Attached files
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EXCEL - IDEA: XBRL DOCUMENT - GARMIN LTD | Financial_Report.xls |
EX-31.1 - GARMIN LTD | v164317_ex31-1.htm |
EX-32.1 - GARMIN LTD | v164317_ex32-1.htm |
EX-32.2 - GARMIN LTD | v164317_ex32-2.htm |
EX-31.2 - GARMIN LTD | v164317_ex31-2.htm |
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 26,
2009
|
or
¨
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the transition period from
to
|
Commission
file number 0-31983
GARMIN
LTD.
(Exact
name of Company as specified in its charter)
Cayman
Islands
(State
or other jurisdiction
of
incorporation or organization)
|
98-0229227
(I.R.S.
Employer identification no.)
|
P.O.
Box 10670, Grand Cayman KY1-1006
Suite
3206B, 45 Market Street, Gardenia Court
Camana
Bay, Cayman Islands
(Address
of principal executive offices)
|
N/A
(Zip
Code)
|
Company's
telephone number, including area code: (345) 640-9050
(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 October 30,
2009
Common
Shares, $.005 par value: 200,669,045
Garmin
Ltd.
Form
10-Q
Quarter
Ended September 26, 2009
Table
of Contents
|
Page
|
|
Part
I - Financial Information
|
||
Item
1.
|
Condensed
Consolidated Financial Statements
|
3
|
Introductory
Comments
|
3
|
|
Condensed
Consolidated Balance Sheets at September 26, 2009 (Unaudited) and December
27, 2008
|
4
|
|
Condensed
Consolidated Statements of Income for the 13-weeks and 39-weeks ended
September 26, 2009 and September 27, 2008 (Unaudited)
|
5
|
|
Condensed
Consolidated Statements of Cash Flows for 39-weeks ended September 26,
2009 and September 27, 2008 (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
|
24
|
Item
4.
|
Controls
and Procedures
|
25
|
Part
II - Other Information
|
||
Item
1.
|
Legal
Proceedings
|
26
|
Item
1A.
|
Risk
Factors
|
27
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
28
|
|
||
Item
3.
|
Defaults
Upon Senior Securities
|
28
|
Item
4.
|
Submission
of Matters to a Vote of Securities Holders
|
28
|
Item
5.
|
Other
Information
|
28
|
Item
6.
|
Exhibits
|
29
|
Signature
Page
|
30
|
|
Index
to Exhibits
|
31
|
2
Garmin
Ltd.
Form
10-Q
Quarter
Ended September 26, 2009
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 27,
2008. 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 26, 2009 are not necessarily
indicative of the results to be expected for the full year 2009.
3
Garmin
Ltd. And Subsidiaries
Condensed
Consolidated Balance Sheets
(In
thousands, except share information)
(Unaudited)
|
||||||||
September
26,
|
December
27,
|
|||||||
2009
|
2008
|
|||||||
Assets
|
||||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$ | 1,011,763 | $ | 696,335 | ||||
Marketable
securities
|
17,643 | 12,886 | ||||||
Accounts
receivable, net
|
573,847 | 741,321 | ||||||
Inventories,
net
|
373,290 | 425,312 | ||||||
Deferred
income taxes
|
52,824 | 49,825 | ||||||
Prepaid
expenses and other current assets
|
49,569 | 58,746 | ||||||
Total
current assets
|
2,078,936 | 1,984,425 | ||||||
Property
and equipment, net
|
444,172 | 445,252 | ||||||
Marketable
securities
|
770,444 | 262,009 | ||||||
Restricted
cash
|
2,044 | 1,941 | ||||||
Licensing
agreements, net
|
8,885 | 16,013 | ||||||
Other
intangible assets, net
|
212,070 | 214,941 | ||||||
Total
assets
|
$ | 3,516,551 | $ | 2,924,581 | ||||
Liabilities
and Stockholders' Equity
|
||||||||
Current
liabilities:
|
||||||||
Accounts
payable
|
$ | 185,668 | $ | 160,094 | ||||
Salaries
and benefits payable
|
32,787 | 34,241 | ||||||
Accrued
warranty costs
|
83,081 | 87,408 | ||||||
Accrued
sales program costs
|
56,318 | 90,337 | ||||||
Deferred
revenue
|
48,621 | 680 | ||||||
Other
accrued expenses
|
141,021 | 86,341 | ||||||
Income
taxes payable
|
14,102 | 20,075 | ||||||
Dividend
payable
|
150,447 | - | ||||||
Total
current liabilities
|
712,045 | 479,176 | ||||||
Deferred
income taxes
|
8,447 | 4,070 | ||||||
Non-current
income taxes
|
239,419 | 214,366 | ||||||
Other
liabilities
|
1,242 | 1,115 | ||||||
Stockholders'
equity:
|
||||||||
Common
stock, $0.005 par value, 1,000,000,000 shares authorized:
|
||||||||
Issued
and outstanding shares - 200,596,000 as of
|
||||||||
September
26, 2009 and 200,363,000 as of
|
||||||||
December
27, 2008
|
1,002 | 1,002 | ||||||
Additional
paid-in capital
|
35,428 | - | ||||||
Retained
earnings
|
2,537,598 | 2,262,503 | ||||||
Accumulated
other comprehensive loss
|
(18,630 | ) | (37,651 | ) | ||||
Total
stockholders' equity
|
2,555,398 | 2,225,854 | ||||||
Total
liabilities and stockholders' equity
|
$ | 3,516,551 | $ | 2,924,581 |
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
|
|||||||||||||||
September
26,
|
September
27,
|
September
26,
|
September
27,
|
|||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Net
sales
|
$ | 781,254 | $ | 870,355 | $ | 1,887,057 | $ | 2,445,830 | ||||||||
Cost of
goods sold
|
371,512 | 484,716 | 929,706 | 1,322,948 | ||||||||||||
Gross
profit
|
409,742 | 385,639 | 957,351 | 1,122,882 | ||||||||||||
Advertising
expense
|
45,853 | 50,742 | 103,101 | 147,199 | ||||||||||||
Selling,
general and administrative expense
|
71,499 | 67,785 | 193,461 | 194,181 | ||||||||||||
Research
and development expense
|
55,507 | 52,749 | 166,795 | 155,904 | ||||||||||||
Total
operating expense
|
172,859 | 171,276 | 463,357 | 497,284 | ||||||||||||
Operating
income
|
236,883 | 214,363 | 493,994 | 625,598 | ||||||||||||
Interest
income
|
6,360 | 8,435 | 16,646 | 26,563 | ||||||||||||
Foreign
currency
|
11,752 | (12,744 | ) | 4,478 | 4,818 | |||||||||||
Gain
on sale of equity securities
|
- | - | - | 50,949 | ||||||||||||
Other
|
1,684 | 1,358 | 1,325 | 2,091 | ||||||||||||
Total
other income (expense)
|
19,796 | (2,951 | ) | 22,449 | 84,421 | |||||||||||
Income
before income taxes
|
256,679 | 211,412 | 516,443 | 710,019 | ||||||||||||
Income
tax provision
|
41,546 | 40,168 | 90,901 | 134,904 | ||||||||||||
Net
income
|
$ | 215,133 | $ | 171,244 | $ | 425,542 | $ | 575,115 | ||||||||
Net
income per share:
|
||||||||||||||||
Basic
|
$ | 1.07 | $ | 0.83 | $ | 2.12 | $ | 2.71 | ||||||||
Diluted
|
$ | 1.07 | $ | 0.82 | $ | 2.12 | $ | 2.68 | ||||||||
Weighted
average common
|
||||||||||||||||
shares
outstanding:
|
||||||||||||||||
Basic
|
200,546 | 206,634 | 200,398 | 212,299 | ||||||||||||
Diluted
|
201,599 | 208,107 | 201,038 | 214,252 | ||||||||||||
Cash
dividends declared per common share
|
$ | 0.75 | $ | 0.75 | $ | 0.75 | $ | 0.75 | ||||||||
See
accompanying notes.
|
5
Garmin
Ltd. And Subsidiaries
Condensed
Consolidated Statements of Cash Flows (Unaudited)
(In
thousands)
39-Weeks
Ended
|
||||||||
September
26,
|
September
27,
|
|||||||
2009
|
2008
|
|||||||
Operating
Activities:
|
||||||||
Net
income
|
$ | 425,542 | $ | 575,115 | ||||
Adjustments
to reconcile net income to net cash
|
||||||||
provided
by operating activities:
|
||||||||
Depreciation
|
39,945 | 33,797 | ||||||
Amortization
|
25,945 | 20,823 | ||||||
Gain
on sale of property and equipment
|
(6 | ) | (243 | ) | ||||
Provision
for doubtful accounts
|
3,191 | 4,289 | ||||||
Deferred
income taxes
|
(1,083 | ) | 28,623 | |||||
Foreign
currency transaction gains/losses
|
(26,936 | ) | 11,266 | |||||
Provision
for obsolete and slow moving inventories
|
17,309 | 29,439 | ||||||
Stock
compensation expense
|
31,502 | 28,815 | ||||||
Realized
gains on marketable securities
|
110 | (50,884 | ) | |||||
Changes
in operating assets and liabilities, net of acquisitions:
|
||||||||
Accounts
receivable
|
178,281 | 302,012 | ||||||
Inventories
|
43,340 | (196,471 | ) | |||||
Other
current assets
|
(22,827 | ) | (977 | ) | ||||
Accounts
payable
|
22,618 | (175,715 | ) | |||||
Other
current and non-current liabilities
|
87,216 | (95,588 | ) | |||||
Income
taxes payable
|
28,198 | 1,593 | ||||||
Licensing
agreements
|
(3,790 | ) | (3,191 | ) | ||||
Net
cash provided by operating activities
|
848,555 | 512,703 | ||||||
Investing
activities:
|
||||||||
Purchases
of property and equipment
|
(35,441 | ) | (110,480 | ) | ||||
Proceeds
from sale of property and equipment
|
(7 | ) | 8 | |||||
Purchase
of intangible assets
|
(7,461 | ) | (4,061 | ) | ||||
Purchase
of marketable securities
|
(626,155 | ) | (366,336 | ) | ||||
Redemption
of marketable securities
|
110,751 | 444,102 | ||||||
Change
in restricted cash
|
(103 | ) | 106 | |||||
Acquisitions,
net of cash acquired
|
- | (50,497 | ) | |||||
Net
cash used in investing activities
|
(558,416 | ) | (87,158 | ) | ||||
Financing
activities:
|
||||||||
Proceeds
from issuance of common stock from
|
||||||||
exercise
of stock options
|
1,688 | 2,559 | ||||||
Proceeds
from issuance of common stock from
|
||||||||
stock
purchase plan
|
3,712 | 5,144 | ||||||
Stock
repurchase
|
(1,908 | ) | (624,688 | ) | ||||
Tax
benefit related to stock option exercise
|
455 | 2,309 | ||||||
Net
cash provided by(used in) financing activities
|
3,947 | (614,676 | ) | |||||
Effect
of exchange rate changes on cash and cash equivalents
|
21,342 | 2,982 | ||||||
Net
increase(decrease) in cash and cash equivalents
|
315,428 | (186,149 | ) | |||||
Cash
and cash equivalents at beginning of period
|
696,335 | 707,689 | ||||||
Cash
and cash equivalents at end of period
|
$ | 1,011,763 | $ | 521,540 |
See
accompanying notes.
6
Garmin
Ltd. and Subsidiaries
Notes
to Condensed Consolidated Financial Statements (Unaudited)
September
26, 2009
(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 26, 2009 are not necessarily
indicative of the results that may be expected for the year ending December 26,
2009.
The
condensed consolidated balance sheet at December 27, 2008 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 27,
2008.
The
Company’s fiscal year is based on a 52-53 week period ending on the last
Saturday of the calendar year. Therefore the financial results of
certain fiscal years, and the associated 14-week quarters, will not be exactly
comparable to the prior and subsequent 52-week fiscal years and the associated
quarters having only 13-weeks. The quarters ended September 26, 2009
and September 27, 2008 both contain operating results for 13-weeks for both
year-to-date periods.
2.
|
Inventories
|
The
components of inventories consist of the following:
September
26, 2009
|
December
27, 2008
|
|||||||
Raw
Materials
|
$ | 107,121 | $ | 151,132 | ||||
Work-in-process
|
39,517 | 28,759 | ||||||
Finished
goods
|
245,353 | 268,625 | ||||||
Inventory
Reserves
|
(18,701 | ) | (23,204 | ) | ||||
Inventory,
net of reserves
|
$ | 373,290 | $ | 425,312 |
3.
|
Share
Repurchase Plan
|
The Board
of Directors approved a share repurchase program on October 22, 2008,
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, 2009. As of September 26,
2009, the Company had repurchased 117,600 shares using cash of $2,000 with all
purchases made in the first quarter. There remains approximately
$256,000 available for repurchase under this authorization given the $42,000 of
purchases in fiscal 2008.
7
4.
|
Earnings
Per Share
|
The
following table sets forth the computation of basic and diluted net income per
share:
13-Weeks
Ended
|
||||||||
September
26,
|
September
27,
|
|||||||
2009
|
2008
|
|||||||
Numerator:
|
||||||||
Numerator
for basic and diluted net income
|
||||||||
per
share - net income
|
$ | 215,133 | $ | 171,244 | ||||
Denominator:
|
||||||||
Denominator
for basic net income per share –
|
||||||||
weighted-average
common shares
|
200,546 | 206,634 | ||||||
Effect
of dilutive securities –
|
||||||||
employee
stock options
|
1,053 | 1,473 | ||||||
Denominator
for diluted net income per share –
|
||||||||
adjusted
weighted-average common shares
|
201,599 | 208,107 | ||||||
Basic
net income per share
|
$ | 1.07 | $ | 0.83 | ||||
Diluted
net income per share
|
$ | 1.07 | $ | 0.82 |
39-Weeks
Ended
|
||||||||
September
26,
|
September
27,
|
|||||||
2009
|
2008
|
|||||||
Numerator:
|
||||||||
Numerator
for basic and diluted net income
|
||||||||
per
share - net income
|
$ | 425,542 | $ | 575,115 | ||||
Denominator:
|
||||||||
Denominator
for basic net income per share –
|
||||||||
weighted-average
common shares
|
200,398 | 212,299 | ||||||
Effect
of dilutive securities –
|
||||||||
employee
stock options
|
640 | 1,953 | ||||||
Denominator
for diluted net income per share –
|
||||||||
adjusted
weighted-average common shares
|
201,038 | 214,252 | ||||||
Basic
net income per share
|
$ | 2.12 | $ | 2.71 | ||||
Diluted
net income per share
|
$ | 2.12 | $ | 2.68 |
There
were 7,097,790 and 6,497,596 anti-dilutive options for the 13-week periods ended
on September 26, 2009 and September 27, 2008, respectively.
There
were 7,853,062 and 5,655,282 anti-dilutive options for the 39-week periods ended
on September 26, 2009 and September 27, 2008, respectively.
8
There
were 91,501 and 116,221 shares issued as a result of exercises of stock
appreciation rights and stock options for the 13-week and 39-week periods ended
on September 26, 2009.
5.
|
Comprehensive
Income
|
Comprehensive
income is comprised of the following:
13-Weeks
Ended
|
||||||||
September
26,
|
September
27,
|
|||||||
2009
|
2008
|
|||||||
Net
income
|
$ | 215,133 | $ | 171,244 | ||||
Translation
adjustment
|
12,135 | (46,610 | ) | |||||
Change
in fair value of available-for-sale
|
||||||||
marketable
securities, net of deferred taxes
|
4,255 | (4,144 | ) | |||||
Comprehensive
income
|
$ | 231,523 | $ | 120,490 |
39-Weeks
Ended
|
||||||||
September
26,
|
September
27,
|
|||||||
2009
|
2008
|
|||||||
Net
income
|
$ | 425,542 | $ | 575,115 | ||||
Translation
adjustment
|
19,608 | 14,394 | ||||||
Change
in fair value of available-for-sale
|
||||||||
marketable
securities, net of deferred taxes
|
(587 | ) | (61,409 | ) | ||||
Comprehensive
income
|
$ | 444,563 | $ | 528,100 |
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/
|
Auto/
|
|||||||||||||||||||
Fitness
|
Marine
|
Mobile
|
Aviation
|
Total
|
||||||||||||||||
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 | ||||||||||
13-Weeks
Ended September 27, 2008
|
||||||||||||||||||||
Net
sales
|
$ | 118,614 | $ | 44,048 | $ | 626,506 | $ | 81,187 | $ | 870,355 | ||||||||||
Operating
income
|
$ | 52,136 | $ | 10,606 | $ | 124,359 | $ | 27,262 | $ | 214,363 | ||||||||||
Income
before taxes
|
$ | 50,365 | $ | 10,132 | $ | 124,608 | $ | 26,307 | $ | 211,412 | ||||||||||
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 | ||||||||||
39-Weeks
Ended September 27, 2008
|
||||||||||||||||||||
Net
sales
|
$ | 308,255 | $ | 171,232 | $ | 1,710,248 | $ | 256,095 | $ | 2,445,830 | ||||||||||
Operating
income
|
$ | 116,892 | $ | 52,510 | $ | 361,190 | $ | 95,006 | $ | 625,598 | ||||||||||
Income
before taxes
|
$ | 126,115 | $ | 57,370 | $ | 428,767 | $ | 97,767 | $ | 710,019 |
Allocation
of certain research and development expenses, and selling, general, and
administrative expenses are made to each segment on a percent of revenue
basis.
9
Net sales
and property and equipment, net by geographic area are as follows as of and for
the 39-week periods ended September 26, 2009 and September 27,
2008:
|
Americas
|
Asia
|
Europe
|
Total
|
||||||||||||
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 | ||||||||
|
||||||||||||||||
September
27, 2008
|
||||||||||||||||
Net
sales to external customers
|
$ | 1,572,042 | $ | 108,962 | $ | 764,826 | $ | 2,445,830 | ||||||||
Property
and equipment, net
|
$ | 220,246 | $ | 176,194 | $ | 56,979 | $ | 453,419 |
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
condensed consolidated balance sheets. The following
reconciliation provides an illustration of changes in the aggregate warranty
reserve.
13-Weeks
Ended
|
||||||||
September
26,
|
September
27,
|
|||||||
2009
|
2008
|
|||||||
Balance
- beginning of the period
|
$ | 79,968 | $ | 83,918 | ||||
Accrual
for products sold
|
||||||||
during
the period
|
49,981 | 21,659 | ||||||
Expenditures
|
(46,868 | ) | (24,286 | ) | ||||
Balance
- end of the period
|
$ | 83,081 | $ | 81,291 |
39-Weeks
Ended
|
||||||||
September
26,
|
September
27,
|
|||||||
2009
|
2008
|
|||||||
Balance
- beginning of the period
|
$ | 87,408 | $ | 71,636 | ||||
Accrual
for products sold
|
||||||||
during
the period
|
104,671 | 94,646 | ||||||
Expenditures
|
(108,998 | ) | (84,991 | ) | ||||
Balance
- end of the period
|
$ | 83,081 | $ | 81,291 |
8.
|
Commitments
|
The
Company is 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 $72,800 over the next 5 years.
10
9. Income
Taxes
The
Company’s earnings before taxes increased 21.4% during the third quarter of 2009
when compared to the same quarter in 2008, and income tax expense increased by
3.4%, to $41,546, for the 13-week period ended September 26, 2009, from $40,168
for the 13-week period ended September 27, 2008. The income tax expense increase
is due to increased earnings before taxes offset by a decline in the Company’s
tax rate. The effective tax rate was 16.2% and 17.6% for the 13-weeks and
39-weeks ended September 26, 2009 compared to 19.0% for both the 13-weeks and
39-weeks ended September 27, 2008. The decline in the tax rate
for 2009 is related to the release of 2005 income tax reserves for which the
statute of limitations has expired.
The
Company 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 the parent company based on its intellectual property
rights ownership of 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,
or
|
Unadjusted
quoted prices for identical or similar assets
Level
3
|
Unobservable
inputs for the asset or liability
|
The Company endeavors to utilize the
best available information in measuring fair value. Financial assets
and liabilities are classified in their entirety based on the lowest level of
input that is significant to the fair value measurement.
For fair value measurements using
significant unobservable inputs, an independent third party provided the
valuation. The inputs used in the valuations used the following
methodology. 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 September 26, 2009
|
||||||||||||||||
Description
|
Total
|
Level 1
|
Level 2
|
Level 3
|
||||||||||||
Available
for- sale securities
|
$ | 721,534 | $ | 721,534 | $ | - | $ | - | ||||||||
Failed
Auction rate securities
|
$ | 66,553 | $ | 66,553 | ||||||||||||
Total
|
$ | 788,087 | $ | 721,534 | $ | - | $ | 66,553 |
11
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
|
39-Weeks
Ended
|
|||||||
September
26, 2009
|
September
26, 2009
|
|||||||
Beginning
balance of auction rate securities
|
$ | 67,829 | $ | 71,303 | ||||
Total
unrealized losses included in other
|
||||||||
comprehensive
income
|
(1,276 | ) | (4,750 | ) | ||||
Purchases
in and/or out of Level 3
|
- | - | ||||||
Transfers
in and/or out of Level 3
|
- | - | ||||||
Ending
balance of auction rate securities
|
$ | 66,553 | $ | 66,553 |
The following is a summary of the
company’s marketable securities classified as available-for-sale securities at
September 26, 2009:
Gross
|
Other
Than
|
Estimated
Fair
|
||||||||||||||||||
Gross
|
Unrealized
|
Temporary
|
Value
(Net Carrying
|
|||||||||||||||||
Amortized Cost
|
Unrealized Gains
|
Losses
|
Impairment
|
Amount)
|
||||||||||||||||
Mortgage-backed
securities
|
$ | 450,788 | $ | 3,543 | $ | (1,912 | ) | $ |
-
|
$ | 452,419 | |||||||||
Auction
Rate Securities
|
92,100 |
-
|
(25,547 | ) |
-
|
66,553 | ||||||||||||||
Obligations
of states and political subdivisions
|
210,034 | 1,138 | (114 | ) |
-
|
211,058 | ||||||||||||||
U.S.
corporate bonds
|
35,285 | 789 | (962 | ) | (1,274 | ) | 33,837 | |||||||||||||
Other
|
23,126 | 1,259 | (166 | ) |
-
|
24,219 | ||||||||||||||
Total
|
$ | 811,333 | $ | 6,729 | $ | (28,701 | ) | $ | (1,274 | ) | $ | 788,087 |
The
following is a summary of the company’s marketable securities classified as
available-for-sale securities at December 27, 2008:
Gross
|
Other
Than
|
Estimated
Fair
|
||||||||||||||||||
Gross
|
Unrealized
|
Temporary
|
Value
(Net Carrying
|
|||||||||||||||||
Amortized Cost
|
Unrealized Gains
|
Losses
|
Impairment
|
Amount)
|
||||||||||||||||
Mortgage-backed
securities
|
$ | 137,854 | $ | 1,184 | $ | (140 | ) | $ | - | $ | 138,898 | |||||||||
Auction
Rate Securities
|
92,850 | - | (21,547 | ) | - | 71,303 | ||||||||||||||
Obligations
of states and political subdivisions
|
40,336 | 960 | (12 | ) | - | 41,284 | ||||||||||||||
U.S.
corporate bonds
|
16,545 | 200 | (2,707 | ) | - | 14,038 | ||||||||||||||
Other
|
9,502 | 79 | (209 | ) | - | 9,372 | ||||||||||||||
Total
|
$ | 297,087 | $ | 2,423 | $ | (24,615 | ) | $ | - | $ | 274,895 |
The cost of securities sold is based on
the specific identification method.
The
unrealized losses on the Company’s investment in 2008 and year-to-date 2009 were
caused primarily by changes in interest rates, specifically, widening credit
spreads. The Company’s investment policy requires investments to be
rated A or better with the objective of minimizing the potential risk of
principal loss. Therefore, the Company considers the declines to be
temporary in nature. Fair values were determined for each individual
security in the investment portfolio. When evaluating the investments
for other-than-temporary impairment, the Company review factors such as the
length of time and extent to which fair value has been below cost basis, the
financial condition of the issuer, and the Company’s ability and intent to hold
the investment for a period of time, which may be sufficient for anticipated
recovery in market value. During 2008 and year-to-date 2009, the
Company did not record any material impairment charges on its outstanding
securities.
12
The amortized cost and estimated fair
value of marketable securities at September 26, 2009, 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
|
$ | 28,459 | $ | 29,763 | ||||
Due
after one year through five years
|
280,383 | 256,171 | ||||||
Due
after five years through ten years
|
297,331 | 297,497 | ||||||
Due
after ten years
|
205,160 | 204,656 | ||||||
$ | 811,333 | $ | 788,087 |
For certain of the Company’s financial
instruments, including accounts receivable, accounts payable and other accrued
liabilities, the carrying amounts approximate fair value due to their short
maturities.
11. Recently
Issued Accounting Pronouncements
In May
2008, the FASB issued EITF 07-1, Accounting for Collaborative Arrangements. EITF
Issue 07-1 requires entities entering into collaborative arrangements in which
two or more parties actively participate in a joint operating activity and are
exposed to significant risks and rewards that depend on the commercial success
of the joint operating activity to make specific disclosures regarding that
arrangement. Garmin announced a strategic alliance with ASUSTeK Computer Inc. on
February 4, 2009 that will leverage the companies’ navigation and mobile
telephony expertise to design, manufacture and distribute co-branded
location-centric mobile phones. The mobile phone product line will be known as
the Garmin‐Asus nüvifone series. The Company has adopted EITF Issue 07-1 and the
strategic alliance did not have a material impact on the Company’s financial
condition or operating results in the third quarter of 2009.
In
January 2009, the FASB released Proposed Staff Position SFAS 107-b and
Accounting Principles Board (APB) Opinion No. 28-a, “Interim Disclosures about
Fair Value of Financial Instruments” (SFAS 107-b and APB 28-a). This
proposal amends FASB Statement No. 107, “Disclosures about Fair Values of
Financial Instruments,” to require disclosures about fair value of financial
instruments in interim financial statements as well as in annual financial
statements. The proposal also amends APB Opinion No. 28, “Interim
Financial Reporting,” to require those disclosures in all interim financial
statements. This proposal is effective for interim periods ending
after June 15, 2009, but early adoption is permitted for interim periods ending
after March 15, 2009. The Company has adopted SFAS 107-b and APB 28-a
and the guidance did not have a material impact on the Company’s financial
condition or operating results in the third quarter of 2009.
In April
2009, the FASB issued FSP No. FAS 157-4 (“FSP FAS 157-4”), “Determining Fair
Value When the Volume and Level of Activity for the Asset or Liability has
Significantly Decreased and Identifying Transactions That Are Not Orderly” and
FSP No. FAS 115-2 and FAS 124-2 (“FSP FAS 115-2”), “Recognition and Presentation
of Other-Than-Temporary Impairments”. These two FSPs were issued to
provide additional guidance about (1) measuring the fair value of financial
instruments when the markets become inactive and quoted prices may reflect
distressed transactions, and (2) recording impairment charges on investments in
debt instruments. Additionally, the FASB issued FSP No. FAS 107-1 and
APB 28-1 (“FSP FAS 107-1”), “Interim Disclosures about Fair Value of Financial
Instruments,” to require disclosures of fair value of certain financial
instruments in interim financial statements. We do not anticipate the
adoption of these FSPs will materially impact the Company. These FSPs
are effective for financial statements issued for interim and annual reporting
periods ending after June 15, 2009. The Company has adopted FSP FAS
157-4 and the guidance did not have a material impact on the Company’s financial
condition or operating results in the third quarter of 2009.
In May
2009, the FASB issued SFAS No. 165, “Subsequent Events” (“SFAS
165”). SFAS 165 establishes general standards of accounting for and
disclosure of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued. We do
not anticipate the adoption of SFAS 165 will materially impact the
Company. SFAS 165 is effective for interim or annual financial
periods ending after June 15, 2009. The Company adopted the
provisions of SFAS 165 for the quarter ended June 27, 2009. The
adoption of this provision did not have a material effect on our financial
statements.
13
In June
2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards
CodificationTM and the Hierarchy of Generally Accepted Accounting Principles a
replacement of FASB Statement No. 162” (“SFAS 168”). SFAS 168
provides for the FASB Accounting Standards CodificationTM (the “ASC”) to become
the single official source of authoritative, nongovernmental U.S. generally
accepted accounting principles (GAAP). The Codification did not
change GAAP but reorganizes the literature. SFAS 168 is effective for
interim and annual periods ending after September 15, 2009.
In
October 2009, the FASB issued Accounting Standard Update No. 2009-13, Revenue
Recognition (Topic 605): Multiple-Deliverable Revenue
Arrangements. This guidance modifies the fair value requirements of
ASC subtopic 605-25 Revenue Recognition-Multiple Element Arrangements by
allowing the use of the “best estimate of selling price” in addition to Vendor
Specific Objective Evidence (“VSOE”) and VOE (now referred to as third-party
evidence “TPE”) for determining the selling price of a deliverable. A vendor is
now required to use its best estimate of the selling price when VSOE or TPE of
the selling price cannot be determined. In addition, the residual method of
allocating arrangement consideration is no longer permitted. The amendments
included in this update will be effective prospectively for revenue arrangements
entered into or materially modified in fiscal years beginning on or after June
15, 2010. Early adoption is permitted. The Company is
investigating the impact of adopting Accounting Standard Update No. 2009-13 on
its consolidated financial statements.
In
October 2009, the FASB issued Accounting Standard Update No. 2009-14, Software
(Topic 985): Certain Revenue Arrangements That Include Software
Elements. This guidance modifies the scope of ASC subtopic
965-605 Software-Revenue Recognition to exclude from its requirements
(a) non-software components of tangible products and (b) software
components of tangible products that are sold, licensed, or leased with tangible
products when the software components and non-software components of the
tangible product function together to deliver the tangible product’s essential
functionality. The amendments included in this update will be
effective prospectively for revenue arrangements entered into or materially
modified in fiscal years beginning on or after June 15, 2010. Early
adoption is permitted. The Company is investigating the impact of
adopting Accounting Standard Update No. 2009-14 on its consolidated financial
statements.
12. Subsequent
Events
The Company evaluated subsequent events
through the time of filing this Quarterly Report on Form 10-Q on November 4,
2009 and had none to report.
14
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 27, 2008. 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 27, 2008.
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.
15
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 26, 2009
|
September 27, 2008
|
|||||||
Net
sales
|
100.0 | % | 100.0 | % | ||||
Cost
of goods sold
|
47.6 | % | 55.7 | % | ||||
Gross
profit
|
52.4 | % | 44.3 | % | ||||
Advertising
|
5.9 | % | 5.8 | % | ||||
Selling,
general and administrative
|
9.1 | % | 7.8 | % | ||||
Research
and development
|
7.1 | % | 6.1 | % | ||||
Total
operating expenses
|
22.1 | % | 19.7 | % | ||||
Operating
income
|
30.3 | % | 24.6 | % | ||||
Other
income (expense), net
|
2.5 | % | -0.3 | % | ||||
Income
before income taxes
|
32.8 | % | 24.3 | % | ||||
Provision
for income taxes
|
5.3 | % | 4.6 | % | ||||
Net
income
|
27.5 | % | 19.7 | % |
39-Weeks
Ended
|
||||||||
September 26, 2009
|
September 27, 2008
|
|||||||
Net
sales
|
100.0 | % | 100.0 | % | ||||
Cost
of goods sold
|
49.3 | % | 54.1 | % | ||||
Gross
profit
|
50.7 | % | 45.9 | % | ||||
Advertising
|
5.5 | % | 6.0 | % | ||||
Selling,
general and administrative
|
10.2 | % | 7.9 | % | ||||
Research
and development
|
8.8 | % | 6.4 | % | ||||
Total
operating expenses
|
24.5 | % | 20.3 | % | ||||
Operating
income
|
26.2 | % | 25.6 | % | ||||
Other
income (expense), net
|
1.2 | % | 3.6 | % | ||||
Income
before income taxes
|
27.4 | % | 29.0 | % | ||||
Provision
for income taxes
|
4.8 | % | 5.5 | % | ||||
Net
income
|
22.6 | % | 23.5 | % |
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.
16
Comparison
of 13-Weeks Ended September 26, 2009 and September 27, 2008
(Amounts
included in the following discussion are stated in thousands unless otherwise
indicated)
Net
Sales
13-weeks ended September 26, 2009
|
13-weeks ended September 27, 2008
|
Quarter over Quarter
|
||||||||||||||||||||||
Net Sales
|
% of Revenues
|
Net Sales
|
% of Revenues
|
$ Change
|
% Change
|
|||||||||||||||||||
Outdoor/Fitness
|
$ | 132,174 | 16.9 | % | $ | 118,614 | 13.6 | % | $ | 13,560 | 11.4 | % | ||||||||||||
Marine
|
45,426 | 5.8 | % | 44,048 | 5.1 | % | 1,378 | 3.1 | % | |||||||||||||||
Automotive/Mobile
|
545,707 | 69.9 | % | 626,506 | 72.0 | % | (80,799 | ) | -12.9 | % | ||||||||||||||
Aviation
|
57,947 | 7.4 | % | 81,187 | 9.3 | % | (23,240 | ) | -28.6 | % | ||||||||||||||
Total
|
$ | 781,254 | 100.0 | % | $ | 870,355 | 100.0 | % | $ | (89,101 | ) | -10.2 | % |
Net sales decreased 10.2% for the
13-week period ended September 26, 2009 when compared to the year-ago
quarter. The decline was driven by the automotive/mobile segment, as
well as aviation, offset by increases in the marine and outdoor/fitness
segments. Automotive/mobile revenue remains the largest portion of
our revenue mix, but declined from 72.0% in the third quarter of 2008 to 69.9%
in the third quarter of 2009.
Total
unit sales were flat at 3,866,000 in the third quarter of 2009 from 3,855,000 in
the same period of 2008. The slight increase in unit sales
volume in the third quarter of fiscal 2009 was attributable to gains in the
outdoor/fitness segment offset by a decline in aviation units.
Automotive/mobile
segment revenue declined 13% from the year-ago quarter, as the average selling
price declined 12% and volumes fell 1%. This segment has slowed due
to global macroeconomic conditions which have especially impacted North America
and Europe, as well as increasing penetration rates in the
industry. The aviation segment declined 29% from the year-ago quarter
as the industry continued to experience a significant slowdown associated with
the macroeconomic conditions. Revenues in our outdoor/fitness and
marine segments increased 11% and 3%, respectively, from the year ago quarter as
we delivered new products in the segment.
Gross
Profit
13-weeks ended September 26, 2009
|
13-weeks ended September 27, 2008
|
Quarter over Quarter
|
||||||||||||||||||||||
Gross Profit
|
% of Revenues
|
Gross Profit
|
% of Revenues
|
$ Change
|
% Change
|
|||||||||||||||||||
Outdoor/Fitness
|
$ | 82,886 | 62.7 | % | $ | 74,487 | 62.8 | % | $ | 8,399 | 11.3 | % | ||||||||||||
Marine
|
24,420 | 53.8 | % | 21,714 | 49.3 | % | 2,706 | 12.5 | % | |||||||||||||||
Automotive/Mobile
|
263,653 | 48.3 | % | 236,339 | 37.7 | % | 27,314 | 11.6 | % | |||||||||||||||
Aviation
|
38,783 | 66.9 | % | 53,099 | 65.4 | % | (14,316 | ) | -27.0 | % | ||||||||||||||
Total
|
$ | 409,742 | 52.4 | % | $ | 385,639 | 44.3 | % | $ | 24,103 | 6.3 | % |
Gross
profit dollars in the third quarter of 2009 grew 6.3% while gross profit margin
increased 810 basis points compared to the third quarter of
2008. Third quarter gross profit margins increased in all segments,
excluding outdoor/fitness which fell 10 basis points, when compared to the same
quarter in 2008. Third quarter 2009 gross profit margin
improvements were greatest in the automotive/mobile and marine segments at 1060
basis points and 450 basis points, respectively.
The
automotive/mobile segment’s margin increase was driven by a decrease in per unit
cost partially offset by average selling price reductions. The per
unit cost benefits were driven by foreign currency fluctuations, material cost
reductions, and a mix shift toward newly released products, which typically have
lower unit costs due to design efficiencies. The Company also
benefited from increased margins in the aviation and marine segments due to
increased pricing and stable or decreasing per unit costs. Aviation
and marine gross margins increased 150 basis points and 450 basis points,
respectively, from the year-ago quarter.
17
Advertising
Expense
13-weeks ended September 26, 2009
|
13-weeks ended September 27, 2008
|
Quarter over Quarter
|
||||||||||||||||||||||
Advertising
|
% of Revenues
|
Advertising
|
% of Revenues
|
$ Change
|
% Change
|
|||||||||||||||||||
Outdoor/Fitness
|
$ | 7,957 | 6.0 | % | $ | 7,164 | 6.0 | % | $ | 793 | 11.1 | % | ||||||||||||
Marine
|
2,810 | 6.2 | % | 2,523 | 5.7 | % | 287 | 11.4 | % | |||||||||||||||
Automotive/Mobile
|
34,098 | 6.2 | % | 40,274 | 6.4 | % | (6,176 | ) | -15.3 | % | ||||||||||||||
Aviation
|
988 | 1.7 | % | 781 | 1.0 | % | 207 | 26.5 | % | |||||||||||||||
Total
|
$ | 45,853 | 5.9 | % | $ | 50,742 | 5.8 | % | $ | (4,889 | ) | -9.6 | % |
Advertising
expense increased as a percentage of sales but decreased in absolute dollars
when compared with the year-ago period. As a percent of sales,
advertising expenses increased to 5.9% in the third quarter of 2009 compared to
5.8% in third quarter of 2008. The decrease of $4.9 million was a
result of actions taken by the Company to reduce costs as the macroeconomic
conditions impacted sales across our segments and around the world.
Selling,
General and Administrative Expense
13-weeks ended September 26, 2009
|
13-weeks ended September 27, 2008
|
Quarter over Quarter
|
||||||||||||||||||||||
Selling, General &
|
Selling, General &
|
|
||||||||||||||||||||||
Admin. Expenses
|
% of Revenues
|
Admin. Expenses
|
% of Revenues
|
$ Change
|
% Change
|
|||||||||||||||||||
Outdoor/Fitness
|
$ | 15,463 | 11.7 | % | $ | 8,704 | 7.3 | % | $ | 6,759 | 77.7 | % | ||||||||||||
Marine
|
4,276 | 9.4 | % | 3,652 | 8.3 | % | 624 | 17.1 | % | |||||||||||||||
Automotive/Mobile
|
44,185 | 8.1 | % | 49,982 | 8.0 | % | (5,797 | ) | -11.6 | % | ||||||||||||||
Aviation
|
7,575 | 13.1 | % | 5,447 | 6.7 | % | 2,128 | 39.1 | % | |||||||||||||||
Total
|
$ | 71,499 | 9.1 | % | $ | 67,785 | 7.8 | % | $ | 3,714 | 5.5 | % |
Selling, general and administrative
expense increased in absolute dollars and as a percentage of sales compared to
the year-ago quarter. The increased expense relates to a bad debt
accrual due to cash collection risks associated with several of our
customers. The increased expense for the outdoor/fitness segment is
driven by the allocation of costs based on revenues. As
outdoor/fitness revenues have increased as a percentage of revenues, additional
selling, general and administrative expenses are shifted to the
segment. As a percent of sales, selling, general and administrative
expenses increased from 7.8% of sales in the third quarter of 2008 to 9.1% of
sales in the third quarter of 2009.
Research
and Development Expense
13-weeks ended September 26, 2009
|
13-weeks ended September 27, 2008
|
Quarter over Quarter
|
||||||||||||||||||||||
Research &
|
Research &
|
|
||||||||||||||||||||||
Development
|
% of Revenues
|
Development
|
% of Revenues
|
$ Change
|
% Change
|
|||||||||||||||||||
Outdoor/Fitness
|
$ | 6,036 | 4.6 | % | $ | 6,483 | 5.5 | % | $ | (447 | ) | -6.9 | % | |||||||||||
Marine
|
5,551 | 12.2 | % | 4,933 | 11.2 | % | 618 | 12.5 | % | |||||||||||||||
Automotive/Mobile
|
25,317 | 4.6 | % | 21,724 | 3.5 | % | 3,593 | 16.5 | % | |||||||||||||||
Aviation
|
18,603 | 32.1 | % | 19,609 | 24.2 | % | (1,006 | ) | -5.1 | % | ||||||||||||||
Total
|
$ | 55,507 | 7.1 | % | $ | 52,749 | 6.1 | % | $ | 2,758 | 5.2 | % |
The 5.2% increase in research and
development expense was due to ongoing development activities for new products
and the addition of over 230 new engineering personnel to our staff since the
year-ago quarter as a result of our continued emphasis on product
innovation. Research and development costs increased $2.8
million when compared with the year-ago quarter representing a 100 basis point
increase as a percent of revenue, due principally to the 10% revenue
decline.
18
Operating
Income
13-weeks ended September 26, 2009
|
13-weeks ended September 27, 2008
|
Quarter over Quarter
|
||||||||||||||||||||||
Operating Income
|
% of Revenues
|
Operating
Income
|
% of Revenues
|
$ Change
|
% Change
|
|||||||||||||||||||
Outdoor/Fitness
|
$ | 53,430 | 40.4 | % | $ | 52,136 | 44.0 | % | $ | 1,294 | 2.5 | % | ||||||||||||
Marine
|
11,783 | 25.9 | % | 10,606 | 24.1 | % | 1,177 | 11.1 | % | |||||||||||||||
Automotive/Mobile
|
160,053 | 29.3 | % | 124,359 | 19.8 | % | 35,694 | 28.7 | % | |||||||||||||||
Aviation
|
11,617 | 20.0 | % | 27,262 | 33.6 | % | (15,645 | ) | -57.4 | % | ||||||||||||||
Total
|
$ | 236,883 | 30.3 | % | $ | 214,363 | 24.6 | % | $ | 22,520 | 10.5 | % |
Operating
income increased $22.5 million or 570 basis points as a percent of revenue, when
compared to the third quarter of 2008 as declining revenues and continued growth
in research and development expense associated with ongoing development
activities were more than offset by gross margin improvement and reductions in
advertising expense discussed above.
Other
Income (Expense)
13-weeks ended
|
13-weeks ended
|
|||||||
September 26, 2009
|
September 27, 2008
|
|||||||
Interest
Income
|
$ | 6,360 | $ | 8,435 | ||||
Foreign
Currency Exchange
|
11,752 | (12,744 | ) | |||||
Other
|
1,684 | 1,358 | ||||||
Total
|
$ | 19,796 | $ | (2,951 | ) |
The
average interest rate return on cash and investments during the third quarter of
2009 was 1.5% compared to 3.8% during the same quarter of 2008. The
decrease in interest income is attributable to decreasing interest rates,
partially offset by higher cash and investment balances.
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 and Garmin Sweden. 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 and Danish Krone, and Swedish Krona are the functional currency of
Dynastream Innovations, Inc., Garmin Danmark, and Garmin Sweden 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 $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. 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 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.
The
majority of the $12.8 million currency loss in the third quarter of 2008 was due
to the strengthening of the U.S. Dollar. During the third quarter of
fiscal 2008, the Taiwan Dollar weakened 5.0% in comparison to the U.S. Dollar
resulting in a $38.5 million gain. Offsetting this impact, the Euro
had weakened 6.5% relative to the U.S. Dollar resulting in a $51.2 million
loss.
Income
Tax Provision
Our
earnings before taxes increased 21% when compared to the same quarter
in 2008, and our income tax expense increased by $1.3 million, to $41.5 million,
for the 13-week period ended September 26, 2009, from $40.2 million for the
13-week period ended September 27, 2008. The effective tax rate was
16.2% and 19.0% in the third quarter of 2009 and the third quarter of 2008,
respectively. The decline in the tax rate for 2009 is related
to the release of 2005 income tax reserves for which the statute of limitations
has expired.
19
Net
Income
As a
result of the above, net income increased 26% for the 13-week period ended
September 26, 2009 to $215.1 million compared to $171.2 million for the 13-week
period ended September 27, 2008.
Comparison
of 39-weeks Ended September 26, 2009 and September 27, 2008
(Amounts
included in the following discussion are stated in thousands unless otherwise
indicated)
Net
Sales
39-weeks ended September 26, 2009
|
39-weeks ended September 27, 2008
|
Quarter over Quarter
|
||||||||||||||||||||||
Net Sales
|
% of Revenues
|
Net Sales
|
% of Revenues
|
$ Change
|
% Change
|
|||||||||||||||||||
Outdoor/Fitness
|
$ | 320,187 | 17.0 | % | $ | 308,255 | 12.6 | % | $ | 11,932 | 3.9 | % | ||||||||||||
Marine
|
143,641 | 7.6 | % | 171,232 | 7.0 | % | (27,591 | ) | -16.1 | % | ||||||||||||||
Automotive/Mobile
|
1,242,011 | 65.8 | % | 1,710,248 | 69.9 | % | (468,237 | ) | -27.4 | % | ||||||||||||||
Aviation
|
181,218 | 9.6 | % | 256,095 | 10.5 | % | (74,877 | ) | -29.2 | % | ||||||||||||||
Total
|
$ | 1,887,057 | 100.0 | % | $ | 2,445,830 | 100.0 | % | $ | (558,773 | ) | -22.8 | % |
Net sales decreased 22.8% for the
39-week period ended September 26, 2009 when compared to the year-ago
period. The decrease occurred across all segments, except
outdoor/fitness, with the greatest decrease in the automotive/mobile
segment. Automotive/mobile revenue remains the largest portion of our
revenue mix, but declined from 69.9% in the year-to-date period for 2008 to
65.8% in 2009.
Total
unit sales decreased 5% to 9,997,000 for the year-to-date for 2009 from
10,563,000 in the same period of 2008. The lower unit sales
volume was attributable to declining volumes across all segments, excluding
outdoor/fitness, with the greatest percentage declines occurring in aviation and
marine.
Automotive/mobile
segment revenue declined 27.4% from the year-ago period, as the average selling
price declined 23% and volumes declined 6%. The aviation and
marine segments declined 29.2% and 16.1%, respectively, from the year-ago period
as both industries experience significant slowdowns associated with the
macroeconomic conditions. Outdoor/fitness segment revenue increased
3.9% due to new product introductions in the third quarter.
Gross
Profit
39-weeks ended September 26, 2009
|
39-weeks ended September 27, 2008
|
Quarter over Quarter
|
||||||||||||||||||||||
Gross Profit
|
% of Revenues
|
Gross Profit
|
% of Revenues
|
$ Change
|
% Change
|
|||||||||||||||||||
Outdoor/Fitness
|
$ | 204,526 | 63.9 | % | $ | 179,834 | 58.3 | % | $ | 24,692 | 13.7 | % | ||||||||||||
Marine
|
83,078 | 57.8 | % | 94,296 | 55.1 | % | (11,218 | ) | -11.9 | % | ||||||||||||||
Automotive/Mobile
|
542,910 | 43.7 | % | 675,953 | 39.5 | % | (133,043 | ) | -19.7 | % | ||||||||||||||
Aviation
|
126,837 | 70.0 | % | 172,799 | 67.5 | % | (45,962 | ) | -26.6 | % | ||||||||||||||
Total
|
$ | 957,351 | 50.7 | % | $ | 1,122,882 | 45.9 | % | $ | (165,531 | ) | -14.7 | % |
Gross profit dollars for the 39-weeks
ended September 26, 2009 fell 14.7% while gross profit margin percentage
increased 480 basis points over the same period of the previous
year. Gross profit margins increased in all segments when compared to
the same period in 2008.
The
automotive/mobile segment gross profit margin percentage increase of 420 basis
points was driven by material cost reductions and foreign currency fluctuations
as the Company benefited from sales transacted in foreign currencies partially
offset by price declines. Gross profit margin percentage for
outdoor/fitness, marine and aviation increased compared to the same period of
2008 due to increased average selling price and decreases in per unit costs
driven by product mix, material cost reductions.
20
Advertising
Expense
39-weeks ended September 26,
2009
|
39-weeks ended September 27,
2008
|
Quarter over Quarter
|
||||||||||||||||||||||
Advertising
|
% of Revenues
|
Advertising
|
% of Revenues
|
$ Change
|
% Change
|
|||||||||||||||||||
Outdoor/Fitness
|
$ | 16,788 | 5.2 | % | $ | 19,668 | 6.4 | % | $ | (2,880 | ) | -14.6 | % | |||||||||||
Marine
|
7,808 | 5.4 | % | 12,227 | 7.1 | % | (4,419 | ) | -36.1 | % | ||||||||||||||
Automotive/Mobile
|
75,280 | 6.1 | % | 111,638 | 6.5 | % | (36,358 | ) | -32.6 | % | ||||||||||||||
Aviation
|
3,225 | 1.8 | % | 3,666 | 1.4 | % | (441 | ) | -12.0 | % | ||||||||||||||
Total
|
$ | 103,101 | 5.5 | % | $ | 147,199 | 6.0 | % | $ | (44,098 | ) | -30.0 | % |
Advertising
expense decreased both as a percentage of sales and in absolute dollars when
compared with the year-ago period. As a percent of sales, advertising
expenses declined to 5.5% in the year-to-date period of 2009 compared to 6.0% in
same period of 2008. The decrease was a result of actions taken by
the Company to reduce costs as the macroeconomic conditions impacted sales
across our segments and around the world.
Selling,
General and Administrative Expenses
39-weeks ended September 26, 2009
|
39-weeks ended September 27, 2008
|
Quarter over Quarter
|
||||||||||||||||||||||
Selling, General &
|
Selling, General &
|
|
||||||||||||||||||||||
Admin. Expenses
|
% of Revenues
|
Admin. Expenses
|
% of Revenues
|
$ Change
|
% Change
|
|||||||||||||||||||
Outdoor/Fitness
|
$ | 37,694 | 11.8 | % | $ | 23,962 | 7.8 | % | $ | 13,732 | 57.3 | % | ||||||||||||
Marine
|
15,455 | 10.8 | % | 14,434 | 8.4 | % | 1,021 | 7.1 | % | |||||||||||||||
Automotive/Mobile
|
121,236 | 9.8 | % | 138,797 | 8.1 | % | (17,561 | ) | -12.7 | % | ||||||||||||||
Aviation
|
19,076 | 10.5 | % | 16,988 | 6.6 | % | 2,088 | 12.3 | % | |||||||||||||||
Total
|
$ | 193,461 | 10.2 | % | $ | 194,181 | 7.9 | % | $ | (720 | ) | -0.4 | % |
Selling,
general and administrative expense decreased slightly in absolute dollars while
increasing as a percentage of sales compared to the year-ago period as costs
throughout the Company were reduced but not as rapidly as the revenue
declines. The increased expense for the outdoor/fitness segment and
the decreased expense for the automotive/mobile segment were driven by the
allocation of costs based on revenues. As outdoor/fitness revenues
have increased as a percentage of revenues, additional selling, general and
administrative expenses are shifted to the segment. As a percent of
sales, selling, general and administrative expenses increased from 7.9% of sales
for the 39-weeks ended September 27, 2008 to 10.3% of sales for the 39-weeks
ended September 26, 2009, as revenues declined.
Research
and Development Expense
39-weeks ended September 26, 2009
|
39-weeks ended September 27, 2008
|
Quarter over Quarter
|
||||||||||||||||||||||
Research &
|
Research &
|
|
||||||||||||||||||||||
Development
|
% of Revenues
|
Development
|
% of Revenues
|
$ Change
|
% Change
|
|||||||||||||||||||
Outdoor/Fitness
|
$ | 17,693 | 5.5 | % | $ | 19,312 | 6.3 | % | $ | (1,619 | ) | -8.4 | % | |||||||||||
Marine
|
16,119 | 11.2 | % | 15,125 | 8.8 | % | 994 | 6.6 | % | |||||||||||||||
Automotive/Mobile
|
75,024 | 6.0 | % | 64,328 | 3.8 | % | 10,696 | 16.6 | % | |||||||||||||||
Aviation
|
57,959 | 32.0 | % | 57,139 | 22.3 | % | 820 | 1.4 | % | |||||||||||||||
Total
|
$ | 166,795 | 8.8 | % | $ | 155,904 | 6.4 | % | $ | 10,891 | 7.0 | % |
The 7.0% increase in research and
development expense dollars was due to ongoing development activities for new
products, the addition of over 230 new engineering personnel to our staff during
the period, and an increase in engineering program costs during 2009 as a result
of our continued emphasis on product innovation. Research and
development costs increased $10.9 million when compared with the year-ago period
and increased 240 basis points as a percent of revenue as research and
development grew while revenues declined.
21
Operating
Income
39-weeks ended September 26, 2009
|
39-weeks ended September 27, 2008
|
Quarter over Quarter
|
||||||||||||||||||||||
Operating Income
|
% of Revenues
|
Operating Income
|
% of Revenues
|
$ Change
|
% Change
|
|||||||||||||||||||
Outdoor/Fitness
|
$ | 132,351 | 41.3 | % | $ | 116,892 | 37.9 | % | $ | 15,459 | 13.2 | % | ||||||||||||
Marine
|
43,696 | 30.4 | % | 52,510 | 30.7 | % | (8,814 | ) | -16.8 | % | ||||||||||||||
Automotive/Mobile
|
271,370 | 21.8 | % | 361,190 | 21.1 | % | (89,820 | ) | -24.9 | % | ||||||||||||||
Aviation
|
46,577 | 25.7 | % | 95,006 | 37.1 | % | (48,429 | ) | -51.0 | % | ||||||||||||||
Total
|
$ | 493,994 | 26.2 | % | $ | 625,598 | 25.6 | % | $ | (131,604 | ) | -21.0 | % |
Operating
income increased 60 basis points as a percent of revenue but fell $131.6 million
in absolute dollars when compared to the year-ago period as the revenue declines
and continued growth in research and development expense were only partially
offset by gross margin improvements and declines in advertising expense
discussed above.
Other
Income (Expense)
|
39-weeks
ended
|
39-weeks
ended
|
||||||
|
September 26, 2009
|
September 27, 2008
|
||||||
Interest
Income
|
$ | 16,646 | $ | 26,563 | ||||
Foreign
Currency Exchange
|
$ | 4,478 | 4,818 | |||||
Gain
on sale of equity securities
|
- | 50,949 | ||||||
Other
|
$ | 1,325 | 2,091 | |||||
Total
|
$ | 22,449 | $ | 84,421 |
The
average taxable equivalent interest rate return on invested cash for the
39-weeks ended September 26, 2009 was 1.5% compared to 3.6% during the same
period of 2008. The decrease in interest income is attributable to
decreasing interest rates, partially offset by higher cash and investment
balances.
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 and Garmin Sweden. 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 and Danish Krone, and Swedish Krona are the functional currency of
Dynastream Innovations, Inc., Garmin Danmark, and Garmin Sweden respectively;
due to these entities’ relative size, currency moves are not expected to have a
material impact on the Company’s financial statements.
The
majority of the $4.5 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.
The
majority of the $4.8 million currency gain for the 39-weeks ended September 27,
2008 was related to the tender of our Tele Atlas N.V. shares. This
transaction generated a realized gain of $21.5 million due to the strengthening
of the Euro between the date of purchase of the shares in October 2007 to the
dates of tender in February, March, and June 2008. The offsetting
$16.7 million currency loss in the same period of 2008 was primarily due to the
timing of fluctuations between the U.S. Dollar compared to the Taiwan Dollar and
the Euro. On a year to date basis, the Taiwan Dollar strengthened
1.4% in comparison to the U.S. Dollar, resulting in a $0.3 million
gain. The Euro had strengthened 0.1% relative to the U.S. Dollar year
to date in 2008 which resulted in a $17.2 million loss. Other net
currency gains and the timing of transactions created the remaining gain of $0.2
million.
The gain
on sale of equity securities of $50.9 million in the first half of 2008 was
generated primarily from the sale of our equity interest in Tele Atlas
N.V.
22
Income
Tax Provision
Our
earnings before taxes decreased 27.3% when compared to the same period in 2008,
and our income tax expense decreased similarly by $44.0 million, to $90.9
million, for the 39-week period ended September 26, 2009, from $134.9 million
for the 39-week period ended September 27, 2008. The effective tax
rate was 17.6% in year to date in 2009 and 19.0% year to date in
2008. The decline in the tax rate for 2009 is related to
the release of 2005 income tax reserves for which the statute of limitations has
expired.
Net
Income
As a
result of the above, net income decreased 26.0% for the 39-week period ended
September 26, 2009 to $425.5 million compared to $575.1 million for the 39-week
period ended September 27, 2008.
Liquidity
and Capital Resources
Net cash
generated by operating activities was $848.6 million for the 39-week period
ended September 26, 2009 compared to $512.7 million for the 39-week period ended
September 27, 2008. We experienced a $60.6 million year-to-date decrease in net
inventories in this 39-week period of 2009. We were able to
reduce inventory levels while still carrying sufficient inventory levels of
finished goods and key components so that potential supplier shortages have had
as minimal an impact as possible on our ability to deliver our finished
products. Accounts receivable decreased $178.3 million, net of bad debts, during
the 39-week period ended September 26, 2009 due to ongoing collections following
the seasonally strong fourth quarter of 2008 and second quarter of
2009.
Cash flow
used in investing activities during the 39-week period ending September 26, 2009
was $558.4 million. Cash flow used in investing activities
principally related to $35.4 million in capital expenditures primarily related
to business operation and maintenance activities, the net purchase of $515.4
million of fixed income securities associated with the investment of our on-hand
cash balances, and the purchase of intangible assets for $7.5 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 third quarter of 2009 was 1.5%
Net cash
provided by financing activities during the period was $3.9 million resulting
from $5.8 million from the issuance of common stock related to our Company stock
plans and stock based compensation tax benefits offset by the use of $1.9
million for stock repurchased under our stock repurchase plan.
We
currently use cash flow from operations to fund our capital expenditures and to
support our working capital requirements. We expect that future cash
requirements will principally be for capital expenditures, working capital
requirements, acquisitions, payment of dividends declared and share
repurchases.
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 $72.8 million over the next 5 years.
Off-Balance
Sheet Arrangements
We do not have any off-balance sheet
arrangements.
23
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. In the current quarter, we were able to offset the
decline in sales with cost savings resulting in an increase in gross profit and
operating income.
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
Accounting Standards, the financial statements of all Company entities with
functional currencies that are not U.S. Dollars are translated for consolidation
purposes into U.S. Dollars, the functional currency of Garmin Ltd. and Garmin
International, Inc. Sales, costs, and expenses are
translated at rates prevailing during the reporting periods and at end-of-period
rates for all assets and liabilities. The effect of this
translation is recorded in a separate component of stockholders’ equity and have
been included in accumulated other comprehensive gain/(loss) in the accompanying
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 remains the functional currency of
Garmin (Europe) Ltd. The Euro is the functional currency of all
European subsidiaries excluding Garmin Danmark and Garmin Sweden. 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 and Danish Krone, and Swedish Krona are the functional currency of
Dynastream Innovations, Inc., Garmin Danmark, and Garmin Sweden 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 26, 2009, 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.
24
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 26, 2009, 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 26, 2009 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 26, 2009 that has materially affected, or is reasonably
likely to materially affect, the Company’s internal control over financial
reporting.
25
Item
1. Legal Proceedings
Encyclopaedia
Britannica, Inc. v. Alpine Electronics of America, Inc., Alpine Electronics,
Inc., Denso Corporation,
Toyota
Motor Sales, U.S.A., Inc., American Honda Motor Co., Inc., and Garmin
International, Inc.
On May
16, 2005, Encyclopaedia Britannica, Inc. (“Encyclopaedia Britannica”) filed suit
in the United States District Court for the Western District of Texas, Austin
Division, against Garmin International, Inc. and five other unrelated companies,
alleging infringement of U.S. Patent No. 5,241,671 (“the ’671 patent”). On
December 30, 2005, Garmin International filed a Motion for Summary Judgment for
Claim Invalidity Based on Indefiniteness. On September 30, 2008, the court
issued a Memorandum Opinion and Order granting Garmin International’s Motion for
Summary Judgment for Claim Invalidity Based on Indefiniteness with respect to
the ’671 patent. On October 8, 2008, the court issued an Amended Final Judgment
ordering that Encyclopaedia Britannica take nothing from its action against
Garmin International with respect to the ’671 patent and closed that case. On
November 12, 2008, Encyclopaedia Britannica filed a Notice of Appeal to the
Federal Circuit Court of Appeals. On March 3, 2009, Encyclopaedia Britannica
filed a Corrected Brief of Appellant. On June 1, 2009, Garmin International
filed its responsive brief. On July 20, Encyclopaedia Britannica filed a reply
brief. Garmin International believes the Federal Circuit will affirm the
district court’s judgment.
On May
23, 2006, Encyclopaedia Britannica filed an amended complaint claiming that
Garmin International and the other defendants also infringe U.S. Patent No.
7,051,018 (“the ‘018 patent”), a continuation patent of the ‘671 patent, which
issued on May 23, 2006. On July 25, 2006, Encyclopaedia Britannica filed a new
complaint claiming that Garmin International and the other defendants also
infringe U.S. Patent No. 7,082,437 (“the ‘437 patent”), a continuation patent of
the ‘671 patent, which issued on July 25, 2006. Encyclopaedia Britannica has
asserted the ’018 and ’437 patents against other parties in Encyclopaedia
Britannica v. Magellan Navigation, Inc., et al., Case No. 07‐CA‐787 (LY)(W.D.
Tex).
On
February 6, 2009, the court entered a scheduling order enabling all defendants
in these cases to file a consolidated Joint Motion for Summary Judgment of
Invalidity of the ’018 and ’437 patents and stayed all proceedings pending the
court’s ruling on the joint motion for summary judgment. On February 20, 2009,
the defendants filed a consolidated Joint Motion for Summary Judgment of
Invalidity of the ’018 and ’437 patents. On August 3, 2009, the court issued a
Memorandum Opinion and Order granting the defendants’ consolidated Joint Motion
for Summary Judgment of Invalidity of the ’018 and ’437 patents and holding that
these patents are invalid. On August 24, 2009, Encyclopaedia
Britannica filed a Notice of Appeal to the Federal Circuit Court of
Appeals. Garmin International believes the Federal Circuit will
affirm the district court’s judgment.
SP
Technologies, LLC v. Garmin Ltd., Garmin International, Inc., TomTom, Inc., and
Magellan Navigation,Inc.
On June
5, 2008, SP Technologies, LLC filed suit in the United States District Court for
the Northern District of Illinois against Garmin Ltd. and Garmin International,
Inc. alleging infringement of U.S. Patent No. 6,784,873 (“the ’873 patent”). On
July 7, 2008, SP Technologies, LLC filed an amended complaint removing all
claims against Garmin Ltd. and alleging infringement of the ’873 patent against
additional defendants TomTom, Inc. and Magellan Navigation, Inc. Garmin believes
that it should not be found liable for infringement of the ’873 patent and
additionally that the ’873 patent is invalid. On August 18, 2008, Garmin filed
its answer to the amended complaint along with a motion for dismissal of SP
Technologies, LLC’s claims of willful and inducement infringement of the ’873
patent. On October 16, 2008, the court granted Garmin’s motion for partial
dismissal, striking the willful and inducement infringement allegations from the
amended complaint.
On
January 7, 2009, Garmin filed an Amended Answer and Counterclaims asserting the
’873 patent is not infringed, is invalid, and that the plaintiff committed
inequitable conduct resulting in unenforceability of the ’873 patent. On
February 2, 2009, codefendant TomTom, Inc. filed a Motion for Summary Judgment
of Unenforceability of the ’873 22 Patent Due to Inequitable Conduct. On
September 30, 2009, the Court denied TomTom, Inc.’s Motion for Summary
Judgment. On October 9, 2009, the Court issued an order construing
the claims of the ’873 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 the claims are without merit and intends to vigorously defend this
lawsuit.
26
Traffic
Information, LLC v. Sony Electronics Inc., Asus Computer International, Best Buy
Stores, L.P., Kenwood U.S.A. Corporation, Nextar, Inc., American Suzuki Motor
Corporation, TGSP, L.P. d/b/a Empire Suzuki, and Garmin International,
Inc.
On July
1, 2009, Traffic Information, LLC filed suit in the United States District Court
for the Eastern District of Texas against Garmin International, Inc. along with
Sony Electronics Inc., Asus Computer International, Best Buy Stores, L.P.,
Kenwood U.S.A. Corporation, Nextar, Inc., American Suzuki Motor Corporation, and
TGSP, L.P. d/b/a Empire Suzuki. The complaint against Garmin International, Inc.
alleges infringement of U.S. Patent No. 6,785,606 (“the ’606
patent”).
Garmin International, Inc. believes the ’606 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 International, Inc. believes
that the claims are without merit and intends to vigorously defend this
action.
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”). Garmin believes 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 and
European Patent No. 508 681. Garmin believes that none of Garmin’s
products infringe either of these patents. Garmin believes that the claims are
without merit and intends to vigorously defend this action. Garmin is currently
in the process of selecting German counsel to represent the Garmin defendants in
this action. 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.
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 Annual Report on Form 10-K for the fiscal year ended December
27, 2008. There have been no material changes during the 13-week and
39-week period ended September 26, 2009 in the risks described in our Annual
Report on Form 10-K. These risks, however, are not the only risks
facing our Company. Additional risks and uncertainties not currently known to us
or that we currently deem to be immaterial also may materially adversely affect
our business, financial condition and/or operating results.
27
Items (a) and (b) are not
applicable.
(c) Issuer Purchases of Equity
Securities
The Board
of Directors approved a share repurchase program on October 22, 2008,
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, 2009. The company
did not purchase any shares under this authorization in the third quarter of
fiscal 2009.
None
None
Item
5. Other Information
Not
applicable
28
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
|
29
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
4, 2009
30
INDEX
TO EXHIBITS
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
|
31