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

FORM 10-Q

x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 27, 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 ¨ 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 July 31, 2009
Common Shares, $.005 par value:  200,512,323


 
Garmin Ltd.
Form 10-Q
Quarter Ended June 27, 2009

Table of Contents

   
Page
 
 
 
         
 
Item 1.
Condensed Consolidated Financial Statements
  3  
           
    
Introductory Comments
  3  
           
    
Condensed Consolidated Balance Sheets at June 27, 2009 (Unaudited) and December 27, 2008
  4  
           
    
Condensed Consolidated Statements of Income for the 13-weeks and 26-weeks ended June 27, 2009 and June 28, 2008 (Unaudited)
  5  
           
    
Condensed Consolidated Statements of Cash Flows for the 13-weeks and 26-weeks ended June 27, 2009 and June 28, 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
  26  
           
 
Item 4.
Controls and Procedures
  27  
           
Part II - Other Information
     
           
 
Item 1.
Legal Proceedings
  28  
           
 
Item 1A.
Risk Factors
  29  
           
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
  29  
           
 
Item 3.
Defaults Upon Senior Securities
  30  
           
 
Item 4.
Submission of Matters to a Vote of Securities Holders
  30  
           
 
Item 5.
Other Information
  30  
           
 
Item 6.
Exhibits
  31  
           
Signature Page
    32  
           
Index to Exhibits
    33  
 
 
2

 

Garmin Ltd.
Form 10-Q
Quarter Ended June 27, 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 26-week periods ended June 27, 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)
       
   
June 27,
   
December 27,
 
   
2009
   
2008
 
Assets
           
Current assets:
           
     Cash and cash equivalents
  $ 958,909     $ 696,335  
     Marketable securities
    18,889       12,886  
     Accounts receivable, net
    519,433       741,321  
     Inventories, net
    323,161       425,312  
     Deferred income taxes
    59,331       49,825  
     Prepaid expenses and other current assets
    65,081       58,746  
                 
Total current assets
    1,944,804       1,984,425  
                 
Property and equipment, net
    443,026       445,252  
                 
Marketable securities
    524,935       262,009  
Restricted cash
    2,066       1,941  
Licensing agreements, net
    20,647       16,013  
Other intangible assets, net
    208,888       214,941  
                 
Total assets
  $ 3,144,366     $ 2,924,581  
                 
Liabilities and Stockholders' Equity
               
Current liabilities:
               
     Accounts payable
  $ 137,360     $ 160,094  
     Salaries and benefits payable
    28,396       34,241  
     Accrued warranty costs
    79,968       87,408  
     Accrued sales program costs
    69,554       90,337  
     Other accrued expenses
    94,118       87,021  
     Income taxes payable
    20,142       20,075  
                 
Total current liabilities
    429,538       479,176  
                 
Deferred income taxes
    14,514       4,070  
Non-current taxes
    236,927       214,366  
Other liabilities
    1,231       1,115  
                 
Stockholders' equity:
               
     Common stock, $0.005 par value, 1,000,000,000 shares authorized:
               
        Issued and outstanding shares - 200,505,000 as of
               
            June 27, 2009 and 200,363,000 as of
               
            December 27, 2008
    1,000       1,002  
     Additional paid-in capital
    23,264       -  
     Retained earnings
    2,472,912       2,262,503  
     Accumulated other comprehensive gain/(loss)
    (35,020 )     (37,651 )
                 
Total stockholders' equity
    2,462,156       2,225,854  
Total liabilities and stockholders' equity
  $ 3,144,366     $ 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
   
26-Weeks Ended
 
   
June 27,
   
June 28,
   
June 27,
   
June 28,
 
   
2009
   
2008
   
2009
   
2008
 
                         
Net sales
  $ 669,104     $ 911,671     $ 1,105,803     $ 1,575,476  
                                 
Cost  of goods sold
    317,490       494,543       558,194       838,233  
                                 
Gross profit
    351,614       417,128       547,609       737,243  
                                 
     Advertising expense
    34,023       58,327       57,248       96,456  
     Selling, general and administrative expense
    62,186       66,701       121,963       126,397  
     Research and development expense
    56,253       53,597       111,287       103,154  
Total operating expense
    152,462       178,625       290,498       326,007  
                                 
Operating income
    199,152       238,503       257,111       411,236  
                                 
     Interest income
    5,190       9,801       10,286       18,127  
     Foreign currency
    (4,836 )     21,561       (7,274 )     17,562  
     Gain on sale of equity securities
    -       45,686       -       50,949  
     Other
    335       612       (359 )     732  
Total other income
    689       77,660       2,653       87,370  
                                 
Income before income taxes
    199,841       316,163       259,764       498,606  
                                 
Income tax provision
    37,970       60,071       49,355       94,735  
                                 
Net income
  $ 161,871     $ 256,092     $ 210,409     $ 403,871  
                                 
Net income per share:
                               
     Basic
  $ 0.81     $ 1.20     $ 1.05     $ 1.88  
     Diluted
  $ 0.81     $ 1.19     $ 1.05     $ 1.86  
                                 
Weighted average common
                               
     shares outstanding:
                               
     Basic
    200,296       213,756       200,364       215,130  
     Diluted
    200,853       215,572       200,814       217,274  
                                                                                                                                                       
See accompanying notes.                                     

 
5

 

Garmin Ltd. And Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)

   
26-Weeks Ended
 
   
June 27,
   
June 28,
 
   
2009
   
2008
 
Operating Activities:
           
Net income
  $ 210,409     $ 403,871  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation
    26,335       18,690  
Amortization
    15,914       8,430  
Gain on sale of property and equipment
    (108 )     (208 )
Provision for doubtful accounts
    (5,223 )     3,977  
Deferred income taxes
    (718 )     17,342  
Foreign currency transaction gains/losses
    (4,493 )     25,428  
Provision for obsolete and slow moving inventories
    14,111       28,326  
Stock compensation expense
    21,029       18,253  
Realized gains on marketable securities
    (1,274 )     (72,445 )
Changes in operating assets and liabilities, net of acquisitions:
               
Accounts receivable
    233,166       307,580  
Inventories
    89,044       (141,180 )
Other current assets
    (2,415 )     8,110  
Accounts payable
    (23,175 )     (213,507 )
Other current and non-current liabilities
    (4,838 )     (102,909 )
Income taxes payable
    (5,140 )     (25,341 )
Purchase of licenses
    (6,936 )     (4,236 )
Net cash provided by operating activities
    555,688       280,181  
                 
Investing activities:
               
Purchases of property and equipment
    (23,343 )     (79,917 )
Proceeds from sale of property and equipment
    (7 )     8  
Purchase of intangible assets
    (3,496 )     (997 )
Purchase of marketable securities
    (341,423 )     (344,119 )
Redemption of marketable securities
    68,173       390,179  
Change in restricted cash
    (125 )     14  
Acquisitions, net of cash acquired
    0       (34,768 )
Net cash used in investing activities
    (300,221 )     (69,600 )
                 
Financing activities:
               
Proceeds from issuance of common stock from exercise of stock options
    310       2,050  
Proceeds from issuance of common stock from stock purchase plan
    3,712       5,144  
Stock repurchase
    (1,849 )     (318,471 )
Tax benefit related to stock option exercise
    65       1,965  
Net cash provided by/(used in) financing activities
    2,238       (309,312 )
                 
Effect of exchange rate changes on cash and cash equivalents
    4,869       15,524  
                 
Net increase/(decrease) in cash and cash equivalents
    262,574       (83,207 )
Cash and cash equivalents at beginning of period
    696,335       707,689  
Cash and cash equivalents at end of period
  $ 958,909     $ 624,482  

See accompanying notes.

 
6

 

Garmin Ltd. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

June 27, 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 26-week periods ended June 27, 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 June 27, 2009 and June 28, 2008 both contain operating results for 13-weeks for both year-to-date periods.

2.
Inventories

The components of inventories consist of the following:

   
June 27, 2009
   
December 27, 2008
 
             
Raw Materials
  $ 97,118     $ 151,132  
Work-in-process
    37,819       28,759  
Finished goods
    216,304       268,625  
Inventory Reserves
    (28,080 )     (23,204 )
Inventory, net of reserves
  $ 323,161     $ 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 June 27, 2009, the Company had repurchased 117,600 shares using cash of $1,849 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
 
   
June 27,
   
June 28,
 
   
2009
   
2008
 
Numerator:
           
Numerator for basic and diluted net income per share - net income
  $ 161,871     $ 256,092  
                 
Denominator:
               
Denominator for basic net income per share – weighted-average common shares
    200,296       213,756  
                 
Effect of dilutive securities – employee stock options
    557       1,816  
                 
Denominator for diluted net income per share – adjusted weighted-average common shares
    200,853       215,572  
                 
Basic net income per share
  $ 0.81     $ 1.20  
                 
Diluted net income per share
  $ 0.81     $ 1.19  
                 
   
26-Weeks Ended
 
   
June 27,
   
June 28,
 
   
2009
   
2008
 
Numerator:
               
Numerator for basic and diluted net income per share - net income
  $ 210,409     $ 403,871  
                 
Denominator:
               
Denominator for basic net income per share – weighted-average common shares
    200,364       215,130  
                 
Effect of dilutive securities – employee stock options
    450       2,144  
                 
Denominator for diluted net income per share – adjusted weighted-average common shares
    200,814       217,274  
                 
Basic net income per share
  $ 1.05     $ 1.88  
                 
Diluted net income per share
  $ 1.05     $ 1.86  

There were 7,948,978 anti-dilutive options for the 13-week period ended June 27, 2009.   There were 5,408,834 anti-dilutive options for the 13-week period ended June 28, 2008.

There were 8,548,181 anti-dilutive options for the 26-week period ended June 27, 2009.   There were 5,049,164 anti-dilutive options for the 26-week period ended June 28, 2008.

 
8

 

There were 12,622 shares issued as a result of exercises of stock appreciation rights and stock options for the 13-week period ended June 27, 2009.

There were 24,720 shares issued as a result of exercises of stock appreciation rights and stock options for the 26-week period ended June 27, 2009.

5.
Comprehensive Income

Comprehensive income is comprised of the following:

           
 
13-Weeks Ended
 
   
June 27,
   
June 28,
 
   
2009
   
2008
 
Net income
  $ 161,871     $ 256,092  
Translation adjustment
    26,236       (18,790 )
Change in fair value of available-for-sale
               
   marketable securities, net of deferred taxes
    1,199       (24,291 )
      Comprehensive income
  $ 189,306     $ 213,011  
                 
   
26-Weeks Ended
 
   
June 27,
   
June 28,
 
   
2009
   
2008
 
Net income
  $ 210,409     $ 403,871  
Translation adjustment
    7,473       61,004  
Change in fair value of available-for-sale
               
   marketable securities, net of deferred taxes
    (4,842 )     (57,265 )
      Comprehensive income
  $ 213,040     $ 407,610  

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 June 27, 2009
                             
                               
Net sales
  $ 108,009     $ 60,198     $ 436,718     $ 64,179     $ 669,104  
Operating income
  $ 50,416     $ 21,342     $ 106,712     $ 20,682     $ 199,152  
Income before taxes
  $ 51,255     $ 21,722     $ 105,474     $ 21,390     $ 199,841  
                                         
13-Weeks Ended June 28, 2008
                                       
                                         
Net sales
  $ 119,147     $ 71,178     $ 631,883     $ 89,463     $ 911,671  
Operating income
  $ 45,445     $ 24,068     $ 129,190     $ 39,800     $ 238,503  
Income before taxes
  $ 55,302     $ 27,905     $ 191,855     $ 41,101     $ 316,163  
                                         
26-Weeks Ended June 27, 2009
                                       
                                         
Net sales
  $ 188,013     $ 98,215     $ 696,304     $ 123,271     $ 1,105,803  
Operating income
  $ 78,920     $ 31,914     $ 111,318     $ 34,959     $ 257,111  
Income before taxes
  $ 78,915     $ 31,444     $ 114,632     $ 34,773     $ 259,764  
                                         
26-Weeks Ended June 28, 2008
                                       
                                         
Net sales
  $ 189,641     $ 127,185     $ 1,083,742     $ 174,908     $ 1,575,476  
Operating income
  $ 64,756     $ 41,904     $ 236,831     $ 67,745     $ 411,236  
Income before taxes
  $ 75,749     $ 47,238     $ 304,159     $ 71,460     $ 498,606  

 
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 property and equipment, net by geographic area are as follows as of and for the 26-week periods ended June 27, 2009 and June 28, 2008:

   
Americas
   
Asia
   
Europe
   
Total
 
June 27, 2009
                       
Net sales to external customers
  $ 701,603     $ 64,026     $ 340,174     $ 1,105,803  
Property and equipment, net
  $ 228,976     $ 159,931     $ 54,119     $ 443,026  
                                 
June 28, 2008
                               
Net sales to external customers
  $ 987,440     $ 70,685     $ 517,351     $ 1,575,476  
Property and equipment, net
  $ 209,481     $ 184,041     $ 56,205     $ 449,727  

7.
Warranty Reserves
 
The Company’s products sold are generally covered by a warranty for periods ranging from one to two years.   The Company’s estimate of costs to service its warranty obligations are based on historical experience and expectation of future conditions and are recorded as a liability on the balance sheet.   The following reconciliation provides an illustration of changes in the aggregate warranty reserve.

   
13-Weeks Ended
 
   
June 27,
   
June 28,
 
   
2009
   
2008
 
             
Balance - beginning of the period
  $ 68,847     $ 72,751  
Accrual for products sold during the period
    31,106       37,666  
Expenditures
    (19,985 )     (26,498 )
Balance - end of the period
  $ 79,968     $ 83,919  
 
   
26-Weeks Ended
 
   
June 27,
   
June 28,
 
   
2009
   
2008
 
                 
Balance - beginning of the period
  $ 87,408     $ 71,636  
Accrual for products sold during the period
    49,621       72,987  
Expenditures
    (57,061 )     (60,704 )
Balance - end of the period
  $ 79,968     $ 83,919  

8.
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 $37,200 over the next 5 years.

 
10

 

9.     Income Taxes

Our earnings before taxes decreased 36.8% when compared to the same quarter in 2008, and our income tax expense decreased by $22,101, to $37,970, for the 13-week period ended June 27, 2009, from $60,071 for the 13-week period ended June 28, 2008, due to our earnings before taxes decline.  The effective tax rate was 19.0% for both the 13-weeks and 26-weeks ended June 27, 2009 and the 13-weeks and 26-weeks ended June 28, 2008.   We have experienced a relatively low effective corporate tax rate due to the proportion of our revenue generated by entities in tax jurisdictions with low statutory rates.   In particular,  the profit entitlement afforded our parent company based on its intellectual property rights ownership of our consumer products along with substantial tax incentives offered by the Taiwanese government on certain high-technology capital investments have continued to generate a relatively low tax rate.

10.   Fair Value Measurements

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. The Company adopted SFAS No. 157 effective December 30, 2007.
 
SFAS No. 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price).  SFAS No. 157 classifies the inputs used to measure fair value into the following hierarchy:
 
Level 1
Unadjusted quoted prices in active markets for identical assets or liability
 
Level 2
Unadjusted quoted prices in active markets for similar assets or liabilities, or
 
Unadjustedquoted 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 June 27, 2009
 
                         
Description
 
Total
   
Level 1
   
Level 2
   
Level 3
 
                         
Available for-sale securites
  $ 475,995     $ 475,995       -       -  
Failed Auction rate securities
    67,829       -       -       67,829  
                                 
Total
  $ 543,824     $ 475,995     $ -     $ 67,829  
 
 
11

 
 
For assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the period, SFAS No. 157 requires a reconciliation of the beginning and ending balances, separately for each major category of assets.  The reconciliation is as follows:
 
   
Fair Value Measurements Using
 
   
Significant Unobservable Inputs (Level 3)
 
   
13-Weeks Ended
   
26-Weeks Ended
 
   
June 27, 2009
   
June 27, 2009
 
             
Beginning balance of auction rate securities
  $ 65,544     $ 71,303  
Total unrealized losses included in other comprehensive income
    2,285       (3,474 )
Purchases in and/or out of Level 3
    -       -  
Transfers in and/or out of Level 3
    -       -  
Ending balance of auction rate securities
  $ 67,829     $ 67,829  
 
The following is a summary of the company’s marketable securities classified as available-for-sale securities at June 27, 2009:

   
Amortized
Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Other Than
Temporary
Impairment
   
Estimated Fair
Value (Net
Carrying
Amount)
 
Mortgage-backed securities
  $ 337,865     $ 1,499     $ (2,904 )     -     $ 336,460  
Auction rate securities
    92,750       -       (24,921 )     -       67,829  
Obligations of states and political subdivisions
    85,961       685       (430 )     -       86,216  
U.S. corporate bonds
    33,555       367       (1,372 )     (1,274 )     31,276  
Other
    22,157       273       (387 )     -       22,043  
Total
  $ 572,288     $ 2,824     $ (30,014 )   $ (1,274 )   $ 543,824  
 
The following is a summary of the company’s marketable securities classified as available-for-sale securities at December 27, 2008:

         
Gross
   
Gross
   
Other Than
   
Estimated Fair
Value (Net
 
   
Amortized
   
Unrealized
   
Unrealized
   
Temporary
   
Carrying
 
   
Cost
   
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 )   $ 0     $ 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 June 27, 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
  $ 28,756     $ 28,909  
Due after one year through five years
    243,194       217,733  
Due after five years through ten years
    151,202       149,890  
Due after ten years
    149,136       147,292  
    $ 572,288     $ 543,824  
 
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 second 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 second 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.  The adoption of these FSPs did not 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 second 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.   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

 
 
12.  Subsequent Events

On July 30, 2009, the Company’s Board of Directors approved an annual cash dividend of $0.75 per share.  The dividend is payable to shareholders of record on December 1, 2009 and will be paid on December 15, 2009.  The Company estimates the liability to be approximately $150,000 based on the current shares outstanding.

The Company evaluated subsequent events through the time of filing this Quarterly Report on Form 10-Q on August 5, 2009.

 
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
 
   
June 27, 2009
   
June 28, 2008
 
             
Net sales
    100.0 %     100.0 %
Cost of goods sold
    47.4 %     54.2 %
Gross profit
    52.6 %     45.8 %
Advertising
    5.1 %     6.4 %
Selling, general and administrative
    9.3 %     7.3 %
Research and development
    8.4 %     5.9 %
Total operating expenses
    22.8 %     19.6 %
Operating income
    29.8 %     26.2 %
Other income (expense), net
    0.1 %     8.5 %
Income before income taxes
    29.9 %     34.7 %
Provision for income taxes
    5.7 %     6.6 %
Net income
    24.2 %     28.1 %

   
26-Weeks Ended
 
   
June 27, 2009
   
June 28, 2008
 
             
Net sales
    100.0 %     100.0 %
Cost of goods sold
    50.5 %     53.2 %
Gross profit
    49.5 %     46.8 %
Advertising
    5.2 %     6.1 %
Selling, general and administrative
    11.0 %     8.0 %
Research and development
    10.1 %     6.6 %
Total operating expenses
    26.3 %     20.7 %
Operating income
    23.2 %     26.1 %
Other income (expense), net
    0.2 %     5.5 %
Income before income taxes
    23.4 %     31.6 %
Provision for income taxes
    4.4 %     6.0 %
Net income
    19.0 %     25.6 %

The Company manages its operations in four segments: outdoor/fitness, marine, automotive/mobile, and aviation, and each of its segments employs the same accounting policies. Allocation of certain research and development expenses, and selling, general, and administrative expenses are made to each segment on a percent of revenue basis.   The following table sets forth our results of operations (in thousands) including revenue (net sales), operating income, and income before taxes for each of our four segments during the periods shown.  For each line item in the table, the total of the outdoor/fitness, marine, automotive/mobile, and aviation segments' amounts equals the amount in the condensed consolidated statements of income included in Item 1.

 
16

 
 
   
Reportable Segments
 
   
Outdoor/
         
Auto/
             
   
Fitness
   
Marine
   
Mobile
   
Aviation
   
Total
 
13-Weeks Ended June 27, 2009
                             
                               
Net sales
  $ 108,009     $ 60,198     $ 436,718     $ 64,179     $ 669,104  
Operating income
  $ 50,416     $ 21,342     $ 106,712     $ 20,682     $ 199,152  
Income before taxes
  $ 51,255     $ 21,722     $ 105,474     $ 21,390     $ 199,841  
                                         
13-Weeks Ended June 28, 2008
                                       
                                         
Net sales
  $ 119,147     $ 71,178     $ 631,883     $ 89,463     $ 911,671  
Operating income
  $ 45,445     $ 24,068     $ 129,190     $ 39,800     $ 238,503  
Income before taxes
  $ 55,302     $ 27,905     $ 191,855     $ 41,101     $ 316,163  
                                         
26-Weeks Ended June 27, 2009
                                       
                                         
Net sales
  $ 188,013     $ 98,215     $ 696,304     $ 123,271     $ 1,105,803  
Operating income
  $ 78,920     $ 31,914     $ 111,318     $ 34,959     $ 257,111  
Income before taxes
  $ 78,915     $ 31,444     $ 114,632     $ 34,773     $ 259,764  
                                         
26-Weeks Ended June 28, 2008
                                       
                                         
Net sales
  $ 189,641     $ 127,185     $ 1,083,742     $ 174,908     $ 1,575,476  
Operating income
  $ 64,756     $ 41,904     $ 236,831     $ 67,745     $ 411,236  
Income before taxes
  $ 75,749     $ 47,238     $ 304,159     $ 71,460     $ 498,606  
 
 
17

 

Comparison of 13-Weeks Ended June 27, 2009 and June 28, 2008
(Amounts included in the following discussion are stated in thousands unless otherwise indicated)

Net Sales

   
13-weeks ended June 27, 2009
   
13-weeks ended June 28, 2008
   
Quarter over Quarter
 
   
Net Sales
   
% of Revenues
   
Net Sales
   
% of Revenues
   
$ Change
   
% Change
 
Outdoor/Fitness
  $ 108,009       16.1 %   $ 119,147       13.1 %   $ (11,138 )     -9.3 %
Marine
    60,198       9.0 %     71,178       7.8 %     (10,980 )     -15.4 %
Automotive/Mobile
    436,718       65.3 %     631,883       69.3 %     (195,165 )     -30.9 %
Aviation
    64,179       9.6 %     89,463       9.8 %     (25,284 )     -28.3 %
Total
  $ 669,104       100.0 %   $ 911,671       100.0 %   $ (242,567 )     -26.6 %
 
Net sales decreased 26.6% for the 13-week period ended June 27, 2009 when compared to the year-ago quarter.  The decline occurred across all segments with the greatest decline in the automotive/mobile segment, as well as aviation.  Automotive/mobile revenue remains the largest portion of our revenue mix, but declined from 69.3% in the second quarter of 2008 to 65.3% in the second quarter of 2009.

Total unit sales decreased 5% to 3,715,000 in the second quarter of 2009 from 3,920,000 in the same period of 2008.   The lower unit sales volume in the second quarter of fiscal 2009 was attributable to declining volumes across all segments with the greatest percentage declines occurring in aviation and marine.

Automotive/mobile segment revenue declined 31% from the year-ago quarter, as the average selling price declined 28% and volumes fell 4%.  This segment has slowed due to global macroeconomic conditions which have especially impacted growth in North America and Europe.  The aviation and marine segments declined 28% and 15%, respectively, from the year-ago quarter as both industries experience significant slowdowns associated with the macroeconomic conditions.  Revenues in our outdoor/fitness segment declined 9% from the year ago quarter when we introduced many new products in the segment.

Gross Profit

   
13-weeks ended June 27, 2009
   
13-weeks ended June 28, 2008
   
Quarter over Quarter
 
   
Gross Profit
   
% of Revenues
   
Gross Profit
   
% of Revenues
   
$ Change
   
% Change
 
Outdoor/Fitness
  $ 73,215       67.8 %   $ 67,908       57.0 %   $ 5,307