Attached files
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EX-31.1 - GARMIN LTD | v200620_ex31-1.htm |
EX-32.2 - GARMIN LTD | v200620_ex32-2.htm |
EX-32.1 - GARMIN LTD | v200620_ex32-1.htm |
EX-31.2 - GARMIN LTD | v200620_ex31-2.htm |
EXCEL - IDEA: XBRL DOCUMENT - GARMIN LTD | Financial_Report.xls |
United
States
Securities
and Exchange Commission
Washington, D.C.
20549
FORM
10-Q
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
quarterly period ended September 25, 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
(State
or other jurisdiction
of
incorporation or organization)
|
98-0229227
(I.R.S.
Employer identification no.)
|
Vorstadt
40/42
8200
Schaffhausen
Switzerland
(Address
of principal executive offices)
|
N/A
(Zip
Code)
|
Company's
telephone number, including area code: +41 52 620 1401
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 as of October 29, 2010
Registered
Shares, CHF 10.00 par value: 193,429,075
Garmin
Ltd.
Form
10-Q
Quarter
Ended September 25, 2010
Table
of Contents
Page
|
||||
Part I - Financial Information | ||||
Item
1.
|
Condensed
Consolidated Financial Statements
|
3
|
||
Introductory
Comments
|
3
|
|||
Condensed
Consolidated Balance Sheets at September 25, 2010 (Unaudited) and December
26, 2009
|
4
|
|||
Condensed
Consolidated Statements of Income for the 13-weeks and 39-weeks ended
September 25, 2010 and September 26, 2009 (Unaudited)
|
5
|
|||
Condensed
Consolidated Statements of Cash Flows for the 39-weeks ended September 25,
2010 and September 26, 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
|
16
|
||
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
|
29
|
||
Item
3.
|
Defaults
Upon Senior Securities
|
29
|
||
Item
5.
|
Other
Information
|
29
|
||
Item
6.
|
Exhibits
|
30
|
||
Signature
Page
|
31
|
|||
Index
to Exhibits
|
|
|
32
|
2
Garmin
Ltd.
Form
10-Q
Quarter
Ended September 25, 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 39-week periods ended September 25, 2010 are not necessarily
indicative of the results to be expected for the full year
2010.
3
Garmin
Ltd. And Subsidiaries
Condensed
Consolidated Balance Sheets
(In
thousands, except share information)
(Unaudited)
Sept 25,
2010
|
December 26,
2009
|
|||||||
Assets
|
||||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$ | 1,235,965 | $ | 1,091,581 | ||||
Marketable
securities
|
21,920 | 19,583 | ||||||
Accounts
receivable, net
|
524,924 | 874,110 | ||||||
Inventories,
net
|
494,354 | 309,938 | ||||||
Deferred
income taxes
|
58,428 | 59,189 | ||||||
Prepaid
expenses and other current assets
|
35,807 | 39,470 | ||||||
Total
current assets
|
2,371,398 | 2,393,871 | ||||||
Property
and equipment, net
|
427,856 | 441,338 | ||||||
Marketable
securities
|
639,118 | 746,464 | ||||||
Restricted
cash
|
956 | 2,047 | ||||||
Licensing
agreements, net
|
2,059 | 15,400 | ||||||
Noncurrent
deferred income tax
|
20,499 | 20,498 | ||||||
Other
intangible assets, net
|
196,132 | 206,256 | ||||||
Total
assets
|
$ | 3,658,018 | $ | 3,825,874 | ||||
Liabilities
and Stockholders' Equity
|
||||||||
Current
liabilities:
|
||||||||
Accounts
payable
|
$ | 194,894 | $ | 203,388 | ||||
Salaries
and benefits payable
|
37,299 | 45,236 | ||||||
Accrued
warranty costs
|
44,023 | 87,424 | ||||||
Accrued
sales program costs
|
57,557 | 119,150 | ||||||
Deferred
revenue
|
61,731 | 27,910 | ||||||
Accrued
advertising expense
|
19,505 | 34,146 | ||||||
Other
accrued expenses
|
111,559 | 143,568 | ||||||
Income
taxes payable
|
42,959 | 22,846 | ||||||
Total
current liabilities
|
569,527 | 683,668 | ||||||
Deferred
income taxes
|
11,255 | 10,170 | ||||||
Non-current
income taxes
|
154,853 | 255,748 | ||||||
Non-current
deferred revenue
|
70,716 | 38,574 | ||||||
Other
liabilities
|
1,418 | 1,267 | ||||||
Stockholders'
equity:
|
||||||||
Shares,
CHF 10.00 par value, 2,080,774,180 shares authorized, 207,563,000 shares
issued and 193,371,000 shares outstanding at September 25, 2010; Common
stock, $.005 par value, 1,000,000,000 shares authorized, 200,274,000
shares issued and outstanding at December 25, 2009
|
1,792,768 | 1,001 | ||||||
Additional
paid-in capital
|
11,673 | 32,221 | ||||||
Treasury
stock (4,192,000 shares at cost)
|
(123,563 | ) | - | |||||
Retained
earnings
|
1,136,374 | 2,816,607 | ||||||
Accumulated
other comprehensive income/(loss)
|
32,997 | (13,382 | ) | |||||
Total
stockholders' equity
|
2,850,249 | 2,836,447 | ||||||
Total
liabilities and stockholders' equity
|
$ | 3,658,018 | $ | 3,825,874 |
See accompanying
notes.
4
Garmin
Ltd. And Subsidiaries
Condensed
Consolidated Statements of Income (Unaudited)
(In
thousands, except per share information)
13-Weeks
Ended
|
39-Weeks
Ended
|
|||||||||||||||
Sept
25,
|
Sept
26,
|
Sept
25,
|
Sept
26,
|
|||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Net
sales
|
$ | 692,364 | $ | 781,254 | $ | 1,852,196 | $ | 1,887,057 | ||||||||
Cost
of goods sold
|
348,344 | 371,512 | 885,615 | 929,706 | ||||||||||||
Gross
profit
|
344,020 | 409,742 | 966,581 | 957,351 | ||||||||||||
Advertising
expense
|
41,002 | 45,853 | 100,843 | 103,101 | ||||||||||||
Selling,
general and administrative expense
|
66,869 | 71,499 | 208,379 | 193,461 | ||||||||||||
Research
and development expense
|
69,512 | 55,507 | 205,332 | 166,795 | ||||||||||||
Total
operating expense
|
177,383 | 172,859 | 514,554 | 463,357 | ||||||||||||
Operating
income
|
166,637 | 236,883 | 452,027 | 493,994 | ||||||||||||
Interest
income
|
5,695 | 6,360 | 18,364 | 16,646 | ||||||||||||
Foreign
currency gains (losses)
|
35,527 | 11,752 | (54,614 | ) | 4,478 | |||||||||||
Other
|
3,057 | 1,684 | 5,071 | 1,325 | ||||||||||||
Total
other income (expense)
|
44,279 | 19,796 | (31,179 | ) | 22,449 | |||||||||||
Income
before income taxes
|
210,916 | 256,679 | 420,848 | 516,443 | ||||||||||||
Income
tax provision (benefit)
|
(68,636 | ) | 41,546 | (30,848 | ) | 90,901 | ||||||||||
Net
income
|
$ | 279,552 | $ | 215,133 | $ | 451,696 | $ | 425,542 | ||||||||
Net
income per share:
|
||||||||||||||||
Basic
|
$ | 1.44 | $ | 1.07 | $ | 2.28 | $ | 2.12 | ||||||||
Diluted
|
$ | 1.43 | $ | 1.07 | $ | 2.27 | $ | 2.12 | ||||||||
Weighted
average common shares outstanding:
|
||||||||||||||||
Basic
|
194,482 | 200,546 | 197,785 | 200,398 | ||||||||||||
Diluted
|
195,305 | 201,599 | 198,891 | 201,038 | ||||||||||||
Cash
dividends declared per common share
|
$ | 0.75 | $ | 1.50 | $ | 0.75 |
See accompanying
notes.
5
Garmin
Ltd. And Subsidiaries
Condensed
Consolidated Statements of Cash Flows (Unaudited)
(In
thousands)
39-Weeks Ended
|
||||||||
Sept 25,
|
Sept 26,
|
|||||||
2010
|
2009
|
|||||||
Operating
Activities:
|
||||||||
Net
income
|
$ | 451,696 | $ | 425,542 | ||||
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
||||||||
Depreciation
|
39,755 | 39,945 | ||||||
Amortization
|
32,471 | 25,945 | ||||||
Loss/(Gain)
on sale of property and equipment
|
34 | (6 | ) | |||||
Provision
for doubtful accounts
|
(3,104 | ) | 3,191 | |||||
Deferred
income taxes
|
260 | (1,083 | ) | |||||
Foreign
currency transaction losses/(gains)
|
38,635 | (26,936 | ) | |||||
Provision
for obsolete and slow moving inventories
|
14,406 | 17,309 | ||||||
Stock
compensation expense
|
29,412 | 31,502 | ||||||
Realized
losses/(gains) on marketable securities
|
1,022 | 110 | ||||||
Changes
in operating assets and liabilities:
|
||||||||
Accounts
receivable
|
351,225 | 178,281 | ||||||
Inventories
|
(196,270 | ) | 43,340 | |||||
Other
current assets
|
13,964 | (22,827 | ) | |||||
Accounts
payable
|
(13,051 | ) | 22,618 | |||||
Other
current and non-current liabilities
|
(261,132 | ) | 87,216 | |||||
Deferred
revenue
|
65,552 | - | ||||||
Income
taxes payable
|
24,383 | 28,198 | ||||||
Purchase
of licenses
|
(3,043 | ) | (3,790 | ) | ||||
Net
cash provided by operating activities
|
586,215 | 848,555 | ||||||
Investing
activities:
|
||||||||
Purchases
of property and equipment
|
(22,983 | ) | (35,441 | ) | ||||
Proceeds
from sale of property and equipment
|
- | (7 | ) | |||||
Purchase
of intangible assets
|
(7,891 | ) | (7,461 | ) | ||||
Purchase
of marketable securities
|
(413,312 | ) | (626,155 | ) | ||||
Redemption
of marketable securities
|
534,500 | 110,751 | ||||||
Change
in restricted cash
|
1,091 | (103 | ) | |||||
Net
cash provided by/(used in) investing activities
|
91,405 | (558,416 | ) | |||||
Financing
activities:
|
||||||||
Proceeds
from issuance of common stock from exercise of stock
options
|
6,369 | 1,688 | ||||||
Proceeds
from issuance of common stock from stock purchase plan
|
- | 3,712 | ||||||
Stock
repurchase
|
(223,378 | ) | (1,908 | ) | ||||
Dividends
paid
|
(299,103 | ) | - | |||||
Tax
benefit related to stock option exercise
|
2,377 | 455 | ||||||
Net
cash provided by/(used in) financing activities
|
(513,735 | ) | 3,947 | |||||
Effect
of exchange rate changes on cash and cash equivalents
|
(19,501 | ) | 21,342 | |||||
Net
increase in cash and cash equivalents
|
144,384 | 315,428 | ||||||
Cash
and cash equivalents at beginning of period
|
1,091,581 | 696,335 | ||||||
Cash
and cash equivalents at end of period
|
$ | 1,235,965 | $ | 1,011,763 |
See
accompanying notes.
6
Garmin
Ltd. and Subsidiaries
Notes
to Condensed Consolidated Financial Statements (Unaudited)
September
25, 2010
(In
thousands, except share and per share information)
1.
|
Basis
of Presentation
|
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 39-week periods ended September 25, 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 and year-to-date period
ended September 25, 2010 and September 26, 2009 both contain operating results
for 13-weeks and 39-weeks for both year-to-date periods,
respectively.
2.
|
Inventories
|
The
components of inventories consist of the following:
September 25, 2010
|
December 26, 2009
|
|||||||
Raw
Materials
|
$ | 128,175 | $ | 80,963 | ||||
Work-in-process
|
43,366 | 32,587 | ||||||
Finished
goods
|
352,399 | 235,286 | ||||||
Inventory
Reserves
|
(29,586 | ) | (38,898 | ) | ||||
Inventory,
net of reserves
|
$ | 494,354 | $ | 309,938 |
3.
|
Share
Repurchase Plan
|
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, 2011. As
of September 25, 2010, the Company had repurchased 7,366,646 shares using cash
of $223,149. There remains approximately $76,851 available for
repurchase under this authorization.
7
4.
|
Earnings
Per Share
|
The
following table sets forth the computation of basic and diluted net income per
share:
13-Weeks Ended
|
||||||||
Sept 25,
2010
|
Sept 26,
2009
|
|||||||
Numerator:
|
||||||||
Numerator
for basic and diluted net income per share - net income
|
$ | 279,552 | $ | 215,133 | ||||
Denominator:
|
||||||||
Denominator
for basic net income per share – weighted-average common
shares
|
194,482 | 200,546 | ||||||
Effect
of dilutive securities – employee stock options
|
823 | 1,053 | ||||||
Denominator
for diluted net income per share – adjusted weighted-average common
shares
|
195,305 | 201,599 | ||||||
Basic
net income per share
|
$ | 1.44 | $ | 1.07 | ||||
Diluted
net income per share
|
$ | 1.43 | $ | 1.07 |
39-Weeks Ended
|
||||||||
Sept 25,
2010
|
Sept 26,
2009
|
|||||||
Numerator:
|
||||||||
Numerator
for basic and diluted net income per share - net income
|
$ | 451,696 | $ | 425,542 | ||||
Denominator:
|
||||||||
Denominator
for basic net income per share – weighted-average common
shares
|
197,785 | 200,398 | ||||||
Effect
of dilutive securities – employee stock options
|
1,106 | 640 | ||||||
Denominator
for diluted net income per share – adjusted weighted-average common
shares
|
198,891 | 201,038 | ||||||
Basic
net income per share
|
$ | 2.28 | $ | 2.12 | ||||
Diluted
net income per share
|
$ | 2.27 | $ | 2.12 |
There
were 6,851,107 anti-dilutive options for the 13-week period ended September 25,
2010. There were 7,097,790 anti-dilutive options for the
13-week period ended September 26, 2009.
There
were 6,225,969 anti-dilutive options for the 39-week period ended September 25,
2010. There were 7,853,062 anti-dilutive options for the
39-week period ended September 26, 2009.
8
There
were 97,369 shares issued as a result of exercises of stock appreciation rights
and stock options for the 13-week period ended September 25, 2010 with 78,619
issued from treasury stock. There were 91,501 shares issued as a
result of exercises of stock appreciation rights and stock options for the
13-week period ended September 26, 2009.
There
were 462,657 shares issued as a result of exercises of stock appreciation rights
and stock options for the 39-week period ended September 25, 2010 with 78,619
issued from treasury stock. There were 116,221 shares issued as a
result of exercises of stock appreciation rights and stock options for the
39-week period ended September 26, 2009.
5.
|
Comprehensive
Income
|
Comprehensive
income is comprised of the following:
13-Weeks Ended
|
||||||||
Sept 25,
2010
|
Sept 26,
2009
|
|||||||
Net
income
|
$ | 279,552 | $ | 215,133 | ||||
Translation
adjustment
|
26,020 | 12,135 | ||||||
Change
in fair value of available-for-sale marketable securities, net of deferred
taxes
|
4,938 | 4,255 | ||||||
Comprehensive
income
|
$ | 310,510 | $ | 231,523 |
39-Weeks Ended
|
||||||||
Sept 25,
2010
|
Sept 26,
2009
|
|||||||
Net
income
|
$ | 451,696 | $ | 425,542 | ||||
Translation
adjustment
|
26,213 | 19,608 | ||||||
Change
in fair value of available-for-sale marketable securities, net of deferred
taxes
|
20,140 | (587 | ) | |||||
Comprehensive
income
|
$ | 498,049 | $ | 444,563 |
9
6.
|
Segment
Information
|
Net
sales, operating income, and income before taxes for each of the Company’s
reportable segments are presented below:
Reportable Segments
|
||||||||||||||||||||
Outdoor/
Fitness
|
Marine
|
Auto/
Mobile
|
Aviation
|
Total
|
||||||||||||||||
13-Weeks
Ended September 25, 2010
|
||||||||||||||||||||
Net
sales
|
$ | 143,985 | $ | 46,086 | $ | 441,891 | $ | 60,402 | $ | 692,364 | ||||||||||
Operating
income
|
$ | 68,158 | $ | 15,618 | $ | 66,588 | $ | 16,273 | $ | 166,637 | ||||||||||
Income
before taxes
|
$ | 76,395 | $ | 17,991 | $ | 97,770 | $ | 18,760 | $ | 210,916 | ||||||||||
13-Weeks
Ended September 26, 2009
|
||||||||||||||||||||
Net
sales
|
$ | 132,174 | $ | 45,426 | $ | 545,707 | $ | 57,947 | $ | 781,254 | ||||||||||
Operating
income
|
$ | 53,430 | $ | 11,783 | $ | 160,053 | $ | 11,617 | $ | 236,883 | ||||||||||
Income
before taxes
|
$ | 48,527 | $ | 13,206 | $ | 183,324 | $ | 11,622 | $ | 256,679 | ||||||||||
39-Weeks
Ended September 25, 2010
|
||||||||||||||||||||
Net
sales
|
$ | 389,037 | $ | 161,710 | $ | 1,110,040 | $ | 191,409 | $ | 1,852,196 | ||||||||||
Operating
income
|
$ | 169,485 | $ | 56,694 | $ | 172,117 | $ | 53,731 | $ | 452,027 | ||||||||||
Income
before taxes
|
$ | 163,211 | $ | 53,235 | $ | 149,932 | $ | 54,470 | $ | 420,848 | ||||||||||
39-Weeks
Ended September 26, 2009
|
||||||||||||||||||||
Net
sales
|
$ | 320,187 | $ | 143,641 | $ | 1,242,011 | $ | 181,218 | $ | 1,887,057 | ||||||||||
Operating
income
|
$ | 132,351 | $ | 43,696 | $ | 271,370 | $ | 46,577 | $ | 493,994 | ||||||||||
Income
before taxes
|
$ | 127,443 | $ | 44,649 | $ | 297,955 | $ | 46,396 | $ | 516,443 |
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 39-week periods ended September 25, 2010 and September 26,
2009:
Americas
|
Asia
|
Europe
|
Total
|
|||||||||||||
September
25, 2010
|
||||||||||||||||
Net
sales to external customers
|
$ | 1,109,376 | $ | 154,594 | $ | 588,226 | $ | 1,852,196 | ||||||||
Property
and equipment, net
|
$ | 232,546 | $ | 145,129 | $ | 50,181 | $ | 427,856 | ||||||||
September
26, 2009
|
||||||||||||||||
Net
sales to external customers
|
$ | 1,204,755 | $ | 104,846 | $ | 577,456 | $ | 1,887,057 | ||||||||
Property
and equipment, net
|
$ | 232,859 | $ | 157,487 | $ | 53,826 | $ | 444,172 |
7.
|
Warranty
Reserves
|
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.
10
13-Weeks Ended
|
||||||||
Sept 25,
2010
|
Sept 26,
2009
|
|||||||
Balance
- beginning of the period
|
$ | 41,445 | $ | 79,968 | ||||
Change
in accrual for products sold in prior periods
|
- | - | ||||||
Accrual
for products sold during the period
|
23,183 | 49,981 | ||||||
Expenditures
|
(20,605 | ) | (46,868 | ) | ||||
Balance
- end of the period
|
$ | 44,023 | $ | 83,081 |
39-Weeks Ended
|
||||||||
Sept 25,
2010
|
Sept 26,
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
|
53,801 | 104,671 | ||||||
Expenditures
|
(54,426 | ) | (108,998 | ) | ||||
Balance
- end of the period
|
$ | 44,023 | $ | 83,081 |
The 39-weeks ended September 25, 2010
include the effect of a refinement in the estimated warranty reserve which
decreased the accrual for the period by $42,776.
8.
|
Commitments
|
We are a
party to certain commitments, which includes raw materials, advertising and
other indirect purchases in connection with conducting our business. Pursuant to these
agreements, the Company is contractually committed to make purchases of
approximately $42,021 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 $110,182, to ($68,636) for the 13-week
period ended September 25, 2010, from $41,546 for the 13-week period ended
September 26, 2009. The significant decline was due to the impact of
one-time items booked in the current quarter. The one-time adjustment of
($114,605) includes the release of uncertain tax position reserves from 2006 to
2008 offset by a settlement for the 2007 tax year in the US and Taiwan surtax
expense due to the release of reserves. Without one-time items, we
would have reported an effective tax rate of 22% and 20% for the 13-weeks and
the 39-weeks weeks ended September 25, 2010, respectively, compared to 16% and
18% for the 13-weeks and 39-weeks ended September 26, 2009, respectively.
The increase in the adjusted effective tax rate as compared to the same period
in 2009 is largely due to an unfavorable mix of income among taxing
jurisdictions.
10.
|
Fair
Value Measurements
|
The
Accounting Standards Codification (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:
11
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 Measurmennts as of September 25, 2010
|
||||||||||||||
Total
|
Level 1
|
Level 2
|
Level 3
|
|||||||||||
$ | 613,988 | $ | 613,988 |
-
|
- | |||||||||
47,050 | - | - | 47,050 | |||||||||||
$ | 661,038 | $ | 613,988 | $ | - | $ | 47,050 |
Fair Value Measurements as of December 26, 2009
|
||||||||||||||
Total
|
Level 1
|
Level 2
|
Level 3
|
|||||||||||
$ | 695,795 | $ | 695,795 | - | - | |||||||||
70,252 | - | - | 70,252 | |||||||||||
$ | 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)
|
Fair Value
Measurements
Using Significant
Unobservable
Inputs (Level 3)
|
|||||||
13 weeks Ended
September 25,
|
39 weeks Ended
September 25,
|
|||||||
2010
|
2010
|
|||||||
Beginning
balance of auction rate securities
|
$ | 64,546 | $ | 70,252 | ||||
Sales
in and/or out of Level 3
|
$ | (21,650 | ) | $ | (32,200 | ) | ||
Total
unrealized gains/(losses) included in other comprehensive
income
|
$ | 4,154 | $ | 8,998 | ||||
Transfers
in and/or out of Level 3
|
$ | - | $ | - | ||||
Ending
balance of auction rate securities
|
$ | 47,050 | $ | 47,050 |
12
The following is a summary of the
company’s marketable securities classified as available-for-sale securities at
September 25, 2010:
Amortized
Cost
|
Gross
Unrealized
Gains
|
Gross
Unrealized
Losses
|
Other
Than
Temporary
Impairment
|
Estimated Fair Value
(Net Carrying
Amount)
|
||||||||||||||||
Mortgage-backed
securities
|
$ | 411,812 | $ | 11,304 | $ | (261 | ) | $ | - | $ | 422,855 | |||||||||
Auction
Rate Securities
|
59,499 | - | (12,449 | ) | - | 47,050 | ||||||||||||||
Obligations
of states and political subdivisions
|
98,939 | 1,611 | (116 | ) | - | 100,434 | ||||||||||||||
U.S.
corporate bonds
|
50,581 | 1,944 | (138 | ) | (1,274 | ) | 51,113 | |||||||||||||
Other
|
38,559 | 1,027 | - | - | 39,586 | |||||||||||||||
Total
|
$ | 659,390 | $ | 15,886 | $ | (12,964 | ) | $ | (1,274 | ) | $ | 661,038 |
The following is a summary of the
company’s marketable securities classified as available-for-sale securities at
December 26, 2009:
Amortized
Cost
|
Gross
Unrealized
Gains
|
Gross
Unrealized
Losses
|
Other
Than
Temporary
Impairment
|
Estimated Fair Value
(Net Carrying
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 September
25, 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.
Cost
|
Estimated
Fair Value
|
|||||||
Due
in one year or less
|
$ | 21,804 | $ | 21,920 | ||||
Due
after one year through five years
|
157,757 | 161,759 | ||||||
Due
after five years through ten years
|
151,573 | 153,852 | ||||||
Due
after ten years
|
296,913 | 291,295 | ||||||
Other
(No contractual maturity dates)
|
31,343 | 32,212 | ||||||
$ | 659,390 | $ | 661,038 |
11.
|
Recently
Issued Accounting Pronouncements
|
In January 2010, the FASB issued
Accounting Standards Update (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. Except for otherwise provided, 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 the Company’s
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 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 was effective upon the issuance of the final
update and did not have a significant impact on the Company's financial
statements.
13
12.
|
Redomestication
|
The
redomestication effectively changed the place of incorporation of the ultimate
parent holding company of Garmin from the Cayman Islands to
Switzerland.
The
redomestication involved several steps. On February 9, 2010, Garmin Ltd.
(Cayman) formed Garmin Ltd. (Switzerland) as a direct subsidiary. On
April 6, 2010, Garmin Ltd. (Cayman) petitioned the Cayman Court to order,
among other things, the calling of a meeting of Garmin Ltd. (Cayman) common
shareholders to approve a scheme of arrangement. On April 7, 2010, the
Cayman Court ordered us to seek shareholder approval of the scheme of
arrangement. On May 20, 2010 we obtained the necessary shareholder approval.
On June 4, 2010, a hearing was held by the Cayman Court and at which
hearing the Cayman Court was asked to and did approve the scheme of arrangement.
The scheme of arrangement became effective at 3:00 a.m., Cayman Islands
time, on Sunday, June 27, 2010 (the “Transaction Time”).
At and
shortly following the Transaction Time, the following steps
occurred:
|
1.
|
all
issued and outstanding Garmin Ltd. (Cayman) common shares were transferred
to Garmin Ltd. (Switzerland); and
|
|
2.
|
in
consideration, Garmin Ltd. (Switzerland) (a) issued registered shares
(on a one-for-one basis) to the holders of the Garmin Ltd. (Cayman) common
shares that were transferred to Garmin Ltd. (Switzerland), and
(b) increased the par value of the 10,000,000 shares of Garmin Ltd.
(Switzerland) issued to Garmin Ltd. (Cayman) in connection with the
formation of Garmin Ltd. (Switzerland) (the “Formation Shares”) to the
same par value as the shares of Garmin Ltd. (Switzerland) issued to the
Garmin Ltd. (Cayman) shareholders. The Formation Shares were subsequently
transferred by Garmin Ltd. (Cayman) to its subsidiary, Garmin Luxembourg
S.à r.l. for future use to satisfy our obligations to deliver shares in
connection with awards granted under our equity incentive plans for
employees and other general corporate
purposes.
|
As a
result of the redomestication, the shareholders of Garmin Ltd. (Cayman) became
shareholders of Garmin Ltd. (Switzerland), and Garmin Ltd. (Cayman) became a
subsidiary of Garmin Ltd. (Switzerland). In addition, Garmin Ltd. (Switzerland)
assumed, on a one-for-one basis, Garmin Ltd. (Cayman)’s existing obligations in
connection with awards granted under Garmin Ltd. (Cayman)’s equity incentive
plans and other similar equity awards. Any stock options, stock appreciation
rights, restricted stock units or performance shares issued by Garmin Ltd.
(Cayman) that are convertible, exchangeable or exercisable into common shares of
Garmin Ltd. (Cayman) became convertible, exchangeable or exercisable, as the
case may be, into registered shares of Garmin Ltd. (Switzerland).
Subsequently
on July 26, 2010, Garmin Ltd. (Cayman) relocated its registered office to
Switzerland and changed its name to Garmin Switzerland GmbH. The reported
capitalization of the Company also changed to that of Garmin Ltd. (Switzerland).
Accordingly, common stock was increased by $1,791,780 to $1,792,768, and
retained earnings was reduced by the same amount.
The
general terms of Garmin Ltd. (Switzerland)'s capitalization (rights of
shareholders, limitations on dividends, etc.) may be found in the proxy
statement and Form 8-A/A registration statement filed with the SEC on April 9,
2010 and June 28, 2010, respectively.
13.
|
Acquisition
|
In the
third quarter of 2010, Garmin Ltd. acquired MetriGear, Inc., the creator of a
pedal-based power solution for cycling. The acquisition is not
considered to be material; therefore supplemental pro forma information is not
presented.
14
14.
|
Subsequent
Event
|
On October 22, 2010, Garmin Ltd.
announced it had acquired Belanor AS, the distributor of Garmin’s consumer
products in Norway. Belanor AS has been renamed Garmin Norge
AS. The acquisition is not considered to be material; therefore
supplemental pro forma information will not be presented.
15
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.
16
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
|
||||||||
September 25, 2010
|
September 26, 2009
|
|||||||
Net
sales
|
100.0 | % | 100.0 | % | ||||
Cost
of goods sold
|
50.3 | % | 47.6 | % | ||||
Gross
profit
|
49.7 | % | 52.4 | % | ||||
Advertising
|
5.9 | % | 5.9 | % | ||||
Selling,
general and administrative
|
9.7 | % | 9.1 | % | ||||
Research
and development
|
10.0 | % | 7.1 | % | ||||
Total
operating expenses
|
25.6 | % | 22.1 | % | ||||
Operating
income
|
24.1
|
% | 30.3 | % | ||||
Other
income (expense), net
|
6.4
|
% | 2.5 | % | ||||
Income
before income taxes
|
30.5 | % | 32.8 | % | ||||
Provision
for income taxes
|
-9.9 | % | 5.3 | % | ||||
Net
income
|
40.4 | % | 27.5 | % |
39-Weeks Ended
|
||||||||
September 25, 2010
|
September 26, 2009
|
|||||||
Net
sales
|
100.0 | % | 100.0 | % | ||||
Cost
of goods sold
|
47.8 | % | 49.3 | % | ||||
Gross
profit
|
52.2 | % | 50.7 | % | ||||
Advertising
|
5.4 | % | 5.5 | % | ||||
Selling,
general and administrative
|
11.3 | % | 10.2 | % | ||||
Research
and development
|
11.1 | % | 8.8 | % | ||||
Total
operating expenses
|
27.8 | % | 24.5 | % | ||||
Operating
income
|
24.4 | % | 26.2 | % | ||||
Other
income (expense), net
|
-1.7 | % | 1.2 | % | ||||
Income
before income taxes
|
22.7 | % | 27.4 | % | ||||
Provision
for income taxes
|
-1.7 | % | 4.8 | % | ||||
Net
income
|
24.4 | % | 22.6 | % |
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.
17
Comparison
of 13-Weeks Ended September 25, 2010 and September 26, 2009
(Amounts
included in the following discussion are stated in thousands unless otherwise
indicated)
Net
Sales
13-weeks ended September 25, 2010
|
13-weeks ended September 26, 2009
|
Quarter over Quarter
|
||||||||||||||||||||||
Net Sales
|
% of Revenues
|
Net Sales
|
% of Revenues
|
$ Change
|
% Change
|
|||||||||||||||||||
Outdoor/Fitness
|
$ | 143,985 | 21 | % | $ | 132,174 | 17 | % | $ | 11,811 | 9 | % | ||||||||||||
Marine
|
46,086 |
6
|
% | 45,426 | 6 | % | 660 | 1 | % | |||||||||||||||
Automotive/Mobile
|
441,891 |
64
|
% | 545,707 | 70 | % | (103,816 | ) | -19 | % | ||||||||||||||
Aviation
|
60,402 | 9 | % | 57,947 | 7 | % | 2,455 | 4 | % | |||||||||||||||
Total
|
$ | 692,364 | 100 | % | $ | 781,254 | 100 | % | $ | (88,890 | ) | -11 | % |
Net sales decreased 11% for the 13-week
period ended September 25, 2010 when compared to the year-ago
quarter. The decrease occurred in the automotive/mobile segment and
was partially offset by increased revenues in the outdoor/fitness, aviation and
marine segments. Automotive/mobile revenue remains the largest
portion of our revenue mix, but declined from 70% in the third quarter of 2009
to 64% in the third quarter of 2010.
Total
unit sales decreased 1% to 3,811 in the third quarter of 2010 from 3,866 in the
same period of 2009. The decline in unit sales volume in the
third quarter of fiscal 2010 was attributable to decreasing volumes in the
auto/mobile segment offset by gains in the remaining segments. The
greatest percentage increase occurred in outdoor/fitness.
Automotive/mobile
segment revenue decreased 19% from the year-ago quarter, as volumes decreased 5%
and the average selling price (ASP) declined 15% compared to a strong ASP in
third quarter 2009. Volume losses in the segment were driven by
increased saturation in the industry and competing
technologies. Revenues in our outdoor/fitness segment increased 9%
from the year-ago quarter on the strength of recent product introductions and
ongoing penetration in the segment. Aviation revenues increased 4%
from the year-ago quarter due to growth in our OEM business. Marine
revenues increased 1% from the year-ago quarter as the Company has gained market
share.
Gross
Profit
13-weeks ended September 25, 2010
|
13-weeks ended September 26, 2009
|
Quarter over Quarter
|
||||||||||||||||||||||
Gross Profit
|
% of Revenues
|
Gross Profit
|
% of Revenues
|
$ Change
|
% Change
|
|||||||||||||||||||
Outdoor/Fitness
|
$ | 94,519 | 66 | % | $ | 82,886 | 63 | % | $ | 11,633 | 14 | % | ||||||||||||
Marine
|
27,765 | 60 | % | 24,420 | 54 | % | 3,345 | 14 | % | |||||||||||||||
Automotive/Mobile
|
179,270 | 41 | % | 263,653 | 48 | % | (84,383 | ) | -32 | % | ||||||||||||||
Aviation
|
42,466 | 70 | % | 38,783 | 67 | % | 3,683 | 9 | % | |||||||||||||||
Total
|
$ | 344,020 | 50 | % | $ | 409,742 | 52 | % | $ | (65,722 | ) | -16 | % |
Gross
profit dollars in the third quarter of 2010 decreased 16% while gross profit
margin decreased 280 basis points compared to the third quarter of 2009 driven
by the automotive/mobile segment. Gross profit dollars and margin
improved in all segments excluding automotive/mobile which represented 52% of
gross profit in third quarter 2010 compared to 64% of gross profit in third
quarter 2009.
The
automotive/mobile segment’s margin decreased 770 basis points as average selling
price declined 15% and was only slightly offset by unit cost
reductions. The Company benefited from a 640 basis point increase in
margins for the marine segment due to the product mix shifting toward higher
margin units including chartplotters and networked
solutions. Aviation and outdoor/fitness gross margins increased 340
basis points and 290 basis points, respectively, from the year-ago quarter
driven primarily by product mix.
18
Advertising
Expense
13-weeks
ended September 25, 2010
|
13-weeks
ended September 26, 2009
|
Quarter
over Quarter
|
||||||||||||||||||||||
Advertising
|
% of
Revenues
|
Advertising
|
% of
Revenues
|
$
Change
|
%
Change
|
|||||||||||||||||||
Outdoor/Fitness
|
$ | 6,873 | 5 | % | $ | 7,957 | 6 | % | $ | (1,084 | ) | -14 | % | |||||||||||
Marine
|
2,139 | 5 | % | 2,810 | 6 | % | (671 | ) | -24 | % | ||||||||||||||
Automotive/Mobile
|
31,078 | 7 | % | 34,098 | 6 | % | (3,020 | ) | -9 | % | ||||||||||||||
Aviation
|
912 | 2 | % | 988 | 2 | % | (76 | ) | -8 | % | ||||||||||||||
Total
|
$ | 41,002 | 6 | % | $ | 45,853 | 6 | % | $ | (4,851 | ) | -11 | % |
Advertising
expense decreased 11% in absolute dollars while remaining stable as a percentage
of revenues when compared with the year-ago period. The decrease in
absolute dollars occurred in all segments due to a Company wide effort to reduce
spending. As a percentage of revenues, advertising expenses was 6% in
the third quarter of both 2010 and 2009. This metric decreased in all
segments excluding auto/mobile due to the ongoing revenue growth.
Selling,
General and Administrative Expense
13-weeks ended September 25, 2010
|
13-weeks ended September 26, 2009
|
|||||||||||||||||||||||
Selling, General &
|
|
Selling, General &
|
|
Quarter over Quarter
|
||||||||||||||||||||
Admin. Expenses
|
% of Revenues
|
Admin.
Expenses
|
% of Revenues
|
$
Change
|
%
Change
|
|||||||||||||||||||
Outdoor/Fitness
|
$ | 12,915 | 9 | % | $ | 15,463 | 12 | % | $ | (2,548 | ) | -16 | % | |||||||||||
Marine
|
4,615 | 10 | % | 4,276 | 9 | % | 339 | 8 | % | |||||||||||||||
Automotive/Mobile
|
46,301 | 10 | % | 44,185 | 8 | % | 2,116 | 5 | % | |||||||||||||||
Aviation
|
3,038 | 5 | % | 7,575 | 13 | % | (4,537 | ) | -60 | % | ||||||||||||||
Total
|
$ | 66,869 | 10 | % | $ | 71,499 | 9 | % | $ | (4,630 | ) | -6 | % |
Selling, general and administrative
expense decreased 6% in absolute dollars while increasing slightly as a
percentage of revenues compared to the year-ago quarter. As a percent
of revenues, selling, general and administrative expenses increased from 9% of
revenues in the third quarter of 2009 to 10% of revenues in the third quarter of
2010. We have begun to reduce selling, general and administrative
costs due to the declining revenue projections.
Research
and Development Expense
13-weeks
ended September 25, 2010
|
13-weeks
ended September 26, 2009
|
|||||||||||||||||||||||
Research
&
|
|
Research
&
|
|
Quarter
over Quarter
|
||||||||||||||||||||
Development
|
% of
Revenues
|
Development
|
% of
Revenues
|
$
Change
|
%
Change
|
|||||||||||||||||||
Outdoor/Fitness
|
$ | 6,573 | 5 | % | $ | 6,036 | 5 | % | $ | 537 | 9 | % | ||||||||||||
Marine
|
5,393 | 12 | % | 5,551 | 12 | % | (158 | ) | -3 | % | ||||||||||||||
Automotive/Mobile
|
35,303 | 8 | % | 25,317 | 5 | % | 9,986 | 39 | % | |||||||||||||||
Aviation
|
22,243 | 37 | % | 18,603 | 32 | % | 3,640 | 20 | % | |||||||||||||||
Total
|
$ | 69,512 | 10 | % | $ | 55,507 | 7 | % | $ | 14,005 | 25 | % |
Research and development expense
increased 25% due to ongoing development activities for new products and the
addition of almost 450 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 during third quarter. Research
and development costs increased $14.0 million when compared with the year-ago
quarter representing a 290 basis point increase as a percent of
revenue.
Operating
Income
13-weeks
ended September 25, 2010
|
13-weeks
ended September 26, 2009
|
Quarter
over Quarter
|
||||||||||||||||||||||
Operating
Income
|
% of
Revenues
|
Operating
Income
|
% of
Revenues
|
$
Change
|
%
Change
|
|||||||||||||||||||
Outdoor/Fitness
|
$ | 68,158 | 47 | % | $ | 53,430 | 40 | % | $ | 14,728 | 28 | % | ||||||||||||
Marine
|
15,618 | 34 | % | 11,783 | 26 | % | 3,835 | 33 | % | |||||||||||||||
Automotive/Mobile
|
66,588 | 15 | % | 160,053 | 29 | % | (93,465 | ) | -58 | % | ||||||||||||||
Aviation
|
16,273 | 27 | % | 11,617 | 20 | % | 4,656 | 40 | % | |||||||||||||||
Total
|
$ | 166,637 | 24 | % | $ | 236,883 | 30 | % | $ | (70,246 | ) | -30 | % |
19
Operating
income decreased 30% in absolute dollars and declined 620 basis points as a
percent of revenue when compared to the third quarter of
2009. Revenue declines, falling gross margins and increased research
and development costs were only partially offset by reductions in advertising
and selling, general and administrative expense.
Other
Income (Expense)
13-weeks
ended
|
13-weeks
ended
|
|||||||
September
25, 2010
|
September
26, 2009
|
|||||||
Interest
Income
|
$ | 5,695 | $ | 6,360 | ||||
Foreign
Currency Gains/(Losses)
|
35,527 | 11,752 | ||||||
Other
|
3,057 | 1,684 | ||||||
Total
|
$ | 44,279 | $ | 19,796 |
The
average interest rate return on cash and investments during the third quarter of
2010 was 1.2% compared to 1.5% during the same quarter of 2009. The
decrease 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 $35.5 million currency gain in the third quarter of 2010 was due
to the weakening of the U.S. Dollar compared to the Euro and other global
currencies. The weakening of the U.S. Dollar compared to the Taiwan
Dollar contributed an offsetting loss. The currency movement of the
Euro and Taiwan Dollar generate gains and losses due to the revaluation of Euro
denominated assets (cash and receivables) in Garmin Ltd. and Garmin Europe, and
also the revaluation of the U.S. Dollar denominated assets/liabilities (cash,
receivables and payables) in Garmin Corp. (Taiwan). During the third
quarter of 2010, the U.S. Dollar weakened 8.9% and 5.3% compared to the Euro and
the British Pound Sterling, respectively, resulting in a gain of $48.6
million. In addition, the U.S. Dollar weakened 2.1% against the
Taiwan Dollar, resulting in a $14.0 million loss. The remaining net
currency gain of $0.9 million related to other currencies and timing of
transactions.
The
majority of the $11.8 million currency gain in the third 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. During the third quarter of 2009,
the U.S. Dollar weakened 4.4% compared to the Euro resulting in a gain of $17.9
million. Offsetting this gain was a loss of $8.2 million due to the
U.S. Dollar weakening 1.3% against the Taiwan Dollar. The remaining
net currency gain of $2.1 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 by $110.2 million, to ($68.6) million for
the 13-week period ended September 25, 2010, from $41.5 million for the 13-week
period ended September 26, 2009. The significant decline was due to
the impact of one-time items booked in the current quarter. The one-time
items of ($114.6) million include release of uncertain tax position reserves
from 2006 to 2008 offset by a settlement for 2007 tax year in the US and Taiwan
surtax expense due to the release of reserves. Without one-time items, we
would have reported an effective tax rate of 22% for the 13-weeks ended
September 25, 2010 compared to 16% for the 13-weeks ended September 26,
2009. The increase in the adjusted effective tax rate as compared to the
same period in 2009 is largely due to an unfavorable mix of income among taxing
jurisdictions.
20
Net
Income
As a
result of the above, net income increased 30% for the 13-week period ended
September 25, 2010 to $279.6 million compared to $215.1 million for the 13-week
period ended September 26, 2009.
Comparison
of 39-weeks Ended September 25, 2010 and September 26, 2009
(Amounts
included in the following discussion are stated in thousands unless otherwise
indicated)
Net
Sales
39-weeks
ended September 25, 2010
|
39-weeks
ended September 26, 2009
|
Quarter
over Quarter
|
||||||||||||||||||||||
Net
Sales
|
% of
Revenues
|
Net
Sales
|
% of
Revenues
|
$
Change
|
%
Change
|
|||||||||||||||||||
Outdoor/Fitness
|
$ | 389,037 | 21 | % | $ | 320,187 | 17 | % | $ | 68,850 | 22 | % | ||||||||||||
Marine
|
161,710 | 9 | % | 143,641 | 8 | % | 18,069 | 13 | % | |||||||||||||||
Automotive/Mobile
|
1,110,040 | 60 | % | 1,242,011 | 66 | % | (131,971 | ) | -11 | % | ||||||||||||||
Aviation
|
191,409 | 10 | % | 181,218 | 9 | % | 10,191 | 6 | % | |||||||||||||||
Total
|
$ | 1,852,196 | 100 | % | $ | 1,887,057 | 100 | % | $ | (34,861 | ) |
-2
|
% |
Net sales
decreased 2% for the 39-week period ended September 25, 2010 when compared to
the year-ago period. The decrease occurred in automotive/mobile and was
partially offset by revenue growth in outdoor/fitness, marine and
aviation. The outdoor/fitness segment experienced the greatest increase at
22%. Automotive/mobile revenue remains the largest portion of our revenue
mix, but declined from 66% in the first three quarters of 2009 to 60% in the
first three quarters of 2010.
Total
unit sales were nearly flat at 9,953 in the first three quarters of 2010
compared to 9,997 in the same period of 2009. The flat unit sales
volume year-to-date in 2010 was attributable to increasing volumes in the
outdoor/fitness, marine and aviation segments offset by a decline in
automotive/mobile units due to increased saturation in the segment and competing
technologies.
Automotive/mobile
segment revenue declined 11% from the year-ago period, as the average selling
price and volumes declined 5%, respectively. Outdoor/fitness segment
revenue increased on the strength of recent product introductions and ongoing
global penetration. Marine revenues increased 13% due to product
introductions, industry recovery and market share gains. Aviation revenues
increased 6% as the industry has begun to recover from the weak macroeconomic
conditions of 2009.
Gross
Profit
39-weeks
ended September 25, 2010
|
39-weeks
ended September 26, 2009
|
Quarter
over Quarter
|
||||||||||||||||||||||
Gross
Profit
|
% of
Revenues
|
Gross
Profit
|
% of
Revenues
|
$
Change
|
%
Change
|
|||||||||||||||||||
Outdoor/Fitness
|
$ | 251,843 | 65 | % | $ | 204,526 | 64 | % | $ | 47,317 | 23 | % | ||||||||||||
Marine
|
101,103 | 63 | % | 83,078 | 58 | % | 18,025 | 22 | % | |||||||||||||||
Automotive/Mobile
|
|
479,381
|
|
|
|
43 | % |
|
542,910 | 44 | % |
|
(63,529 | ) |
-12
|
% | ||||||||
Aviation
|
134,254 | 70 | % | 126,837 | 70 | % | 7,417 | 6 | % | |||||||||||||||
Total
|
$ | 966,581 | 52 | % | $ | 957,351 | 51 | % | $ | 9,230 | 1 | % |
Gross profit dollars year-to-date in 2010 increased 1% while gross profit
margin percentage increased 150 basis points over the same period of the
previous year. Gross profit margins increased in all segments excluding
the automotive/mobile segment when compared to the same period in 2009.
Gross margins in 2010 were positively impacted by 230 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 decrease of 50 basis
points was driven by a 5% decrease in average selling price which was only
partially offset by a decline in per unit costs including the warranty
benefit. Total company gross margin of the automotive/mobile segment
declined to 50% of total gross margin from 57% in 2009. Gross profit
margin percentage for marine increased 470 basis points compared to 2009 due to
product mix shifting toward higher margin units. Gross profit dollars for
outdoor/fitness increased by 23% to $251.8 million due to strong revenue growth
in the segment.
21
Advertising
Expense
39-weeks
ended September 25, 2010
|
39-weeks
ended September 26, 2009
|
Quarter
over Quarter
|
||||||||||||||||||||||
Advertising
|
% of
Revenues
|
Advertising
|
% of
Revenues
|
$
Change
|
%
Change
|
|||||||||||||||||||
Outdoor/Fitness
|
$ | 18,163 | 5 | % | $ | 16,788 | 5 | % | $ | 1,375 | 8 | % | ||||||||||||
Marine
|
7,913 | 5 | % | 7,808 | 5 | % | 105 | 1 | % | |||||||||||||||
Automotive/Mobile
|
71,648 | 6 | % | 75,280 | 6 | % | (3,632 | ) | -5 | % | ||||||||||||||
Aviation
|
3,119 | 2 | % | 3,225 | 2 | % | (106 | ) | -3 | % | ||||||||||||||
Total
|
$ | 100,843 | 5 | % | $ | 103,101 | 5 | % | $ | (2,258 | ) | -2 | % |
Advertising
expense decreased 2% in absolute dollars and 10 basis points as a percentage of
revenues when compared with the year-ago period. As a percent of revenues,
advertising expenses were 5% in the first three quarters of both 2010 and
2009. The absolute dollar decrease occurred primarily in the
automotive/mobile segment due to reduced cooperative advertising paid to our
retail partners offset by mobile handset specific advertising. Offsetting
the decline was increased advertising for outdoor/fitness where we continue to
invest for growth and are seeing comparable increases in
revenues.
Selling,
General and Administrative Expenses
39-weeks
ended September 25, 2010
|
39-weeks
ended September 26, 2009
|
|||||||||||||||||||||||
Selling,
General &
|
|
Selling,
General &
|
|
Quarter
over Quarter
|
||||||||||||||||||||
Admin.
Expenses
|
% of
Revenues
|
Admin.
Expenses
|
% of
Revenues
|
$
Change
|
%
Change
|
|||||||||||||||||||
Outdoor/Fitness
|
$ | 43,318 | 11 | % | $ | 37,694 | 12 | % | $ | 5,624 | 15 | % | ||||||||||||
Marine
|
19,277 | 12 | % | 15,455 | 11 | % | 3,822 | 25 | % | |||||||||||||||
Automotive/Mobile
|
133,954 | 12 | % | 121,236 | 10 | % | 12,718 | 10 | % | |||||||||||||||
Aviation
|
11,830 | 6 | % | 19,076 | 11 | % | (7,246 | ) | -38 | % | ||||||||||||||
Total
|
$ | 208,379 | 11 | % | $ | 193,461 | 10 | % | $ | 14,918 | 8 | % |
Selling,
general and administrative expense increased in both absolute dollars and as a
percentage of revenues compared to the year-ago. As a percent of revenues,
selling, general and administrative expenses increased from 10% of revenues in
the first three quarters of 2009 to 11% of revenues in the same period 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. Aviation costs declined year-over-year due to a 2009 bad
debt accrual driven by cash collection risks associated with several of our
customers.
Research
and Development Expense
39-weeks
ended September 25, 2010
|
39-weeks
ended September 26, 2009
|
|||||||||||||||||||||||
Research
&
|
Research
&
|
Quarter
over Quarter
|
||||||||||||||||||||||
Development
|
% of
Revenues
|
Development
|
% of
Revenues
|
$
Change
|
%
Change
|
|||||||||||||||||||
Outdoor/Fitness
|
$ | 20,877 | 5 | % | $ | 17,693 | 6 | % | $ | 3,184 | 18 | % | ||||||||||||
Marine
|
17,219 | 11 | % | 16,119 | 11 | % | 1,100 | 7 | % | |||||||||||||||
Automotive/Mobile
|
101,662 | 9 | % | 75,024 | 6 | % | 26,638 | 36 | % | |||||||||||||||
Aviation
|
65,574 | 34 | % | 57,959 | 32 | % | 7,615 | 13 | % | |||||||||||||||
Total
|
$ | 205,332 | 11 | % | $ | 166,795 | 9 | % | $ | 38,537 | 23 | % |
Research and development expense
increased 23% due to ongoing development activities for new products, and the
addition of almost 450 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 $38.5
million primarily in the auto/mobile segment, when compared with the year-ago
period and increased 230 basis points as a percent of revenue as research and
development growth outpaced revenue growth.
22
Operating
Income
39-weeks
ended September 25, 2010
|
39-weeks
ended September 26, 2009
|
Quarter
over Quarter
|
||||||||||||||||||||||
Operating
Income
|
% of
Revenues
|
Operating
Income
|
% of
Revenues
|
$
Change
|
%
Change
|
|||||||||||||||||||
Outdoor/Fitness
|
$ | 169,485 | 44 | % | $ | 132,351 | 41 | % | $ | 37,134 | 28 | % | ||||||||||||
Marine
|
56,694 | 35 | % | 43,696 | 30 | % | 12,998 | 30 | % | |||||||||||||||
Automotive/Mobile
|
|
172,117 | 16 | % | 271,370 | 22 | % | (99,253 | ) |
-37
|
% | |||||||||||||
Aviation
|
53,731 | 28 | % | 46,577 | 26 | % | 7,154 | 15 | % | |||||||||||||||
Total
|
$ | 452,027 | 24 | % | $ | 493,994 | 26 | % | $ | (41,967 | ) |
-8
|
% |
Operating
income decreased 180 basis points as a percent of revenue and 8% in absolute
dollars when compared to the year-ago period as gross margin improvements and
reduced advertising expense were more than offset by declining revenues and
increased research and development expenses.
Other
Income (Expense)
39-weeks
ended
|
39-weeks
ended
|
|||||||
September
25, 2010
|
September
26, 2009
|
|||||||
Interest
Income
|
$ | 18,364 | $ | 16,646 | ||||
Foreign
Currency Gains/(Losses)
|
(54,614 | ) | 4,478 | |||||
Other
|
5,071 | 1,325 | ||||||
Total
|
$ | (31,179 | ) | $ | 22,449 |
The
average taxable equivalent interest rate return on invested cash during the
39-weeks ended September 25, 2010 was 1.3% compared to 1.5% during the same
period of 2009. The increase in interest income is attributable to
increasing cash balances partially offset by decreasing interest
rates.
The
majority of the $54.6 million currency loss in the 39-weeks ended September 25,
2010 was due to the strengthening of the U.S. Dollar compared to the Euro and
other global currencies. 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 Euro denominated assets (cash and receivables) in Garmin Ltd. and Garmin
Europe, and also the revaluation of the U.S. Dollar denominated
assets/liabilities (cash, receivables and payables) in Garmin Corp.
(Taiwan). During the 39-weeks ended September 25, 2010, the U.S.
Dollar strengthened 6.7% and 1.4%, compared to the Euro and the British
Pound Sterling, respectively, resulting in a loss of $37.1
million. In addition, the U.S. Dollar weakened 2.8% against the
Taiwan Dollar, resulting in a $19.7 million loss. The remaining net
currency gain of $2.2 million related to other currencies and timing of
transactions.
The
majority of the $4.5 million currency gain in the 39-weeks ended September 26,
2009 was due to the weakening of the U.S. Dollar compared to the Euro, the
British Pound Sterling and the Taiwan Dollar. During the 39-weeks
ended September 26, 2009, the U.S. Dollar weakened 4.4% and 8.4% compared to the
Euro and the British Pound Sterling, respectively, resulting in a gain of $17.2
million. A loss of $13.5 million resulted due to the U.S. Dollar
weakening 1.8% against the Taiwan Dollar. The remaining net currency
gain of $0.8 million related to other currencies and timing of
transactions.
Income
Tax Provision
Our
earnings before taxes decreased 19% when compared to the same period in 2009,
and our income tax expense decreased by $121.7 million, to $(30.8) million for
the 39-week period ended September 25, 2010, from $90.9 million for the 39-week
period ended September 26, 2009. The significant decline was due to
the impact of one-time items booked in the third quarter. The one-time
items of ($114.6) million include the release of uncertain tax position reserves
from 2006 to 2008 offset by a settlement for the 2007 tax year in the US and
Taiwan surtax expense due to the release of reserves. Without one-time
items, we would have reported an effective tax rate of 20% for the 39-weeks
weeks ended September 25, 2010 compared to 18.0% for the 39-weeks ended
September 26, 2009. The increase in the adjusted effective tax rate as
compared to the same period in 2009 is largely due to an unfavorable mix of
income among taxing jurisdictions.
23
Net
Income
As a
result of the above, net income increased 6% for the 39-week period ended
September 25, 2010 to $451.7 million compared to $425.5 million for the 39-week
period ended September 26, 2009.
Liquidity
and Capital Resources
Net cash
generated by operating activities was $586.2 million for the 39-week period
ended September 25, 2010 compared to $848.6 million for the 39-week period ended
September 26, 2009. Primary drivers of the cash generation included $451.7
million of net income with non-cash adjustments for depreciation/amortization of
$79.5 million, foreign currency unrealized losses of $38.6 million and stock
compensation expense of $29.4 million, $351.2 million related to accounts
receivable collections on seasonally higher sales in the fourth quarter of 2009
and $65.6 million of sales recorded but deferred as required by our revenue
recognition policies. This cash generation was partially offset by
uses of cash including a $261.1 million reduction in other current and
noncurrent liabilities related primarily to the timing of royalty payments and
the $114.6 million reversal of tax reserves and a $196.3 million increase in
inventories following a low inventory level exiting 2009.
Cash flow
provided by investing activities during the 39-week period ending September 25,
2010 was $91.4 million. Cash flow provided by investing activities
principally related to the net redemption of $121.2 million of fixed income
securities associated with the investment of our on-hand cash balances offset by
$23.0 million in capital expenditures primarily related to business operation
and maintenance activities, and the purchase of intangible assets for $7.9
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 39-weeks ended September 25, 2010 was 1.3%.
Net cash
used in financing activities during the period was $513.7 million resulting from
the use of $299.1 million for payment of our declared dividend and $223.4
million for stock repurchased under our stock repurchase plan, offset by $8.8
million from the issuance of common stock related to our Company stock option
plan and stock based compensation tax benefits.
In the
final quarter 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 $42.0 million over the next 5 years.
Off-Balance
Sheet Arrangements
We do not have any off-balance sheet
arrangements.
24
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 September 25, 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.
25
Item
4. Controls and Procedures
(a)
Evaluation of disclosure
controls and procedures. The Company maintains a system of disclosure
controls and procedures that are designed to provide reasonable assurance that
information, which is required to be timely disclosed, is accumulated and
communicated to management in a timely fashion. A control system, no
matter how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are met. As of
September 25, 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
September 25, 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 September 25, 2010 that has materially affected, or is
reasonably likely to materially affect, the Company’s internal control over
financial reporting.
26
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. A hearing was held from September 13-21,
2010. The parties completed their post-hearing briefing on October
14, 2010 and await the Administrative Law Judge’s initial determination by
December 16, 2010. 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.
27
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. On October 14, 2010, the court
granted ARM Ltd.’s renewed motion to transfer. 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.
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. On October 6,
2010, the defendants filed a Motion to Transfer Venue to the Western District of
Texas and the parties await the court’s ruling on this
motion. Although there can be no assurance that an unfavorable
outcome of this litigation would not have a material adverse effect on our
operating results, liquidity or financial position, Garmin believes the claims
in this lawsuit are without merit and intends to vigorously defend this
action.
Lochner
Technologies, LLC. v. Lenovo (United States) Inc., General Dynamics Corporation,
Hitachi America, Ltd., NCR Corporation, HP Enterprise Services, LLC, Garmin
International, Inc., Ingram Micro Inc., Synnex Corporation, and Tech Data
Corporation.
28
On October 12, 2010, Lochner
Technologies, LLC. filed suit in the United States District Court for the
Eastern District of Texas against eight companies, including Garmin
International, Inc. alleging infringement of U.S. Patent No. 7,035,598 (“the
’598 patent”). Garmin believes that each claim of the ’598 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
There are
many risks and uncertainties that can affect our future business, financial
performance or share price. In addition to the other information set
forth in this report, you should carefully consider the factors discussed in
Part I, “Item 1A. Risk Factors” in our Quarterly Report on Form 10-Q for the
fiscal quarter ended June 26, 2010. There have been no material
changes during the 13-week period ended September 25, 2010 in the risks
described in our Quarterly Report on Form 10-Q. These risks, however,
are not the only risks facing our Company. Additional risks and uncertainties
not currently known to us or that we currently deem to be immaterial also may
materially adversely affect our business, financial condition and/or operating
results.
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, 2011. The following
table lists the Company’s share purchases during the third quarter of fiscal
2010:
Period
|
Total # of
Shares
Purchased
|
Average Price
Paid
Per Share
|
Total Number of Shares
Purchased as Part of
Publicly
Announced
Plans or
Programs
|
Maximum Number of Shares
(or approx. Dollar
Value of Shares
in Thousands) That May Yet Be
Purchased Under the Plans or Programs
|
||||||||||||
13-weeks
ended September 25, 2010
|
4,281,539 | $ | 28.86 | 4,281,539 | $ | 76,851 | ||||||||||
Total
|
4,281,539 | $ | 28.86 | 4,281,539 | $ | 76,851 |
Item
3. Defaults Upon Senior Securities
None
Item
5. Other Information
Not
applicable
29
Item
6. Exhibits
Exhibit
31.1 Certification
of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a) or
15d-14(a).
Exhibit
31.2 Certification
of Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a) or
15d-14(a).
Exhibit
32.1 Certification
of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit
32.2 Certification
of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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
|
30
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Company has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
GARMIN LTD. | |||
By
|
/s/ Kevin Rauckman
|
||
Kevin
Rauckman
|
|||
Chief
Financial Officer
|
|||
(Principal
Financial Officer and
|
|||
Principal
Accounting Officer)
|
Dated: November
3, 2010
31
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
|
32