Unassociated Document
United States
Securities and Exchange Commission
Washington, D.C. 20549

FORM 10-Q

x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 29, 2007

or

o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ___________ to ___________
 
Commission file number 0-31983
 


GARMIN LTD.
(Exact name of Company as specified in its charter)

Cayman Islands
(State or other jurisdiction
of incorporation or organization)
98-0229227
(I.R.S. Employer identification no.)
   
5th Floor, Harbour Place, P.O. Box 30464 SMB,
103 South Church Street
George Town, Grand Cayman KY 1-1202
Cayman Islands
(Address of principal executive offices)
N/A
(Zip Code)

Company's telephone number, including area code: (345) 946-5203

No Changes

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the Company (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Company was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES þ NO o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer þ Accelerated Filer o Non-accelerated Filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES o    NO þ

Number of shares outstanding of the Company's common shares as of November 4, 2007
Common Shares, $.005 par value: 216,882,131
 


Garmin Ltd.
Form 10-Q
Quarter Ended September 29, 2007

Table of Contents

   
Page
Part I - Financial Information
   
         
Item 1.
 
Condensed Consolidated Financial Statements (Unaudited)
 
3
         
   
Introductory Comments
 
3
         
   
Condensed Consolidated Balance Sheets at September 29, 2007 and December 30, 2006
 
4
         
 
 
Condensed Consolidated Statements of Income for the 13-weeks and 39-weeks ended September 29, 2007 and September 30, 2006
 
5
         
   
Condensed Consolidated Statements of Cash Flows for the 39-weeks ended September 29, 2007 and September 30, 2006
 
6
         
   
Notes to Condensed Consolidated Financial Statements
 
7
         
Item 2.
 
Management's Discussion and Analysis of Financial Condition and Results of Operations
 
13
         
Item 3.
 
Quantitative and Qualitative Disclosures About Market Risk
 
23
         
Item 4.
 
Controls and Procedures
 
24
         
Part II - Other Information
   
         
Item 1.
 
Legal Proceedings
 
25
         
Item 1A.
 
Risk Factors
 
27
 
       
Item 2.
 
Unregistered Sales of Equity Securities and Use of Proceeds
 
27
         
Item 3.
 
Defaults Upon Senior Securities
 
27
         
Item 4.
 
Submission of Matters to a Vote of Securities Holders
 
28
         
Item 5.
 
Other Information
 
28
         
Item 6.
 
Exhibits
 
29
         
     
30
         
Index to Exhibits
     
31
 
2


Garmin Ltd.
Form 10-Q
Quarter Ended September 29, 2007
 
Part I - Financial Information

Item 1. Condensed Consolidated Financial Statements (Unaudited)

Introductory Comments

The Condensed Consolidated Financial Statements of Garmin Ltd. ("Garmin" or the "Company") included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the United States Securities and Exchange Commission. Certain information and note disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to enable a reasonable understanding of the information presented. These Condensed Consolidated Financial Statements should be read in conjunction with the audited financial statements and the notes thereto for the year ended December 30, 2006. 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 29, 2007 are not necessarily indicative of the results to be expected for the full year 2007.
 
3


Garmin Ltd. And Subsidiaries
 
Condensed Consolidated Balance Sheets (Unaudited)
 
(In thousands, except share information)
 
 
 
 
 
 
 
 
 
September 29,
 
December 30,
 
 
 
2007
 
2006
 
Assets
 
 
 
 
 
Current assets:
 
 
 
 
 
Cash and cash equivalents
 
$
703,749
 
$
337,321
 
Marketable securities
   
58,668
   
73,033
 
Accounts receivable, net
   
520,538
   
403,524
 
Inventories, net
   
493,739
   
271,008
 
Deferred income taxes
   
57,700
   
55,996
 
Prepaid expenses and other current assets
   
23,538
   
28,202
 
 
         
Total current assets
   
1,857,932
   
1,169,084
 
 
         
Property and equipment, net
   
358,578
   
250,988
 
 
         
Marketable securities
   
263,735
   
407,843
 
Restricted cash
   
1,580
   
1,525
 
Licensing agreements, net
   
14,398
   
3,307
 
Other intangible assets, net
   
149,277
   
64,273
 
 
         
Total assets
 
$
2,645,500
 
$
1,897,020
 
 
         
Liabilities and Stockholders' Equity
         
Current liabilities:
         
Accounts payable
 
$
236,044
 
$
88,375
 
Salaries and benefits payable
   
32,524
   
16,268
 
Accrued sales programs
   
77,177
   
-
 
Accrued warranty costs
   
55,225
   
37,639
 
Other accrued expenses
   
131,959
   
100,732
 
Income taxes payable
   
35,033
   
94,668
 
 
         
Total current liabilities
   
567,962
   
337,682
 
 
         
Long-term debt, less current portion
   
603
   
248
 
Deferred income taxes
   
1,219
   
1,191
 
Other liabilities
   
90,505
   
-
 
 
         
Stockholders' equity:
         
Common stock, $0.005 par value, 1,000,000,000 shares authorized:
         
Issued and outstanding shares - 216,931,000 as of
         
September 29, 2007 and 216,098,000 as of
         
December 30, 2006
   
1,086
   
1,082
 
Additional paid-in capital
   
123,025
   
83,438
 
Retained earnings
   
1,863,867
   
1,478,654
 
Accumulated other comprehensive loss
   
(2,767
)
 
(5,275
)
 
         
Total stockholders' equity
   
1,985,211
   
1,557,899
 
Total liabilities and stockholders' equity
 
$
2,645,500
 
$
1,897,020
 
 
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 29,
 
September 30,
 
September 29,
 
September 30,
 
 
 
2007
 
2006
 
2007
 
2006
 
 
 
 
 
 
 
 
 
 
 
Net sales
 
$
728,673
 
$
407,997
 
$
1,963,298
 
$
1,162,776
 
 
                 
Cost of goods sold
   
386,822
   
209,137
   
1,009,028
   
584,843
 
 
                 
Gross profit
   
341,851
   
198,860
   
954,270
   
577,933
 
 
                 
Selling, general and
                 
administrative expenses
   
87,060
   
47,489
   
248,358
   
140,167
 
Research and development
                 
expense
   
40,634
   
30,399
   
111,863
   
82,105
 
 
   
127,694
   
77,888
   
360,221
   
222,272
 
 
                 
Operating income
   
214,157
   
120,972
   
594,049
   
355,661
 
 
                 
Other income (expense):
                 
Interest income
   
11,798
   
9,622
   
31,997
   
25,464
 
Interest expense
   
(273
)
 
(2
)
 
(328
)
 
(14
)
Foreign currency
   
(3,626
)
 
14,874
   
3,493
   
10,386
 
Other
   
570
   
70
   
959
   
3,507
 
 
   
8,469
   
24,564
   
36,121
   
39,343
 
 
                 
Income before income taxes
   
222,626
   
145,536
   
630,170
   
395,004
 
 
                 
Income tax provision
   
29,119
   
22,558
   
82,426
   
61,226
 
 
                 
Net income
 
$
193,507
 
$
122,978
 
$
547,744
 
$
333,778
 
 
                 
Net income per share:
                 
Basic
 
$
0.89
 
$
0.57
 
$
2.53
 
$
1.54
 
Diluted
 
$
0.88
 
$
0.56
 
$
2.50
 
$
1.52
 
 
                 
Weighted average common
                 
shares outstanding:
                 
Basic
   
216,773
   
216,317
   
216,456
   
216,502
 
Diluted
   
220,644
   
218,866
   
219,482
   
218,878
 
 
See accompanying notes.
                 

5

 
Garmin Ltd. And Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
 
 
 
39-Weeks Ended
 
 
 
September 29,
 
September 30,
 
 
 
2007
 
2006
 
Operating Activities:
 
 
 
 
 
Net income
 
$
547,744
 
$
333,778
 
Adjustments to reconcile net income to net cash
         
provided by operating activities:
         
Depreciation
   
22,786
   
15,447
 
Amortization
   
18,803
   
19,844
 
Loss (gain) on sale of property and equipment
   
71
   
(8
)
Provision for doubtful accounts
   
3,467
   
796
 
Deferred income taxes
   
(1,157
)
 
(29,867
)
Foreign currency transaction gains/losses
   
3,232
   
(19,724
)
Provision for obsolete and slow moving inventories
   
21,502
   
15,260
 
Stock compensation expense
   
8,830
   
8,378
 
Realized gains on marketable securities
   
-
   
(3,852
)
Changes in operating assets and liabilities, net of acquisitions:
         
Accounts receivable
   
(90,497
)
 
(79,648
)
Inventories
   
(234,920
)
 
(148,891
)
Other current assets
   
4,510
   
(1,192
)
Accounts payable
   
117,034
   
48,720
 
Other current and non-current liabilities
   
147,608
   
69,704
 
Income taxes
   
9,486
   
22,866
 
Purchase of licenses
   
(22,594
)
 
(2,486
)
Net cash provided by operating activities
   
555,905
   
249,125
 
 
         
Investing activities:
         
Purchases of property and equipment
   
(128,893
)
 
(45,476
)
Purchase of intangible assets
   
(2,481
)
 
(1,513
)
Purchase of marketable securities
   
(983,716
)
 
(348,621
)
Redemption of marketable securities
   
1,141,431
   
197,008
 
Change in restricted cash
   
(56
)
 
(104
)
Proceeds from asset sale
   
4
   
75
 
Net cash paid for acquisition of businesses
   
(84,126
)
 
-
 
Net cash used in investing activities
   
(57,837
)
 
(198,631
)
 
         
Financing activities:
         
Proceeds from issuance of common stock
   
15,358
   
10,042
 
Dividends
   
(162,531
)
 
-
 
Stock repurchase
   
-
   
(50,451
)
Payments on long term debt
   
(218
)
 
-
 
Tax benefit related to stock option exercise
   
15,776
   
7,453
 
Net cash used in financing activities
   
(131,615
)
 
(32,956
)
 
         
Effect of exchange rate changes on cash and cash equivalents
   
(25
)
 
(167
)
 
             
Net increase in cash and cash equivalents
   
366,428
   
17,371
 
Cash and cash equivalents at beginning of period
   
337,321
   
334,352
 
Cash and cash equivalents at end of period
 
$
703,749
 
$
351,723
 
 
See accompanying notes.
         

6

 
Garmin Ltd. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

September 29, 2007
(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 29, 2007 are not necessarily indicative of the results that may be expected for the year ending December 29, 2007.

The condensed consolidated balance sheet at December 30, 2006 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 30, 2006.

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 29, 2007 and September 30, 2006 both contain operating results for 13-weeks for both year-to-date periods.

2.  Inventories

The components of inventories consist of the following:
 
 
 
September 29,
2007
 
December 30,
2006
 
 
 
 
 
 
 
Raw materials
 
$
152,119
 
$
85,040
 
Work-in-process
   
66,922
   
42,450
 
Finished goods
   
297,777
   
160,748
 
Inventory reserves
   
(23,079
)
 
(17,230
)
 
         
Inventory, net of reserves
 
$
493,739
 
$
271,008
 
 
3.  Share Repurchase Plan 

The Board of Directors approved a share repurchase program on August 3, 2006, authorizing the Company to purchase up to 3.0 million shares of Garmin Ltd.’s common stock as market and business conditions warrant. The share repurchase authorization expires on December 31, 2007. There were no shares purchased during the 39-week period ending September 29, 2007.
 
7


4.  Earnings Per Share

The following table sets forth the computation of basic and diluted net income per share (in thousands, except per share information):
 
 
 
13-Weeks Ended
 
 
 
September 29,
 
September 30,
 
 
 
2007
 
2006
 
Numerator:
 
 
 
 
 
Numerator for basic and diluted net income
 
 
 
 
 
per share - net income
 
$
193,507
 
$
122,978
 
 
         
Denominator:
         
Denominator for basic net income per share -
         
weighted-average common shares
   
216,773
   
216,317
 
 
         
Effect of dilutive securities -
         
employee stock options
   
3,871
   
2,549
 
 
         
Denominator for diluted net income per share -
         
adjusted weighted-average common shares
   
220,644
   
218,866
 
 
         
Basic net income per share
 
$
0.89
 
$
0.57
 
 
         
Diluted net income per share
 
$
0.88
 
$
0.56
 
 
 
39-Weeks Ended
 
 
September 29,
 
 
September 30,
 
 
 
 
2007
 
 
2006
 
Numerator:
         
Numerator for basic and diluted net income
         
per share - net income
 
$
547,744
 
$
333,778
 
 
         
Denominator:
         
Denominator for basic net income per share -
         
weighted-average common shares
   
216,456
   
216,502
 
 
         
Effect of dilutive securities -
         
employee stock options
   
3,026
   
2,376
 
 
         
Denominator for diluted net income per share -
         
adjusted weighted-average common shares
   
219,482
   
218,878
 
 
         
Basic net income per share
 
$
2.53
 
$
1.54
 
 
         
Diluted net income per share
 
$
2.50
 
$
1.52
 
 
There were 13,615 anti-dilutive options for the 13-week period ended September 29, 2007. There were 1,153,121 anti-dilutive options for the 13-week period ended September 30, 2006.

There were 605,174 anti-dilutive options for the 39-week period ended September 29, 2007. There were 503,267 anti-dilutive options for the 39-week period ended September 30, 2006.

There were 751,734 shares issued as a result of exercises of stock appreciation rights and stock options for the 39-week period ended September 29, 2007.
 
8


5.  Comprehensive Income

Comprehensive income is comprised of the following (in thousands):
 
 
 
13-Weeks Ended
 
 
 
September 29,
 
September 30,
 
 
 
2007
 
2006
 
Net income
 
$
193,507
 
$
122,978
 
Translation adjustment
   
9,981
   
(17,438
)
Change in fair value of available-for-sale
         
marketable securities, net of deferred taxes
   
1,781
   
4,770
 
Comprehensive income
 
$
205,269
 
$
110,310
 
 
 
39-Weeks Ended
 
 
September 29,
 
 
September 30,
 
 
 
 
2007
 
 
2006
 
Net income
 
$
547,744
 
$
333,778
 
Translation adjustment
   
(555
)
 
(15,870
)
Change in fair value of available-for-sale
         
marketable securities, net of deferred taxes
   
3,061
   
(834
)
Comprehensive income
 
$
550,250
 
$
317,074
 
 
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 29, 2007
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net sales to external customers
 
$
87,747
 
$
47,659
 
$
518,939
 
$
74,328
 
$
728,673
 
Operating income
 
$
30,178
 
$
15,623
 
$
141,855
 
$
26,501
 
$
214,157
 
Income before taxes
 
$
30,663
 
$
16,075
 
$
148,651
 
$
27,237
 
$
222,626
 
 
                     
13-Weeks Ended September 30, 2006
                     
 
                     
Net sales to external customers
 
$
70,651
 
$
40,588
 
$
237,981
 
$
58,777
 
$
407,997
 
Operating income
 
$
28,817
 
$
13,659
 
$
59,517
 
$
18,979
 
$
120,972
 
Income before taxes
 
$
32,261
 
$
15,547
 
$
77,311
 
$
20,417
 
$
145,536
 
 
39-Weeks Ended September 29, 2007
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net sales to external customers
 
$
225,437
 
$
170,433
 
$
1,343,460
 
$
223,968
 
$
1,963,298
 
Operating income
 
$
79,986
 
$
60,033
 
$
370,448
 
$
83,582
 
$
594,049
 
Income before taxes
 
$
84,257
 
$
63,225
 
$
396,905
 
$
85,783
 
$
630,170
 
 
                     
39-Weeks Ended September 30, 2006
                     
 
                     
Net sales to external customers
 
$
205,412
 
$
141,406
 
$
644,097
 
$
171,861
 
$
1,162,776
 
Operating income
 
$
85,116
 
$
53,718
 
$
155,782
 
$
61,045
 
$
355,661
 
Income before taxes
 
$
89,301
 
$
57,841
 
$
185,801
 
$
62,061
 
$
395,004
 

9



Allocation of certain research and development expenses, and selling, general, and administrative expenses are made to each segment on a percent of revenue basis.

Net Sales and long-lived assets (property and equipment) by geographic area are as follows as of and for the 39-week periods ended September 29, 2007 and September 30, 2006:

 
 
North
 
 
 
 
 
 
 
 
 
America
 
Asia
 
Europe
 
Total
 
September 29, 2007
 
 
 
 
 
 
 
 
 
Net sales to external customers
 
$
1,231,341
 
$
100,900
 
$
631,057
 
$
1,963,298
 
Long-lived assets
 
$
169,828
 
$
143,895
 
$
44,855
 
$
358,578
 
 
                 
September 30, 2006
                 
Net sales to external customers
 
$
699,987
 
$
63,170
 
$
399,619
 
$
1,162,776
 
Long-lived assets
 
$
142,791
 
$
64,152
 
$
2,192
 
$
209,135
 
 
7.  Income Taxes

The Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48), on December 31, 2006, the beginning of fiscal year 2007. As a result of the implementation of FIN 48, the Company has not recognized a material increase or decrease in the liability for unrecognized tax benefits. The total amount of unrecognized tax benefits as of the date of adoption is $70.5 million including interest of $3.3 million. The total amount of unrecognized tax benefits as of September 29, 2007 is $90.3 million including interest of $4.9 million. The September 29, 2007 balance of $90.3 million of unrecognized tax benefits, if recognized, would reduce the effective tax rate. None of the unrecognized tax benefits are due to uncertainty in the timing of deductibility.

FIN 48 requires unrecognized tax benefits to be classified as non-current liabilities, except for the portion that is expected to be paid within one year of the balance sheet date. The Company previously classified these amounts as current liabilities, however after the adoption, the entire $90.3 million is required to be classified as non-current at September 29, 2007.

Interest expense and penalties, if any, accrued on the unrecognized tax benefits are reflected in income tax expense. $0.5 million of interest is included in income tax expense for the quarter ending September 29, 2007. At September 29, 2007 and at December 30, 2006, the Company had accrued approximately $4.9 million and $3.3 million respectively for interest. The Company had no amounts accrued for penalties as the nature of the unrecognized tax benefits, if recognized, would not warrant the imposition of penalties.

The Company files income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. The Company is no longer subject to US federal, state, or local tax examinations by tax authorities for years prior to 2003. The Company also considers 2003 and 2004 US federal returns to have been effectively settled due to the completion of audit examination by the Internal Revenue Service. The Company is no longer subject to Taiwan income tax examinations by tax authorities for years prior to 2001. The Company is no longer subject to United Kingdom tax examinations by tax authorities for years prior to 2005.

The Company believes that it is reasonably possible that $5.0 million of its reserves for certain unrecognized tax benefits will decrease within the next 12 months as the result of the statute of limitations expiring related to an uncertain tax benefit associated with transfer pricing. This potential decrease in unrecognized tax benefits would impact the Company’s effective tax rate within the next 12 months.
 
10

 
8.  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.
  
 
 
13-Weeks Ended
 
 
 
September 29,
 
September 30,
 
 
 
2007
 
2006
 
 
 
 
 
 
 
Balance - beginning of the period
 
$
49,725
 
$
24,906
 
Accrual for products sold
         
during the period
   
28,379
   
15,135
 
Expenditures
   
(22,879
)
 
(11,068
)
Balance - end of the period
 
$
55,225
 
$
28,973
 
 
 
 
39-Weeks Ended
 
 
 
September 29,
 
September 30,
 
 
 
2007
 
2006
 
 
 
 
 
 
 
Balance - beginning of the period
 
$
37,639
 
$
18,817
 
Accrual for products sold
         
during the period
   
65,979
   
32,731
 
Expenditures
   
(48,393
)
 
(22,575
)
Balance - end of the period
 
$
55,225
 
$
28,973
 
 
9.  Commitments

Pursuant to certain supply agreements, the Company is contractually committed to make purchases of approximately $10.3 million over the next 5 years.

10.  Recent Accounting Pronouncements

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS No. 157”). SFAS No. 157 establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. SFAS No. 157 applies under other accounting pronouncements that require or permit fair value measurements. This statement is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company will be required to adopt SFAS No. 157 in the first quarter of fiscal year 2008.   We do not expect the adoption of SFAS No. 157 to have a material impact on our financial reporting and disclosure.

In February 2007, the FASB issued Statement of Financial Accounting Standards (“SFAS No. 159”), “The Fair Value Option for Financial Assets and Financial Liabilities.” SFAS No. 159 allows entities the option to measure eligible financial instruments at fair value as of specified dates. Such election, which may be applied on an instrument by instrument basis, is typically irrevocable once elected. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007, and early application is allowed under certain circumstances. Management is currently evaluating the requirements of SFAS No. 159 and has not yet determined the impact, if any, on the Company’s consolidated financial statements.
 
11


11.  Acquisitions

In the first quarter of 2007, Garmin Ltd. acquired EME Tec Sat SAS (the exclusive distributor of Garmin’s consumer products in France and now renamed Garmin France), Digital Cyclone, Inc. (a location based services provider), and the assets of Nautamatic Marine Systems, Inc. (a manufacturer of the TR-1 Gold and Gladiator marine autopilots). In the third quarter of 2007, Garmin Ltd. acquired GPS Gesellschaft fur Professionelle Satellitennavigation mbH (Garmin’s exclusive distributor of consumer products in Germany and now renamed Garmin Deutschland GmbH). These companies were acquired for $99.2M less $15.1M cash acquired. The preliminary purchase price allocation resulted in an increase in goodwill and intangible assets of $87.9M. These acquisitions are not material, either individually or in aggregate, therefore supplemental pro forma information is not presented.

On July 17, 2007, Garmin Ltd. announced its intent to acquire Electronica Trepat SA, the distributor of Garmin’s consumer products in Spain. This acquisition is not expected to be material.

On August 3, 2007, Garmin Ltd. announced its intent to acquire Synergy S.p.A, the distributor of Garmin’s consumer products in Italy. This acquisition is not expected to be material.

12.  Subsequent Events

On October 11, 2007, Garmin Ltd. announced its intent to acquire Fairpoint Navigation A/S, the distributor of Garmin’s consumer products in Denmark. This acquisition is not expected to be material.
 
On October 31, 2007, Garmin Ltd. announced its intent to make a public offer for all of the outstanding shares of Tele Atlas N.V. on a fully diluted basis at an indicative offer price of €24.50 in cash per share, implying an equity value for Tele Atlas of €2.3 billion, or approximately $3.3 billion. In addition to its cash and marketable securities balance in excess of $1 billion, Garmin has secured financing commitments from two banks which are sufficient for the intended offer. As of the offer date, Garmin Ltd. owns greater than 5% of the outstanding shares of Tele Atlas N.V. This transaction will be material, and supplemental pro forma information will be presented as appropriate in future filings.
 
12


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 30, 2006. 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 30, 2006.

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.
 
13


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 29,
2007
 
September 30,
2006
 
 
 
 
 
 
 
Net sales
   
100.0
%
 
100.0
%
Cost of goods sold
   
53.1
%
 
51.3
%
Gross profit
   
46.9
%
 
48.7
%
Research and development
   
5.6
%
 
7.5
%
Selling, general and administrative
   
11.9
%
 
11.6
%
Total operating expenses
   
17.5
%
 
19.1
%
Operating income
   
29.4
%
 
29.6
%
Other income (expense), net
   
1.2
%
 
6.0
%
Income before income taxes
   
30.6
%
 
35.6
%
Provision for income taxes
   
4.0
%
 
5.5
%
Net income
   
26.6
%
 
30.1
%
  
   
39-Weeks Ended
 
   
September 29,
2007
 
September 30,
2006
 
 
 
 
 
 
 
Net sales
   
100.0
%
 
100.0
%
Cost of goods sold
   
51.4
%
 
50.3
%
Gross profit
   
48.6
%
 
49.7
%
Research and development
   
5.7
%
 
7.1
%
Selling, general and administrative
   
12.6
%
 
12.0
%
Total operating expenses
   
18.3
%
 
19.1
%
Operating income
   
30.3
%
 
30.6
%
Other income (expense), net
   
1.8
%
 
3.4
%
Income before income taxes
   
32.1
%
 
34.0
%
Provision for income taxes
   
4.2
%
 
5.3
%
Net income
   
27.9
%
 
28.7
%

14


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), gross profit, and operating income for each of our four segments during the periods shown. For each line item in the table, the total of the outdoor/fitness, marine, automotive/mobile, and aviation segments' amounts equals the amount in the condensed consolidated statements of income included in Item 1.
 
 
 
Reportable Segments
 
 
 
Outdoor/
 
 
 
Auto/
 
 
 
 
 
 
 
Fitness
 
Marine
 
Mobile
 
Aviation
 
Total
 
13-Weeks Ended September 29, 2007
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net sales to external customers
 
$
87,747
 
$
47,659
 
$
518,939
 
$
74,328
 
$
728,673
 
Gross profit
 
$
46,553
 
$
25,170
 
$
221,148
 
$
48,980
 
$
341,851
 
Operating income
 
$
30,178
 
$
15,623
 
$
141,855
 
$
26,501
 
$
214,157
 
 
                     
13-Weeks Ended September 30, 2006
                     
 
                     
Net sales to external customers
 
$
70,651
 
$
40,588
 
$
237,981
 
$
58,777
 
$
407,997
 
Gross profit
 
$
39,803
 
$
21,645
 
$
99,708
 
$
37,704
 
$
198,860
 
Operating income
 
$
28,817
 
$
13,659
 
$
59,517
 
$
18,979
 
$
120,972
 
 
39-Weeks Ended September 29, 2007
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net sales to external customers
 
$
225,437
 
$
170,433
 
$
1,343,460
 
$
223,968
 
$
1,963,298
 
Gross profit
 
$
123,616
 
$
92,704
 
$
591,400
 
$
146,550
 
$
954,270
 
Operating income
 
$
79,986
 
$
60,033
 
$
370,448
 
$
83,582
 
$
594,049
 
 
                     
39-Weeks Ended September 30, 2006
                     
 
                     
Net sales to external customers
 
$
205,412
 
$
141,406
 
$
644,097
 
$
171,861
 
$
1,162,776
 
Gross profit
 
$
118,615
 
$
79,484
 
$
269,855
 
$
109,979
 
$
577,933
 
Operating income
 
$
85,116
 
$
53,718
 
$
155,782
 
$
61,045
 
$
355,661
 

15


Comparison of 13-Weeks Ended September 29, 2007 and September 30, 2006

Net Sales

 
 
13-weeks ended September 29, 2007
 
13-weeks ended September 30, 2006
 
Quarter over Quarter
 
 
 
Net Sales
 
% of Revenues
 
Net Sales
 
% of Revenues
 
$ Change
 
% Change
 
Outdoor/Fitness
 
$
87,747
   
12.1
%
$
70,651
   
17.3
%
$
17,096
   
24.2
%
Marine
   
47,659
   
6.5
%
 
40,588
   
9.9
%
 
7,071
   
17.4
%
Automotive/Mobile
   
518,939
   
71.2
%
 
237,981
   
58.4
%
 
280,958
   
118.1
%
Aviation
   
74,328
   
10.2
%
 
58,777
   
14.4
%
 
15,551
   
26.5
%
Total
 
$
728,673
   
100.0
%
$
407,997
   
100.0
%
$
320,676
   
78.6
%
 
Increases in sales of 78.6% for the 13-week period ended September 29, 2007 were primarily due to a strong response to automotive product offerings. However, the aviation, marine, and outdoor/fitness segments all showed growth during the quarter. Automotive/mobile revenue became a significantly larger portion of our revenue mix, rising from 58.4% in the third quarter of 2006 to 71.2% in the third quarter of 2007. Approximately 41% of sales in the third quarter of 2007 were generated from products introduced in the last twelve months.

Total unit sales increased 119% to 2,688,000 in the third quarter of 2007 from 1,227,000 in the same period of 2006. The higher unit sales volume in the third quarter of fiscal 2007 was primarily attributable to strong sales of automotive products during the third quarter, although unit growth also occurred in the outdoor/fitness segment during the quarter.

Automotive/mobile segment revenue grew the fastest during the quarter, up 118% from the year-ago quarter, on the strength of nüvi, c-series, and other personal navigation devices (PNDs). Our aviation segment also performed well, as demand for our GMX 200, WAAS-enabled retrofit products, and WAAS upgrades to previously installed products continued to be strong. Revenues in our outdoor/fitness segment grew relative to the third quarter of 2006 due to positive customer response to new product offerings. The marine segment showed strong growth during the quarter when compared with the third quarter of 2006, driven by continued customer interest in new products released in the first half of 2007.

Gross Profit

 
 
13-weeks ended September 29, 2007
 
13-weeks ended September 30, 2006
 
Quarter over Quarter
 
 
 
Gross Profit
 
% of Revenues
 
Gross Profit
 
% of Revenues
 
$ Change
 
% Change
 
Outdoor/Fitness
 
$
46,553
   
53.1
%
$
39,803
   
56.3
%
$
6,750
   
17.0
%
Marine
   
25,170
   
52.8
%
 
21,645
   
53.3
%
 
3,525
   
16.3
%
Automotive/Mobile
   
221,148
   
42.6
%
 
99,708
   
41.9
%
 
121,440
   
121.8
%
Aviation
   
48,980
   
65.9
%
 
37,704
   
64.1
%
 
11,276
   
29.9
%
Total
 
$
341,851
   
46.9
%
$
198,860
   
48.7
%
$
142,991
   
71.9
%
 
Gross profit dollars in the third quarter of 2007 grew 71.9% and gross profit margin percentage declined 180 basis points over the third quarter of 2006. Third quarter gross profit margins decreased to 53.1% and 52.8% in the outdoor/fitness and marine segments respectively, when compared to the same quarter in 2006. Third quarter 2007 gross profit margins increased to 42.6% and 65.9% in the automotive/mobile and aviation segments, respectively, when compared with the third quarter of 2006.

Gross profit margin percentage for the Company overall decreased primarily as a result of the automotive/mobile segment becoming a significantly larger percentage of the Company’s product mix during a quarter. While this segment’s margin improved 70 basis points, it has the lowest gross margin of our four businesses. While the automotive/mobile segment is by nature a lower-margin business, more units sold in the U.S. than in Europe, coupled with a less aggressive than anticipated pricing environment for the segment resulted in both a small gross margin improvement and strong gross margin dollar growth within the segment. Continued seasonally strong sales of new products in the marine retail channel provided off-season support for marine margins, which remained within historic ranges. Declines in gross margin in the outdoor/fitness segment as a result of a more mature product mix pressured gross margins for the Company during the quarter. Product mix in the aviation segment resulted in a 180 basis point margin increase for the segment relative to the year-ago quarter, and the aviation segment’s strong gross margin profile continued to provide gross margin support for the Company.
 
16

 
Selling, General and Administrative Expenses

 
 
13-weeks ended September 29, 2007
 
13-weeks ended September 30, 2006
 
Quarter over Quarter
 
   
Selling, General &
     
Selling, General &
     
 
 
 
 
Admin. Expenses
 
% of Revenues
 
Admin. Expenses
 
% of Revenues
 
$ Change
 
% Change
 
Outdoor/Fitness
 
$
11,468
   
13.1
%
$
6,816
   
9.6
%
$
4,652
   
68.2
%
Marine
   
5,635
   
11.8
%
 
4,295
   
10.6
%
 
1,340
   
31.2
%
Automotive/Mobile
   
63,988
   
12.3
%
 
31,326
   
13.2
%
 
32,662
   
104.3
%
Aviation
   
5,969
   
8.0
%
 
5,052
   
8.6
%
 
917
   
18.1
%
Total
 
$
87,060
   
11.9
%
$
47,489
   
11.6
%
$
39,571
   
83.3
%
 
The increase in expense was driven primarily by increased advertising spending and increased staffing throughout the organization to support our growth. Advertising spending, which included increases in both cooperative advertising costs and television and print advertising placements, increased 66% or $15.4 million when compared to the third quarter of 2006. As a percent of sales, advertising declined to 5.3% of sales in the third quarter of 2007, down from 5.7% in the third quarter of 2006. Other selling, general and administrative expenses increased as a percent of sales from 5.9% of sales in the third quarter of 2006 to 6.6% of sales in the third quarter of 2007, as staffing in marketing and administration were increased to support our rapid growth. In absolute dollars, other selling, general and administrative expenses increased $24.2 million when compared to the previous year quarter, with increases distributed across call center, operations, finance, administration, and marketing administration areas to support the growth of our businesses.

Research and Development Expense

 
 
13-weeks ended September 29, 2007
 
13-weeks ended September 30, 2006
 
Quarter over Quarter
 
 
 
Research &
   
Research &
     
 
 
Development
 
% of Revenues
 
Development
 
% of Revenues
 
$ Change
 
% Change
 
Outdoor/Fitness
 
$
4,907
   
5.6
%
$
4,170
   
5.9
%
$
737
   
17.7
%
Marine
   
3,912
   
8.2
%
 
3,691
   
9.1
%
 
221
   
6.0
%
Automotive/Mobile
   
15,305
   
2.9
%
 
8,865
   
3.7
%
 
6,440
   
72.7
%
Aviation
   
16,510
   
22.2
%
 
13,673
   
23.3
%
 
2,837
   
20.8
%
Total
 
$
40,634
   
5.6
%
$
30,399
   
7.5
%
$
10,235
   
33.7
%
 
The 33.7% increase in research and development expense was due to ongoing development activities for new products, the addition of 30 new engineering personnel to our staff during the quarter, and an increase in engineering program costs during the third quarter of 2007 as a result of our continued emphasis on product innovation. Research and development costs increased $10.2 million when compared with the year-ago quarter, but declined 190 basis points as a percent of revenue primarily due to the fact that the growth rate of research and development expenditures for the period (33.7%) was slower than the growth rate of revenues (78.6%).
 
Operating Income

 
 
13-weeks ended September 29, 2007
 
13-weeks ended September 30, 2006
 
Quarter over Quarter
 
 
 
Operating Income
 
% of Revenues
 
Operating Income
 
% of Revenues
 
$ Change
 
% Change
 
Outdoor/Fitness
 
$
30,178
   
34.4
%
$
28,817
   
40.8
%
$
1,361
   
4.7
%
Marine
   
15,623
   
32.8
%
 
13,659
   
33.7
%
 
1,964
   
14.4
%
Automotive/Mobile
   
141,855
   
27.3
%
 
59,517
   
25.0
%
 
82,338
   
138.3
%
Aviation
   
26,501
   
35.7
%
 
18,979
   
32.3
%
 
7,522
   
39.6
%
Total
 
$
214,157
   
29.4
%
$
120,972
   
29.7
%
$
93,185
   
77.0
%
 
Operating income was down just 30 basis points as a percent of revenue when compared to the third quarter of 2006 due to the decrease in gross margins, which was in good part offset by the fact that research and development expenditures decreased as a percent of revenues. Operating margins decreased to 34.4% and 32.8% within our outdoor/fitness and marine segments, respectively, when compared with the third quarter in 2006. Operating margins increased to 27.3% and 35.7% within our automotive/mobile and aviation segments, respectively. Our operating margin percentage decreased slightly as a function of the gross profit margin percentage changes described above, offset by meaningful improvements in the gross and operating margins of the aviation and automotive/mobile segments.
 
17


Other Income (Expense)
 
 
 
13-weeks ended
 
13-weeks ended
 
 
 
September 29,
2007
 
September 30,
2006
 
Interest Income
 
$
11,798
 
$
9,622
 
Interest Expense
   
(273
)
 
(2
)
Foreign Currency Exchange
   
(3,626
)
 
14,874
 
Other
   
570
   
70
 
Total
 
$
8,469
 
$
24,564
 
 
The average taxable equivalent interest rate return on invested cash during the third quarter of 2007 was 3.9% compared to 3.8% during the same quarter of 2006. The increase in interest income is attributable to our growing cash balances, increasing interest rates, and more active management of our cash balances.

Foreign currency gains and losses for the Company are primarily tied to movements by the Taiwan Dollar, and secondarily to the use of the British Pound Sterling at Garmin Europe. The Euro is the functional currency of Garmin France and Garmin Deutschland and as these entities grow, Euro currency moves will also generate more material gains and losses. Additionally, Euro-based inter-company transactions in Garmin Ltd. can also generate currency gains and losses. The Canadian dollar is the functional currency of Dynastream Innovations, Inc.; due to this entity’s relative size, its currency moves do not have a material impact on the Company’s financial statements.

The majority of the $3.6 million currency loss in the third quarter of 2007 was due to the weakening of the U.S. Dollar compared to the Taiwan Dollar. During the third quarter of fiscal 2007 the Taiwan Dollar exchange rate increased, resulting in a $5.4 million loss. The British Pound Sterling and the Euro strengthened 1.5% and 4.9% respectively, relative to the U.S. Dollar during the quarter, which resulted in a $0.4 million gain related to movements in the British Pound Sterling, and a $1.2 million gain related to movements in the Euro. Other net currency gains and the timing of transactions created the remaining gain of $0.2 million.

The U.S. Dollar strengthened when compared to the Taiwan Dollar during the third quarter of 2006, when the exchange rate decreased 2.3%, resulting in a $14.9 million gain. While the British Pound Sterling did strengthen during the third quarter of 2006, British Pound Sterling currency moves had no material impact, and Dynastream, Garmin France, and Garmin Deutschland had not yet been acquired.

Income Tax Provision
 
Our earnings before taxes increased 53% when compared to the same quarter in 2006, and our income tax expense increased by $6.6 million, to $29.1 million, for the 13-week period ended September 29, 2007, from $22.6 million for the 13-week period ended September 30, 2006, due to our strong revenue growth, enhanced by a lower effective tax rate. The effective tax rate was 13.1% in the third quarter of 2007 and 15.5% in the third quarter of 2006. The lower tax rate in the third quarter of 2007 when compared to the same quarter in 2006 was related to tax holidays/credits and the favorable mix of taxable income among Company entities.

Net Income

As a result of the above, net income increased 57.4% for the 13-week period ended September 29, 2007 to $193.5 million compared to $123.0 million for the 13-week period ended September 30, 2006.
 
18


Comparison of 39-weeks Ended September 29, 2007 and September 30, 2006

Net Sales

   
39-weeks ended September 29, 2007
 
39-weeks ended September 30, 2006
 
Period over Period
 
   
Net Sales
 
% of Revenues
 
Net Sales
 
% of Revenues
 
$ Change
 
% Change
 
Outdoor/Fitness
 
$
225,437
   
11.5
%
$
205,412
   
17.7
%
$
20,025
   
9.7
%
Marine
   
170,433
   
8.7
%
 
141,406
   
12.2
%
 
29,027
   
20.5
%
Automotive/Mobile
   
1,343,460
   
68.4
%
 
644,097
   
55.4
%
 
699,363
   
108.6
%
Aviation
   
223,968
   
11.4
%
 
171,861
   
14.8
%
 
52,107
   
30.3
%
Total
 
$
1,963,298
   
100.0
%
$
1,162,776
   
100.0
%
$
800,522
   
68.8
%
 
Increases in sales for the 39-week period ended September 29, 2007 were due to a strong response to automotive, aviation, and marine product offerings, and modest growth from our outdoor/fitness segment. Automotive/mobile revenue became a significantly larger portion of our revenue mix, rising from 55.4% year to date in 2006 to 68.4% in the same period in 2007.

Total unit sales increased 97% to 6,784,000 year to date in 2007 from 3,429,000 in the same period of 2006. The higher unit sales volume during this period of fiscal 2007 was primarily attributable to strong sales of automotive products, particularly in North America.

Automotive/mobile segment revenue grew the fastest during the period, more than doubling from the year-ago period, on the strength of nüvi, c-series, and other personal navigation devices (PNDs). Our aviation segment also performed well, as demand for our GMX 200, WAAS-enabled retrofit products, and WAAS upgrades to previously installed products all continued strong. The release of new marine products to the marine retail channel during the first half of 2007 drove seasonally strong revenue growth for the segment when compared with the same period of 2006. Revenues in our outdoor/fitness segment were slightly higher than the same period in 2006, however growth for the segment was dampened by the overall aging of this segment’s product portfolio.

Gross Profit

   
39-weeks ended September 29, 2007
 
39-weeks ended September 30, 2006
 
Period over Period
 
   
Gross Profit
 
% of Revenues
 
Gross Profit
 
% of Revenues
 
$ Change
 
% Change
 
Outdoor/Fitness
 
$
123,616
   
54.8
%
$
118,615
   
57.7
%
$
5,001
   
4.2
%
Marine
   
92,704
   
54.4
%
 
79,484
   
56.2
%
 
13,220
   
16.6
%
Automotive/Mobile
   
591,400
   
44.0
%
 
269,855
   
41.9
%
 
321,545
   
119.2
%
Aviation
   
146,550
   
65.4
%
 
109,979
   
64.0
%
 
36,571
   
33.3
%
Total
 
$
954,270
   
48.6
%
$
577,933
   
49.7
%
$
376,337
   
65.1
%


Gross profit dollars for the 39-week period ending September 29, 2007 grew 65% and gross profit margin percentage declined 110 basis points over the same period of the previous year. Year to date 2007 gross profit margins decreased to 54.8% and 54.4% in the outdoor/fitness and marine segments respectively, when compared to the same period in 2006. Year to date 2007 gross profit margins increased to 44.0% and 65.4% within the automotive/mobile and aviation segments, when compared with the same period in 2006.

Gross profit margin percentage for the Company overall decreased primarily as a result of the automotive/mobile segment becoming a significantly larger percentage of the Company’s product mix. While the automotive/mobile segment is by nature a lower-margin business, favorable product mix with more product sold in the U.S., favorable component pricing in early 2007, and a less aggressive than anticipated pricing environment for the segment all supported gross margin improvement and gross margin dollar growth within the segment. Strong demand for popular retrofit products in the aviation segment resulted in favorable product mix and margins for the aviation segment. Declines in gross margin in both the outdoor/fitness and marine segments pressured gross margins for the Company during the period, although both marine segments gross margins remained within normal historic margin ranges.
 
19


Selling, General and Administrative Expenses

   
39-weeks ended September 29, 2007
 
39-weeks ended September 30, 2006
 
Period over Period
 
   
Selling, General &
 
 
 
Selling, General &
 
 
   
   
Admin. Expenses
 
% of Revenues
 
Admin. Expenses
 
% of Revenues
 
$ Change
 
% Change
 
Outdoor/Fitness
 
$
28,068
   
12.5
%
$
20,660
   
10.1
%
$
7,408
   
35.9
%
Marine
   
20,421
   
12.0
%
 
15,860
   
11.2
%
 
4,561
   
28.8
%
Automotive/Mobile
   
181,246
   
13.5
%
 
88,873
   
13.8
%
 
92,373
   
103.9
%
Aviation
   
18,623
   
8.3
%
 
14,774
   
8.6
%
 
3,849
   
26.0
%
Total
 
$
248,358
   
12.6
%
$
140,167
   
12.1
%
$
108,191
   
77.2
%
 
The increase in expense was driven primarily by increased advertising spending and increased staffing to support our growth. Advertising spending, which included increases in both cooperative advertising costs and television and print advertising placements, increased 66.3% or $49.7 million when compared to the same period in 2006. As a percent of sales, advertising remained nearly flat, decreasing from 6.5% of sales year to date in 2006 to 6.4% of sales in the same period in 2007. Other selling, general and administrative expenses increased as a percent of sales from 5.6% of sales year to date in 2006 to 6.3% of sales in the same period in 2007. In absolute dollars, other expenses increased $58.5 million when compared to the previous year period, with increases distributed across call center, operations, finance, administration, and marketing administration areas to support the growth of our businesses.

Research and Development Expense

   
39-weeks ended September 29, 2007
 
39-weeks ended September 30, 2006
 
Period over Period
 
   
Research &
   
Research &
     
   
Development
 
% of Revenues
 
Development
 
% of Revenues
 
$ Change
 
% Change
 
Outdoor/Fitness
 
$
15,562
   
6.9
%
$
12,839
   
6.3
%
$
2,723
   
21.2
%
Marine
   
12,250
   
7.2
%
 
9,906
   
7.0
%
 
2,344
   
23.7
%
Automotive/Mobile
   
39,706
   
3.0
%
 
25,200
   
3.9
%
 
14,506
   
57.6
%
Aviation