Unassociated Document

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

FORM 10-Q

x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 26, 2010

or

¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to              

Commission file number 0-31983
    

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

Switzerland
98-0229227
(State or other jurisdiction
 (I.R.S. Employer identification no.)
of incorporation or organization)
 
Vorstadt 40/42
N/A
8200 Schaffhausen
 (Zip Code)
Switzerland
 
 (Address of principal executive offices)
 

Company's telephone number, including area code:  +41 52 620 1401

P.O. Box 10670, Grand Cayman KY1-1006, Suite 3206B, 45 Market Street, Gardenia Court, Camana Bay, Cayman Islands
 (Former name, former address and former fiscal year, if changed since last report)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  YES þ   NO ¨

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

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

Number of shares outstanding of the Company's common shares as of August 2, 2010
Common Shares, $.005 par value:  194,596,361


 
Garmin Ltd.
Form 10-Q
Quarter Ended June 26, 2010

Table of Contents

   
Page
Part I - Financial Information
 
   
       
Item 1.
Condensed Consolidated Financial Statements
 
3
       
 
Introductory Comments
 
3
       
 
Condensed Consolidated Balance Sheets at June 26, 2010 (Unaudited) and December 26, 2009
 
4
       
 
Condensed Consolidated Statements of Income for the 13-weeks and 26-weeks ended June 26, 2010 and June 27, 2009 (Unaudited)
 
5
       
 
Condensed Consolidated Statements of Cash Flows for the 26-weeks ended June 26, 2010 and June 27, 2009 (Unaudited)
 
6
       
 
Notes to Condensed Consolidated Financial Statements (Unaudited)
 
7
       
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
 
15
       
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
 
25
       
Item 4.
Controls and Procedures
 
26
       
Part II - Other Information
   
       
Item 1.
Legal Proceedings
 
27
 
     
Item 1A.  
Risk Factors
 
29
       
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
40
       
Item 3.
Defaults Upon Senior Securities
 
40
       
Item 5.
Other Information
 
40
       
Item 6.
Exhibits
 
41
       
Signature Page
 
42
     
Index to Exhibits
 
43
 
 
2

 

Garmin Ltd.
Form 10-Q
Quarter Ended June 26, 2010

Part I – Financial Information

Item 1.  Condensed Consolidated Financial Statements

Introductory Comments

The Condensed Consolidated Financial Statements of Garmin Ltd. ("Garmin" or the "Company") included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the United States Securities and Exchange Commission.  Certain information and note disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to enable a reasonable understanding of the information presented.  These Condensed Consolidated Financial Statements should be read in conjunction with the audited financial statements and the notes thereto for the year ended December 26, 2009.  Additionally, the Condensed Consolidated Financial Statements should be read in conjunction with Item 2 of Management's Discussion and Analysis of Financial Condition and Results of Operations, included in this Form 10-Q.

The results of operations for the 13-week and 26-week periods ended June 26, 2010 are not necessarily indicative of the results to be expected for the full year 2010.

 
3

 

Garmin Ltd. And Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except share information)
       
   
(Unaudited)
       
   
June 26,
   
December 26,
 
   
2010
   
2009
 
Assets
           
Current assets:
           
Cash and cash equivalents
  $ 1,173,169     $ 1,091,581  
Marketable securities
    18,622       19,583  
Accounts receivable, net
    499,324       874,110  
Inventories, net
    358,576       309,938  
Deferred income taxes
    57,068       59,189  
Prepaid expenses and other current assets
    52,758       39,470  
                 
Total current assets
    2,159,517       2,393,871  
                 
Property and equipment, net
    426,805       441,338  
                 
Marketable securities
    636,184       746,464  
Restricted cash
    936       2,047  
Licensing agreements, net
    2,531       15,400  
Noncurrent deferred income tax
    20,498       20,498  
Other intangible assets, net
    184,888       206,256  
                 
Total assets
  $ 3,431,359     $ 3,825,874  
                 
Liabilities and Stockholders' Equity
               
Current liabilities:
               
Accounts payable
  $ 150,519     $ 203,388  
Salaries and benefits payable
    36,568       45,236  
Accrued warranty costs
    41,445       87,424  
Accrued sales program costs
    46,656       119,150  
Deferred revenue
    46,620       27,910  
Accrued advertising expense
    22,154       34,146  
Other accrued expenses
    81,162       143,568  
Income taxes payable
    11,312       22,846  
                 
Total current liabilities
    436,436       683,668  
                 
Deferred income taxes
    8,521       10,170  
Non-current income taxes
    275,876       255,748  
Non-current deferred revenue
    57,595       38,574  
Other liabilities
    1,317       1,267  
                 
Stockholders' equity:
               
Common stock, $0.005 par value, 1,000,000,000 shares authorized:
         
Issued and outstanding shares - 197,554,000 as of June 26, 2010 and 200,274,000 as of December 26, 2009
    987       1,001  
Additional paid-in capital
    -       32,221  
Retained earnings
    2,648,589       2,816,607  
Accumulated other comprehensive income/(loss)
    2,038       (13,382 )
                 
Total stockholders' equity
    2,651,614       2,836,447  
Total liabilities and stockholders' equity
  $ 3,431,359     $ 3,825,874  

See accompanying notes.

 
4

 
 
Garmin Ltd. And Subsidiaries
Condensed Consolidated Statements of Income (Unaudited)
(In thousands, except per share information)

   
13-Weeks Ended
   
26-Weeks Ended
 
   
June 26,
   
June 27,
   
June 26,
   
June 27,
 
   
2010
   
2009
   
2010
   
2009
 
                         
Net sales
  $ 728,765     $ 669,104     $ 1,159,833     $ 1,105,803  
                                 
Cost  of goods sold
    337,113       317,490       537,272       558,194  
                                 
Gross profit
    391,652       351,614       622,561       547,609  
                                 
Advertising expense
    42,440       34,023       59,841       57,248  
Selling, general and administrative expense
    73,832       62,186       141,509       121,963  
Research and development expense
    73,337       56,253       135,820       111,287  
Total operating expense
    189,609       152,462       337,170       290,498  
                                 
Operating income
    202,043       199,152       285,391       257,111  
                                 
Interest income
    5,791       5,190       12,669       10,286  
Foreign currency
    (43,605 )     (4,836 )     (90,141 )     (7,274 )
Other
    180       335       2,013       (359 )
Total other income  (expense)
    (37,634 )     689       (75,459 )     2,653  
                                 
Income before income taxes
    164,409       199,841       209,932       259,764  
                                 
Income tax provision
    29,593       37,970       37,788       49,355  
                                 
Net income
  $ 134,816     $ 161,871     $ 172,144     $ 210,409  
                                 
Net income per share:
                               
Basic
  $ 0.68     $ 0.81     $ 0.86     $ 1.05  
Diluted
  $ 0.67     $ 0.81     $ 0.86     $ 1.05  
                                 
Weighted average common shares outstanding:
                               
Basic
    198,948       200,296       199,437       200,364  
Diluted
    200,102       200,853       200,626       200,814  
                                 
Cash dividends declared per common share
  $ 1.50     $ 0.75     $ 1.50     $ 0.75  

See accompanying notes.

 
5

 

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

   
26-Weeks Ended
 
   
June 26,
   
June 27,
 
   
2010
   
2009
 
Operating Activities:
           
Net income
  $ 172,144     $ 210,409  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation
    26,746       26,335  
Amortization
    24,809       15,914  
Gain on sale of property and equipment
    (6 )     (108 )
Provision for doubtful accounts
    (552 )     (5,223 )
Deferred income taxes
    (30 )     (718 )
Foreign currency transaction gains/losses
    47,880       (4,493 )
Provision for obsolete and slow moving inventories
    10,309       14,111  
Stock compensation expense
    19,099       21,029  
Realized gains on marketable securities
    (470 )     (1,274 )
Changes in operating assets and liabilities:
               
Accounts receivable
    364,401       233,166  
Inventories
    (64,272 )     89,044  
Other current assets
    (1,468 )     (2,415 )
Accounts payable
    (52,248 )     (23,175 )
Other current and non-current liabilities
    (193,657 )     (4,838 )
Deferred revenue
    37,425       -  
Income taxes payable
    (7,771 )     (5,140 )
Purchase of licenses
    (472 )     (6,936 )
Net cash provided by operating activities
    381,867       555,688  
                 
Investing activities:
               
Purchases of property and equipment
    (13,220 )     (23,343 )
Proceeds from sale of property and equipment
    -       (7 )
Purchase of intangible assets
    (8,229 )     (3,496 )
Purchase of marketable securities
    (169,062 )     (341,423 )
Redemption of marketable securities
    294,350       68,173  
Change in restricted cash
    1,111       (125 )
Net cash provided by/(used in) investing activities
    104,950       (300,221 )
                 
Financing activities:
               
Proceeds from issuance of common stock from exercise of stock options
    5,452       310  
Proceeds from issuance of common stock from stock purchase plan
    -       3,712  
Stock repurchase
    (84,328 )     (1,849 )
Dividends paid
    (299,103 )     -  
Tax benefit related to stock option exercise
    1,898       65  
Net cash provided by/(used in) financing activities
    (376,081 )     2,238  
                 
Effect of exchange rate changes on cash and cash equivalents
    (29,148 )     4,869  
                 
Net increase in cash and cash equivalents
    81,588       262,574  
Cash and cash equivalents at beginning of period
    1,091,581       696,335  
Cash and cash equivalents at end of period
  $ 1,173,169     $ 958,909  

See accompanying notes.

6


Garmin Ltd. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

June 26, 2010
(In thousands, except share and per share information)

1.
Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.  In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.  Operating results for the 13-week and 26-week periods ended June 26, 2010 are not necessarily indicative of the results that may be expected for the year ending December 25, 2010.

The condensed consolidated balance sheet at December 26, 2009 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.  For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 26, 2009.

The Company’s fiscal year is based on a 52-53 week period ending on the last Saturday of the calendar year.  Therefore the financial results of certain fiscal years, and the associated 14-week quarters, will not be exactly comparable to the prior and subsequent 52-week fiscal years and the associated quarters having only 13-weeks.  The quarters ended June 26, 2010 and June 27, 2009 both contain operating results for 13-weeks for both year-to-date periods.
 
2.
Inventories

The components of inventories consist of the following:

    
June 26, 
2010
   
December 26, 
2009
 
             
Raw Materials
  $ 107,121     $ 80,963  
Work-in-process
    39,517       32,587  
Finished goods
    245,353       235,286  
Inventory Reserves
    (18,701 )     (38,898 )
Inventory, net of reserves
  $ 373,290     $ 309,938  

3.
Share Repurchase Plan

The Board of Directors approved a share repurchase program on February 12, 2010, authorizing the Company to purchase up to $300,000 of its common shares as market and business conditions warrant on the open market or in negotiated transactions in compliance with the SEC’s Rule 10b-18.   The share repurchase authorization expires on December 31, 2010.   As of June 26, 2010, the Company had repurchased 3,085,107 shares using cash of $99,586.  Of this amount, approximately $15,491 of repurchase trades remained unsettled at June 26, 2010.  After settlement of these trades, there remains approximately $200,414 available for repurchase under this authorization.

 
7

 
 
4.
Earnings Per Share

The following table sets forth the computation of basic and diluted net income per share:
 
   
13-Weeks Ended
 
   
June 26,
   
June 27,
 
   
2010
   
2009
 
Numerator:
           
Numerator for basic and diluted net income per share - net income
  $ 134,816     $ 161,871  
                 
Denominator:
               
Denominator for basic net income per share – weighted-average common shares
    198,948       200,296  
                 
Effect of dilutive securities – employee stock options
    1,154       557  
                 
Denominator for diluted net income per share – adjusted weighted-average common shares
    200,102       200,853  
                 
Basic net income per share
  $ 0.68     $ 0.81  
                 
Diluted net income per share
  $ 0.67     $ 0.81  
                 
   
26-Weeks Ended
 
   
June 26,
   
June 27,
 
   
2010
   
2009
 
Numerator:
               
Numerator for basic and diluted net income per share - net income
  $ 172,144     $ 210,409  
                 
Denominator:
               
Denominator for basic net income per share – weighted-average common shares
    199,437       200,364  
                 
Effect of dilutive securities – employee stock options
    1,189       450  
                 
Denominator for diluted net income per share – adjusted weighted-average common shares
    200,626       200,814  
                 
Basic net income per share
  $ 0.86     $ 1.05  
                 
Diluted net income per share
  $ 0.86     $ 1.05  

There were 6,186,519 anti-dilutive options for the 13-week period ended June 26, 2010.   There were 7,948,978 anti-dilutive options for the 13-week period ended June 27, 2009.

 
8

 

There were 6,198,202 anti-dilutive options for the 26-week period ended June 26, 2010.   There were 8,548,181 anti-dilutive options for the 26-week period ended June 27, 2009.

There were 73,574 shares issued as a result of exercises of stock appreciation rights and stock options for the 13-week period ended June 26, 2010.  There were 12,622 shares issued as a result of exercises of stock appreciation rights and stock options for the 13-week period ended June 27, 2009.

There were 365,288 shares issued as a result of exercises of stock appreciation rights and stock options for the 26-week period ended June 26, 2010.  There were 24,720 shares issued as a result of exercises of stock appreciation rights and stock options for the 26-week period ended June 27, 2009.
 
5.
Comprehensive Income

Comprehensive income is comprised of the following:

 
   
13-Weeks Ended
 
   
June 26,
   
June 27,
 
   
2010
   
2009
 
Net income
  $ 134,816     $ 161,871  
Translation adjustment
    (7,821 )     26,236  
Change in fair value of available-for-sale marketable securities, net of deferred taxes
    8,838       1,199  
Comprehensive income
  $ 135,833     $ 189,306  

   
26-Weeks Ended
 
   
June 26,
   
June 27,
 
   
2010
   
2009
 
Net income
  $ 172,144     $ 210,409  
Translation adjustment
    218       7,473  
Change in fair value of available-for-sale marketable securities, net of deferred taxes
    15,201       (4,842 )
Comprehensive income
  $ 187,563     $ 213,040  

6.
Segment Information

Net sales, operating income, and income before taxes for each of the Company’s reportable segments are presented below:
 
 
9

 

   
 
Reportable Segments
 
   
 
Outdoor/
         
Auto/
             
   
 
Fitness
   
Marine
   
Mobile
   
Aviation
   
Total
 
13-Weeks Ended June 26, 2010
                             
   
                             
Net sales  
  $ 142,316     $ 74,310     $ 447,225     $ 64,914     $ 728,765  
Operating income  
  $ 62,759     $ 32,146     $ 88,548     $ 18,590     $ 202,043  
Income before taxes
  $ 55,650     $ 28,616     $ 62,419     $ 17,724     $ 164,409  
   
                                       
13-Weeks Ended June 27, 2009
                                       
   
                                       
Net sales  
  $ 108,009     $ 60,198     $ 436,718     $ 64,179     $ 669,104  
Operating income  
  $ 50,416     $ 21,342     $ 106,712     $ 20,682     $ 199,152  
Income before taxes
  $ 51,255     $ 21,722     $ 105,474     $ 21,390     $ 199,841  
   
                                       
26-Weeks Ended June 26, 2010
                                       
   
                                       
Net sales  
  $ 245,052     $ 115,625     $ 668,149     $ 131,007     $ 1,159,833  
Operating income  
  $ 101,327     $ 41,075     $ 105,530     $ 37,459     $ 285,391  
Income before taxes
  $ 86,815     $ 35,244     $ 52,163     $ 35,710     $ 209,932  
   
                                       
26-Weeks Ended June 27, 2009
                                       
   
                                       
Net sales  
  $ 188,013     $ 98,215     $ 696,304     $ 123,271     $ 1,105,803  
Operating income  
  $ 78,920     $ 31,914     $ 111,318     $ 34,959     $ 257,111  
Income before taxes
  $ 78,915     $ 31,444     $ 114,632     $ 34,773     $ 259,764  

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

Net sales and property and equipment, net by geographic area are as follows as of and for the 26-week periods ended June 26, 2010 and June 27, 2009:

   
 
Americas
   
Asia
   
Europe
   
Total
 
June 26, 2010
                       
Net sales to external customers
  $ 696,120     $ 91,681     $ 372,032     $ 1,159,833  
Property and equipment, net
  $ 231,064     $ 146,087     $ 49,654     $ 426,805  
   
                               
June 27, 2009  
                               
Net sales to external customers
  $ 701,603     $ 64,026     $ 340,174     $ 1,105,803  
Property and equipment, net
  $ 228,976     $ 159,931     $ 54,119     $ 443,026  

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

 
10

 

   
13-Weeks Ended
 
   
June 26,
   
June 27,
 
   
2010
   
2009
 
             
Balance - beginning of the period
  $ 58,814     $ 68,847  
Change in accrual for products sold in prior periods
  $ (21,000 )     -  
Accrual for products sold during the period
    15,705       31,106  
Expenditures
    (12,074 )     (19,985 )
Balance - end of the period
  $ 41,445     $ 79,968  

   
26-Weeks Ended
 
   
June 26,
   
June 27,
 
   
2010
   
2009
 
             
Balance - beginning of the period
  $ 87,424     $ 87,408  
Change in accrual for products sold in prior periods
  $ (42,776 )     -  
Accrual for products sold during the period
    30,618       49,621  
Expenditures
    (33,821 )     (57,061 )
Balance - end of the period
  $ 41,445     $ 79,968  

The 13-weeks and 26-weeks ended June 26, 2010 include the effect of a refinement in the estimated warranty reserve which decreased the accrual for the periods by $21,000 and $42,776, respectively.

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 $70,142 over the next 5 years.

9.     Income Taxes

Our earnings before taxes decreased 18% when compared to the same quarter in 2009, and our income tax expense decreased by $8,377 or 22%, to $29,593, for the 13-week period ended June 26, 2010, from $37,970 for the 13-week period ended June 27, 2009, due to our earnings before taxes decline.  The effective tax rate was 18.0% for both the 13-weeks and 26-weeks ended June 26, 2010 and 19.0% for the 13-weeks and 26-weeks ended June 27, 2009.   The slight decrease is due to the mix of income by tax jurisdiction.  We have experienced a relatively low effective corporate tax rate due to the proportion of our revenue generated by entities in tax jurisdictions with low statutory rates.   In particular,  the profit entitlement afforded our parent company based on its intellectual property rights ownership of our consumer products along with substantial tax incentives offered by the Taiwanese government on certain high-technology capital investments have continued to generate a relatively low tax rate.

10.   Fair Value Measurements
 
The Accounting Standards Code (ASC) defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price).  The ASC classifies the inputs used to measure fair value into the following hierarchy:
 
Level 1
Unadjusted quoted prices in active markets for identical assets or liability
 
 
11

 
 
Level 2
Unadjusted quoted prices in active markets for similar assets or liabilities
 
Level 3
Unobservable inputs for the asset or liability
 
The Company endeavors to utilize the best available information in measuring fair value.  Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
 
For fair value measurements using significant unobservable inputs, an independent third party provided the valuation.  The collateral composition was used to estimate Weighted Average Life based on historical and projected payment information.  Cash flows were projected for the issuing trusts, taking into account underlying loan principal, bonds outstanding, and payout formulas.  Taking this information into account, assumptions were made as to the yields likely to be required, based upon then current market conditions for comparable or similar term Asset Based Securities as well as other fixed income securities.
 
Assets and liabilities measured at estimated fair value on a recurring basis are summarized below:
 
   
Fair Value Measurements as
 
   
of June 26, 2010
 
Description
 
Total
   
Level 1
   
Level 2
   
Level 3
 
                                 
Available for-sale securities
  $ 590,260     $ 590,260     $ -     $ -  
Failed Auction rate securities
    64,546       -       -       64,546  
                                 
Total
  $ 654,806     $ 590,260     $ -     $ 64,546  
 
   
Fair Value Measurements as
 
   
of December 26, 2009
 
Description
 
Total
   
Level 1
   
Level 2
   
Level 3
 
                         
Available for-sale securities
  $ 695,795     $ 695,795     $ -     $ -  
Failed Auction rate securities
    70,252       -       -       70,252  
                                 
Total
  $ 766,047     $ 695,795     $ -     $ 70,252  
 
All Level 3 investments have been in a continuous unrealized loss position for 12 months or longer.  However, it is the Company’s intent to hold these securities until they recover their value.  For assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the period, the ASC requires a reconciliation of the beginning and ending balances, separately for each major category of assets.  The reconciliation is as follows:
 
   
Fair Value Measurements Using
 
   
Significant Unobservable Inputs (Level 3)
 
   
13-Weeks Ended
   
26-Weeks Ended
 
   
June 26, 2010
   
June 26, 2010
 
             
Beginning balance of auction rate securities
  $ 70,558     $ 70,252  
Total unrealized gains included in other comprehensive income
    3,988       4,844  
Sales out of Level 3
    (10,000 )     (10,550 )
Transfers in and/or out of Level 3
    -       -  
Ending balance of auction rate securities
  $ 64,546     $ 64,546  
 
 
12

 
 
The following is a summary of the company’s marketable securities classified as available-for-sale securities at June 26, 2010:
 
               
Gross
   
Other Than
   
Estimated Fair
 
         
Gross
   
Unrealized
   
Temporary
   
Value (Net Carrying
 
   
Amortized Cost
   
Unrealized Gains
   
Losses
   
Impairment
   
Amount)
 
Mortgage-backed securities
  $ 423,312     $ 7,866     $ (343 )   $ -     $ 430,835  
Auction Rate Securities
    81,150       -       (16,604 )     -     $ 64,546  
Obligations of states and political subdivisions
    95,981       1,407       (42 )     -     $ 97,346  
U.S. corporate bonds
    38,597       1,001       (290 )     (1,274 )   $ 38,034  
Other
    23,810       372       (137 )     -     $ 24,045  
Total
  $ 662,850     $ 10,646     $ (17,416 )   $ (1,274 )   $ 654,806  
 
The following is a summary of the company’s marketable securities classified as available-for-sale securities at December 26, 2009:
 
               
Gross
   
Other Than
   
Estimated Fair
 
         
Gross
   
Unrealized
   
Temporary
   
Value (Net Carrying
 
   
Amortized Cost
   
Unrealized Gains
   
Losses
   
Impairment
   
Amount)
 
Mortgage-backed securities
  $ 515,200     $ 2,682     $ (4,674 )   $ -     $ 513,208  
Auction Rate Securities
    91,700       -       (21,448 )     -     $ 70,252  
Obligations of states and political subdivisions
    112,419       908       (181 )     -     $ 113,146  
U.S. corporate bonds
    35,883       768       (701 )     (1,274 )   $ 34,676  
Other
    33,903       1,070       (208 )     -     $ 34,765  
Total
  $ 789,105     $ 5,428     $ (27,212 )   $ (1,274 )   $ 766,047  
 
The cost of securities sold is based on the specific identification method.
 
The amortized cost and estimated fair value of marketable securities at June 26, 2010, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties.
 
         
Estimated
 
   
Cost
   
Fair Value
 
                 
Due in one year or less (2010)
  $ 18,535     $ 18,622  
Due after one year through five years (2011-2015)
    182,853       183,659  
Due after five years through ten years (2016-2020)
    181,957       184,147  
Due after ten years (2021 and thereafter)
    263,811       252,320  
Other (No contractual maturity dates)
    15,694       16,058  
    $ 662,850     $ 654,806  
 
11.  Recently Issued Accounting Pronouncements
 
In January 2010, the FASB issued ASU No. 2010-06, "Improving Disclosures about Fair Value Measurements" ("ASU 2010-06"), which is included in the ASC Topic 820 (Fair Value Measurements and Disclosures). ASU 2010-06 requires new disclosures on the amount and reason for transfers in and out of Level 1 and 2 fair value measurements.  ASU 2010-06 also requires disclosure of activities, including purchases, sales, issuances, and settlements within the Level 3 fair value measurements and clarifies existing disclosure requirements on levels of disaggregation and disclosures about inputs and valuation techniques.  ASU 2010-06 is effective for interim and annual reporting periods beginning after December 15, 2009. The adoption of this standard did not have a material effect on our financial statements.

 
13

 

In February 2010, the FASB issued ASU No. 2010-09, "Amendments to Certain Recognition and Disclosure Requirements" ("ASU 2010-09"), which is included in the FASB Accounting Standards Codification (the "ASC") Topic 855 (Subsequent Events).  ASU 2010-09 clarifies that an SEC filer is required to evaluate subsequent events through the date that the financial statements are issued.  ASU 2010-09 is effective upon the issuance of the final update and did not have a significant impact on the Company's financial statements.
 
12.  Subsequent Events
 
Subsequent to quarter end, the Company completed the redomestication of its headquarters to Switzerland from the Cayman Islands.  The redomestication is not expected to have a significant impact on the Company’s financial statements.

Subsequent to quarter end, the Company repurchased 3,000,000 shares pursuant to the Rule 10b5-1 plan adopted on March 24, 2010.  There remains approximately $111,637 available for repurchase under the authorization.

 
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 26, 2009.  This report has been filed with the Securities and Exchange Commission (the "SEC" or the "Commission") in Washington, D.C. and can be obtained by contacting the SEC's public reference operations or obtaining it through the SEC's web site on the World Wide Web at http://www.sec.gov.  Readers are strongly encouraged to consider those factors when evaluating any forward-looking statement concerning the Company.  The Company will not update any forward-looking statements in this Quarterly Report to reflect future events or developments.

The information contained in this Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Condensed Consolidated Financial Statements and Notes thereto included in this Form 10-Q and the audited financial statements and notes thereto in the Company’s Annual Report on Form 10-K for the year ended December 26, 2009.

The Company is a leading worldwide provider of navigation, communications and information devices, most of which are enabled by Global Positioning System, or GPS, technology.  We operate in four business segments, the outdoor/fitness, marine, automotive/mobile and aviation markets.  Our segments offer products through our network of independent dealers and distributors.  However, the nature of products and types of customers for the four segments may vary significantly.  As such, the segments are managed separately.

 
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 26, 2010
   
June 27, 2009
 
             
Net sales
    100.0 %     100.0 %
Cost of goods sold
    46.3 %     47.4 %
Gross profit
    53.7 %     52.6 %
Advertising
    5.8 %     5.1 %
Selling, general and administrative
    10.1 %     9.3 %
Research and development
    10.1 %     8.4 %
Total operating expenses
    26.0 %     22.8 %
Operating income
    27.7 %     29.8 %
Other income (expense), net
    -5.2 %     0.1 %
Income before income taxes
    22.5 %     29.9 %
Provision for income taxes
    4.0 %     5.7 %
Net income
    18.5 %     24.2 %

    
26-Weeks Ended
 
     June 26, 2010    
June 27, 2009
 
             
Net sales
    100.0 %     100.0 %
Cost of goods sold
    46.3 %     50.5 %
Gross profit
    53.7 %     49.5 %
Advertising
    5.2 %     5.2 %
Selling, general and administrative
    12.2 %     11.0 %
Research and development
    11.7 %     10.1 %
Total operating expenses
    29.1 %     26.3 %
Operating income
    24.6 %     23.2 %
Other income (expense), net
    -6.5 %     0.2 %
Income before income taxes
    18.1 %     23.4 %
Provision for income taxes
    3.3 %     4.4 %
Net income
    14.8 %     19.0 %

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

 
16

 

   
 
Reportable Segments
 
   
 
Outdoor/
         
Auto/
             
   
 
Fitness
   
Marine
   
Mobile
   
Aviation
   
Total
 
13-Weeks Ended June 26, 2010
                             
   
                             
Net sales
  $ 142,316     $ 74,310     $ 447,225     $ 64,914     $ 728,765  
Operating income  
  $ 62,759     $ 32,146     $ 88,548     $ 18,590     $ 202,043  
Income before taxes
  $ 55,650     $ 28,616     $ 62,419     $ 17,724     $ 164,409  
   
                                       
13-Weeks Ended June 27, 2009
                                       
   
                                       
Net sales  
  $ 108,009     $ 60,198     $ 436,718     $ 64,179     $ 669,104  
Operating income  
  $ 50,416     $ 21,342     $ 106,712     $ 20,682     $ 199,152  
Income before taxes
  $ 51,255     $ 21,722     $ 105,474     $ 21,390     $ 199,841  
   
                                       
26-Weeks Ended June 26, 2010
                                       
   
                                       
Net sales  
  $ 245,052     $ 115,625     $ 668,149     $ 131,007     $ 1,159,833  
Operating income  
  $ 101,327     $ 41,075     $ 105,530     $ 37,459     $ 285,391  
Income before taxes
  $ 86,815     $ 35,244     $ 52,163     $ 35,710     $ 209,932  
   
                                       
26-Weeks Ended June 27, 2009
                                       
   
                                       
Net sales  
  $ 188,013     $ 98,215     $ 696,304     $ 123,271     $ 1,105,803  
Operating income  
  $ 78,920     $ 31,914     $ 111,318     $ 34,959     $ 257,111  
Income before taxes
  $ 78,915     $ 31,444     $ 114,632     $ 34,773     $ 259,764  

 
17

 

Comparison of 13-Weeks Ended June 26, 2010 and June 27, 2009
(Amounts included in the following discussion are stated in thousands unless otherwise indicated)

Net Sales

   
13-weeks ended June 26, 2010
   
13-weeks ended June 27, 2009
   
Quarter over Quarter
 
   
Net Sales
   
% of Revenues
   
Net Sales
   
% of Revenues
   
$ Change
   
% Change
 
Outdoor/Fitness
  $ 142,316       19.5 %   $ 108,009       16.1 %   $ 34,307       31.8 %
Marine
    74,310       10.2 %     60,198       9.0 %     14,112       23.4 %
Automotive/Mobile
    447,225       61.4 %     436,718       65.3 %     10,507       2.4 %
Aviation
    64,914       8.9 %     64,179       9.6 %     735       1.1 %
Total
  $ 728,765       100.0 %   $ 669,104       100.0 %   $ 59,661       8.9 %
 
Net sales increased 8.9% for the 13-week period ended June 26, 2010 when compared to the year-ago quarter.  The increase occurred across all segments with the greatest increase in the outdoor/fitness segment, as well as marine.  Automotive/mobile revenue remains the largest portion of our revenue mix, but declined from 65.3% in the second quarter of 2009 to 61.4% in the second quarter of 2010.

Total unit sales increased 8% to 4,001,000 in the second quarter of 2010 from 3,715,000 in the same period of 2009.   The improved unit sales volume in the second quarter of fiscal 2010 was attributable to increasing volumes across all segments with the greatest percentage increases occurring in outdoor/fitness and aviation.

Automotive/mobile segment revenue increased 2.4% from the year-ago quarter, as volumes increased 4% and the average selling price declined 1%.  Volume gains in the segment were due primarily to growth in our mobile handset and OEM business.  Revenues in our outdoor/fitness segment increased 31.8% from the year-ago quarter on the strength of recent product introductions and ongoing penetration in the segment.  Marine revenues increased 23.4% from the year-ago quarter as the industry has begun to recover and the Company has gained market share.  Aviation revenues increased 1.1% from the year-ago quarter due to gains in retrofit and portable products.

Gross Profit

    
13-weeks ended June 26, 2010
   
13-weeks ended June 27, 2009
   
Quarter over Quarter
 
     
Gross Profit
   
% of Revenues
   
Gross Profit
   
% of Revenues
   
$ Change
   
% Change
 
Outdoor/Fitness
  $ 91,763       64.5 %   $ 73,215       67.8 %   $ 18,548       25.3 %
Marine
    49,108       66.1 %     35,780       59.4 %     13,328       37.2 %
Automotive/Mobile
    205,336       45.9 %     195,075       44.7 %     10,261       5.3 %
Aviation
    45,445       70.0 %     47,544       74.1 %     (2,099 )     -4.4 %
Total
  $ 391,652       53.7 %   $ 351,614       52.6 %   $ 40,038       11.4 %
 
Gross profit dollars in the second quarter of 2010 increased 11.4% while gross profit margin increased 110 basis points compared to the second quarter of 2009.  Gross margins were positively impacted by 290 basis points due to a $21.0 million warranty adjustment related to further refinement in the estimated warranty reserve.  This adjustment impacted all segments with the consumer segments including automotive/mobile, outdoor/fitness and marine having the largest benefits.

The automotive/mobile segment’s margin increased 120 basis points as a decrease in per unit cost including the warranty benefit was only partially offset by a slight average selling price reduction.  The impact to total company gross margin of the automotive/mobile segment declined to 52.4% of total gross margin from 55.5% in the year-ago quarter.  The Company also benefited from increased margins in the marine segment due the product mix shifting toward higher margin units including chartplotters and networked solutions.  Aviation and outdoor/fitness gross margins decreased 410 basis points and 330 basis points, respectively, from the year-ago quarter.

 
18

 

Advertising Expense
 
   
13-weeks ended June 26, 2010
   
13-weeks ended June 27, 2009
   
Quarter over Quarter
 
    
Advertising
   
% of Revenues
   
Advertising
   
% of Revenues
   
$ Change
   
% Change
 
Outdoor/Fitness
  $ 7,483       5.3 %   $ 6,133       5.7 %   $ 1,350       22.0 %
Marine
    3,349       4.5 %     3,253       5.4 %     96       2.9 %
Automotive/Mobile
    30,658       6.9 %     23,520       5.4 %     7,138       30.4 %
Aviation
    950       1.5 %     1,117       1.7 %     (167 )     -14.9 %
Total
  $ 42,440       5.8 %   $ 34,023       5.1 %   $ 8,417       24.7 %
 
Advertising expense increased both as a percentage of sales and in absolute dollars when compared with the year-ago period.  As a percent of sales, advertising expenses increased to 5.8% in the second quarter of 2010 compared to 5.1% in second quarter of 2009.  The increase was driven by mobile handset specific advertising in the automotive/mobile segment.  Advertising as a percentage of sales decreased in all other segments with revenue growth outpacing expense growth in outdoor/fitness and marine while absolute spending decreased in aviation.
 
Selling, General and Administrative Expense