Document and Entity Information
v2.1.3772.27195
Document and Entity Information
3 Months Ended
Mar. 27, 2010
May. 01, 2010
Document Type 10-Q
Amendment Flag false
Document Period End Date 2010-03-27
Document Fiscal Period Focus Q1
Document Fiscal Year Focus 2,010
Entity Registrant Name Garmin Ltd.
Entity Central Index Key 0001121788
Current Fiscal Year End Date --12-26
Entity Filer Category Large Accelerated Filer
Entity Common Stock, Shares Outstanding 199,171,926

Condensed Consolidated Balance Sheets
v2.1.3772.27195
Condensed Consolidated Balance Sheets (USD $)
In Thousands
Mar. 27, 2010
Dec. 26, 2009
Assets
Cash and cash equivalents $ 1,291,343 $ 1,091,581
Marketable securities 19,635 19,583
Accounts receivable, net 418,520 874,110
Inventories, net 356,073 309,938
Deferred income taxes 60,361 59,189
Prepaid expenses and other current assets 63,427 39,470
Total current assets 2,209,359 2,393,871
Property and equipment, net 432,606 441,338
Marketable securities 681,049 746,464
Restricted cash 941 2,047
Licensing agreements, net 6,573 15,400
Noncurrent deferred income tax 20,499 20,498
Other intangible assets, net 200,501 206,256
Total assets 3,551,528 3,825,874
Liabilities and Stockholders' Equity
Accounts payable 109,904 203,388
Salaries and benefits payable 34,017 45,236
Accrued warranty costs 58,814 87,424
Accrued sales program costs 41,201 119,150
Deferred revenue 35,835 27,910
Accrued advertising expense 10,135 34,146
Other accrued expenses 63,877 143,568
Income taxes payable 25,816 22,846
Dividend payable 299,957 0
Total current liabilities 679,556 683,668
Deferred income taxes 10,558 10,170
Non-current income taxes 259,751 255,748
Non-current deferred revenue 45,470 38,574
Other liabilities 1,258 1,267
Stockholders' equity:
Common stock, $0.005 par value, 1,000,000,000 shares authorized: Issued and outstanding shares -199,128,000 as of March 27, 2010 and 200,274,000 as of December 26, 2009 994 1,001
Additional paid-in capital 0 32,221
Retained earnings 2,552,920 2,816,607
Accumulated other comprehensive gain/ (loss) 1,021 (13,382)
Total stockholders' equity 2,554,935 2,836,447
Total liabilities and stockholders' equity $ 3,551,528 $ 3,825,874

Condensed Consolidated Balance Sheets [Parenthetical]
v2.1.3772.27195
Condensed Consolidated Balance Sheets [Parenthetical] (USD $)
Mar. 27, 2010
Dec. 26, 2009
Common Stock, Par Value $ 0.005 $ 0.005
Common Stock, Shares Authorized 1,000,000,000 1,000,000,000
Common Stock, Shares, Issued 199,128,000 200,274,000
Common Stock, Shares, Outstanding 199,128,000 200,274,000

Condensed Consolidated Statements of Income
v2.1.3772.27195
Condensed Consolidated Statements of Income (USD $)
In Thousands, except Per Share data
3 Months Ended
Mar. 27, 2010
Mar. 28, 2009
Net sales $ 431,067 $ 436,699
Cost of goods sold 200,158 240,704
Gross profit 230,909 195,995
Advertising expense 17,400 23,225
Selling, general and administrative expense 67,678 59,777
Research and development expense 62,483 55,034
Total operating expense 147,561 138,036
Operating income 83,348 57,959
Interest income 6,879 5,097
Foreign currency (46,537) (2,438)
Other 1,833 (694)
Total other income (expense) (37,825) 1,965
Income before income taxes 45,523 59,924
Income tax provision 8,194 11,386
Net income $ 37,329 $ 48,538
Net income per share:
Basic $ 0.19 $ 0.24
Diluted $ 0.19 $ 0.24
Weighted average common shares outstanding:
Basic 199,926 200,352
Diluted 201,091 200,725

Condensed Consolidated Statements of Cash Flows
v2.1.3772.27195
Condensed Consolidated Statements of Cash Flows (USD $)
In Thousands
3 Months Ended
Mar. 27, 2010
Mar. 28, 2009
Operating Activities:
Net income $ 37,329 $ 48,538
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 13,543 13,574
Amortization 8,334 8,088
Gain on sale of property and equipment (6) (3)
Provision for doubtful accounts (1,260) (1,101)
Deferred income taxes (1,546) (3,200)
Foreign currency transaction gains/losses 47,773 (420)
Provision for obsolete and slow-moving inventories 3,140 7,709
Stock compensation expense 9,700 10,587
Realized losses/(gains) on marketable securities (805) 1,274
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable 436,446 318,095
Inventories (50,168) 58,876
Other current assets (606) (1,128)
Accounts payable (94,717) (77,595)
Other current and non-current liabilities (216,868) (88,727)
Deferred revenue 14,286
Income taxes payable (4,048) 3,993
Purchase of licenses (396) 856
Net cash provided by operating activities 200,131 299,416
Investing activities:
Purchases of property and equipment (3,935) (13,136)
Purchase of intangible assets (5,029) (872)
Purchase of marketable securities (74,303) (68,662)
Redemption of marketable securities 146,073 16,638
Change in restricted cash 1,106 43
Net cash provided by/(used in) investing activities 63,912 (65,989)
Financing activities:
Proceeds from issuance of common stock from stock purchase plan 2,725 119
Stock repurchase (47,206) (1,849)
Tax benefit related to stock option exercise 1,408 26
Net cash used in financing activities (43,073) (1,704)
Effect of exchange rate changes on cash and cash equivalents (21,208) (5,729)
Net increase/(decrease) in cash and cash equivalents 199,762 225,994
Cash and cash equivalents at beginning of period 1,091,581 696,335
Cash and cash equivalents at end of period $ 1,291,343 $ 922,329

Basis of Presentation
v2.1.3772.27195
Basis of Presentation
3 Months Ended
Mar. 27, 2010
Basis of Presentation
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 period ended March 27, 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 March 27, 2010 and March 28, 2009 both contain operating results for 13-weeks for both year-to-date periods.

Inventories
v2.1.3772.27195
Inventories
3 Months Ended
Mar. 27, 2010
Inventories
2.
Inventories

The components of inventories consist of the following:

   
March 27, 2010
   
December 26, 2009
 
             
Raw Materials
  $ 89,124     $ 80,963  
Work-in-process
    38,671       32,587  
Finished goods
    265,582       235,286  
Inventory Reserves
    (37,304 )     (38,898 )
Inventory, net of reserves
  $ 356,073     $ 309,938  

 


Share Repurchase Plan
v2.1.3772.27195
Share Repurchase Plan
3 Months Ended
Mar. 27, 2010
Share Repurchase Plan
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.   In the quarter ended March 27, 2010, the Company repurchased 1,437,801 shares using cash of $47,092.  There remains approximately $252,908 available for repurchase under this authorization.

Earnings Per Share
v2.1.3772.27195
Earnings Per Share
3 Months Ended
Mar. 27, 2010
Earnings Per Share
4.
Earnings Per Share

The following table sets forth the computation of basic and diluted net income per share:
 
   
13-Weeks Ended
 
   
March 27,
   
March 28,
 
   
2010
   
2009
 
Numerator:
           
Numerator for basic and diluted net income per share - net income
  $ 37,329     $ 48,538  
                 
Denominator:
               
Denominator for basic net income per share weighted-average common shares
    199,926       200,352  
                 
Effect of dilutive securities employee stock options
    1,165       373  
                 
Denominator for diluted net income per share adjusted weighted-average common shares
    201,091       200,725  
                 
Basic net income per share
  $ 0.19     $ 0.24  
                 
Diluted net income per share
  $ 0.19     $ 0.24  

There were 1,165,620 anti-dilutive options for the 13-week period ended March 27, 2010.   There were 9,488,615 anti-dilutive options for the 13-week period ended March 28, 2009.

There were 291,714 shares issued as a result of exercises of stock appreciation rights and stock options for the 13-week period ended March 27, 2010.  There were 12,098 shares issued as a result of exercises of stock appreciation rights and stock options for the 13-week period ended March 28, 2009.

Comprehensive Income
v2.1.3772.27195
Comprehensive Income
3 Months Ended
Mar. 27, 2010
Comprehensive Income
5.
Comprehensive Income

Comprehensive income is comprised of the following:

   
13-Weeks Ended
 
   
March 27,
   
March 28,
 
   
2010
   
2009
 
Net income
  $ 37,329     $ 48,538  
Translation adjustment
    8,039       (18,763 )
Change in fair value of available-for-sale marketable securities, net of deferred taxes
    6,364       (6,042 )
Comprehensive income
  $ 51,732      $ 23,733  

Segment Information
v2.1.3772.27195
Segment Information
3 Months Ended
Mar. 27, 2010
Segment Information
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           March 27, 2010
                             
                               
Net sales
  $ 102,736     $ 41,314     $ 220,924     $ 66,093     $ 431,067  
Operating income
  $ 38,569     $ 8,929     $ 16,982     $ 18,868     $ 83,348  
Income before taxes
  $ 31,166     $ 6,628     $ (10,256 )   $ 17,985     $ 45,523  
                                         
13-Weeks Ended           March 28, 2009
                                       
                                         
Net sales
  $ 80,004     $ 38,017     $ 259,586     $ 59,092     $ 436,699  
Operating income
  $ 28,504     $ 10,572     $ 4,605     $ 14,278     $ 57,959  
Income before taxes
  $ 27,660     $ 9,723     $ 9,158     $ 13,383     $ 59,924  
 
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 13-week periods ended March 27, 2010 and March 28, 2009:

   
North
                   
   
America
   
Asia
   
Europe
   
Total
 
March 27, 2010
                       
Net sales to external customers
  $ 243,407     $ 42,683     $ 144,977     $ 431,067  
Long lived assets
  $ 230,072     $ 150,682     $ 51,852     $ 432,606  
                                 
March 28, 2009
                               
Net sales to external customers
  $ 264,777     $ 28,140     $ 143,782     $ 436,699  
Long lived assets
  $ 226,384     $ 160,087     $ 54,140     $ 440,611  

 


Warranty Reserves
v2.1.3772.27195
Warranty Reserves
3 Months Ended
Mar. 27, 2010
Warranty Reserves
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
 
   
March 27,
   
March 28,
 
   
2010
   
2009
 
             
Balance - beginning of the period
  $ 87,424     $ 87,408  
Change in accrual for products sold in prior periods
    (21,776 )     -  
Accrual for products sold during the period
    14,914       23,993  
Expenditures
    (21,748 )     (42,554 )
Balance - end of the period
  $ 58,814     $ 68,847  

The 13-weeks ended March 27, 2010 include the effect of a change in estimate in the warranty reserves which decreased the accrual for the period by $21,776.

Commitments
v2.1.3772.27195
Commitments
3 Months Ended
Mar. 27, 2010
Commitments
8.
Commitments

Pursuant to certain supply agreements, the Company is contractually committed to make purchases of approximately $68,415 over the next 5 years.

 


Income Taxes
v2.1.3772.27195
Income Taxes
3 Months Ended
Mar. 27, 2010
Income Taxes
9.     Income Taxes

Our earnings before taxes decreased 24% when compared to the same quarter in 2009, and our income tax expense decreased by $3,192, to $8,194 for the 13-week period ended March 27, 2010, from $11,386 for the 13-week period ended March 28, 2009.  The effective tax rate was 18.0% in the first quarter of 2010 and 19.0% in the first quarter of 2009.    The slight decrease is due to the mix of income by tax jurisdiction.

Fair Value Measurements
v2.1.3772.27195
Fair Value Measurements
3 Months Ended
Mar. 27, 2010
Fair Value Measurements
10.   Fair Value Measurements
 
The Accounting Standards Code (ASC) defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price).  The ASC classifies the inputs used to measure fair value into the following hierarchy:
 
Level 1
Unadjusted quoted prices in active markets for identical assets or liability
   
Level 2
Unadjusted quoted prices in active markets for similar assets or liabilities
   
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 March 27, 2010
 
Description
 
Total
   
Level 1
   
Level 2
   
Level 3
 
                                 
Available for-sale securities
  $ 630,126     $ 630,126     $ -     $ -  
Failed Auction rate securities
  $ 70,558                     $ 70,558  
                                 
Total
  $ 700,684     $ 630,126     $ -     $ 70,558  

   
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.  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
 
   
March 27, 2010
 
       
Beginning balance of auction rate securities
  $ 70,252  
Total unrealized gains included in other comprehensive income
    856  
Purchases in and/or out of Level 3
    (550 )
Transfers in and/or out of Level 3
    -  
Ending balance of auction rate securities
  $ 70,558  
 
The following is a summary of the company's marketable securities classified as available-for-sale securities at March 27, 2010:
 
         
Gross
   
Gross
   
Other Than
   
Estimated Fair
 
         
Unrealized
   
Unrealized
   
Temporary
   
Value (Net
 
   
Amortized Cost
   
Gains
   
Losses
   
Impairment
   
Carrying Amount)
 
Mortgage-backed securities
  $ 454,639     $ 4,072     $ (1,602 ) $     -     $ 457,109  
Auction Rate Securities
    91,150       -       (20,592 )     -     $ 70,558  
Obligations of states and political subdivisions
    110,785       1,144       (43 )     -     $ 111,886  
U.S. corporate bonds
    36,623       948       (349 )     (1,274 )   $ 35,948  
Other
    24,053       1,282       (152 )     -     $ 25,183  
Total
  $ 717,250     $ 7,446     $ (22,738 )   $ (1,274 )   $ 700,684  
 
The following is a summary of the company's marketable securities classified as available-for-sale securities at December 26, 2009:
 
         
Gross
   
Gross
   
Other Than
   
Estimated Fair
 
         
Unrealized
   
Unrealized
   
Temporary
   
Value (Net
 
   
Amortized Cost
   
Gains
   
Losses
   
Impairment
   
Carrying Amount)
 
Mortgage-backed securities
  $ 515,200     $ 2,682     $ (4,674 )   $ -     $ 513,208  
Auction Rate Securities
    91,700       -       (21,448 )     -     $ 70,252  
Obligations of states and political subdivisions
    112,419       908       (181 )     -     $ 113,146  
U.S. corporate bonds
    35,883       768       (701 )     (1,274 )   $ 34,676  
Other
    33,903       1,070       (208 )     -     $ 34,765  
Total
  $ 789,105     $ 5,428     $ (27,212 )   $ (1,274 )   $ 766,047  
 
The cost of securities sold is based on the specific identification method.
 
The amortized cost and estimated fair value of marketable securities at March 27, 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)
  $ 19,526     $ 19,635  
Due after one year through five years (2011-2015)
    228,883       229,448  
Due after five years through ten years (2016-2020)
    200,174       200,513  
Due after ten years (2021 and thereafter)
    252,885       234,031  
Other (No contractual maturity dates)
    15,782       17,057  
    $ 717,250     $ 700,684  
 

Recently Issued Accounting Pronouncements
v2.1.3772.27195
Recently Issued Accounting Pronouncements
3 Months Ended
Mar. 27, 2010
Recently Issued Accounting Pronouncements
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.

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.

Subsequent Events
v2.1.3772.27195
Subsequent Events
3 Months Ended
Mar. 27, 2010
Subsequent Events
12.  Subsequent Events

On April 28, 2010, Garmin announced a cash offer of 15 pence per share to acquire all the shares of Raymarine plc.  This offer provides total consideration to Raymarine shareholders of approximately 12.5 million and implies an enterprise value of approximately 107.4 million when considering Raymarine's most recently reported net debt of 94.9 million. This offer remains subject to shareholder acceptance and regulatory approvals, but Garmin expects to obtain the necessary merger control approvals.