XFRA:GEY Garmin Ltd Quarterly Report 10-Q Filing - 3/31/2012

Effective Date 3/31/2012

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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 March 31, 2012

 

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

 

 

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 x 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 x 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 x      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 x

 

 

Number of shares outstanding of the registrant’s common shares as of May 7, 2012

CHF 10.00 par value:  208,077,418 (including treasury shares)

 

 
 

 

Garmin Ltd.

Form 10-Q

Quarter Ended March 31, 2012

 

Table of Contents

 

Part I - Financial Information Page
     
Item 1. Condensed Consolidated Financial Statements 3
     
  Introductory Comments 3
     
  Condensed Consolidated Balance Sheets at March 31, 2012 (Unaudited) and December 31, 2011 4
     
  Condensed Consolidated Statements of Income for the 13-weeks ended March 31, 2012 and March 26, 2011 (Unaudited) 5
     
  Condensed Consolidated Statements of Comprehensive Income for the 13-weeks ended March 31, 2012 and March 26, 2011 (Unaudited) 6
     
  Condensed Consolidated Statements of Cash Flows for the 13-weeks ended March 31, 2012 and March 26, 2011 (Unaudited) 7
     
  Notes to Condensed Consolidated Financial Statements (Unaudited) 8
     
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 13
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 20
     
     
Item 4. Controls and Procedures 21
     
Part II - Other Information  
     
Item 1. Legal Proceedings 22
     
Item 1A. Risk Factors 24
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 25
     
Item 3. Defaults Upon Senior Securities 25
     
Item 4. Mine Safety Disclosures 25
     
Item 5. Other Information 25
     
Item 6. Exhibits 26
     
Signature Page   27
     
Index to Exhibits 28

 

2
 

 

Garmin Ltd.

Form 10-Q

Quarter Ended March 31, 2012

 

 

 

 

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 31, 2011. 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 period ended March 31, 2012 is not necessarily indicative of the results to be expected for the full year 2012.

 

 

3
 

 

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

 

   (Unaudited)     
   March 31,   December 31, 
   2012   2011 
Assets          
Current assets:          
    Cash and cash equivalents  $1,285,791   $1,287,160 
    Marketable securities   89,356    111,153 
    Accounts receivable, net   430,145    607,450 
    Inventories, net   407,476    397,741 
    Deferred income taxes   46,363    42,957 
    Deferred costs   41,831    40,033 
    Prepaid expenses and other current assets   48,304    69,790 
Total current assets   2,349,266    2,556,284 
           
Property and equipment, net   412,592    417,105 
           
Marketable securities   1,161,109    1,097,002 
Restricted cash   828    771 
Licensing agreements, net   5,658    5,517 
Noncurrent deferred income tax   107,190    107,190 
Noncurrent deferred costs   38,871    40,823 
Other intangible assets, net   249,279    246,646 
Total assets  $4,324,793   $4,471,338 
           
Liabilities and Stockholders' Equity          
Current liabilities:          
    Accounts payable  $109,232   $164,010 
    Salaries and benefits payable   46,180    45,964 
    Accrued warranty costs   42,792    46,773 
    Accrued sales program costs   32,452    52,262 
    Deferred revenue   199,302    188,987 
    Accrued royalty costs   14,441    99,025 
    Accrued advertising expense   10,896    31,915 
    Other accrued expenses   66,416    67,912 
    Deferred income taxes   6,675    5,782 
    Income taxes payable   66,156    77,784 
    Dividend payable   -    77,865 
Total current liabilities   594,542    858,279 
           
Deferred income taxes   7,235    4,951 
Non-current income taxes   165,457    161,904 
Non-current deferred revenue   177,095    188,132 
Other liabilities   1,059    1,491 
           
Stockholders' equity:          
    Shares, CHF 10 par value, 208,077,418 shares authorized and issued;          
       194,806,698 shares outstanding at March 31, 2012;          
       and 194,662,617 shares outstanding at December 31, 2011   1,797,435    1,797,435 
    Additional paid-in capital   70,688    61,869 
    Treasury stock   (98,778)   (103,498)
    Retained earnings   1,500,390    1,413,582 
    Accumulated other comprehensive income   109,670    87,193 
Total stockholders' equity   3,379,405    3,256,581 
Total liabilities and stockholders' equity  $4,324,793   $4,471,338 

 

 

 

 

See accompanying notes.

 

4
 

 

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

 

   13-Weeks Ended 
   March 31,   March 26, 
   2012   2011 
Net sales  $556,597   $507,834 
           
Cost  of goods sold   272,838    269,460 
           
Gross profit   283,759    238,374 
           
Advertising expense   23,591    19,956 
Selling, general and administrative expense   90,116    73,187 
Research and development expense   79,719    70,478 
Total operating expense   193,426    163,621 
           
Operating income   90,333    74,753 
           
Other income (expense):          
    Interest income   9,671    7,214 
    Foreign currency gains (losses)   (1,989)   12,140 
    Other   1,541    2,819 
Total other income (expense)   9,223    22,173 
           
Income before income taxes   99,556    96,926 
           
Income tax provision   12,698    1,444 
           
Net income  $86,858   $95,482 
           
Net income per share:          
    Basic  $0.45   $0.49 
    Diluted  $0.44   $0.49 
           
Weighted average common          
    shares outstanding:          
    Basic   194,742    193,922 
    Diluted   195,673    194,720 

 

 See accompanying notes.

 

5
 

 

Garmin Ltd. And Subsidiaries
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
(In thousands)

 

   13-Weeks Ended 
   March 31,   March 26, 
   2012   2011 
Net income  $86,858   $95,482 
Translation adjustment   21,341    32,752 
Change in fair value of available-for-sale          
  marketable securities, net of deferred taxes   1,136    2,614 
     Comprehensive income  $109,335   $130,848 

 

 See accompanying notes. 

 

6
 

 

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

 

   13-Weeks Ended
   March 31,   March 26, 
   2012   2011 
Operating Activities:          
Net income  $86,858   $95,482 
Adjustments to reconcile net income to net cash          
provided by operating activities:          
Depreciation   13,790    13,839 
Amortization   11,609    8,583 
Loss (gain) on sale of property and equipment   10    (2)
Provision for doubtful accounts   1,037    (858)
Deferred income taxes   (2,271)   1,023 
Unrealized foreign currency losses   3,626    867 
Provision for obsolete and slow moving inventories   7,858    (4,349)
Stock compensation expense   9,844    8,666 
Realized gains on marketable securities   (635)   (1,492)
Changes in operating assets and liabilities, net of acquisitions:          
Accounts receivable   185,166    327,151 
Inventories   (12,506)   (11,067)
Other current assets   22,299    (20,372)
Accounts payable   (58,319)   (17,573)
Other current and non-current liabilities   (128,093)   (190,770)
Deferred revenue   (884)   21,826 
Deferred cost   186    (3,905)
Income taxes payable   (11,998)   (16,550)
License fees   (5,349)   (2,900)
Net cash provided by operating activities   122,228    207,599 
           
Investing activities:          
Purchases of property and equipment   (5,758)   (7,178)
Proceeds from sale of property and equipment   2    - 
Purchase of intangible assets   (2,929)   (2,626)
Purchase of marketable securities   (250,431)   (363,263)
Redemption of marketable securities   207,143    98,614 
Change in restricted cash   (57)   (112)
Acquisitions, net of cash acquired   (2,816)   - 
Net cash used in investing activities   (54,846)   (274,565)
           
Financing activities:          
Dividends paid   (77,915)   - 
Issuance of treasury stock related to equity awards   2,883    8,941 
Tax benefit from issuance of equity awards   860    787 
Purchase of treasury stock   (311)   (5,900)
Net cash (used in)/provided by financing activities   (74,483)   3,828 
           
Effect of exchange rate changes on cash and cash equivalents   5,732    12,817 
           
Net decrease in cash and cash equivalents   (1,369)   (50,321)
Cash and cash equivalents at beginning of period   1,287,160    1,260,936 
Cash and cash equivalents at end of period  $1,285,791   $1,210,615 

 

 See accompanying notes. 

 

7
 

  

Garmin Ltd. and Subsidiaries

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

March 31, 2012

(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 period ended March 31, 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 March 31, 2012 and March 26, 2011 both contain operating results for 13 weeks.

 

 

2.Inventories

 

The components of inventories consist of the following:

 

   March 31, 2012   December 31, 2011 
           
Raw Materials  $129,556   $129,211 
Work-in-process   51,691    52,176 
Finished goods   260,654    245,724 
Inventory Reserves   (34,425)   (29,370)
Inventory, net of reserves  $407,476   $397,741 

 

3.Earnings Per Share

 

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

 

8
 

 

   13-Weeks Ended 
   March 31,   March 26, 
   2012   2011 
Numerator:          
Numerator for basic and diluted net income per share - net income  $86,858   $95,482 
           
Denominator:          
Denominator for basic net income per share –
weighted-average common shares
   194,742    193,922 
           
Effect of dilutive securities –          
employee stock options and          
stock appreciation rights   931    798 
           
Denominator for diluted net income per share –
adjusted weighted-average common shares
   195,673    194,720 
           
Basic net income per share  $0.45   $0.49 
           
Diluted net income per share  $0.44   $0.49 

 

There were 5,739,386 anti-dilutive options for the 13-week period ended March 31, 2012. There were 6,048,590 anti-dilutive options for the 13-week period ended March 26, 2011.

 

There were 143,220 shares issued as a result of exercises of stock appreciation rights and stock options for the 13-week period ended March 31, 2012. There were 179,371 shares issued as a result of exercises of stock appreciation rights and stock options for the 13-week period ended March 26, 2011.

 

 

4.Segment Information

 

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:

 

9
 

 

   Reportable Segments 
               Auto/         
   Outdoor   Fitness   Marine   Mobile   Aviation   Total 
13-Weeks Ended March 31, 2012                              
                               
Net sales  $77,162   $71,215   $56,064   $279,269   $72,887   $556,597 
Operating income  $25,909   $20,651   $8,778   $17,935   $17,060   $90,333 
Income before taxes  $26,977   $22,729   $9,561   $22,743   $17,546   $99,556 
                               
13-Weeks Ended March 26, 2011                              
                               
Net sales  $66,450   $56,367   $51,308   $264,550   $69,159   $507,834 
Operating income  $24,807   $15,457   $15,133   $1,595   $17,761   $74,753 
Income before taxes  $28,187   $18,497   $18,430   $11,656   $20,156   $96,926 

 

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 13-week periods ended March 31, 2012 and March 26, 2011. Note that APAC includes Asia Pacific and EMEA includes Europe, the Middle East and Africa:

 

   Americas   APAC   EMEA   Total 
March 31, 2012                    
Net sales to external customers  $296,167   $61,814   $198,616   $556,597 
Long lived assets  $218,151   $142,195   $52,246   $412,592 
                     
                     
March 26, 2011                    
Net sales to external customers  $279,967   $57,127   $170,740   $507,834 
Long lived assets  $231,021   $146,425   $49,664   $427,110 

 

5.       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.

 

   13-Weeks Ended 
   March 31,   March 26, 
   2012   2011 
         
Balance - beginning of the period  $46,773   $49,885 
Accrual for products sold   7,906    10,803 
Expenditures   (11,887)   (16,658)
Balance - end of the period  $42,792   $44,030 

 

10
 

6. Commitments and Contingencies

 

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 $149,567 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.

 

 

7. Income Taxes

 

Our earnings before taxes increased 3% when compared to the same quarter in 2011, while our income tax expense increased by $11,254, to $12,698 for the 13-week period ended March 31, 2012, from $1,444 for the 13-week period ended March 26, 2011. The effective tax rate was 12.8% in the first quarter of 2012 and 1.5% in the first quarter 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 and lower U.S. reserves provided in 2011 following favorable audits in both 2010 and 2011.

 

 

8. Marketable Securities

 

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

 

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

 

 

The following is a summary of the company’s marketable securities classified as available-for-sale securities at March 31, 2012:

 

   Amortized Cost   Gross Unrealized Gains   Gross Unrealized Losses   Other Than Temporary  Impairment   Estimated Fair Value (Net Carrying Amount) 
Mortgage-backed securities  $625,808   $12,034   $(2,291)  $-   $635,551 
Obligations of states and political subdivisions   397,800    2,352    (1,629)   -    398,523 
U.S. corporate bonds   141,128    1,214    (1,169)   (1,274)   139,899 
Other   73,399    3,228    (135)   -    76,492 
Total  $1,238,135   $18,828   $(5,224)  $(1,274)  $1,250,465 

  

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

 

11
 

 

   Amortized Cost   Gross Unrealized Gains   Gross Unrealized Losses   Other Than Temporary  Impairment   Estimated Fair Value (Net Carrying Amount) 
Mortgage-backed securities  $626,776   $12,936   $(1,086)  $-   $638,626 
Obligations of states and political subdivisions   358,314    2,339    (1,090)   -    359,563 
U.S. corporate bonds   134,763    815    (2,260)   (1,274)   132,044 
Other   78,031    113    (222)   -    77,922 
Total  $1,197,884   $16,203   $(4,658)  $(1,274)  $1,208,155 

 

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

 

The amortized cost and estimated fair value of marketable securities at March 31, 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.

 

       Estimated 
   Cost   Fair Value 
         
Due in one year or less  $89,098   $89,356 
Due after one year through five years   415,761    416,628 
Due after five years through ten years   301,469    301,269 
Due after ten years   377,903    384,605 
Other (No contractual maturity dates)   53,904    58,607 
   $1,238,135   $1,250,465 

 

9. Change in Accounting Estimate

 

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.

 

Despite the change in the per unit revenue deferral discussed above, the amount of revenue deferred on sales during the first quarters of 2012 and 2011 was comparable, except as related to sales of Navigon, which was acquired in July 2011.  The increased amortization, in the 13 weeks ended March 31, 2012, of previously recorded deferred revenue, led to a net deferred revenue (amortization) of ($0.7 million) and $21.8 million during the first quarter of 2012 and 2011, respectively.

 

12
 

  

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 31, 2011. 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 31, 2011.

 

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.

 

13
 

 

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 
   March 31, 2012   March 26, 2011 
         
Net sales   100%   100%
Cost of goods sold   49%   53%
Gross profit   51%   47%
Advertising   4%   4%
Selling, general and administrative   16%   14%
Research and development   15%   14%
Total operating expenses   35%   32%
Operating income   16%   15%
Other income (expense), net   2%   4%
Income before income taxes   18%   19%
Provision for income taxes   2%   0%
Net income   16%   19%

 

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.

 

   Reportable Segments 
               Auto/         
   Outdoor   Fitness   Marine   Mobile   Aviation   Total 
13-Weeks Ended March 31, 2012                              
                               
Net sales  $77,162   $71,215   $56,064   $279,269   $72,887   $556,597 
Operating income  $25,909   $20,651   $8,778   $17,935   $17,060   $90,333 
Income before taxes  $26,977   $22,729   $9,561   $22,743   $17,546   $99,556 
                               
13-Weeks Ended March 26, 2011                              
                               
Net sales  $66,450   $56,367   $51,308   $264,550   $69,159   $507,834 
Operating income  $24,807   $15,457   $15,133   $1,595   $17,761   $74,753 
Income before taxes  $28,187   $18,497   $18,430   $11,656   $20,156   $96,926 

 

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Comparison of 13-Weeks Ended March 31, 2012 and March 26, 2011

(Amounts included in the following discussion are stated in thousands unless otherwise indicated)

 

Net Sales

 

  13-weeks ended March 31, 2012 13-weeks ended March 26, 2011 Quarter over Quarter 
  Net Sales % of Revenues Net Sales % of Revenues $ Change % Change
Outdoor $77,162 14% $66,450 13% $10,712 16%
Fitness 71,215 13% 56,367 11% 14,848 26%
Marine 56,064 10% 51,308 10% 4,756 9%
Automotive/Mobile 279,269 50% 264,550 52% 14,719 6%
Aviation 72,887 13% 69,159 14% 3,728 5%
Total $556,597 100% $507,834 100% $48,763 10%

 

Net sales increased 10% for the 13-week period ended March 31, 2012 when compared to the year-ago quarter. The increase occurred in all segments with the largest percentage gains in fitness and outdoor. Automotive/mobile revenue remains the largest portion of our revenue mix at 50% in the first quarter of 2012 compared to 52% in the first quarter of 2011.

 

Total unit sales increased 7% to 2,712 in the first quarter of 2012 from 2,525 in the same period of 2011. The increase in unit sales volume in the first quarter of fiscal 2012 was attributable to increasing volumes in all segments excluding aviation. The greatest percentage increase occurred in marine as product mix shifted toward high-volume, low-priced products.

 

Automotive/mobile segment revenue increased 6% from the year-ago quarter, as volumes increased 4% and the average selling price (ASP) increased 2%.  The volume gains were related to our acquisition of Navigon in July 2011 and global market share gains partially offset by the sale in the first quarter of 2011 of mobile handset inventories.  The ASP increase was driven by bundled product offerings, which carry higher ASPs, comprising a higher percentage of our product mix, the impact of amortization of previously deferred revenues which was positive for the first time in the first quarter of 2012, and a reduced per unit revenue deferral rate due to a change in accounting estimate in the third quarter of 2011. These ASP gains were partially offset by a declining ASP for comparable models from the previous year.  Revenues in our fitness segment increased 26% from the year-ago quarter on the strength of recent product introductions, including the multi-sport Forerunner® 910XT, that expand the addressable market and ongoing global penetration in the segment. Outdoor revenues increased 16% from the year-ago quarter as the Company gained market share in the GPS-enabled golf category and recognized the benefit of an acquisition in the second half of 2011.

 

Cost of Goods Sold

 

  13-weeks ended March 31, 2012 13-weeks ended March 26, 2011 Quarter over Quarter 
  COGS % of Revenues COGS % of Revenues $ Change % Change
Outdoor $29,900 39% $25,097 38% $4,803 19%
Fitness 27,721 39% 22,575 40% 5,146 23%
Marine 22,568 40% 18,110 35% 4,458 25%
Automotive/Mobile 169,438 61% 181,999 69% (12,561) -7%
Aviation 23,211 32% 21,679 31% 1,532 7%
Total $272,838 49% $269,460 53% $3,378 1%

 

Cost of goods sold increased 1% for the 13-week period ended March 31, 2012 when compared to the year ago quarter. The increase was driven by increased volumes largely offset by segment mix shifting toward the lower cost per unit segments of fitness and outdoor. Marine cost of goods sold as a percentage of revenues increased by 500 basis points due to a product mix shift toward lower margin products, including fishfinders. Automotive/mobile cost of goods as a percentage of revenues decreased by 810 basis points due to a 400 basis point benefit from the amortization of previously deferred revenue and costs exceeding new deferrals on current period sales for the first time in the first quarter of 2012 and a reduced per unit revenue deferral rate due to a change in accounting estimate in the third quarter of 2011, as discussed in the Company’s Form 10-K for the year ended December 31, 2011, as well as product mix shifting toward large screen devices.

 

15
 

 

Gross Profit

 

  13-weeks ended March 31, 2012 13-weeks ended March 26, 2011 Quarter over Quarter 
  Gross Profit % of Revenues Gross Profit % of Revenues $ Change % Change
Outdoor $47,262 61% $41,353 62% $5,909 14%
Fitness 43,494 61% 33,792 60% 9,702 29%
Marine 33,496 60% 33,198 65% 298 1%
Automotive/Mobile 109,831 39% 82,551 31% 27,280 33%
Aviation 49,676 68% 47,480 69% 2,196 5%
Total $283,759 51% $238,374 47% $45,385 19%

 

Gross profit dollars in the first quarter of 2012 increased 19% while gross profit margin increased 400 basis points compared to the first quarter of 2011 driven primarily by the automotive/mobile segment. The automotive/mobile gross margin improved to 39% driven by the amortization of previously deferred high margin revenues, a reduced per unit deferral rate and product mix, as discussed above. This improvement was partially offset by a 500 basis point decrease in gross profit margin percentage for the marine segment due to the product mix shifting toward lower margin units. Gross profit margin percentage for outdoor, fitness and aviation did not change materially.

 

Advertising Expense

 

  13-weeks ended March 31, 2012 13-weeks ended March 26, 2011 Quarter over Quarter  
  Advertising % of Revenues Advertising % of Revenues $ Change % Change
Outdoor $3,062 4% $2,901 4% $161 6%
Fitness 4,770 7% 3,480 6% 1,290 37%
Marine 3,932 7% 2,438 5% 1,494 61%
Automotive/Mobile 10,077 4% 10,148 4% (71) -1%
Aviation 1,750 2% 989 1% 761 77%
Total $23,591 4% $19,956 4% $3,635 18%

 

Advertising expense increased 18% in absolute dollars. The increase in absolute dollars occurred in all segments excluding automotive/mobile and was driven primarily by cooperative advertising and increased media placement in the respective segments. As a percentage of revenues, advertising expenses were 4% in the first quarter of both 2012 and 2011 though marine and aviation experienced 220 and 100 basis point increases, respectively.

  

Selling, General and Administrative Expense

 

  13-weeks ended March 31, 2012 13-weeks ended March 26, 2011  
  Selling, General &   Selling, General &   Quarter over Quarter 
  Admin. Expenses % of Revenues Admin. Expenses % of Revenues $ Change % Change
Outdoor $13,264 17% $9,607 14% $3,657 38%
Fitness 12,494 18% 9,412 17% 3,082 33%
Marine 11,278 20% 8,349 16% 2,929 35%
Automotive/Mobile 49,681 18% 40,930 15% 8,751 21%
Aviation 3,399 5% 4,889 7% (1,490) -30%
Total $90,116 16% $73,187 14% $16,929 23%

 

Selling, general and administrative expense increased 23% in absolute dollars while increasing 180 basis points as a percentage of revenues compared to the year-ago quarter. As a percent of revenues, selling, general and administrative expenses increased from 14% of revenues in the first quarter of 2011 to 16% of revenues in the first quarter of 2012. The absolute dollar increase is primarily related to acquisitions in the second half of 2011, which added over $10 million, and legal fees and reserves.

 

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Research and Development Expense

 

  13-weeks ended March 31, 2012 13-weeks ended March 26, 2011  
  Research &   Research &   Quarter over Quarter 
  Development % of Revenues Development % of Revenues $ Change % Change
Outdoor $5,027 7% $4,038 6% $989 24%
Fitness 5,579 8% 5,443 10% 136 3%
Marine 9,508 17% 7,278 14% 2,230 31%
Automotive/Mobile 32,138 12% 29,878 11% 2,260 8%
Aviation 27,467 38% 23,841 34% 3,626 15%
Total $79,719 14% $70,478 14% $9,241 13%

  

Research and development expense increased 13% due to ongoing development activities for new products and the addition of almost 300 new engineering personnel to our staff since the year-ago quarter, with 200 engineers from recent acquisitions. Research and development costs increased $9.2 million when compared with the year-ago quarter representing a 30 basis point increase as a percent of revenue as research and development growth slightly outpaced revenue growth.

 

Operating Income

 

  13-weeks ended March 31, 2012 13-weeks ended March 26, 2011 Quarter over Quarter 
  Operating Income % of Revenues Operating Income % of Revenues $ Change % Change
Outdoor $25,909 34% $24,807 37% $1,102 4%
Fitness 20,651 29% 15,457 27% 5,194 34%
Marine 8,778 16% 15,133 29% (6,355) -42%
Automotive/Mobile 17,935 6% 1,595 1% 16,340 1025%
Aviation 17,060 23% 17,761 26% (701) -4%
Total $90,333 16% $74,753 15% $15,580 21%

 

Operating income increased 21% in absolute dollars and 150 basis points as a percent of revenue when compared to the first quarter of 2011. Revenue growth and improving gross margin percentage, as discussed above, were only partially offset by increased operating expenses.

 

Other Income (Expense)

 

    13-weeks ended 13-weeks ended
    March 31, 2012 March 26, 2011
Interest Income   $9,671 $7,214
Foreign Currency Exchange (1,989) 12,140
Other    1,541 2,819
Total   $9,223 $22,173

 

The average return on cash and investments during the first quarter of 2012 was 1.5% compared to 1.3% during the same quarter of 2011. The increase in interest income is attributable to increasing cash balances and increasing interest rates.

 

Foreign currency gains and losses for the Company are primarily tied to movements by the Taiwan Dollar, the Euro, and the British Pound Sterling. The Taiwan Dollar is the functional currency of Garmin Corporation. The U.S. Dollar remains the functional currency of Garmin (Europe) Ltd. The Euro is the functional currency of most European subsidiaries. As these entities have grown, currency fluctuations can generate material gains and losses. Additionally, Euro-based inter-company transactions can also generate currency gains and losses. Due to the relative size of the entities using a functional currency other than the Taiwan Dollar, the Euro and the British Pound Sterling, currency fluctuations related to these entities are not expected to have a material impact on the Company’s financial statements.

 

 

17
 

 

The majority of the $2.0 million currency loss in the first quarter of 2012 was due to the weakening of the U.S. Dollar compared to the Taiwan Dollar. The weakening of the U.S. Dollar compared to the Euro and the British Pound Sterling contributed a partially offsetting gain. The movements of the Taiwan Dollar and Euro/British Pound Sterling have offsetting impacts due to the use of the Taiwan Dollar for manufacturing costs and cash held in non-functional currency while the Euro and British Pound Sterling transactions relate to revenue. During the first quarter of 2012, the U.S. Dollar weakened 1.4% compared to the Taiwan Dollar resulting in a loss of $17.4 million. Offsetting this loss, the U.S. Dollar weakened 3.0% and 3.5%, respectively, against the Euro and the British Pound Sterling, resulting in a $13.0 million gain. The remaining net currency gain of $2.4 million is related to other currencies and timing of transactions.

 

The majority of the $12.1 million currency gain in the first quarter of 2011 was due to the weakening of the U.S. Dollar compared to the Euro and other global currencies. The weakening of the U.S. Dollar compared to the Taiwan Dollar contributed a partially offsetting loss. During the first quarter of 2011, the U.S. Dollar weakened 7.8% and 4.2%, respectively, compared to the Euro and the British Pound Sterling, resulting in a gain of $33.0 million. In addition, the U.S. Dollar weakened 3.4% against the Taiwan Dollar, resulting in a $22.1 million loss. The remaining net currency gain of $1.2 million is related to other currencies and timing of transactions.

 

Income Tax Provision

 

Our earnings before taxes increased 3% when compared to the same quarter in 2011, while our income tax expense increased by $11.3 million, to $12.7 million for the 13-week period ended March 31, 2012, from $1.4 million for the 13-week period ended March 26, 2011. The effective tax rate was 12.8% in the first quarter of 2012 and 1.5% in the first quarter 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 and lower U.S. reserves provided in 2011 following favorable audits in both 2010 and 2011.

 

Net Income

 

As a result of the above, net income decreased 9% for the 13-week period ended March 31, 2012 to $86.9 million compared to $95.5 million for the 13-week period ended March 26, 2011.

 

 

Liquidity and Capital Resources

 

Net cash generated by operating activities was $122.2 million for the 13-week period ended March 31, 2012 compared to $207.6 million for the 13-week period ended March 26, 2011. The year-over-year decline in cash provided by operating activities was driven primarily by working capital changes. The largest change was a decrease in cash provided by accounts receivable in the first quarter of 2012 as we experienced better collections in the fourth quarter of 2011 due to a 53-week fiscal year and improved payment terms. Primary drivers of the cash generation in 2012 included $86.9 million of net income with non-cash adjustments for depreciation/amortization of $25.4 million, and stock compensation expense of $9.8 million, $185.2 million related to accounts receivable collections from the seasonally strong fourth quarter of 2011 and $22.3 million decrease in other current assets related primarily to the refund of a withholding tax payment from the Swiss Federal Tax Authority. This cash generation was partially offset by uses of cash including a $128.0 million reduction in other current and noncurrent liabilities related primarily to the timing of royalty payments and sales program costs, as well as payment of advertising costs, a $58.3 million reduction in accounts payable following the seasonally strong fourth quarter, and a $12.0 million decrease in income taxes payable.

 

Cash flow used in investing activities during the 13-week period ending March 31, 2012 was $54.8 million compared to $274.6 million in the 13-week period ended March 26, 2011. Cash flow used in investing activities in 2012 principally related to the net purchase of $43.3 million of fixed income securities associated with the investment of our on-hand cash balances, $5.8 million in capital expenditures primarily related to business operation and maintenance activities, $2.9 million for purchases of intangible assets and $2.8 million for acquisitions, net of cash acquired. In the first quarter of 2011, we had a $264.6 million net purchase of marketable securities due to the timing of cash receipts from accounts receivable. It is management’s goal to invest the on-hand cash consistent with the Company’s investment policy, which has been approved by the Board of Directors. The investment policy’s primary purpose is to preserve capital, maintain an acceptable degree of liquidity, and maximize yield within the constraint of maximum safety. The average return on cash and investments during the 13-weeks ended March 31, 2012 was 1.5%.

 

 

18
 

 

Net cash used in financing activities during the period was $74.5 million resulting from the use of $77.9 million for payment of our declared dividend offset by the net impact of transactions related to our Company stock option plans and stock based compensation tax benefits. There was no dividend payment in the 13-weeks ended March 26, 2011.

 

We believe that our existing cash balances and cash flow from operations will be sufficient to meet our projected capital expenditures, working capital, payment of dividends, and other cash requirements at least through the end of fiscal 2012.

 

Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements.

 

19
 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

Market Sensitivity

 

We have market risk primarily in connection with the pricing of our products and services and the purchase of raw materials. Product pricing and raw material costs are both significantly influenced by semiconductor market conditions. Historically, during cyclical economic downturns, we have been able to offset pricing declines for our products through a combination of improved product mix and success in obtaining price reductions in raw material costs.

 

Inflation

 

We do not believe that inflation has had a material effect on our business, financial condition or results of operations. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could adversely affect our business, financial condition and results of operations.

 

Foreign Currency Exchange Rate Risk

 

The operation of the Company’s subsidiaries in international markets results in exposure to movements in currency exchange rates. The potential of volatile foreign exchange rate fluctuations in the future could have a significant effect on our results of operations. In accordance with the Accounting Standards Code, the financial statements of all Company entities with functional currencies that are not United States dollars (USD) are translated for consolidation purposes into USD, the reporting currency of Garmin Ltd. Sales, costs, and expenses are translated at rates prevailing during the reporting periods and at end-of-period rates for all assets and liabilities. The effect of this translation is recorded in a separate component of stockholders’ equity and have been included in accumulated other comprehensive income/(loss) in the accompanying condensed consolidated balance sheets and condensed consolidated statements of comprehensive income.

 

Foreign currency gains and losses for the Company are primarily tied to movements by the Taiwan Dollar (TD), the Euro, and the British Pound Sterling. The U.S. Dollar (USD) remains the functional currency of Garmin (Europe) Ltd. The Euro is the functional currency of most European subsidiaries, and as a result, Euro currency movement may generate material gains and losses. Additionally, Euro-based inter-company transactions in Garmin Ltd. can also generate currency gains and losses. Due to the relative size of entities using a functional currency other than the Taiwan Dollar, the Euro and the British Pound Sterling, currency fluctuations within these entities are not expected to have a material impact on the Company’s financial statements.

 

Interest Rate Risk

 

As of March 31, 2012, we are exposed to interest rate risk in connection with our investments in marketable securities. As interest rates change, the unrealized gains and losses associated with those securities will fluctuate accordingly. As we have no outstanding long term debt, we have no meaningful debt-related interest rate risk.

 

20
 

 

Item 4. Controls and Procedures

 

(a)     Evaluation of disclosure controls and procedures. The Company maintains a system of disclosure controls and procedures that are designed to provide reasonable assurance that information, which is required to be timely disclosed, is accumulated and communicated to management in a timely fashion.  A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. As of March 31, 2012, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures.  Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded as of March 31, 2012 that our disclosure controls and procedures were effective such that the information relating to the Company, required to be disclosed in our Securities and Exchange Commission ("SEC") reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to the Company's management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

 

(b) Changes in internal control over financial reporting. There has been no change in the Company’s internal controls over financial reporting that occurred during the Company’s fiscal quarter ended March 31, 2012 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

21
 

 

Part II - Other Information

 

 

Item 1. Legal Proceedings

 

 

Ambato Media, LLC v. Clarion Co., Ltd., Clarion Corporation of America, Delphi Corporation, Fujitsu Limited, Fujitsu Ten Corporation of America, Garmin Ltd., Garmin International, Inc., Victor Company of Japan Ltd., JVC Americas Corporation, JVC Kenwood Holdings, Inc., J&K Car Electronics Corporation, LG Electronics, Inc., LG Electronics USA, Inc., MiTAC International Corporation, MiTAC Digital Corporation, Mio Technology USA Ltd., Navigon, Inc. Nextar Inc.,Panasonic Corporation, Panasonic Corporation of North America, Pioneer Corporation, Pioneer Electronics (USA) Inc.,Sanyo Electric Co., Ltd., Sanyo North America Corporation, Sanyo Electronic Device (U.S.A.) Corporation,TomTom N.V., TomTom International B.V., and TomTom, Inc.

 

On August 14, 2009, Ambato Media, LLC filed suit in the United States District Court for the Eastern District of Texas against Garmin Ltd. and Garmin International, Inc. along with several codefendants alleging infringement of U.S. Patent No. 5,432,542 (“the ’542 patent”). On September 28, 2009, Garmin filed its answer and counterclaims asserting that each asserted claim of the ’542 patent is invalid and/or not infringed. On July 18, 2011, the court issued an order construing the claims of the ‘542 patent. Trial of this lawsuit is currently scheduled to begin on July 2, 2012. Although there can be no assurance that an unfavorable outcome of this litigation would not have a material adverse effect on our operating results, liquidity or financial position, Garmin believes that the claims are without merit and intends to vigorously defend this action.

 

Avocet Sports Technology, Inc. v. Garmin International, Inc., Implus Footcare, LLC d/b/a Highgear, Polar Electro, Inc., Brunton d/b/a Brunton Outdoor Group, and Casio America, Inc.

 

On August 18, 2011, Avocet Sports Technology, Inc. (“Avocet”) filed suit in the United States District Court for the Northern District of California against five companies, including Garmin International, Inc., alleging infringement of U.S. Patent No. 5,058,427 (“the ‘427 patent”). On November 16, 2011, Garmin filed its answer asserting that each asserted claim of the ‘427 patent is not infringed and/or invalid. On November 16, 2011, Garmin filed a motion to dismiss this lawsuit for failure to state a claim on which relief can be granted. On March 22, 2012, this lawsuit was dismissed without prejudice by the court. On April 16, 2012 Avocet re-filed the lawsuit. Although there can be no assurance that an unfavorable outcome of this litigation would not have a material adverse effect on our operating results, liquidity, or financial position, Garmin believes that the claims are without merit and intends to vigorously defend this action.

 

Bandspeed, Inc. v. Acer, Inc., Acer American Corporation, Belkin International, Inc., Belkin,Inc., Casio Computer Co., Ltd., Xasio Hitachi Mobile CommunicationsCo. Ltd., Xasio America, Inc., Dell Inc., Garmin International, Inc., Garmin USA, Inc., GN Netcom A/S, GN U.S. Inc. a/k/a GN Netcom Inc., Hewlett-Packard Company, Hewlett-Packard Development Company, L.P., HTC Corporation, HTC America, Inc., Huawei Technologies Co. Ltd., Kyocera Corporation, Kyocera International, Inc., Kyocera Communications, Inc., Kyocera Wireless Corporation, Lenovo (United States), Inc.,LG Electronics, Inc., LG Electronics U.S.A. Inc., LG Electronics Mobilecomm U.S.A. Inc., Motorola, Inc., Nokia Corporation, Nokia Inc., Pantech Wireless, Inc. Plantronics, inc., Research in Motion Ltd., Research in Motion Corporation, Samsung Telecommunications America, LLC, TomTom International B.V., TomTom, Inc., Toshiba Corporation, Toshiba America information Systems, Inc., and Toshiba America, Inc.

 

On June 30, 2010, Bandspeed, Inc. filed suit in the United States District Court for the Eastern District of Texas against 38 companies, including Garmin International, Inc. and Garmin USA, Inc. alleging infringement of U.S. Patent No 7,027,418 (“the ‘418 patent”) and U.S. Patent No 7,670,614 (“the ‘614 patent”). On January 21, 2011, Bandspeed, Inc. filed an amended complaint adding additional claims against several of the codefendants, but not against Garmin. On February 22, 2011, Garmin filed its answer to the amended complaint with counterclaims asserting that the asserted claims of the ’418 and ’614 patents are invalid and not infringed. On August 15, 2011, the court granted Garmin’s motion to transfer venue and transferred the case to the Western District of Texas. On December 23, 2011, Bandspeed, Inc. filed a second amended complaint adding additional claims against Garmin. On January 24, 2012, Garmin filed a motion to dismiss these additional claims. Although there can be no assurance that an unfavorable outcome of this litigation would not have a material adverse effect on our operating results, liquidity or financial position, Garmin believes the claims in this lawsuit are without merit and intends to vigorously defend this action.

  

Beacon Wireless Solutions, Inc. et al. v. Garmin International, Inc., and Garmin USA, Inc.

 

On March 21, 2011, Beacon Wireless Solutions, Inc. (“Beacon”) and Beacon Wireless Europe (UK) Limited (“Beacon Europe”) filed suit in the United States District Court for the District of the Western District of Virginia against Garmin International, Inc. and Garmin USA, Inc. (collectively “Garmin”), alleging trade secret misappropriation, breach of a non-disclosure agreement, breach of implied in-fact contract, and unjust enrichment. On October 5, 2011, the District Court dismissed Beacon’s claim against Garmin for breach of implied in-fact contract, and took Beacon Europe’s breach of implied in-fact contract claim under advisement. On April 11, 2012, Garmin filed a motion for summary judgment, which is currently pending before the court. Trial is currently scheduled to begin on May 21, 2012. Although there can be no assurance that an unfavorable outcome of this litigation would not have a material adverse effect on our operating results, liquidity, or financial position, Garmin believes the claims in this lawsuit are without merit and intends to vigorously defend this action.

22
 

 

Data Carriers, LLC v. Garmin USA, Inc.

 

On March 16, 2012, Data Carriers, LLC filed suit in the United States District Court for the District of Delaware against Garmin USA, Inc. alleging infringement of U.S. Patent No. 5,388,198. On April 10, 2012, Garmin filed a motion to dismiss this lawsuit for failure to state a claim on which relief can be granted. Although there can be no assurance that an unfavorable outcome of this litigation would not have a material adverse effect on our operating results, liquidity, or financial position, Garmin believes the claims in this lawsuit are without merit and intends to vigorously defend this action

 

ICON Health & Fitness, Inc. v. Garmin Ltd., Garmin International, Inc., and Garmin USA, Inc.

 

On November 18, 2011, ICON Health & Fitness, Inc. filed suit in the United States District Court for the District of Utah against Garmin Ltd., Garmin International, Inc., and Garmin USA, Inc. (collectively “Garmin”), alleging infringement of U.S. Patent Nos. 7,789,800 and 6,701,271. Although there can be no assurance that an unfavorable outcome of this litigation would not have a material adverse effect on our operating results, liquidity, or financial position, Garmin believes the claims in this lawsuit are without merit and intends to vigorously defend this action.

 

In the Matter of Certain Semiconductor Chips and Products Containing Same

 

On December 1, 2010, Rambus Inc. filed a complaint with the United States International Trade Commission (the “ITC”) against 33 companies, including Garmin International, Inc., alleging a violation of Section 337 of the Tariff Act of 1930, as amended, through alleged infringement by Garmin and the other respondents of U.S. Patent No. 6,470,405 (“the ’405 patent”), U.S. Patent No. 6,591,353 (“the ’353 patent”), U.S. Patent No. 7,287,109 (“the ’109 patent”), U.S. Patent No. 7,602,857 (“the ’857 patent”), U.S. Patent No. 7,602,858 (“the ’858 patent”), and U.S. Patent No. 7,715,494 (“the ’494 patent”). Garmin’s semiconductor chip suppliers are also named in the complaint and Garmin believes these suppliers have indemnification obligations to defend Garmin in this matter. On February 1, 2011, Garmin filed its answer asserting that the asserted claims of the ’405, ’353, ’109, ’857, ’858, and the ’494 patents are invalid and/or not infringed. On September 1, 2011, the Board of Patent Appeals and Interferences issued a decision following reexamination of the ‘109 patent affirming that all claims of the ‘109 patent are invalid. The ITC’s hearing was held on October 12-20, 2011. On March 2, 2012 the Administrative Law Judge issued an initial determination finding no violation of Section 337. On May 3, 2012, the ITC issued a notice stating that it intended to review the initial determination issued by the Administrative Law Judge. Although there can be no assurance that an unfavorable outcome of this proceeding would not have a material adverse effect on our operating results, liquidity or financial position, Garmin believes the claims in this proceeding are without merit and intends to vigorously defend this action.

 

Norman IP Holdings, LLC v. Lexmark International, Inc., Ricoh Americas Corporation, Belkin International, Inc., BMW of North America, LLC, Daimler North America Corporation, Mercedes-Benz USA, LLC, D-Link Systems, Inc., Dish Network Corporation, Ford Motor Company, Garmin International, Inc., Garmin USA, Inc., General Electric Company, General Motors Company, JVC Americas Corporation, Novatel Wireless, Inc., Novatel Wireless Solutions, Inc., Novatel Wireless Technology, Inc., TomTom, Inc., Viewsonic Corporation, Vizio, Inc., Volkswagen Group of America, Inc., Xerox Corporation, ZTE (USA) Inc., and ZTE Solutions Inc.

 

On January 27, 2012, Norman IP Holdings, LLC filed an amended complaint in the United States District Court for the Eastern District of Texas naming 23 companies, including Garmin International, Inc. and Garmin USA, Inc. (collectively “Garmin”) and alleging infringement of U.S. Patent Nos. 5,530,597, 5,502,689, 5,592,555, 5,608,873, and 5,771,394. On February 27, 2012 Garmin filed a motion to dismiss this lawsuit or, alternatively, for severance due to misjoinder. On March 1, 2012 Garmin filed a motion to disqualify the plaintiff’s counsel. These motions are currently pending before the court. Although there can be no assurance that an unfavorable outcome of this litigation would not have a material adverse effect on our operating results, liquidity, or financial position, Garmin believes the claims of this lawsuit are without merit and intends to vigorously defend this action. 

 

Pacing Technologies, LLC v. Garmin International, Inc., Garmin USA, Inc. and Garmin Ltd.

 

On May 1, 2012, Pacing Technologies, LLC filed suit in the United States District Court for the Southern District of California against Garmin International, Inc., Garmin USA, Inc. and Garmin Ltd alleging infringement of U.S. Patent No. 8,101,843. Although there can be no assurance that an unfavorable outcome of this litigation would not have a material adverse effect on our operating results, liquidity, or financial position, Garmin believes the claims in this lawsuit are without merit and intends to vigorously defend this action.

 

Taranis IP LLC v. Garmin International, Inc., Universal Avionics Systems Corporation, Johnson Outdoors Marine Electronics, Inc., Johnson Outdoors Inc., Raymarine Inc., Raymarine UK Ltd., Navico, Inc., and Navico Holdings A.S.

 

On November 22, 2010, Taranis IP LLC filed suit in the United States District Court for the Northern District of Illinois against eight companies, including Garmin International, Inc., alleging infringement of U.S. Patent No. 5,995,903 (“the ’903 patent”). On February 1, 2011, Garmin filed its answer and counterclaims asserting that each asserted claim of the ’903 patent is invalid and/or. On August 31, 2011, the court granted Garmin’s motion and stayed this case pending the conclusion of the U.S. Patent and Trademark Office’s reexamination of the ‘903 patent. Although there can be no assurance that an unfavorable outcome of this litigation would not have a material adverse effect on our operating results, liquidity, or financial position, Garmin believes the claims in this lawsuit are without merit and intends to vigorously defend this action.

 

 

23
 

 

 

Triangle Software, LLC v. Garmin International, Inc., TomTom Inc., Volkswagen Group of America, Inc. and Westwood One, Inc.

 

On December 28, 2010, Triangle Software, LLC filed suit in the United States District Court for the Eastern District of Virginia against four companies, including Garmin International, Inc., alleging infringement of U.S. Patent No. 7,557,730 (“the ’730 patent”), U.S. Patent No. 7,221,287 (“the ’287 patent”), U.S. Patent No. 7,375,649 (“the ’649 patent”), U.S. Patent No. 7,508,321 (“the ’321 patent”), and U.S. Patent No. 7,702,452 (“the ’452 patent”). On March 16, 2011, Garmin filed its amended answer asserting that the patents-in-suit are unenforceable because of

the inequitable conduct committed by the inventors before the Patent Office and filed counterclaims asserting that each asserted claim of the ’730, ’287, ’649, ’321, and ’452 patents is not infringed and/or invalid. On July 27, 2011, the court issued its claim construction order. Trial was held beginning on November 1, 2011. On November 9, 2011, the jury returned a partial verdict finding the patents-in-suit were valid and finding the ‘730, ‘287, and ‘321 patents were not infringed. The jury did not return a verdict regarding infringement of the ‘649 and ‘452 patents. On November 23, 2011, the parties filed motions with the court to resolve the remaining issues left unresolved by the jury’s partial verdict. On February 16, 2012, the court issued an order entering the jury’s verdict of non-infringement of the ‘730, ‘287, and ‘321 patents, granting Garmin’s motion for summary judgment of non-infringement of the ‘649 and ‘452 patents, and dismissing the case. On March 13, 2012 Triangle Software filed a motion to alter or amend judgment and a motion for a new trial. These motions were denied by the District Court on April 2, 2012. Triangle has filed an appeal to the United States Court of Appeals for the Federal Circuit. Although there can be no assurance that an unfavorable outcome of Triangle Software’s appeal would not have a material adverse effect on our operating results, liquidity, or financial position, Garmin believes the claims in this lawsuit are without merit and intends to vigorously defend the appeal.

 

Silver State Intellectual Technologies, Inc. v. Garmin International, Inc. and Garmin USA, Inc.

 

On September 29, 2011, Silver State Intellectual Technologies, Inc. filed suit in the United States District Court for the District of Nevada against Garmin International, Inc. and Garmin USA, Inc. (collectively “Garmin”), alleging infringement of U.S. Patent Nos. 6,525,768; 6,529,824; 6,542,812; 7,343,165; 7,522,992; 7,593,812; 7,650,234; 7,702,455 and 7,739,039. On December 8, 2011, Garmin filed its answer asserting that each asserted claim of the patents-in-suit is invalid and/or not infringed. Although there can be no assurance that an unfavorable outcome of this litigation would not have a material adverse effect on our operating results, liquidity, or financial position, Garmin believes the claims in this lawsuit are without merit and intends to vigorously defend this action.

 

Visteon Global Technologies, Inc. and Visteon Technologies LLC v. Garmin International, Inc.

 

On February 10, 2010, Visteon Global Technologies, Inc. and Visteon Technologies LLC filed suit in the United States District Court for the Eastern District of Michigan, Southern Division, against Garmin International, Inc. alleging infringement of U.S. Patent No. 5,544,060 (“the ‘060 patent”), U.S. Patent No. 5,654,892 (“the ‘892 patent”), U.S. Patent No. 5,832, 408 (“the ‘408 patent”), U.S. Patent No 5,987,375 (“the ‘375 patent”) and U.S. Patent No 6,097,316 (“the ‘316 patent”). On May 17, 2010, Garmin filed its answer asserting that each claim of the ‘060 patent, the ‘892 patent, the ‘408 patent and the ‘375 patent is invalid and/or not infringed. On April 12, 2011, the special master appointed by the court held a claim construction hearing. On December 12, 2011, the court issued an order adopting the special master’s report construing the claims of the patents-in-suit. Although there can be no assurance that an unfavorable outcome of this litigation would not have a material adverse effect on our operating results, liquidity or financial position, Garmin believes that the claims in this lawsuit are without merit and intends to vigorously defend this action.

 

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.

 

Item 1A. Risk Factors

 

There are many risks and uncertainties that can affect our future business, financial performance or share price. In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011. There have been no material changes during the 13-week period ended March 31, 2012 in the risks described in our Annual Report on Form 10-K. These risks, however, are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

 

24
 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

Items (a) and (b) are not applicable.

 

(c) Issuer Purchases of Equity Securities

 

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. The share repurchase authorization expired on December 31, 2011.

 

Item 3. Defaults Upon Senior Securities

 

None

 

Item 4. Mine Safety Disclosures

 

Not applicable

 

Item 5. Other Information

 

Not applicable

 

25
 

 

Item 6. Exhibits

 

Exhibit 31.1 Certification of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a).

 

Exhibit 31.2 Certification of Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a).

 

Exhibit 32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

Exhibit 32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

Exhibit 101.INS XBRL Instance Document
   
Exhibit 101.SCH XBRL Taxonomy Extension Schema
   
Exhibit 101.CAL XBRL Taxonomy Extension Calculation Linkbase
   
Exhibit 101.LAB XBRL Taxonomy Extension Label Linkbase
   
Exhibit 101.PRE

XBRL Taxonomy Extension Presentation Linkbase

 

Exhibit 101.DEF

 XBRL Taxonomy Extension Definition Linkbase

 

 

26
 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

  GARMIN LTD.
   
  By:  /s/ Kevin Rauckman
    Kevin Rauckman
Chief Financial Officer
(Principal Financial Officer
and Principal Accounting Officer)

 

Dated: May 9, 2012

27
 

 

INDEX TO EXHIBITS

 

Exhibit No.   Description
     
Exhibit 31.1   Certification of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a).
     
Exhibit 31.2   Certification of Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a).
     
Exhibit 32.1   Certification of Chief Executive Officer pursuant to 18 U.S.C.  Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
     
Exhibit 32.2   Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

  

Exhibit 101.INS   XBRL Instance Document
   
Exhibit 101.SCH   XBRL Taxonomy Extension Schema
   
Exhibit 101.CAL   XBRL Taxonomy Extension Calculation Linkbase
   
Exhibit 101.LAB   XBRL Taxonomy Extension Label Linkbase
   
Exhibit 101.PRE  

XBRL Taxonomy Extension Presentation Linkbase

 

Exhibit 101.DEF   XBRL Taxonomy Extension Definition Linkbase
   

 

28

XFRA:GEY Garmin Ltd Quarterly Report 10-Q Filling

Garmin Ltd XFRA:GEY Stock - Get Quarterly Report SEC Filing of Garmin Ltd XFRA:GEY stocks, including company profile, shares outstanding, strategy, business segments, operations, officers, consolidated financial statements, financial notes and ownership information.

XFRA:GEY Garmin Ltd Quarterly Report 10-Q Filing - 3/31/2012
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