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 30, 2012 are not necessarily indicative of the results that may be expected for the year ending December 29, 2012.

The condensed consolidated balance sheet at December 31, 2011 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 31, 2011.

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 30, 2012 and June 25, 2011 both contain operating results for 13 weeks.

The components of inventories consist of the following:

The following table sets forth the computation of basic and diluted net income per share:

There were 5,647,688 and 5,959,686 anti-dilutive stock options, stock appreciation rights and restricted stock units (collectively “equity awards”) for the 13-week periods ended June 30, 2012 and June 25, 2011, respectively.

There were 5,698,553 and 6,001,583 anti-dilutive equity awards for the 26-week periods ended June 30, 2012 and June 25, 2011, respectively.

There were 68,637 and 72,545 shares issued as a result of exercises of equity awards for the 13-week periods ended June 30, 2012 and June 25, 2011, respectively.

There were 212,718 and 251,916 shares issued as a result of exercises of equity awards for the 26-week periods ended June 30, 2012 and June 25, 2011, respectively.

The Company has identified five operating segments – Auto/Mobile, Aviation, Marine, Outdoor and Fitness. Each operating segment is individually reviewed and evaluated by our Chief Operating Decision Maker, who allocates resources and assesses performance of each segment individually.

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

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 30, 2012 and June 25, 2011. Note that APAC includes Asia Pacific and EMEA includes Europe, the Middle East and Africa:

The Company’s products sold are generally covered by a warranty for periods ranging from one to three 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.

We are party to certain commitments, which includes raw materials, advertising and other indirect purchases in connection with conducting our business. Pursuant to these agreements, the Company is contractually committed to make purchases of approximately $211,554 over the next five years.

In the normal course of business, the Company and its subsidiaries are parties to various legal claims, actions, and complaints, including matters involving patent infringement and other intellectual property claims and various other risks. It is not possible to predict with certainty whether or not the Company and its subsidiaries will ultimately be successful in any of these legal matters, or if not, what the impact might be. However, the Company’s management does not expect that the results in any of these legal proceedings will have a material adverse effect on the Company’s results of operations, financial position or cash flows.

Our earnings before taxes increased 63% when compared to the same quarter in 2011, while our income tax expense increased by $3,937, to $21,532 for the 13-week period ended June 30, 2012, from $17,595 for the 13-week period ended June 25, 2011. The effective tax rate was 10.4% in the second quarter of 2012 and 13.8% in the second quarter of 2011. The decrease in the effective tax rate was primarily driven by the release of income tax reserves due to the expiration of statute of limitations in Taiwan. The effective tax rate was 11.2% in the first half of 2012 and 8.5% in the first half of 2011. The lower effective tax rate in 2011 was primarily driven by the release of reserves related to the expiration of certain statutes for Garmin Europe.  This was partially offset by the release of income tax reserves due to the expiration of statute of limitations in Taiwan during the second quarter of 2012. The remaining difference relates to the mix of income by tax jurisdiction.

The Accounting Standards Codification (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:

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. All financial assets were valued using active markets (Level 1 inputs) at June 30, 2012 and December 31, 2011.

The following is a summary of the Company’s marketable securities classified as available-for-sale securities at June 30, 2012:

The following is a summary of the Company’s marketable securities classified as available-for-sale securities at December 31, 2011:

The cost of securities sold is based on the specific identification method.

The amortized cost and estimated fair value of marketable securities at June 30, 2012, 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.

During 2011, sales of products bundled with LMUs and premium traffic service increased significantly as a percentage of total product sales. Concurrently, market conditions caused decreases in the ASP and margins of comparable models year over year, new bundled products were introduced at lower ASPs, and the difference in pricing of bundled units and comparable unbundled models decreased considerably. Due to these changes, the Company determined it was appropriate to change its estimate of the per unit revenue and cost deferrals during the third quarter of 2011. Additional details are available in the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

The change in the per unit revenue deferral discussed above and increased amortization of previously deferred revenues are the principal factors which led to net deferred revenue of $15.9 million and $61.7 million during the 13-week periods ended June 30, 2012 and June 25, 2011, respectively, and $15.2 million and $83.5 million during the 26-week periods ended June 30, 2012 and June 25, 2011, respectively.

10. License Fees

During the second quarter of 2012, the Company determined certain license fee payments to one of its suppliers had exceeded contractual requirements since the third quarter of 2010.  The periodic royalty audit by the supplier, which was already underway, was completed in June 2012, resulting in a net overpayment of such license fees of $20.8 million. This credit is reflected in cost of goods sold for the 13-week and 26-week periods ended June 30, 2012 and is included in accounts receivable on the June 30, 2012 condensed consolidated balance sheet.

The components of inventories consist of the following:

The following table sets forth the computation of basic and diluted net income per share:

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

Net sales and property and equipment, net by geographic area are as follows as of and for the 26-week periods ended June 30, 2012 and June 25, 2011. Note that APAC includes Asia Pacific and EMEA includes Europe, the Middle East and Africa:

The following reconciliation provides an illustration of changes in the aggregate warranty reserve.

The following is a summary of the Company’s marketable securities classified as available-for-sale securities at June 30, 2012:

The following is a summary of the Company’s marketable securities classified as available-for-sale securities at December 31, 2011:

The amortized cost and estimated fair value of marketable securities at June 30, 2012, 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.