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 25, 2011

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
(State or other jurisdiction
of incorporation or organization)
98-0229227
(I.R.S. Employer identification no.)
Mühlentalstrasse 2
8200 Schaffhausen
Switzerland
(Address of principal executive offices)
N/A
(Zip Code)

Company's telephone number, including area code:  +41 52 630 1600

Vorstadt 40/42, 8200 Schaffhausen, Switzerland
(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 ¨ (Do not check if a smaller reporting company)  Smaller reporting company ¨

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 issued and registered of the registrant’s common shares as of August 1, 2011
CHF 10.00 par value:  208,077,418 (including treasury shares)

 
1
 

Garmin Ltd.
Form 10-Q
Quarter Ended June 25, 2011

Table of Contents

     
Page
Part I - Financial Information
  
       
 
Item 1.
Condensed Consolidated Financial Statements
3
       
   
Introductory Comments
3
       
   
Condensed Consolidated Balance Sheets at June 25, 2011 (Unaudited) and December 25, 2010
4
       
   
Condensed Consolidated Statements of Income for the 13-weeks and 26-weeks ended June 25, 2011 and June 26, 2010 (Unaudited)
5
       
   
Condensed Consolidated Statements of Cash Flows for the 26-weeks ended June 25, 2011 and June 26, 2010 (Unaudited)
6
       
   
Notes to Condensed Consolidated Financial Statements (Unaudited)
7
       
 
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
14
       
 
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
31
       
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
31
       
 
Item 3.
Defaults Upon Senior Securities
31
       
 
Item 4.
(Removed and Reserved)
  
       
 
Item 5.
Other Information
31
       
 
Item 6.
Exhibits
32
       
Signature Page
33
   
Index to Exhibits
34

 
2
 

Garmin Ltd.
Form 10-Q
Quarter Ended June 25, 2011

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 25, 2010.  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 25, 2011 are not necessarily indicative of the results to be expected for the full year 2011.

 
3
 

Garmin Ltd. And Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except share information)

   
(Unaudited)
        
   
June 25,
    
December 25,
  
   
2011
    
2010
  
Assets
            
Current assets:
            
Cash and cash equivalents
   $ 1,418,871     $ 1,260,936  
Marketable securities
     62,626       24,418  
Accounts receivable, net
     493,057       747,249  
Inventories, net
     385,678       387,577  
Deferred income taxes
     27,691       33,628  
Deferred costs
     28,343       20,053  
Prepaid expenses and other current assets
     46,261       24,894  
Total current assets
     2,462,527       2,498,755  
                 
Property and equipment, net
     423,697       427,805  
                 
Marketable securities
     1,016,869       777,401  
Restricted cash
     1,393       1,277  
Licensing agreements, net
     8,305       1,800  
Noncurrent deferred income tax
     73,613       73,613  
Noncurrent deferred costs
     31,047       24,685  
Other intangible assets, net
     181,004       183,352  
Total assets
   $ 4,198,455     $ 3,988,688  
                 
Liabilities and Stockholders' Equity
                
Current liabilities:
                
Accounts payable
   $ 125,680     $ 132,348  
Salaries and benefits payable
     37,393       49,288  
Accrued warranty costs
     41,691       49,885  
Accrued sales program costs
     48,929       107,261  
Deferred revenue
     134,341       89,711  
Accrued royalty costs
     27,509       95,086  
Accrued advertising expense
     23,544       21,587  
Other accrued expenses
     70,622       63,043  
Deferred income taxes
     4,435       4,800  
Income taxes payable
     13,795       56,028  
Dividend payable
     388,148       0  
Total current liabilities
     916,087       669,037  
                 
Deferred income taxes
     13,180       6,986  
Non-current income taxes
     157,979       153,621  
Non-current deferred revenue
     146,973       108,076  
Other liabilities
     1,542       1,406  
                 
Stockholders' equity:
                
Shares, CHF 10 par value, 208,077,418 shares authorized and issued;
194,087,445 shares outstanding at June 25, 2011;
and 194,358,038 shares outstanding at December 25, 2010;
       1,797,435         1,797,435  
Additional paid-in capital
     53,707       38,268  
Treasury stock
     (116,099 )     (106,758 )
Retained earnings
     1,097,970       1,264,613  
Accumulated other comprehensive income
     129,681       56,004  
Total stockholders' equity
     2,962,694       3,049,562  
Total liabilities and stockholders' equity
   $ 4,198,455     $ 3,988,688  

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 25,
    
June 26,
    
June 25,
    
June 26,
  
   
2011
    
2010
    
2011
    
2010
  
Net sales
   $ 674,099     $ 728,765     $ 1,181,933     $ 1,159,833  
                                 
Cost  of goods sold
     351,999       337,113       621,459       537,272  
                                 
Gross profit
     322,100       391,652       560,474       622,561  
                                 
Advertising expense
     34,098       42,440       54,054       59,841  
Selling, general and administrative expense
     85,896       73,832       159,082       141,509  
Research and development expense
     70,515       73,337       140,994       135,820  
Total operating expense
     190,509       189,609       354,130       337,170  
                                 
Operating income
     131,591       202,043       206,344       285,391  
                                 
Other income (expense):
                                
Interest income
     7,639       5,791       14,854       12,669  
Foreign currency gains (losses)
     (14,611 )     (43,605 )     (2,471 )     (90,141 )
Other
     2,453       180       5,271       2,013  
Total other income (expense)
     (4,519 )     (37,634 )     17,654       (75,459 )
                                 
Income before income taxes
     127,072       164,409       223,998       209,932  
                                 
Income tax provision
     17,595       29,593       19,039       37,788  
                                 
Net income
   $ 109,477     $ 134,816     $ 204,959     $ 172,144  
                                 
Net income per share:
                                
Basic
   $ 0.56     $ 0.68     $ 1.06     $ 0.86  
Diluted
   $ 0.56     $ 0.67     $ 1.05     $ 0.86  
                                 
Weighted average common shares outstanding:
                                
Basic
     194,051       198,948       193,986       199,437  
Diluted
     194,875       200,102       194,801       200,626  
                                 
Dividends declared per share
   $ 2.00     $ 1.50     $ 2.00     $ 1.50  

See accompanying notes.

 
5
 
 
Garmin Ltd. And Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)

   
26-Weeks Ended
  
   
June 25,
    
June 26,
  
   
2011
    
2010
  
Operating Activities:
            
Net income
   $ 204,959     $ 172,144  
Adjustments to reconcile net income to net cash provided by operating activities:
                
Depreciation
     27,393       26,746  
Amortization
     10,861       24,809  
Loss (gain) on sale of property and equipment
     308       (6 )
Provision for doubtful accounts
     3,563       (552 )
Deferred income taxes
     7,149       (30 )
Unrealized foreign currency losses/(gains)
     16,363       47,880  
Provision for obsolete and slow moving inventories
     (6,998 )     10,309  
Stock compensation expense
     17,315       19,099  
Realized losses/(gains) on marketable securities
     (4,176 )     (470 )
Changes in operating assets and liabilities, net of acquisitions:
                
Accounts receivable
     265,448       364,401  
Inventories
     20,659       (64,272 )
Other current assets
     (31,490 )     5,142  
Accounts payable
     (13,082 )     (52,248 )
Other current and non-current liabilities
     (142,918 )     (193,657 )
Deferred revenue
     83,628       37,425  
Deferred cost
     (14,652 )     (6,610 )
Income taxes payable
     (30,033 )     (7,771 )
License fees
     (3,344 )     (472 )
Net cash provided by operating activities
     410,953       381,867  
                 
Investing activities:
                
Purchases of property and equipment
     (14,315 )     (13,220 )
Purchase of intangible assets
     (2,587 )     (8,229 )
Purchase of marketable securities
     (520,759 )     (169,062 )
Redemption of marketable securities
     263,428       294,350  
Change in restricted cash
     (116 )     1,111  
Net cash (used in)/provided by investing activities
     (274,349 )     104,950  
                 
Financing activities:
                
Proceeds from issuance of common stock through
                
stock purchase and stock option plans
     4,337       5,452  
Taxes paid related to net share settlement of equity awards
     (336 )     -  
Stock repurchase
     -       (84,328 )
Dividends
     -       (299,103 )
Tax benefit related to stock option exercise
     1,197       1,898  
Net cash provided by/(used in) financing activities
     5,198       (376,081 )
                 
Effect of exchange rate changes on cash and cash equivalents
     16,133       (29,148 )
                 
Net increase in cash and cash equivalents
     157,935       81,588  
Cash and cash equivalents at beginning of period
     1,260,936       1,091,581  
Cash and cash equivalents at end of period
   $ 1,418,871     $ 1,173,169  

See accompanying notes.
 
 
6
 
 
Garmin Ltd. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

June 25, 2011
(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 25, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011.

The condensed consolidated balance sheet at December 25, 2010 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 25, 2010.

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 and year-to-date periods ended June 25, 2011 and June 26, 2010 both contain operating results for 13-weeks and 26-weeks, respectively.

2.
Inventories

The components of inventories consist of the following:

   
June 25, 2011
    
December 25, 2010
  
             
Raw materials
   $ 152,480     $ 103,277  
Work-in-process
     43,259       43,507  
Finished goods
     219,270       278,513  
Inventory reserves
     (29,331 )     (37,720 )
Inventory, net of reserves
   $ 385,678     $ 387,577  

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, 2011.   As of June 25, 2011, the Company had repurchased 7,366,646 shares using cash of $223,149 with all purchases made prior to fiscal 2011.  There remains approximately $76,851 available for repurchase under this authorization.
 
 
7
 
 
In addition, 522,856 shares repurchased for $16,723 prior to the Company’s redomestication to Switzerland on June 27, 2010, but for which transactions settled after that date, were treated as retired when such shares were still in treasury.  These shares were reflected as additional treasury shares during the 13-weeks ended March 26, 2011 with a corresponding increase to retained earnings.
 
4.
Earnings Per Share

The following table sets forth the computation of basic and diluted net income per share:
 
   
13-Weeks Ended
  
   
June 25,
    
June 26,
  
   
2011
    
2010
  
Numerator:
            
Numerator for basic and diluted net income
per share - net income
   $ 109,477     $ 134,816  
                 
Denominator:
                
Denominator for basic net income per share –
                
weighted-average common shares
     194,051       198,948  
                 
Effect of dilutive securities –
                
employee stock options and
                
stock appreciation rights
     824       1,154  
                 
Denominator for diluted net income per share –
                
adjusted weighted-average common shares
     194,875       200,102  
                 
Basic net income per share
   $ 0.56     $ 0.68  
                 
Diluted net income per share
   $ 0.56     $ 0.67  
                 
   
26-Weeks Ended
  
   
June 25,
    
June 26,
  
    2011     2010  
Numerator:
                
Numerator for basic and diluted net income
                
per share - net income
   $ 204,959     $ 172,144  
                 
Denominator:
                
Denominator for basic net income per share –
                
weighted-average common shares
     193,986       199,437  
                 
Effect of dilutive securities –
                
employee stock options and
                
stock appreciation rights
     815       1,189  
                 
Denominator for diluted net income per share –
                
adjusted weighted-average common shares
     194,801       200,626  
                 
Basic net income per share
   $ 1.06     $ 0.86  
                 
Diluted net income per share
   $ 1.05     $ 0.86  

 
8
 

There were 5,959,686 anti-dilutive options for the 13-week period ended on June 25, 2011.  There were 6,186,519 anti-dilutive options for the 13-week period ended June 26, 2010.

There were 6,001,583 anti-dilutive options for the 26-week period ended on June 25, 2011.  There were 6,198,202 anti-dilutive options for the 26-week period ended June 26, 2010.

There were 72,545 shares issued as a result of exercises of stock appreciation rights and stock options for the 13-week period ended June 25, 2011.  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 251,916 shares issued as a result of exercises of stock appreciation rights and stock options for the 26-week period ended June 25, 2011.  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.

5.
Comprehensive Income

Comprehensive income is comprised of the following:

   
13-Weeks Ended
  
   
June 25,
    
June 26,
  
   
2011
    
2010
  
Net income
   $ 109,477     $ 134,816  
Translation adjustment
     21,392       (7,821 )
Change in fair value of available-for-sale marketable securities, net of deferred taxes
     16,911       8,838  
Comprehensive income
   $ 147,780     $ 135,833  
                 
   
26-Weeks Ended
  
   
June 25,
    
June 26,
  
    2011     2010  
Net income
   $ 204,959     $ 172,144  
Translation adjustment
     54,145       218  
Change in fair value of available-for-sale marketable securities, net of deferred taxes
     19,525       15,201  
Comprehensive income
   $ 278,629     $ 187,563  

6.
Segment Information

Beginning in 2011, for external reporting purposes, 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.  Prior to 2011, the Outdoor and Fitness operating segments were combined into a single reportable segment due to the similar nature of those products, their production processes, the types of customers served, their distribution processes, and similar economic conditions.  Management re-evaluated the combination of these operating segments and determined that based on the growth of these segments they should now be reported as two distinct reportable segments.

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

 
9
 
 
   
Reportable Segments
  
                     
Auto/
              
   
Outdoor
    
Fitness
    
Marine
    
Mobile
    
Aviation
    
Total
  
13-Weeks Ended June 25, 2011
                                    
                                     
Net sales
   $ 81,007     $ 78,014     $ 79,117     $ 362,706     $ 73,255     $ 674,099  
Operating income
   $ 35,667     $ 25,384     $ 23,357     $ 25,277     $ 21,906     $ 131,591  
Income before taxes
   $ 34,921     $ 24,568     $ 22,094     $ 23,228     $ 22,261     $ 127,072  
                                                 
13-Weeks Ended June 26, 2010
                                                
                                                 
Net sales
   $ 79,847     $ 62,469     $ 74,310     $ 447,225     $ 64,914     $ 728,765  
Operating income
   $ 38,035     $ 24,724     $ 32,146     $ 88,548     $ 18,590     $ 202,043  
Income before taxes
   $ 34,138     $ 21,512     $ 28,616     $ 62,419     $ 17,724     $ 164,409  
                                                 
26-Weeks Ended June 25, 2011
                                                
                                                 
Net sales
   $ 147,458     $ 134,382     $ 130,425     $ 627,255     $ 142,413     $ 1,181,933  
Operating income
   $ 60,474     $ 40,841     $ 38,490     $ 26,872     $ 39,667     $ 206,344  
Income before taxes
   $ 63,109     $ 43,066     $ 40,523     $ 34,884     $ 42,416     $ 223,998  
                                                 
26-Weeks Ended June 26, 2010
                                                
                                                 
Net sales
   $ 139,233     $ 105,819     $ 115,625     $ 668,149     $ 131,007     $ 1,159,833  
Operating income
   $ 62,404     $ 38,923     $ 41,075     $ 105,530     $ 37,459     $ 285,391  
Income before taxes
   $ 54,244     $ 32,571     $ 35,244     $ 52,163     $ 35,710     $ 209,932  

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 26-week periods ended June 25, 2011 and June 26, 2010:

   
North
                    
   
America
    
Asia
    
Europe
    
Total
  
June 25, 2011
                        
Net sales to external customers
   $ 638,420     $ 119,606     $ 423,907     $ 1,181,933  
Long lived assets
   $ 229,779     $ 145,085     $ 48,833     $ 423,697  
                                 
June 26, 2010
                                
Net sales to external customers
   $ 696,120     $ 91,681     $ 372,032     $ 1,159,833  
Long lived assets
   $ 231,064     $ 146,087     $ 49,654     $ 426,805  

7.
Warranty Reserves
 
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.

 
10
 
 
   
13-Weeks Ended
  
   
June 25,
    
June 26,
  
   
2011
    
2010
  
             
Balance - beginning of the period
   $ 44,030     $ 58,814  
Accrual for products sold during the period
     13,530       15,705  
Expenditures
     (15,869 )     (12,074 )
Change in accrual for products sold in prior periods
     -       (21,000 )
Balance - end of the period
   $ 41,691     $ 41,445  
                 
   
26-Weeks Ended
  
   
June 25,
    
June 26,
  
    2011     2010  
                 
Balance - beginning of the period
   $ 49,885     $ 87,424  
Accrual for products sold during the period
     24,333       30,618  
Expenditures
     (32,527 )     (33,821 )
Change in accrual for products sold in prior periods
     -       (42,776 )
Balance - end of the period
   $ 41,691     $ 41,445  

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 our business.  Pursuant to these agreements, the Company is contractually committed to make purchases of approximately $14,697 over the next 5 years.

9.     Income Taxes

Our earnings before taxes decreased from $164,409 in the second quarter of 2010 to $127,072 in the second quarter of 2011, while our income tax expense decreased by $11,998, to $17,595 for the 13-week period ended June 25, 2011, from $29,593 for the 13-week period ended June 26, 2010.  The effective tax rate was 13.8% in the second quarter of 2011 and 18.0% in the second quarter of 2010.  The effective tax rate was 8.5% in the first half of 2011 and 18.0% in the first half of 2010.  The change in the effective tax rate was primarily due to the first quarter release of reserves related to the expiration of certain statutes for Garmin Europe and lower reserves provided in 2011 following favorable audits in both 2010 and 2011.

10.   Fair Value Measurements
 
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:
 
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 25, 2011
  
Description
  
Total
    
Level 1
    
Level 2
    
Level 3
  
Available for-sale securities
   $ 1,072,339     $ 1,072,339     $ -     $ -  
Failed Auction rate securities
     7,156       -       -       7,156  
Total
   $ 1,079,495     $ 1,072,339     $ -     $ 7,156  
                                 
   
Fair Value Measurements as of December 25, 2010
  
Description
  
Total
    
Level 1
    
Level 2
    
Level 3
  
Available for-sale securities
   $ 781,257     $ 781,257     $ -     $ -  
Failed Auction rate securities
     20,562       -       -       20,562  
Total
   $ 801,819     $ 781,257     $ -     $ 20,562  
 
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 25, 2011
    
June 25, 2011
  
             
Beginning balance of auction rate securities
   $ 20,552     $ 20,562  
Total unrealized appreciation included in other
                
comprehensive income
     2,254       2,494  
Sales out of Level 3
     (15,650 )     (15,900 )
Transfers in and/or out of Level 3
     -       -  
Ending balance of auction rate securities
   $ 7,156     $ 7,156  
 
The following is a summary of the company’s marketable securities classified as available-for-sale securities at June 25, 2011:
 
 
12
 
 
   
Amortized Cost
    
Gross Unrealized
Gains
    
Gross
Unrealized
Losses
    
Other Than
Temporary 
Impairment
    
Estimated Fair 
Value (Net 
Carrying Amount)
  
Mortgage-backed securities
   $ 566,021     $ 15,194     $ -     $ -     $ 581,215  
Auction Rate Securities
     9,877       -       (2,721 )     -       7,156  
Obligations of states and political subdivisions
     340,841       1,954       (432 )     -       342,363  
U.S. corporate bonds
     104,104       1,976       (143 )     (1,274 )     104,663  
Other
     45,054       1,264       (2,220 )     -       44,098  
Total
   $ 1,065,897     $ 20,388     $ (5,516 )   $ (1,274 )   $ 1,079,495  
 
The following is a summary of the company’s marketable securities classified as available-for-sale securities at December 25, 2010:
 
   
Amortized Cost
    
Gross Unrealized
Gains
    
Gross
Unrealized
Losses
    
Other Than
Temporary
Impairment
    
Estimated Fair 
Value (Net 
Carrying
Amount)
  
Mortgage-backed securities
   $ 527,249     $ 1,913     $ (1,520 )   $ -     $ 527,642  
Auction Rate Securities
     25,599       -       (5,037 )     -       20,562  
Obligations of states and political subdivisions
     160,618       347       (3,340 )     -       157,625  
U.S. corporate bonds
     54,348       637       (185 )     (1,274 )     53,526  
Other
     39,838       2,626       -       -       42,464  
Total
   $ 807,652     $ 5,523     $ (10,082 )   $ (1,274 )   $ 801,819  
 
The cost of securities sold is based on the specific identification method.
 
The amortized cost and estimated fair value of marketable securities at June 25, 2011, 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
   $ 61,748     $ 62,625  
Due after one year through five years
     375,372       377,881  
Due after five years through ten years
     220,398       222,288  
Due after ten years
     371,350       378,818  
Other (No contractual maturity dates)
     37,029       37,883  
    $ 1,065,897     $ 1,079,495  

11. Subsequent Events

On July 26, 2011, a subsidiary of Garmin Ltd. acquired Navigon AG, a privately-held navigation provider based in Hamburg, Germany.

On June 30, 2011, a subsidiary of Garmin Ltd. acquired Tri-Tronics Inc., the leading designer and manufacturer of electronic dog training equipment.

In aggregate, these acquisitions are not material.

 
13
 

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 25, 2010.  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 25, 2010.

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 five 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 five segments may vary significantly.  As such, the segments are managed separately.

 
14
 
 
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 25, 2011
    
June 26, 2010
  
             
Net sales
     100 %     100 %
Cost of goods sold
     52 %     46 %
Gross profit
     48 %     54 %
Advertising
     5 %     6 %
Selling, general and administrative
     13 %     10 %
Research and development
     10 %     10 %
Total operating expenses
     28 %     26 %
Operating income
     20 %     28 %
Other income (expense), net
     -1 %     -5 %
Income before income taxes
     19 %     23 %
Provision for income taxes
     3 %     4 %
Net income
     16 %     19 %
                 
   
26-Weeks Ended
  
   
June 25, 2011
    
June 26, 2010
  
                 
Net sales
     100 %     100 %
Cost of goods sold
     53 %     46 %
Gross profit
     47 %     54 %
Advertising
     5 %     5 %
Selling, general and administrative
     13 %     12 %
Research and development
     12 %     12 %
Total operating expenses
     30 %     29 %
Operating income
     17 %     25 %
Other income (expense), net
     2 %     -7 %
Income before income taxes
     19 %     18 %
Provision for income taxes
     2 %     3 %
Net income
     17 %     15 %

The Company manages its operations in five 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 five 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.

 
15
 
 
   
Reportable Segments
  
                     
Auto/
              
   
Outdoor
    
Fitness
    
Marine
    
Mobile
    
Aviation
    
Total
  
13-Weeks Ended June 25, 2011
                                    
                                     
Net sales
   $ 81,007     $ 78,014     $ 79,117     $ 362,706     $ 73,255     $ 674,099  
Operating income
   $ 35,667     $ 25,384     $ 23,357     $ 25,277     $ 21,906     $ 131,591  
Income before taxes
   $ 34,921     $ 24,568     $ 22,094     $ 23,228     $ 22,261     $ 127,072  
                                                 
13-Weeks Ended June 26, 2010
                                                
                                                 
Net sales
   $ 79,847     $ 62,469     $ 74,310     $ 447,225     $ 64,914     $ 728,765  
Operating income
   $ 38,035     $ 24,724     $ 32,146     $ 88,548     $ 18,590     $ 202,043  
Income before taxes
   $ 34,138     $ 21,512     $ 28,616     $ 62,419     $ 17,724     $ 164,409  
                                                 
                                                 
26-Weeks Ended June 25, 2011
                                                
                                                 
Net sales
   $ 147,458     $ 134,382     $ 130,425     $ 627,255     $ 142,413     $ 1,181,933  
Operating income
   $ 60,474     $ 40,841     $ 38,490     $ 26,872     $ 39,667     $ 206,344  
Income before taxes
   $ 63,109     $ 43,066     $ 40,523     $ 34,884     $ 42,416     $ 223,998  
                                                 
26-Weeks Ended June 26, 2010
                                                
                                                 
Net sales
   $ 139,233     $ 105,819     $ 115,625     $ 668,149     $ 131,007     $ 1,159,833  
Operating income
   $ 62,404     $ 38,923     $ 41,075     $ 105,530     $ 37,459     $ 285,391  
Income before taxes
   $ 54,244     $ 32,571     $ 35,244     $ 52,163     $ 35,710     $ 209,932  

 
16
 

Comparison of 13-Weeks Ended June 25, 2011 and June 26, 2010
(Amounts included in the following discussion are stated in thousands unless otherwise indicated)

Net Sales

   
13-weeks ended June 25, 2011
    
13-weeks ended June 26, 2010
    
Quarter over Quarter
  
   
Net Sales
    
% of Revenues
    
Net Sales
    
% of Revenues
    
$ Change
    
% Change
  
Outdoor
   $ 81,007       12 %   $ 79,847       11 %   $ 1,160       1 %
Fitness
     78,014       11 %     62,469       9 %     15,545       25 %
Marine
     79,117       12 %     74,310       10 %     4,807       6 %
Automotive/Mobile
     362,706       54 %     447,225       61 %     (84,519 )     -19 %
Aviation
     73,255       11 %     64,914       9 %     8,341       13 %
Total
   $ 674,099       100 %   $ 728,765       100 %   $ (54,666 )     -8 %

Net sales decreased 8% for the 13-week period ended June 25, 2011 when compared to the year-ago quarter.  The decrease occurred in the automotive/mobile segment with partially offsetting growth in all other segments.  Automotive/mobile revenue remains the largest portion of our revenue mix at 54% in the second quarter of 2011 compared to 61% in the second quarter of 2010.

Total unit sales decreased 6% to 3,756 in the second quarter of 2011 from 4,004 in the same period of 2010.   The decrease in unit sales volume in the second quarter of fiscal 2011 was primarily attributable to declining volumes in the automotive/mobile segment.  The fitness and marine segments posted 28% and 23% volume increases, respectively.

Automotive/mobile segment revenue decreased 19% from the year-ago quarter, as volumes decreased 11% and the average selling price (ASP) decreased 9%.  Volumes declined in the North American market as competitive technologies reduced the portable navigation device (PND) market.  ASP declines resulted from product mix shifting toward products bundled with lifetime maps requiring the net deferral of $62 million of revenue and the impact of $27 million of revenue from mobile handsets in the year ago quarter, which had considerably higher ASPs than other automotive/mobile products.  Revenues in our fitness segment increased 25% from the year-ago quarter on the strength of recent product introductions that expand the addressable market and ongoing global penetration in the segment.  Aviation revenues increased 13% from the year-ago quarter as the Company began to ship updated panel mount avionics products.

Cost of Goods Sold

   
13-weeks ended June 25, 2011
    
13-weeks ended June 26, 2010
    
Quarter over Quarter
  
   
COGS
    
% of Revenues
    
COGS
    
% of Revenues
    
$ Change
    
% Change
  
Outdoor
   $ 28,059       35 %   $ 26,590       33 %   $ 1,469       6 %
Fitness
     32,512       42 %     23,963       38 %     8,549       36 %
Marine
     34,909       44 %     25,202       34 %     9,707       39 %
Automotive/Mobile
     233,918       64 %     241,889       54 %     (7,971 )     -3 %
Aviation
     22,601       31 %     19,469       30 %     3,132       16 %
Total
   $ 351,999       52 %   $ 337,113       46 %   $ 14,886       4 %

Cost of goods sold increased 4% for the 13-week period ended June 25, 2011 when compared to the year ago quarter.  In the second quarter of 2010, cost of goods sold was positively impacted by 290 basis points as a percentage of revenues due to a $21.0 million warranty adjustment related to a change in estimate in warranty reserves.  Cost per unit, excluding the warranty adjustment, increased by 5% year-over-year due to product mix offset by the approximately 6% decline in unit sales mentioned above.

 
17
 

Gross Profit

   
13-weeks ended June 25, 2011
    
13-weeks ended June 26, 2010
    
Quarter over Quarter
  
   
Gross Profit
    
% of Revenues
    
Gross Profit
    
% of Revenues
    
$ Change
    
% Change
  
Outdoor
   $ 52,948       65 %   $ 53,257       67 %   $ (309 )     -1 %
Fitness
     45,502       58 %     38,506       62 %     6,996       18 %
Marine
     44,208       56 %     49,108       66 %     (4,900 )     -10 %
Automotive/Mobile
     128,788       36 %     205,336       46 %     (76,548 )     -37 %
Aviation
     50,654       69 %     45,445       70 %     5,209       11 %
Total
   $ 322,100       48 %   $ 391,652       54 %   $ (69,552 )     -18 %

Gross profit dollars in the second quarter of 2011 decreased 18% while gross profit margin decreased 600 basis points compared to the second quarter of 2010 driven primarily by the automotive/mobile segment.  Gross profit dollars in all segments excluding automotive/mobile represented 60% of gross profit in second quarter 2011 compared to 48% of gross profit in second quarter 2010.

The automotive/mobile segment gross profit margin percentage decreased 1040 basis points driven primarily by the 2010 warranty benefit discussed above and of the effect of ASP declines and cost per unit increases mentioned above.  The shift in product mix toward products bundled with lifetime maps required us to defer revenue and related costs, thereby lowering gross profit by $51 million during the current quarter compared to $19 million in the year ago quarter.  Outdoor and fitness gross profit margin percentage decreased 130 basis points and 330 basis points, respectively, from the year-ago quarter driven primarily by the 2010 warranty benefit.  Marine gross profit margin percentage decreased 1020 basis points driven by warranty and product mix shift toward lower margin fishfinders.

Advertising Expense

   
13-weeks ended June 25, 2011
    
13-weeks ended June 26, 2010
    
Quarter over Quarter
  
   
Advertising
    
% of Revenues
    
Advertising
    
% of Revenues
    
$ Change
    
% Change
  
Outdoor
   $ 4,301       5 %   $ 4,290       5 %   $ 11       0 %
Fitness
     4,763       6 %     3,193       5 %     1,570       49 %
Marine
     3,789       5 %     3,349       5 %     440       13 %
Automotive/Mobile
     19,987       6 %     30,658       7 %     (10,671 )     -35 %
Aviation
     1,258       2 %     950       1 %     308       32 %
Total
   $ 34,098       5 %   $ 42,440       6 %   $ (8,342 )     -20 %
 
Advertising expense decreased 20% in absolute dollars and decreased as a percentage of revenues when compared with the year-ago period.  The decrease in absolute dollars was driven by cooperative advertising, which decreased with volume declines, and reduced media advertising in automotive/mobile.  As a percentage of revenues, advertising expenses declined 80 basis points in the second quarter of 2011 compared to 2010.
 
 
18
 

Selling, General and Administrative Expense

   
13-weeks ended June 25, 2011
    
13-weeks ended June 26, 2010
        
   
Selling, General &
          
Selling, General &
          
Quarter over Quarter
  
   
Admin. Expenses
    
% of Revenues
    
Admin. Expenses
    
% of Revenues
    
$ Change
    
% Change
  
Outdoor
   $ 9,175       11 %   $ 7,837       10 %   $ 1,338       17 %
Fitness
     9,850       13 %     6,353       10 %     3,497       55 %
Marine
     9,822       12 %     7,674       10 %     2,148       28 %
Automotive/Mobile
     53,715       15 %     48,429       11 %     5,286       11 %
Aviation
     3,334       5 %     3,539       5 %     (205 )     -6 %
Total
   $ 85,896       13 %   $ 73,832       10 %   $ 12,064       16 %

Selling, general and administrative expense increased 16% in absolute dollars while increasing 260 basis points as a percentage of revenues compared to the year-ago quarter.  Selling, general and administrative expenses increased from 10% of revenues in the second quarter of 2010 to 13% of revenues in the second quarter of 2011.  The absolute dollar increase is primarily related to bad debt expense, legal costs and product support costs.  Percentage change for the fitness and marine segments is driven largely by the allocation of costs based on revenues.

Research and Development Expense

   
13-weeks ended June 25, 2011
    
13-weeks ended June 26, 2010
        
   
Research &
          
Research &
          
Quarter over Quarter
  
   
Development
    
% of Revenues
    
Development
    
% of Revenues
    
$ Change
    
% Change
  
Outdoor
   $ 3,805       5 %   $ 3,095       4 %   $ 710       23 %
Fitness
     5,505       7 %     4,236       7 %     1,269       30 %
Marine
     7,240       9 %     5,939       8 %     1,301       22 %
Automotive/Mobile
     29,809       8 %     37,701       8 %     (7,892 )     -21 %
Aviation
     24,156       33 %     22,366