in
2009. Gross margins were positively impacted by 370 basis points due
to a $42.8 million warranty adjustment related to further refinement in the
estimated warranty reserve. This adjustment impacted all segments
with automotive/mobile, outdoor/fitness and marine having the largest
benefits.
The
automotive/mobile segment gross profit margin percentage increase of 480 basis
points was driven by a decrease in per unit costs including the warranty benefit
and a slight increase in the average selling price. The impact
to total company gross margin of the automotive/mobile segment declined to 48.2%
of total gross margin from 51.0% in the first half of 2009. Gross
profit margin percentage for marine increased 370 basis points compared to the
first half of 2009 due to product mix shifting toward higher margin
units. Gross profit dollars for outdoor/fitness increased by 29.3% to
$157.3 million due to strong revenue growth in the segment.
Advertising
Expense
|
|
26-weeks ended June 26, 2010
|
|
|
26-weeks ended June 27, 2009
|
|
|
Quarter over Quarter
|
|
|
|
Advertising
|
|
|
% of Revenues
|
|
|
Advertising
|
|
|
% of Revenues
|
|
|
$ Change
|
|
|
% Change
|
|
Outdoor/Fitness
|
|
$ |
11,290 |
|
|
|
4.6 |
% |
|
$ |
8,830 |
|
|
|
4.7 |
% |
|
$ |
2,460 |
|
|
|
27.9 |
% |
Marine
|
|
|
5,774 |
|
|
|
5.0 |
% |
|
|
4,999 |
|
|
|
5.1 |
% |
|
|
775 |
|
|
|
15.5 |
% |
Automotive/Mobile
|
|
|
40,570 |
|
|
|
6.1 |
% |
|
|
41,182 |
|
|
|
5.9 |
% |
|
|
(612 |
) |
|
|
-1.5 |
% |
Aviation
|
|
|
2,207 |
|
|
|
1.7 |
% |
|
|
2,237 |
|
|
|
1.8 |
% |
|
|
(30 |
) |
|
|
-1.3 |
% |
Total
|
|
$ |
59,841 |
|
|
|
5.2 |
% |
|
$ |
57,248 |
|
|
|
5.2 |
% |
|
$ |
2,593 |
|
|
|
4.5 |
% |
Advertising
expense increased 4.5% in absolute dollars while holding flat as a percentage of
sales when compared with the year-ago period. As a percent of sales,
advertising expenses were steady at 5.2% in the first half of 2009 and
2010. The increase in advertising was driven by the outdoor/fitness
and marine segments where we continue to invest for growth and are seeing
comparable increases in sales. The automotive/mobile segment
advertising decline represents reduced cooperative advertising paid to our
retail partners offset by mobile handset specific advertising.
Selling,
General and Administrative Expenses
|
|
26-weeks ended June 26, 2010
|
|
|
26-weeks ended June 27, 2009
|
|
|
|
|
|
|
Selling, General &
|
|
|
|
|
|
Selling, General &
|
|
|
|
|
|
Quarter over Quarter
|
|
|
|
Admin. Expenses
|
|
|
% of Revenues
|
|
|
Admin. Expenses
|
|
|
% of Revenues
|
|
|
$ Change
|
|
|
% Change
|
|
Outdoor/Fitness
|
|
$ |
30,405 |
|
|
|
12.4 |
% |
|
$ |
22,232 |
|
|
|
11.8 |
% |
|
$ |
8,173 |
|
|
|
36.8 |
% |
Marine
|
|
|
14,662 |
|
|
|
12.7 |
% |
|
|
11,178 |
|
|
|
11.4 |
% |
|
|
3,484 |
|
|
|
31.2 |
% |
Automotive/Mobile
|
|
|
87,651 |
|
|
|
13.1 |
% |
|
|
77,051 |
|
|
|
11.1 |
% |
|
|
10,600 |
|
|
|
13.8 |
% |
Aviation
|
|
|
8,791 |
|
|
|
6.7 |
% |
|
|
11,502 |
|
|
|
9.3 |
% |
|
|
(2,711 |
) |
|
|
-23.6 |
% |
Total
|
|
$ |
141,509 |
|
|
|
12.2 |
% |
|
$ |
121,963 |
|
|
|
11.0 |
% |
|
$ |
19,546 |
|
|
|
16.0 |
% |
Selling,
general and administrative expense increased in both absolute dollars and as a
percentage of sales compared to the year-ago. As a percent of sales,
selling, general and administrative expenses increased from 11.0% of sales in
the first half of 2009 to 12.2% of sales in the first half of 2010. The expense
increase was primarily driven by fees associated with the Swiss redomestication,
as well as growth in product support and information technology.
Research
and Development Expense
|
|
26-weeks ended June 26, 2010
|
|
|
26-weeks ended June 27, 2009
|
|
|
|
|
|
|
Research &
|
|
|
|
|
|
Research &
|
|
|
|
|
|
Quarter over Quarter
|
|
|
|
Development
|
|
|
% of Revenues
|
|
|
Development
|
|
|
% of Revenues
|
|
|
$ Change
|
|
|
% Change
|
|
Outdoor/Fitness
|
|
$ |
14,303 |
|
|
|
5.8 |
% |
|
$ |
11,657 |
|
|
|
6.2 |
% |
|
$ |
2,646 |
|
|
|
22.7 |
% |
Marine
|
|
|
11,827 |
|
|
|
10.2 |
% |
|
|
10,567 |
|
|
|
10.8 |
% |
|
|
1,260 |
|
|
|
11.9 |
% |
Automotive/Mobile
|
|
|
66,359 |
|
|
|
9.9 |
% |
|
|
49,707 |
|
|
|
7.1 |
% |
|
|
16,652 |
|
|
|
33.5 |
% |
Aviation
|
|
|
43,331 |
|
|
|
33.1 |
% |
|
|
39,356 |
|
|
|
31.9 |
% |
|
|
3,975 |
|
|
|
10.1 |
% |
Total
|
|
$ |
135,820 |
|
|
|
11.7 |
% |
|
$ |
111,287 |
|
|
|
10.1 |
% |
|
$ |
24,533 |
|
|
|
22.0 |
% |
Research and development expense
increased 22.0% due to ongoing development activities for new products, and the
addition of over 500 new engineering personnel to our staff during the period as
a result of our continued emphasis on product innovation including the mobile
handset initiative. Research and development costs increased
$24.5 million when compared with the year-ago period and increased 160 basis
points as a percent of revenue as research and development growth outpaced
revenue growth.
Operating
Income
|
|
26-weeks ended June 26, 2010
|
|
|
26-weeks ended June 27, 2009
|
|
|
Quarter over Quarter
|
|
|
|
Operating Income
|
|
|
% of Revenues
|
|
|
Operating Income
|
|
|
% of Revenues
|
|
|
$ Change
|
|
|
% Change
|
|
Outdoor/Fitness
|
|
$ |
101,327 |
|
|
|
41.3 |
% |
|
$ |
78,920 |
|
|
|
42.0 |
% |
|
$ |
22,407 |
|
|
|
28.4 |
% |
Marine
|
|
|
41,075 |
|
|
|
35.5 |
% |
|
|
31,914 |
|
|
|
32.5 |
% |
|
|
9,161 |
|
|
|
28.7 |
% |
Automotive/Mobile
|
|
|
105,530 |
|
|
|
15.8 |
% |
|
|
111,318 |
|
|
|
16.0 |
% |
|
|
(5,788 |
) |
|
|
-5.2 |
% |
Aviation
|
|
|
37,459 |
|
|
|
28.6 |
% |
|
|
34,959 |
|
|
|
28.4 |
% |
|
|
2,500 |
|
|
|
7.2 |
% |
Total
|
|
$ |
285,391 |
|
|
|
24.6 |
% |
|
$ |
257,111 |
|
|
|
23.3 |
% |
|
$ |
28,280 |
|
|
|
11.0 |
% |
Operating
income increased 130 basis points as a percent of revenue and 11.0% in absolute
dollars when compared to the year-ago period as revenue growth and gross margin
improvements were partially offset by increased operating expenses.
Other
Income (Expense)
|
|
26-weeks ended
|
|
|
26-weeks ended
|
|
|
|
June 26, 2010
|
|
|
June 27, 2009
|
|
Interest
Income
|
|
$ |
12,669 |
|
|
$ |
10,286 |
|
Foreign
Currency Exchange
|
|
$ |
(90,141 |
) |
|
|
(7,274 |
) |
Other
|
|
$ |
2,013 |
|
|
|
(359 |
) |
Total
|
|
$ |
(75,459 |
) |
|
$ |
2,653 |
|
The
average taxable equivalent interest rate return on invested cash during the
first half of 2010 was 1.4% compared to 1.6% during the same period of
2009. The increase in interest income is attributable to increasing
cash balances offset by decreasing interest rates.
The
majority of the $90.1 million currency loss in the first half of 2010 was due to
the strengthening of the U.S. Dollar compared to the Euro. The
weakening of the U.S. Dollar compared to the Taiwan Dollar contributed a loss as
well. The currency movement of the Euro and Taiwan Dollar generate
gains and losses due to the revaluation of EUR denominated assets (cash and
receivables) in Garmin Ltd. and Garmin Europe, and also the revaluation of the
USD denominated assets/liabilities (cash, receivables and payables) in Garmin
Corp. (Taiwan). During the first half of 2010, the U.S. Dollar
strengthened 14.3% and 6.3%, respectively, compared to the Euro and the British
Pound Sterling, resulting in a loss of $85.7 million. In addition,
the U.S. Dollar weakened 0.7% against the Taiwan Dollar, resulting in a $5.7
million loss. The remaining net currency gain of $1.3 million related
to other currencies and timing of transactions.
The
majority of the $7.3 million currency loss in the first half of 2009 was due to
the weakening of the U.S. Dollar compared to the British Pound Sterling and the
Taiwan Dollar. During the first half of 2009, the U.S. Dollar
weakened 11.7% compared to the British Pound Sterling, resulting in a loss of
$0.7 million. A loss of $5.3 million resulted due to the U.S. Dollar
weakening 0.5% against the Taiwan Dollar. The remaining net currency
loss of $1.3 million related to other currencies and timing of
transactions.
Income
Tax Provision
Our
earnings before taxes decreased 19.2% when compared to the same period in 2009,
and our income tax expense decreased similarly by $11.6 million or 23.4%, to
$37.8 million, for the 26-week period ended June 26, 2010, from $49.4 million
for the 26-week period ended June 27, 2009. The effective tax rate
was 18.0% in the first half of 2010 and 19.0% in the first half of
2009. The slight decrease is due to the mix of income by
tax jurisdiction.
Net
Income
As a
result of the above, net income decreased 18.2% for the 26-week period ended
June 26, 2010 to $172.1 million compared to $210.4 million for the 26-week
period ended June 27, 2009.
Liquidity
and Capital Resources
Net cash
generated by operating activities was $381.9 million for the 26-week period
ended June 26, 2010 compared to $555.7 million for the 26-week period ended June
27, 2009. Primary drivers of the cash generation included $172.1 million of net
income with non-cash adjustments for depreciation/amortization of $51.6 million,
foreign currency losses of $47.9 million and stock compensation expense of $19.1
million, $364.4 million related to accounts receivable collections due to
seasonality and $37.4 million of revenue recorded but deferred due to revenue
recognition policies. This cash generation was offset by uses of cash
including $52.2 million reduction in accounts payable due to seasonality, $193.7
million reduction in other current and noncurrent liabilities related primarily
to the timing of royalty payments and a $64.3 million increase in inventories
following a low inventory level exiting 2009.
Cash flow
provided by investing activities during the 26-week period ending June 26, 2010
was $104.9 million. Cash flow provided by investing activities
principally related to the net redemption of $125.3 million of fixed income
securities associated with the investment of our on-hand cash balances offset by
$13.2 million in capital expenditures primarily related to business operation
and maintenance activities, and the purchase of intangible assets for $8.2
million. It is management’s goal to invest the on-hand cash consistent with the
Company’s investment policy, which has been approved by the Board of Directors.
The investment policy’s primary purpose is to preserve capital, maintain an
acceptable degree of liquidity, and maximize yield within the constraint of
maximum safety. The average interest rate return on cash and investments during
the first half of 2010 was 1.4%
Net cash
used in financing activities during the period was $376.1 million resulting from
the use of $299.1 million for payment of our declared dividend and $84.3 million
for stock repurchased under our stock repurchase plan, offset by $7.3 million
from the issuance of common stock related to our Company stock option plan and
stock based compensation tax benefits.
In the
second half of 2010, we will use cash flow from operations to fund our capital
expenditures and to support our working capital requirements. We expect that
future cash requirements will principally be for capital expenditures, working
capital requirements, repurchase of shares, and payment of dividends
declared.
We
believe that our existing cash balances and cash flow from operations will be
sufficient to meet our projected capital expenditures, working capital,
repurchase of shares, and other cash requirements at least through the end of
fiscal 2010.
Contractual
Obligations and Commercial Commitments
We are a party to certain commitments,
which includes raw materials, advertising and other indirect purchases in
connection with conducting out business. Pursuant to these
agreements, the Company is contractually committed to make purchases of
approximately $70.1 million over the next 5 years.
Off-Balance
Sheet Arrangements
We do not have any off-balance sheet
arrangements.
Item
3. Quantitative and Qualitative Disclosures About Market
Risk
Market Sensitivity
We have
market risk primarily in connection with the pricing of our products and
services and the purchase of raw materials. Product pricing and raw
material costs are both significantly influenced by semiconductor market
conditions. Historically, during cyclical economic downturns, we have
been able to offset pricing declines for our products through a combination of
improved product mix and success in obtaining price reductions in raw material
costs.
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 the
Accounting Standards Code, 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 reporting currency of Garmin
Ltd. Sales, costs, and expenses are translated at rates
prevailing during the reporting periods and at end-of-period rates for all
assets and liabilities. The effect of this translation is
recorded in a separate component of stockholders’ equity and have been included
in accumulated other comprehensive income/(loss) in the accompanying condensed
consolidated balance sheets.
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 all
European subsidiaries excluding Garmin Danmark, Garmin Sweden and Garmin
Polska. As these entities have grown, Euro currency moves generated
material gains and losses. Additionally, Euro-based
inter-company transactions in Garmin Ltd. can also generate currency gains and
losses. The Canadian Dollar, Danish Krone, Swedish Krona, Australian
Dollar and Polish Zloty are the functional currency of Dynastream
Innovations, Inc., Garmin Danmark, Garmin Sweden, Garmin Australasia and Garmin
Polska 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 June 26, 2010, we are exposed to
interest rate risk in connection with our investments in marketable
securities. As interest rates change, the unrealized gains and
losses associated with those securities will fluctuate
accordingly. As we have no outstanding long term debt, we
have no meaningful debt-related interest rate risk.
Item
4. Controls and Procedures
(a) Evaluation of disclosure controls
and procedures. The Company maintains a system of disclosure controls and
procedures that are designed to provide reasonable assurance that information,
which is required to be timely disclosed, is accumulated and communicated to
management in a timely fashion. A control system, no matter how well
conceived and operated, can provide only reasonable, not absolute, assurance
that the objectives of the control system are met. As of June 26, 2010, 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 26,
2010 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 26, 2010 that has materially affected, or is reasonably
likely to materially affect, the Company’s internal control over financial
reporting.
Part
II - Other Information
Item
1. Legal Proceedings
Ambato
Media, LLC v. Clarion Co., Ltd., Clarion Corporation of America, Delphi
Corporation, Fujitsu Limited, Fujitsu Ten Corporation of America, Garmin Ltd.,
Garmin International, Inc., Victor Company of Japan Ltd., JVC Americas
Corporation, JVC Kenwood Holdings, Inc., J&K Car Electronics Corporation, LG
Electronics, Inc., LG Electronics USA, Inc., MiTAC International Corporation,
MiTAC Digital Corporation, Mio Technology USA Ltd., Navigon, Inc. Nextar Inc.,
Panasonic Corporation, Panasonic Corporation of North America, Pioneer
Corporation, Pioneer Electronics (USA) Inc., Sanyo Electric Co., Ltd., Sanyo
North America Corporation, Sanyo Electronic Device (U.S.A.) Corporation,
TomTom
N.V., TomTom International B.V., and TomTom, Inc.
On August 14, 2009, Ambato Media, LLC
filed suit in the United States District Court for the Eastern District of Texas
against Garmin Ltd. and Garmin International, Inc. along with several
codefendants alleging infringement of U.S. Patent No. 5,432,542 (“the ’542
patent”). On September 28, 2009, Garmin filed its Answer and Counterclaims
asserting the ’542 patent is invalid and not infringed. 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 the claims are without merit and intends to
vigorously defend this action.
Pioneer
Corporation v. Garmin Deutschland GmbH, Garmin Ltd., Garmin International, Inc.,
Garmin (Europe Ltd. and Garmin Corporation
On October 9, 2009, Pioneer Corporation
filed suit in the District Court in Düsseldorf, Germany against Garmin
Deutschland GmbH, Garmin Ltd., Garmin International, Inc., Garmin Corporation
and Garmin (Europe) Ltd. alleging infringement of European Patent No. 775 892
(“the ‘892 Patent”) and European Patent No. 508 681 (“the‘681 Patent”). Garmin
believes that none of Garmin’s products infringe either of these patents. Garmin
has filed separate lawsuits in the German Federal Patent Court in Munich seeking
declaratory judgments of invalidity of the ‘892 Patent and the ‘681 Patent.
Garmin has also moved the District Court in Düsseldorf to stay Pioneer’s
infringement proceedings until the German Federal Patent Court in Munich
resolves Garmin’s invalidity proceedings. 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 the claims are without merit and intends to vigorously defend this
action.
In
the Matter of Certain Multimedia Display and Navigation Devices and Systems,
Components Thereof, and Products Containing the Same.
On November 13, 2009, Pioneer
Corporation filed a complaint with the United States International Trade
Commission against Garmin International, Inc., Garmin Corporation, and Honeywell
International Inc. alleging infringement of U.S. Patent No. 5,365,448 (“the ’448
patent”), U.S. Patent No. 6,122,592 (“the ’592 patent”), and U.S. Patent No.
5,424,951 (“the ’951 patent”). On January 12, 2010, Garmin filed its Answer
asserting the ’448 patent, the ’592 patent, and the ’951 patent are invalid and
not infringed. 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 these claims are
without merit and intends to vigorously defend this action.
Vehicle
IP, LLC v. AT&T Mobility LLC, Cellco Partnership, Garmin International,
Inc., Garmin USA, Inc., Networks in Motion, Inc., Telecommunication Systems,
Inc., Telenav Inc., United Parcel Service, Inc., and UPS Logistics Technologies,
Inc.
On December 31, 2009, Vehicle IP, LLC
filed suit in the United States District Court for the District of Delaware
against Garmin International, Inc. and Garmin USA, Inc. along with several
codefendants alleging infringement of U.S. Patent No. 5,987,377 (“the ’377
patent”). On March 11, 2010, Garmin filed its Answer and Counterclaims asserting
the ’377 patent is invalid and not infringed. 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 these claims are without merit and intends to vigorously defend this
action.
Nazomi
Communications, Inc. v. Nokia Corporation, Nokia Inc., Microsoft Corporation,
Amazon.com, Inc., Western Digital Corporation, Western Digital Technologies,
Inc., Garmin Ltd., Garmin Corporation, Garmin International, Inc.,
Garmin USA, Inc., Sling Media, Inc., VIZIO, Inc., and Iomega
Corporation.
On February 8, 2010, Nazomi
Communications, Inc. filed suit in the United States District Court for the
Central District of California against Garmin Ltd., Garmin Corporation, Garmin
International, Inc., and Garmin USA, Inc. along with several codefendants
alleging infringement of U.S. Patent No. 7,080,362 (“the ’362 patent”) and U.S.
Patent No. 7,225,436 (“the ’436 patent”). Garmin believes the ’362 patent and
the ’436 patent are not infringed. On April 27, 2010, ARM Ltd., the designer of
the accused hardware, filed a Motion to Intervene and a Motion to Transfer the
case to the Northern District of California. On June 21, 2010, the court granted
ARM Ltd.’s motion to intervene and denied its motion to transfer without
prejudice. 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 these claims are
without merit and intends to vigorously defend this action.
Visteon
Global Technologies, Inc. and Visteon Technologies LLC v. Garmin International,
Inc.
On February 10, 2010, Visteon Global
Technologies, Inc. and Visteon Technologies LLC filed suit in the United States
District Court for the Eastern District of Michigan, Southern Division, against
Garmin International, Inc. alleging infringement of U.S. Patent No. 5,544,060
(“the ‘060 patent”), U.S. Patent No. 5,654,892 (“the ‘892 patent”), U.S. Patent
No. 5,832, 408 (“the ‘408 patent”), U.S. Patent No 5,987,375 (“the ‘375 patent”)
and U.S. Patent No 6,097,316 (“the ‘316 patent”). On May 17, 2010, Garmin filed
its Answer asserting that each claim of the ‘060 patent, the ‘892 patent, the
‘408 patent and the ‘375 patent is not infringed and/or invalid. Although there
can be no assurance that an unfavorable outcome of this litigation would not
have a material adverse effect on our operating results, liquidity or financial
position, Garmin believes that the claims in this lawsuit are without merit and
intends to vigorously defend this action.
WebMap Technologies LLC v. City
Accomodations Network, Inc., Citysearch, LLC, Expedia, Inc.,
IAC/Interactivecorp, Google, Inc., The Washington Post Company, Travelocity.com,
LP, Tripadvisor LLC, Yahoo! Inc., Yelp! Inc., Zagat Survey, LLC, Garmin
International, Inc., Garmin Ltd., Garmin USA, Inc., Globalmotion Media Inc.,
Gusto, LLC, Gusto.com, Inc., Gusto.com, LLC, Mapmyfitness, Inc., Mashup
Technologies, LLC, The New York Times Company, Nike, Inc., TomTom International
BV, TomTom, Inc. a/k/a TomTom Navigation, Inc., TomTom NV, and Youmu,
Inc.
On June 10, 2010, in its Fourth Amended
Complaint, WebMap Technologies LLC added Garmin International, Inc., Garmin
Ltd., and Garmin USA, Inc. along with several codefendants, to a suit it
previously filed in the United States District Court for the Eastern District of
Texas alleging infringement of U.S. Patent No. 6,772,142 (“the ‘142
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 each claim of the ‘142 patent is not infringed and/or invalid and intends
to vigorously defend this action.
Bandspeed,
Inc. v. Acer, Inc., Acer American Corporation, Belkin International,
Inc., Belkin,Inc., Casio Computer Co., Ltd., Xasio Hitachi Mobile
CommunicationsCo. Ltd., Xasio America, Inc., Dell Inc., Garmin International,
Inc., Garmin USA, Inc., GN Netcom A/S, GN U.S. Inc. a/k/a GN Netcom Inc.,
Hewlett-Packard Company, Hewlett-Packard Development Company, L.P., HTC
Corporation, HTC America, Inc., Huawei Technologies Co. Ltd., Kyocera
Corporation, Kyocera International, Inc., Kyocera Communications, Inc., Kyocera
Wireless Corporation, Lenovo (United States), Inc., LG Electronics, Inc., LG
Electronics U.S.A. Inc., LG Electronics Mobilecomm U.S.A. Inc.,
Motorola, Inc., Nokia Corporation, Nokia Inc., Pantech Wireless, Inc.
Plantronics, inc., Research in Motion Ltd., Research in Motion Corporation,
Samsung Telecommunications America, LLC, TomTom International B.V., TomTom,
Inc., Toshiba Corporation, Toshiba America information Systems, Inc., and
Toshiba America, Inc.
On June 30, 2010, Bandspeed, Inc. filed
suit in the United States District Court for the Eastern District of Texas
against 38 companies, including Garmin International, Inc. and Garmin USA, Inc.
alleging infringement of U.S. Patent No 7,027,418 (“the ‘418 patent”) and U.S.
Patent No 7,670,614 (“the ‘614 patent”). Garmin believes that each claim of the
‘418 patent and the ‘614 patent is not infringed and/or invalid. Although there
can be no assurance that an unfavorable outcome of this litigation would not
have a material adverse effect on our operating results, liquidity or financial
position, Garmin believes the claims in this lawsuit are without merit and
intends to vigorously defend this action.
Washington
Research Foundation v. Silicon Laboratories Inc., Apple Inc., Garmin Ltd.,
Garmin International, Inc., iRiver, Ltd., iRiver Inc., Sandisk Corporation,
Avnet, Inc., Pantech Co., Ltd., Pantech & Curitel Communications, Inc., and
Pantech Wireless, Inc.
On July 23, 2010, in its Amended
Complaint, Washington Research Foundation added Garmin Ltd. and Garmin
International, Inc. along with several codefendants, to a suit it previously
filed in the United States District Court for the District of Washington
alleging infringement of U.S. Patent No. 5,937,341 (“the ’341 patent”) and U.S.
Patent No. 7,606,542 (“the ’542 patent”). Garmin’s chip supplier,
Silicon Laboratories Inc. is also a named defendant and has agreed to indemnify
Garmin for these claims. Garmin believes that each of the asserted
claims of the ’341 patent and the ‘542 patent is not infringed and/or invalid.
Although there can be no assurance that an unfavorable outcome of this
litigation would not have a material adverse effect on our operating results,
liquidity or financial position, Garmin believes the claims in this lawsuit are
without merit and intends to vigorously defend this action.
From time to time Garmin is involved in
other legal actions arising in the ordinary course of our business. We believe
that the ultimate outcome of these actions will not have a material adverse
effect on our business, financial condition and results of
operations.
Item
1A. Risk Factors
The
risks described below are not the only ones facing our
company. Additional risks and uncertainties not presently known to us
or that we currently believe to be immaterial may also impair our business
operations. If any of the following risks occur, our business,
financial condition or operating results could be materially adversely
affected.
Risks
Related to the Company
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 also becoming more prevalent as
optional equipment on new automobiles. Increased navigation
penetration on new automobiles could slow our growth and further reduce
margins.
Our
financial results are highly dependent on the automotive/mobile segment, which
represented approximately 70% of our revenues in 2009 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 three
years, could result in lower revenues. As margins have also declined
in this segment, slowing growth may also result in lower earnings per
share.
Economic
conditions and uncertainty could adversely affect our revenue and
margins
Our
revenue and margins depend significantly on general economic conditions and the
demand for products in the markets in which we compete. The current
economic weakness and constrained consumer and business spending has resulted in
decreased revenue and may in the future result in decreased revenue and problems
with our ability to manage inventory levels and collect customer receivables. In
addition, financial difficulties experienced by our retailer and OEM customers
have resulted, and could result in the future, in significant bad debt
write-offs and additions to reserves in our receivables and could have an
adverse affect on our results of operations.
Gross
margins for our products may fluctuate or erode.
Gross
margins on our automotive/mobile products were declining prior to 2009 and are
expected to continue to decline during 2010 due to price reductions in the
increasingly competitive market for personal navigation devices (PNDs) that are
not offset by material cost reductions. In addition, our overall gross margin
may fluctuate from period to period due to a number of factors, including
product mix, competition and unit volumes. In particular, the average
selling prices of a specific product tend to decrease over that product’s
life. To offset such decreases, we intend to rely primarily on
component cost reduction, obtaining yield improvements and corresponding cost
reductions in the manufacture of existing products and on introducing new
products that incorporate advanced features and therefore can be sold at higher
average selling prices. However, there can be no assurance that we
will be able to obtain any such yield improvements or cost reductions or
introduce any such new products in the future. To the extent that
such cost reductions and new product introductions do not occur in a timely
manner or our products do not achieve market acceptance, our business, financial
condition and results of operations could be materially adversely
affected.
Changes
in our United States federal income tax classification or in applicable tax law
could result in adverse tax consequences to our shareholders.
We do not
believe that we (or any of our non-United States subsidiaries) are currently a
‘‘passive foreign investment company’’ for United States federal income tax
purposes. We do not expect to become a passive foreign investment
company. However, because the passive foreign investment company
determination is made annually based on whether the company’s income or assets
meet certain thresholds as determined under United States federal tax principles
which are based on facts and circumstances that may be beyond our control, we
cannot assure that we will not become a passive foreign investment company in
the future. If we are a passive foreign investment company in any
year, then any of our shareholders that is a United States person could be
liable to pay tax on their pro rata share of our income plus an interest charge
upon some distributions by us or when that shareholder sells our common shares
at a gain. Further, if we are classified as a passive foreign
investment company in any year in which a United States person is a shareholder,
we generally will continue to be treated as a passive foreign investment company
with respect to such shareholder in all succeeding years, regardless of whether
we continue to satisfy the income or asset tests mentioned above.
We do not believe that we (or any of
our non-United States subsidiaries) are currently a Controlled Foreign
Corporation (CFC) for United States federal income tax purposes. We
do not expect to become a CFC. The CFC determination is made daily
based on whether the United States shareholders own more than fifty percent of
the voting power or value of the Company. Only United States persons
that own ten percent or more of the voting power of the Company’s shares qualify
as United States shareholders. If the Company were to be classified
as a CFC for an uninterrupted thirty day period in any year, the Company’s
shareholders that qualify as United States shareholders could be liable to pay
US income tax at ordinary income tax rates on their pro-rata share of certain
categories of the Company’s income for the period in which the Company is
classified as a CFC. As the Company cannot control the ownership of the
Company’s stock nor can the Company control which shareholders participate in
the Company’s stock buyback program, ownership changes could result that create
United States shareholders which increase the risk of Garmin being treated as a
CFC.
Best
Buy is a significant customer, representing over 10% of net
sales. Accordingly, our revenues and profitability will be adversely
impacted if Best Buy’s business declines or if Best Buy is unable to pay us
amounts owed timely.
Best Buy
is our largest customer and accounted for 13.4% and 12.0% of our total net sales
in 2009 and 2008, respectively. If Best Buy’s business declines due
to the economic conditions, market share losses or other factors, our revenues
and profitability will be adversely impacted. In addition, if Best
Buy’s liquidity erodes for any of the reasons discussed above or a tightening in
the credit markets and they are unwilling or unable to pay us amounts owed
timely, our profitability will be adversely impacted.
If
we are not successful in the continued development, introduction or timely
manufacture of new products, demand for our products could
decrease.
We expect
that a significant portion of our future revenue will continue to be derived
from sales of newly introduced products. The market for our products
is characterized by rapidly changing technology, evolving industry standards and
changes in customer needs. If we fail to introduce new products, or
to modify or improve our existing products, in response to changes in
technology, industry standards or customer needs, our products could rapidly
become less competitive or obsolete. We must continue to make
significant investments in research and development in order to continue to
develop new products, enhance existing products and achieve market acceptance
for such products. However, there can be no assurance that
development stage products will be successfully completed or, if developed, will
achieve significant customer acceptance.
If we are
unable to successfully develop and introduce competitive new products, and
enhance our existing products, our future results of operations would be
adversely affected. Our pursuit of necessary technology may require
substantial time and expense. We may need to license new technologies
to respond to technological change. These licenses may not be
available to us on terms that we can accept or may materially change the gross
profits that we are able to obtain on our products. We may not succeed in
adapting our products to new technologies as they emerge. Development
and manufacturing schedules for technology products are difficult to predict,
and there can be no assurance that we will achieve timely initial customer
shipments of new products. The timely availability of these products
in volume and their acceptance by customers are important to our future
success. From time to time we have experienced delays in shipping
certain of our new products and any future delays, whether due to product
development delays, manufacturing delays, lack of market acceptance, delays in
regulatory approval, or otherwise, could have a material adverse effect on our
results of operations.
If
we are unable to compete effectively with existing or new competitors, our
resulting loss of competitive position could result in price reductions, fewer
customer orders, reduced margins and loss of market share.
The
markets for our products are highly competitive, and we expect competition to
increase in the future. Some of our competitors have significantly greater
financial, technical and marketing resources than we do. These
competitors may be able to respond more rapidly to new or emerging technologies
or changes in customer requirements. They may also be able to devote
greater resources to the development, promotion and sale of their
products. Increased competition could result in price reductions,
fewer customer orders, reduced margins and loss of market share. Our
failure to compete successfully against current or future competitors could
seriously harm our business, financial condition and results of
operations.
We
rely on independent dealers and distributors to sell our products, and
disruption to these channels would harm our business.
Because
we sell a majority of our products to independent dealers and distributors, we
are subject to many risks, including risks related to their inventory levels and
support for our products. In particular, our dealers and distributors
maintain significant levels of our products in their inventories. If
dealers and distributors attempt to reduce their levels of inventory or if they
do not maintain sufficient levels to meet customer demand, our sales could be
negatively impacted.
Many of
our dealers and distributors also sell products offered by our
competitors. If our competitors offer our dealers and distributors
more favorable terms, those dealers and distributors may de-emphasize or decline
to carry our products. In the future, we may not be able to retain or attract a
sufficient number of qualified dealers and distributors. If we are
unable to maintain successful relationships with dealers and distributors or to
expand our distribution channels, our business will suffer.
Our
quarterly operating results are subject to fluctuations and
seasonality.
Our
operating results are difficult to predict. Our future quarterly operating
results may fluctuate significantly. If such operating results
decline, the price of our stock would likely decline. As we expand
our operations, our operating expenses, particularly our advertising and
research and development costs, may increase as a percentage of our
sales. If revenues decrease and we are unable to reduce those costs
rapidly, our operating results would be negatively affected.
Historically,
our revenues have been weaker in the first quarter of each fiscal year and have
recently been lower than the preceding fourth quarter. Our devices
are highly consumer-oriented, and consumer buying is traditionally lower in
these quarters. Sales of certain of our marine and automotive products tend to be
higher in our second fiscal quarter due to increased consumer spending for such
products during the recreational marine, fishing, and travel
season. Sales of our automotive/mobile products also have been higher
in our fourth fiscal quarter due to increased consumer spending patterns on
electronic devices during the holiday season. In addition, we attempt
to time our new product releases to coincide with relatively higher consumer
spending in the second and fourth fiscal quarters, which contributes to these
seasonal variations.
Our
quarterly financial statements will reflect fluctuations in foreign currency
translation.
The
operation of Garmin’s subsidiaries in international markets results in exposure
to movements in currency exchange rates. We have experienced
significant foreign currency gains and losses due to the strengthening and
weakening of the U.S. dollar. The potential of volatile foreign
exchange rate fluctuations in the future could have a significant effect on our
results of operations.
The currencies that create a majority
of the Company’s exchange rate exposure are the Taiwan Dollar, Euro, and British
Pound Sterling. Garmin Corporation, headquartered in Shijr, Taiwan, uses
the local currency as the functional currency. The Company translates all
assets and liabilities at year-end exchange rates and income and expense
accounts at average rates during the year. In order to minimize the effect
of the currency exchange fluctuations on our net assets, we have elected to
retain most of our Taiwan subsidiary’s cash and investments in marketable
securities denominated in U.S. dollars.
Nonetheless, U.S. GAAP requires the
Company at the end of each accounting period to translate into Taiwan Dollars
all such U.S. Dollar denominated assets held by our Taiwan
subsidiary. This translation is required because the Taiwan Dollar is
the functional currency of the subsidiary. This U.S. GAAP-mandated
translation will cause us to recognize gain or loss on our financial statements
as the Taiwan Dollar/U.S. Dollar exchange rate varies. Such gain or
loss will create variations in our earnings per share. Because there
is minimal cash impact caused by such exchange rate variations, management will
continue to focus on the Company’s operating performance before the impact of
the foreign currency translation.
If
we do not correctly anticipate demand for our products, we may not be able to
secure sufficient quantities or cost-effective production of our products or we
could have costly excess production or inventories.
We have
generally been able to increase production to meet this increasing
demand. However, the demand for our products depends on many factors
and will be difficult to forecast. We expect that it will become more
difficult to forecast demand as we introduce and support multiple products, as
competition in the market for our products intensifies and as the markets for
some of our products mature to the mass market category. Significant
unanticipated fluctuations in demand could cause the following problems in our
operations:
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If
demand increases beyond what we forecast, we would have to rapidly
increase production. We would depend on suppliers to provide additional
volumes of components and those suppliers might not be able to increase
production rapidly enough to meet unexpected
demand.
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Rapid
increases in production levels to meet unanticipated demand could result
in higher costs for manufacturing and supply of components and other
expenses. These higher costs could lower our profit
margins. Further, if production is increased rapidly,
manufacturing quality could decline, which may also lower our margins and
reduce customer satisfaction.
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If
forecasted demand does not develop, we could have excess production
resulting in higher inventories of finished products and components, which
would use cash and could lead to write-offs of some or all of the excess
inventories. Lower than forecasted demand could also result in
excess manufacturing capacity or reduced manufacturing efficiencies at our
facilities, which could result in lower
margins.
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We
have benefited in the past from Taiwan government tax incentives offered on
certain high technology capital investments that may not always be
available.
Our
effective tax rate is lower than the U.S. federal statutory rate, because we
have benefited from incentives offered in Taiwan related to our high technology
investments in Taiwan. The loss of these tax benefits could have a
significant effect on our financial results in the future.
We
may experience unique economic and political risks associated with companies
that operate in Taiwan.
Relations
between Taiwan and the People’s Republic of China, also referred to as the PRC,
and other factors affecting the political or economic conditions of Taiwan in
the future could materially adversely affect our business, financial condition
and results of operations and the market price and the liquidity of our
shares. Our principal manufacturing facilities where we manufacture
all of our products, except our panel-mounted aviation products, are located in
Taiwan.
Taiwan
has a unique international political status. The PRC asserts
sovereignty over all of China, including Taiwan, certain other islands and all
of mainland China. The PRC government does not recognize the
legitimacy of the Taiwan government. Although significant economic
and cultural relations have been established during recent years between Taiwan
and the PRC, the PRC government has indicated that it may use military force to
gain control over Taiwan in certain circumstances, such as the declaration of
independence by Taiwan. Relations between Taiwan and the PRC have on
occasion adversely affected the market value of Taiwanese companies and could
negatively affect our operations in Taiwan in the future.
Our
intellectual property rights are important to our operations, and we could
suffer loss if they infringe upon other’s rights or are infringed upon by
others.
We rely
on a combination of patents, copyrights, trademarks and trade secrets,
confidentiality provisions and licensing arrangements to establish and protect
our proprietary rights. To this end, we hold rights to a number of
patents and registered trademarks and regularly file applications to attempt to
protect our rights in new technology and trademarks. However, there
is no guarantee that our patent applications will become issued patents, or that
our trademark applications will become registered
trademarks. Moreover, even if approved, our patents or trademarks may
thereafter be successfully challenged by others or otherwise become invalidated
for a variety of reasons. Thus, any patents or trademarks we
currently have or may later acquire may not provide us a significant competitive
advantage.
Third
parties may claim that we are infringing their intellectual property
rights. Such claims could have a material adverse effect on our
business and financial condition. From time to time we receive
letters alleging infringement of patents, trademarks or other intellectual
property rights. Litigation concerning patents or other intellectual
property is costly and time consuming. We may seek licenses from such
parties, but they could refuse to grant us a license or demand commercially
unreasonable terms. We might not have sufficient resources to pay for
the licenses. Such infringement claims could also cause us to incur
substantial liabilities and to suspend or permanently cease the use of critical
technologies or processes or the production or sale of major
products.
We
may become subject to significant product liability costs.
If our
aviation products malfunction or contain errors or defects, airplane collisions
or crashes could occur resulting in property damage, personal injury or
death. Malfunctions or errors or defects in our marine navigational
products could cause boats to run aground or cause other wreckage, personal
injury or death. If our automotive or marine products contain defects
or errors in the mapping supplied by third-party map providers or if our users
do not heed our warnings about the proper use of these products, collisions or
accidents could occur resulting in property damage, personal injury or
death. If any of these events occurs, we could be subject to
significant liability for personal injury and property damage and under certain
circumstances could be subject to a judgment for punitive damages. We
maintain insurance against accident-related risks involving our
products. However, there can be no assurance that such insurance
would be sufficient to cover the cost of damages to others or that such
insurance will continue to be available at commercially reasonable
rates. In addition, insurance coverage generally will not cover
awards of punitive damages and may not cover the cost of associated legal fees
and defense costs, which could result in lower margins. If we are
unable to maintain sufficient insurance to cover product liability costs or if
our insurance coverage does not cover the award, this could have a materially
adverse impact on our business, financial condition and results of
operations.
We
depend on our suppliers, some of which are the sole source for specific
components, and our production would be seriously harmed if these suppliers are
not able to meet our demand and alternative sources are not available, or if the
costs of components rise.
We are
dependent on third party suppliers for various components used in our current
products. Some of the components that we procure from third party
suppliers include semiconductors and electroluminescent panels, liquid crystal
displays, memory chips, batteries and microprocessors. The cost,
quality and availability of components are essential to the successful
production and sale of our products. Some components we use are from
sole source suppliers. Certain application-specific integrated circuits
incorporating our proprietary designs are manufactured for us by sole source
suppliers. Alternative sources may not be currently available for
these sole source components.
In the
past we have experienced shortages of liquid crystal displays and other
components. In addition, if there are shortages in supply of
components, the costs of such components may rise. If suppliers are unable to
meet our demand for components on a timely basis and if we are unable to obtain
an alternative source or if the price of the alternative source is prohibitive,
or if the costs of components rise, our ability to maintain timely and
cost-effective production of our products would be seriously
harmed.
We
depend on third party licensors for the digital map data contained in our
automotive/mobile products, and our business and/or gross margins could be
harmed if we become unable to continue licensing such mapping data or if the
royalty costs for such data rise.
We
license digital mapping data for use in our products from various
sources. There are only a limited number of suppliers of mapping data
for each geographical region. The two largest digital map suppliers
are NAVTEQ Corporation and Tele Atlas N.V. NAVTEQ Corporation is
owned by Nokia Oyj and Tele Atlas N.V. is owned by TomTom N.V. Nokia
and TomTom are both competitors of Garmin.
Although
we do not foresee difficulty in continuing to license data at favorable pricing
due to the long term license extension signed between Garmin and NAVTEQ in
November 2007 (extending our NAVTEQ license agreement through 2015 with an
option to extend through 2019), if we are unable to continue licensing such
mapping data and are unable to obtain an alternative source, or if the nature of
our relationships with NAVTEQ changes detrimentally, our ability to supply
mapping data for use in our products would be seriously harmed.
We
may pursue strategic acquisitions, investments, strategic partnerships or other
ventures, and our business could be materially harmed if we fail to successfully
identify, complete and integrate such transactions.
We intend
to evaluate acquisition opportunities and opportunities to make investments in
complementary businesses, technologies, services or products, or to enter into
strategic partnerships with parties who can provide access to those assets,
additional product or services offerings, additional distribution or marketing
synergies or additional industry expertise. We may not be able to
identify suitable acquisition, investment or strategic partnership candidates,
or if we do identify suitable candidates in the future, we may not be able to
complete those transactions on commercially favorable terms, or at
all.
Any past
or future acquisitions could also result in difficulties assimilating acquired
employees (including cultural differences with foreign acquisitions),
operations, and products and diversion of capital and management’s attention
away from other business issues and opportunities. Integration of
acquired companies may result in problems related to integration of technology
and inexperienced management teams. In addition, the key personnel of the
acquired company may decide not to work for us. We may not
successfully integrate internal controls, compliance under the Sarbanes-Oxley
Act of 2002 and other corporate governance matters, operations, personnel or
products related to acquisitions we have made in previous years or
may make in the future. If we fail to successfully integrate such
transactions, our business could be materially harmed.
We
may have additional tax liabilities.
We are subject to income taxes in both
the United States and numerous foreign jurisdictions. Significant judgment is
required in determining our worldwide provision for income taxes. In the
ordinary course of our business, there are many transactions and calculations
where the ultimate tax determination is uncertain. We are regularly under audit
by tax authorities. Although we believe our tax estimates are reasonable, the
final determination of tax audits and any related litigation could be materially
different from our historical income tax provisions and accruals. The results of
an audit or litigation could have a material effect on our income tax provision,
net income or cash flows in the period or periods for which that determination
is made.
Failure
to obtain required certifications of our products on a timely basis could harm
our business.
We have
certain products, especially in our aviation segment, that are subject to
governmental and similar certifications before they can be sold. For
example, FAA certification is required for all of our aviation products that are
intended for installation in type certificated aircraft. To the
extent required, certification is an expensive and time-consuming process that
requires significant focus and resources. An inability to obtain, or
excessive delay in obtaining, such certifications could have an adverse effect
on our ability to introduce new products and, for certain aviation OEM products,
our customers’ ability to sell airplanes. Therefore, such inabilities
or delays could adversely affect our operating results. In addition, we cannot
assure you that our certified products will not be decertified. Any
such decertification could have an adverse effect on our operating
results.
Our
business may suffer if we are not able to hire and retain sufficient qualified
personnel or if we lose our key personnel.
Our
future success depends partly on the continued contribution of our key
executive, engineering, sales, marketing, manufacturing and administrative
personnel. We currently do not have employment agreements with any of
our key executive officers. We do not have key man life insurance on
any of our key executive officers and do not currently intend to obtain such
insurance. The loss of the services of any of our senior level
management, or other key employees, could harm our
business. Recruiting and retaining the skilled personnel we require
to maintain and grow our market position may be difficult. For
example, in some recent years there has been a nationwide shortage of qualified
electrical engineers and software engineers who are necessary for us to design
and develop new products, and therefore, it has sometimes been challenging to
recruit such personnel. If we fail to hire and retain qualified
employees, we may not be able to maintain and expand our business.
There
is uncertainty as to our shareholders’ ability to enforce certain foreign civil
liabilities in Switzerland and Taiwan.
We are a
Swiss company and a substantial portion of our assets are located outside the
United States, particularly in Taiwan. As a result, it may be
difficult to effect service of process within the United States upon
us. In addition, there is uncertainty as to whether the courts of
Switzerland or Taiwan would recognize or enforce judgments of United States
courts obtained against us predicated upon the civil liability provisions of the
securities laws of the United States or any state thereof, or be competent to
hear original actions brought in Switzerland or Taiwan against us predicated
upon the securities laws of the United States or any state
thereof.
A
shut down of U.S. airspace or imposition of restrictions on general aviation
would harm our business.
Following the September 11, 2001
terrorist attacks, the FAA ordered all aircraft operating in the U.S. to be
grounded for several days. In addition to this shut down of U.S.
airspace, the general aviation industry was further impacted by the additional
restrictions implemented by the FAA on those flights that fly utilizing Visual
Flight Rules (VFR). The FAA restricted VFR flight inside 30 enhanced
Class B (a 20-25 mile radius around the 30 largest metropolitan areas in the
USA) airspace areas. The Aircraft Owners and Pilots Association
(AOPA) estimated that these restrictions affected approximately 41,800 general
aviation aircraft based at 282 airports inside the 30 enhanced Class B airspace
areas. The AOPA estimates that approximately 90% of all general
aviation flights are conducted VFR, and that only 15% of general aviation pilots
are current to fly utilizing Instrument Flight Rules (IFR).
The shutdown of U.S. airspace following
September 11, 2001 caused reduced sales of our general aviation products and
delays in the shipment of our products manufactured in our Taiwan manufacturing
facility to our distribution facility in Olathe, Kansas, thereby adversely
affecting our ability to supply new and existing products to our dealers and
distributors.
Any
future shut down of U.S. airspace or imposition of restrictions on general
aviation could have a material adverse effect on our business and financial
results.
Many
of our products rely on the Global Positioning System
The
Global Positioning System is a satellite-based navigation and positioning system
consisting of a constellation of orbiting satellites. The satellites
and their ground control and monitoring stations are maintained and operated by
the United States Department of Defense. The Department of Defense
does not currently charge users for access to the satellite
signals. These satellites and their ground support systems are
complex electronic systems subject to electronic and mechanical failures and
possible sabotage. The satellites were originally designed to have lives of 7.5
years and are subject to damage by the hostile space environment in which they
operate. However, of the current deployment of satellites in place,
some have been operating for more than 12 years.
If a
significant number of satellites were to become inoperable, unavailable or are
not replaced, it would impair the current utility of our Global Positioning
System products and would have a material negative effect on our
business. In addition, there can be no assurance that the U.S.
government will remain committed to the operation and maintenance of Global
Positioning System satellites over a long period, or that the policies of the
U.S. government that provide for the use of the Global Positioning System
without charge and without accuracy degradation will remain
unchanged. Because of the increasing commercial applications of the
Global Positioning System, other U.S. government agencies may become involved in
the administration or the regulation of the use of Global Positioning System
signals. However, in a presidential policy statement
issued in December 2004, the Bush administration indicated that the U.S. is
committed to supporting and improving the Global Positioning System and will
continue providing it free from direct user fees.
Some of
our products also use signals from systems that augment GPS, such as the Wide
Area Augmentation System (WAAS). WAAS is operated by the FAA. Any
curtailment of the operating capability of WAAS could result in decreased user
capability for many of our aviation products, thereby impacting our
markets.
Any of
the foregoing factors could affect the willingness of buyers of our products to
select Global Positioning System-based products instead of products based on
competing technologies.
Any
reallocation of radio frequency spectrum could cause interference with the
reception of Global Positioning System signals. This interference could harm our
business.
Our
Global Positioning System technology is dependent on the use of the Standard
Positioning Service (SPS) provided by the U.S. Government’s Global Positioning
System satellites. The Global Positioning System operates in radio
frequency bands that are globally allocated for radio navigation satellite
services. The assignment of spectrum is controlled by an
international organization known as the International Telecommunications Union
(‘‘ITU’’). The Federal Communications Commission (‘‘FCC’’) is
responsible for the assignment of spectrum for non-government use in the United
States in accordance with ITU regulations. Any ITU or FCC
reallocation of radio frequency spectrum, including frequency band segmentation
or sharing of spectrum, could cause interference with the reception of Global
Positioning System signals and may materially and adversely affect the utility
and reliability of our products, which would, in turn, have a material adverse
effect on our operating results. In addition, emissions from mobile
satellite service and other equipment operating in adjacent frequency bands or
inband may materially and adversely affect the utility and reliability of our
products, which could result in a material adverse effect on our operating
results.
The FCC continually receives proposals for new
technologies and services, such as
ultra-wideband technologies, which may seek to operate in,
or across, the radio frequency bands currently
used by the GPS SPS. Adverse decisions by the FCC that
result in harmful interference to the delivery of the GPS SPS
may materially and adversely affect
the utility and reliability of
our products, which could result in
a material adverse effect on our business and financial condition.
Our
business is subject to disruptions and uncertainties caused by war or
terrorism
Acts of
war or acts of terrorism, especially any directed at the GPS signals, could have
a material adverse impact on our business, operating results, and financial
condition. The threat of terrorism and war and heightened security and military
response to this threat, or any future acts of terrorism, may cause a
redeployment of the satellites used in GPS or interruptions of the system. To
the extent that such interruptions have an effect on sales of our products, this
could have a material adverse effect on our business, results of operations, and
financial condition.
We
may be exposed to certain regulatory and financial risks related to climate
change.
Climate change is
receiving increasing attention worldwide. Some scientists,
legislators and others attribute global warming to increased levels of
greenhouse gases, including carbon dioxide, which has led to significant
legislative and regulatory efforts to limit greenhouse gas
emissions.
There are a number of pending
legislative and regulatory proposals to address greenhouse gas emissions. For
example, in June 2009 the U.S. House of Representatives passed the American
Clean Energy and Security Act that would phase-in significant reductions in
greenhouse gas emissions if enacted into law. The U.S. Senate is considering a
different bill, and it is uncertain whether, when and in what form a federal
mandatory carbon dioxide emissions reduction program may be adopted. Similarly,
certain countries have adopted the Kyoto Protocol. These actions could increase
costs associated with our operations, including costs for components used in the
manufacture of our products and freight costs.
Because it is uncertain what laws and
regulations will be enacted, we cannot predict the potential impact of such laws
and regulations on our future consolidated financial condition, results of
operations or cash flows.
Risks
Relating to Our Shares
The
volatility of our stock price could adversely affect investment in our common
shares.
The
market price of our common shares has been, and may continue to be, highly
volatile. During 2009, the price of our common shares ranged from a
low of $15.17 to a high of $39.58. A variety of factors could cause the price of
our common shares to fluctuate, perhaps substantially, including:
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announcements
and rumors of developments related to our business, our competitors, our
suppliers or the markets in which we
compete;
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quarterly
fluctuations in our actual or anticipated operating
results;
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the
availability, pricing and timeliness of delivery of components, such as
flash memory and liquid crystal displays, used in
our products;
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general
conditions in the worldwide economy, including fluctuations in interest
rates;
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announcements
of technological innovations;
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new
products or product enhancements by us or our
competitors;
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product
obsolescence and our ability to manage product
transitions;
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developments
in patents or other intellectual property rights and
litigation;
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developments
in our relationships with our customers and
suppliers;
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research
reports or opinions issued by securities analysts or brokerage houses
related to Garmin, our competitors, our suppliers or our customers;
and
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any
significant acts of terrorism against the United States, Taiwan or
significant markets where we sell our
products.
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In
addition, in recent years the stock market in general and the markets for shares
of technology companies in particular, have experienced extreme price
fluctuations which have often been unrelated to the operating performance of
affected companies. Any such fluctuations in the future could
adversely affect the market price of our common shares, and the market price of
our common shares may decline.
Our
officers and directors exert substantial influence over us.
As of
January 25, 2010 members and former members of our Board of Directors and our
executive officers, together with members of their families and entities that
may be deemed affiliates of or related to such persons or entities, beneficially
owned approximately 43.3% of our outstanding common
shares. Accordingly, these shareholders may be able to determine the
outcome of corporate actions requiring shareholder approval, such as mergers and
acquisitions. This level of ownership may have a significant effect
in delaying, deferring or preventing a change in control of Garmin and may
adversely affect the voting and other rights of other holders of our common
shares.
On
June 27, 2010 we completed the redomestication of the place of our incorporation
from the Cayman Islands to Switzerland (the “Redomestication”). As a
result of increased shareholder approval requirements under Swiss law, we have
less flexibility than we previously had as a Cayman Islands company with respect
to certain aspects of capital management.
Swiss law allows our shareholders
acting at a shareholders’ meeting to authorize share capital that can be issued
by the board of directors without approval of a shareholders’ meeting, but this
authorization is limited to 50% of the existing registered share capital and
must be renewed by a shareholders’ meeting every two years. Additionally,
subject to specified exceptions, including the exceptions described in our
articles of association, Swiss law grants preemptive rights to existing
shareholders to subscribe for new issuances of shares and other securities.
Swiss law does not provide as much flexibility as Cayman Islands law in the
various terms that can attach to different classes of shares either. For
example, while the board of directors of a Cayman Islands company can authorize
the issuance of preferred stock without shareholder approval, we will not be
able to issue preferred stock without the approval of 66 2/3% of the votes
represented and a majority of the par value of the shares represented at a
general meeting of our shareholders. Swiss law also reserves for approval by
shareholders many corporate actions over which our board of directors
previously had authority under Cayman Islands law. For example, dividends must
be approved by shareholders at the general meeting of our
shareholders.
The
par value of our shares is higher following the Redomestication. As a
result, we have less flexibility than we previously had as a Cayman
Islands company with respect to certain aspects of capital
management.
The par value of our shares is 10 Swiss
francs per share, compared to a par value of $0.005 per share when we were a
Cayman Islands company. Under Swiss law, we may not issue shares
below par value. In the event we need to raise equity capital at a time when the
trading price of our shares is below the par value of the shares, we will be
unable to issue shares. In addition, we will not be able to issue options under
our benefits plans with an exercise price below the par value, which would limit
the flexibility of our compensation arrangements.
We
are subject to various Swiss taxes following the Redomestication.
Although
we do not expect Swiss taxes to materially affect our worldwide effective
corporate tax rate, we are subject to additional corporate taxes in Switzerland
following the Redomestication. Switzerland imposes a corporate federal income
tax for holding companies at an effective tax rate of 7.83%, although we should
be entitled to a “participation relief” that in most cases will effectively
eliminate any Swiss taxation on the profits of our subsidiaries paid by them to
us as dividends as well as on capital gains related to the sale of
participations. We also are subject to a Swiss issuance stamp tax levied on our
share issuances, other than in connection with qualifying restructurings, or
increases of our equity at a rate of 1% of the fair market value of the issuance
or increase. In addition, we are subject to some other Swiss indirect taxes
(e.g., VAT, Swiss issuance stamp tax on certain debt instruments and Swiss
securities transfer stamp tax).
As
a Swiss company, we are required to declare dividends in Swiss francs and any
currency fluctuations between the U.S. dollar and Swiss francs will affect the
dollar value of the dividends we pay.
Under Swiss corporate law, we are
required to declare dividends, including distributions through a reduction in
par value, in Swiss Francs. Dividend payments will be made by our transfer agent
in U.S. dollars converted at the applicable exchange rate shortly before the
payment date. As a result, shareholders will be exposed to fluctuations in the
exchange rate between the date used for purposes of calculating the Swiss Franc
amount of any proposed dividend or par value reduction and the relevant payment
date, which will be determined by the shareholders’ meeting.
We
may not be able to make distributions or repurchase shares without subjecting
you to Swiss withholding tax.
If we are unable to make distributions,
if any, through a reduction of par value or, after January 1, 2011, subject
to the adoption of implementing regulations, to pay dividends, if any, out of
qualifying capital contribution reserves, then any dividends paid by us will
generally be subject to a Swiss federal withholding tax at a rate of 35%. The
withholding tax must be withheld from the gross distribution and paid to the
Swiss Federal Tax Administration. A U.S. holder that qualifies for benefits
under the Convention between the United States of America and the Swiss
Confederation for the Avoidance of Double Taxation with Respect to Taxes on
Income may apply for a refund of the tax withheld in excess of the 15% treaty
rate (or in excess of the 5% reduced treaty rate for qualifying corporate
shareholders with at least 10% participation in our voting stock, or for a full
refund in case of qualified pension funds). Payment of a capital distribution in
the form of a par value reduction is not subject to Swiss withholding tax.
However, there can be no assurance that our shareholders will approve a
reduction in par value, that we will be able to meet the other legal
requirements for a reduction in par value, or that Swiss withholding rules will
not be changed in the future. In addition, over the long term, the amount of par
value available for us to use for par value reductions will be limited. If we
unable to make a distribution through a reduction in par value or, after
January 1, 2011, subject to the adoption of implementing regulations, to
pay a dividend out of qualifying capital contribution reserves, we may not be
able to make distributions without subjecting you to Swiss withholding
taxes.
Under present Swiss tax law,
repurchases of shares for the purposes of capital reduction are treated as a
partial liquidation subject to 35% Swiss withholding tax on the difference
between the par value and the repurchase price. Beginning on January 1,
2011, subject to the adoption of implementing regulations, the portion of the
repurchase price that is attributed to the qualifying capital contribution
reserves of the shares repurchased will not be subject to the Swiss withholding
tax either. We may follow a share repurchase process for future share
repurchases, if any, similar to a "second trading line" on the Swiss Stock
Exchange in which Swiss institutional investors buy shares on the open market
and sell these shares to us and are generally able to receive a refund of the
Swiss withholding tax. However, if we are unable to use this process
successfully, we may not be able to repurchase shares for the purposes of
capital reduction without subjecting you to Swiss withholding
taxes.
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
Items (a) and (b) are not
applicable.
(c) Issuer Purchases of Equity
Securities
The Board
of Directors approved a share repurchase program on February 12, 2010,
authorizing the Company to purchase up to $300,000 of its common shares as
market and business conditions warrant. The share repurchase
authorization expires on December 31, 2010. The following
table lists the Company’s share purchases during the second quarter of fiscal
2010:
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|
|
|
|
|
|
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Total
Number of Shares
|
|
|
Maximum
Number of Shares
|
|
|
|
|
|
|
|
|
|
Purchased
as Part of
|
|
|
(or
approx. Dollar Value of Shares
|
|
|
|
Total
# of
|
|
|
Average
Price
|
|
|
Publicly
Announced
|
|
|
in
Thousands) That May Yet Be
|
|
Period
|
|
Shares
Purchased
|
|
|
Paid
Per Share
|
|
|
Plans
or Programs
|
|
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Purchased
Under the Plans or Programs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13-weeks
ended
|
|
|
|
|
|
|
|
|
|
|
|
|
June
26, 2010
|
|
|
1,647,306 |
|
|
$ |
31.87 |
|
|
|
1,647,306 |
|
|
$ |
200,414 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,647,306 |
|
|
$ |
31.87 |
|
|
|
1,647,306 |
|
|
$ |
200,414 |
|
Item
3. Defaults Upon Senior Securities
None
Item
5. Other Information
Not
applicable
Item
6. Exhibits
Exhibit
31.1
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|
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.
|
|
|
|
Exhibit
101.INS
|
|
XBRL
Instance Document
|
|
|
|
Exhibit
101.SCH
|
|
XBRL
Taxonomy Extension Schema
|
|
|
|
Exhibit
101.CAL
|
|
XBRL
Taxonomy Extension Calculation Linkbase
|
|
|
|
Exhibit
101.LAB
|
|
XBRL
Taxonomy Extension Label Linkbase
|
|
|
|
Exhibit
101.PRE
|
|
XBRL
Taxonomy Extension Presentation Linkbase
|
|
|
|
Exhibit
101.DEF
|
|
XBRL
Taxonomy Extension Definition
Linkbase
|
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
4, 2010
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
|
|
|
|
Exhibit
101.INS
|
|
XBRL
Instance Document
|
|
|
|
Exhibit
101.SCH
|
|
XBRL
Taxonomy Extension Schema
|
|
|
|
Exhibit
101.CAL
|
|
XBRL
Taxonomy Extension Calculation Linkbase
|
|
|
|
Exhibit
101.LAB
|
|
XBRL
Taxonomy Extension Label Linkbase
|
|
|
|
Exhibit
101.PRE
|
|
XBRL
Taxonomy Extension Presentation Linkbase
|
|
|
|
Exhibit
101.DEF
|
|
XBRL
Taxonomy Extension Definition
Linkbase
|