Item I - Condensed Consolidated Financial Statements
Garmin Ltd. And Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
(In thousands, except per share information)
|
|
June 27,
2020
|
|
|
December 28, 2019
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,354,924
|
|
|
$
|
1,027,567
|
|
Marketable securities
|
|
|
380,880
|
|
|
|
376,463
|
|
Accounts receivable, net
|
|
|
523,901
|
|
|
|
706,763
|
|
Inventories
|
|
|
813,243
|
|
|
|
752,908
|
|
Deferred costs
|
|
|
22,033
|
|
|
|
25,105
|
|
Prepaid expenses and other current assets
|
|
|
163,458
|
|
|
|
169,044
|
|
Total current assets
|
|
|
3,258,439
|
|
|
|
3,057,850
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
791,175
|
|
|
|
728,921
|
|
Operating lease right-of-use assets
|
|
|
76,214
|
|
|
|
63,589
|
|
|
|
|
|
|
|
|
|
|
Restricted cash
|
|
|
283
|
|
|
|
71
|
|
Marketable securities
|
|
|
993,021
|
|
|
|
1,205,475
|
|
Deferred income taxes
|
|
|
254,202
|
|
|
|
268,518
|
|
Noncurrent deferred costs
|
|
|
18,748
|
|
|
|
23,493
|
|
Intangible assets, net
|
|
|
656,898
|
|
|
|
659,629
|
|
Other assets
|
|
|
171,062
|
|
|
|
159,253
|
|
Total assets
|
|
$
|
6,220,042
|
|
|
$
|
6,166,799
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
193,216
|
|
|
$
|
240,831
|
|
Salaries and benefits payable
|
|
|
123,404
|
|
|
|
128,426
|
|
Accrued warranty costs
|
|
|
39,293
|
|
|
|
39,758
|
|
Accrued sales program costs
|
|
|
66,696
|
|
|
|
112,578
|
|
Deferred revenue
|
|
|
87,727
|
|
|
|
94,562
|
|
Accrued royalty costs
|
|
|
10,833
|
|
|
|
15,401
|
|
Accrued advertising expense
|
|
|
23,302
|
|
|
|
35,142
|
|
Other accrued expenses
|
|
|
98,097
|
|
|
|
95,060
|
|
Income taxes payable
|
|
|
54,894
|
|
|
|
56,913
|
|
Dividend payable
|
|
|
466,465
|
|
|
|
217,262
|
|
Total current liabilities
|
|
|
1,163,927
|
|
|
|
1,035,933
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
103,583
|
|
|
|
114,754
|
|
Noncurrent income taxes
|
|
|
92,120
|
|
|
|
105,771
|
|
Noncurrent deferred revenue
|
|
|
54,860
|
|
|
|
67,329
|
|
Noncurrent operating lease liabilities
|
|
|
60,000
|
|
|
|
49,238
|
|
Other liabilities
|
|
|
4,691
|
|
|
|
278
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity:
|
|
|
|
|
|
|
|
|
Shares, CHF 0.10 par value, 198,077 shares authorized and issued; 191,223
shares outstanding at June 27, 2020 and 190,686 shares outstanding
at December 28, 2019
|
|
|
17,979
|
|
|
|
17,979
|
|
Additional paid-in capital
|
|
|
1,851,695
|
|
|
|
1,835,622
|
|
Treasury stock
|
|
|
(326,310
|
)
|
|
|
(345,040
|
)
|
Retained earnings
|
|
|
3,107,768
|
|
|
|
3,229,061
|
|
Accumulated other comprehensive income
|
|
|
89,729
|
|
|
|
55,874
|
|
Total stockholders’ equity
|
|
|
4,740,861
|
|
|
|
4,793,496
|
|
Total liabilities and stockholders’ equity
|
|
$
|
6,220,042
|
|
|
$
|
6,166,799
|
|
See accompanying notes.
1
Garmin Ltd. And Subsidiaries
Condensed Consolidated Statements of Income (Unaudited)
(In thousands, except per share information)
|
|
13-Weeks Ended
|
|
|
26-Weeks Ended
|
|
|
|
June 27,
2020
|
|
|
June 29,
2019
|
|
|
June 27,
2020
|
|
|
June 29,
2019
|
|
Net sales
|
|
$
|
869,867
|
|
|
$
|
954,840
|
|
|
$
|
1,725,975
|
|
|
$
|
1,720,890
|
|
Cost of goods sold
|
|
|
354,437
|
|
|
|
379,475
|
|
|
|
703,605
|
|
|
|
693,827
|
|
Gross profit
|
|
|
515,430
|
|
|
|
575,365
|
|
|
|
1,022,370
|
|
|
|
1,027,063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising expense
|
|
|
29,285
|
|
|
|
41,523
|
|
|
|
56,165
|
|
|
|
69,139
|
|
Selling, general and administrative expenses
|
|
|
132,016
|
|
|
|
128,738
|
|
|
|
269,202
|
|
|
|
255,519
|
|
Research and development expense
|
|
|
165,740
|
|
|
|
148,883
|
|
|
|
331,131
|
|
|
|
294,801
|
|
Total operating expense
|
|
|
327,041
|
|
|
|
319,144
|
|
|
|
656,498
|
|
|
|
619,459
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
188,389
|
|
|
|
256,221
|
|
|
|
365,872
|
|
|
|
407,604
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
10,455
|
|
|
|
13,735
|
|
|
|
22,481
|
|
|
|
27,439
|
|
Foreign currency (losses) gains
|
|
|
(4,493
|
)
|
|
|
3,413
|
|
|
|
(19,916
|
)
|
|
|
3,727
|
|
Other income
|
|
|
3,241
|
|
|
|
2,409
|
|
|
|
6,789
|
|
|
|
3,273
|
|
Total other income
|
|
|
9,203
|
|
|
|
19,557
|
|
|
|
9,354
|
|
|
|
34,439
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
197,592
|
|
|
|
275,778
|
|
|
|
375,226
|
|
|
|
442,043
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision
|
|
|
13,412
|
|
|
|
52,122
|
|
|
|
29,866
|
|
|
|
78,214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
184,180
|
|
|
$
|
223,656
|
|
|
$
|
345,360
|
|
|
$
|
363,829
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.96
|
|
|
$
|
1.18
|
|
|
$
|
1.81
|
|
|
$
|
1.92
|
|
Diluted
|
|
$
|
0.96
|
|
|
$
|
1.17
|
|
|
$
|
1.80
|
|
|
$
|
1.91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
191,024
|
|
|
|
189,855
|
|
|
|
190,914
|
|
|
|
189,728
|
|
Diluted
|
|
|
191,597
|
|
|
|
190,714
|
|
|
|
191,640
|
|
|
|
190,657
|
|
See accompanying notes.
2
Garmin Ltd. And Subsidiaries
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
(In thousands)
|
|
13-Weeks Ended
|
|
|
26-Weeks Ended
|
|
|
|
June 27,
2020
|
|
|
June 29,
2019
|
|
|
June 27,
2020
|
|
|
June 29,
2019
|
|
Net income
|
|
$
|
184,180
|
|
|
$
|
223,656
|
|
|
$
|
345,360
|
|
|
$
|
363,829
|
|
Foreign currency translation adjustment
|
|
|
24,813
|
|
|
|
314
|
|
|
|
18,637
|
|
|
|
(8,920
|
)
|
Change in fair value of available-for-sale marketable securities, net of deferred taxes
|
|
|
33,109
|
|
|
|
16,029
|
|
|
|
15,218
|
|
|
|
35,171
|
|
Comprehensive income
|
|
$
|
242,102
|
|
|
$
|
239,999
|
|
|
$
|
379,215
|
|
|
$
|
390,080
|
|
See accompanying notes.
3
Garmin Ltd. And Subsidiaries
Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)
For the 13-Weeks Ended June 27, 2020 and June 29, 2019
(In thousands, except per share information)
|
|
Common
Stock
|
|
|
Additional
Paid-In
Capital
|
|
|
Treasury
Stock
|
|
|
Retained
Earnings
|
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
|
Total
|
|
Balance at March 30, 2019
|
|
$
|
17,979
|
|
|
$
|
1,810,196
|
|
|
$
|
(381,815
|
)
|
|
$
|
2,850,588
|
|
|
$
|
18,338
|
|
|
$
|
4,315,286
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
223,656
|
|
|
|
—
|
|
|
|
223,656
|
|
Translation adjustment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
314
|
|
|
|
314
|
|
Adjustment related to unrealized gains (losses) on available-for-sale securities net of income tax effects of $2,406
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
16,029
|
|
|
|
16,029
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
239,999
|
|
Dividends declared ($2.28 per share)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(432,873
|
)
|
|
|
—
|
|
|
|
(432,873
|
)
|
Issuance of treasury stock related to equity awards
|
|
|
—
|
|
|
|
(893
|
)
|
|
|
13,875
|
|
|
|
—
|
|
|
|
—
|
|
|
|
12,982
|
|
Stock compensation
|
|
|
—
|
|
|
|
15,832
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
15,832
|
|
Purchase of treasury stock related to equity awards
|
|
|
—
|
|
|
|
—
|
|
|
|
(260
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(260
|
)
|
Balance at June 29, 2019
|
|
$
|
17,979
|
|
|
$
|
1,825,135
|
|
|
$
|
(368,200
|
)
|
|
$
|
2,641,371
|
|
|
$
|
34,681
|
|
|
$
|
4,150,966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
|
Additional
Paid-In
Capital
|
|
|
Treasury
Stock
|
|
|
Retained
Earnings
|
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
|
Total
|
|
Balance at March 28, 2020
|
|
$
|
17,979
|
|
|
$
|
1,830,052
|
|
|
$
|
(335,491
|
)
|
|
$
|
3,390,053
|
|
|
$
|
31,807
|
|
|
$
|
4,934,400
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
184,180
|
|
|
|
—
|
|
|
|
184,180
|
|
Translation adjustment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
24,813
|
|
|
|
24,813
|
|
Adjustment related to unrealized gains (losses) on available-for-sale securities net of income tax effects of $5,634
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
33,109
|
|
|
|
33,109
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
242,102
|
|
Dividends declared ($2.44 per share)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(466,465
|
)
|
|
|
—
|
|
|
|
(466,465
|
)
|
Issuance of treasury stock related to equity awards
|
|
|
—
|
|
|
|
5,718
|
|
|
|
9,484
|
|
|
|
—
|
|
|
|
—
|
|
|
|
15,202
|
|
Stock compensation
|
|
|
—
|
|
|
|
15,925
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
15,925
|
|
Purchase of treasury stock related to equity awards
|
|
|
—
|
|
|
|
—
|
|
|
|
(303
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(303
|
)
|
Balance at June 27, 2020
|
|
$
|
17,979
|
|
|
$
|
1,851,695
|
|
|
$
|
(326,310
|
)
|
|
$
|
3,107,768
|
|
|
$
|
89,729
|
|
|
$
|
4,740,861
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
4
Garmin Ltd. And Subsidiaries
Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)
For the 26-Weeks Ended June 27, 2020 and June 29, 2019
(In thousands, except per share information)
|
|
Common
Stock
|
|
|
Additional
Paid-In
Capital
|
|
|
Treasury
Stock
|
|
|
Retained
Earnings
|
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
|
Total
|
|
Balance at December 29, 2018
|
|
$
|
17,979
|
|
|
$
|
1,823,638
|
|
|
$
|
(397,692
|
)
|
|
$
|
2,710,619
|
|
|
$
|
8,430
|
|
|
$
|
4,162,974
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
363,829
|
|
|
|
—
|
|
|
|
363,829
|
|
Translation adjustment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(8,920
|
)
|
|
|
(8,920
|
)
|
Adjustment related to unrealized gains (losses) on available-for-sale securities net of income tax effects of $5,311
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
35,171
|
|
|
|
35,171
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
390,080
|
|
Dividends declared ($2.28 per share)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(433,077
|
)
|
|
|
—
|
|
|
|
(433,077
|
)
|
Issuance of treasury stock related to equity awards
|
|
|
—
|
|
|
|
(29,464
|
)
|
|
|
42,446
|
|
|
|
—
|
|
|
|
—
|
|
|
|
12,982
|
|
Stock compensation
|
|
|
—
|
|
|
|
30,961
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
30,961
|
|
Purchase of treasury stock related to equity awards
|
|
|
—
|
|
|
|
—
|
|
|
|
(12,954
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(12,954
|
)
|
Balance at June 29, 2019
|
|
$
|
17,979
|
|
|
$
|
1,825,135
|
|
|
$
|
(368,200
|
)
|
|
$
|
2,641,371
|
|
|
$
|
34,681
|
|
|
$
|
4,150,966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
|
Additional
Paid-In
Capital
|
|
|
Treasury
Stock
|
|
|
Retained
Earnings
|
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
|
Total
|
|
Balance at December 28, 2019
|
|
$
|
17,979
|
|
|
$
|
1,835,622
|
|
|
$
|
(345,040
|
)
|
|
$
|
3,229,061
|
|
|
$
|
55,874
|
|
|
$
|
4,793,496
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
345,360
|
|
|
|
—
|
|
|
|
345,360
|
|
Translation adjustment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
18,637
|
|
|
|
18,637
|
|
Adjustment related to unrealized gains (losses) on available-for-sale securities net of income tax effects of $2,872
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
15,218
|
|
|
|
15,218
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
379,215
|
|
Dividends declared ($2.44 per share)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(466,653
|
)
|
|
|
—
|
|
|
|
(466,653
|
)
|
Issuance of treasury stock related to equity awards
|
|
|
—
|
|
|
|
(15,411
|
)
|
|
|
30,613
|
|
|
|
—
|
|
|
|
—
|
|
|
|
15,202
|
|
Stock compensation
|
|
|
—
|
|
|
|
31,484
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
31,484
|
|
Purchase of treasury stock related to equity awards
|
|
|
—
|
|
|
|
—
|
|
|
|
(11,883
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(11,883
|
)
|
Balance at June 27, 2020
|
|
$
|
17,979
|
|
|
$
|
1,851,695
|
|
|
$
|
(326,310
|
)
|
|
$
|
3,107,768
|
|
|
$
|
89,729
|
|
|
$
|
4,740,861
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
5
Garmin Ltd. And Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
|
|
26-Weeks Ended
|
|
|
|
June 27,
2020
|
|
|
June 29,
2019
|
|
Operating Activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
345,360
|
|
|
$
|
363,829
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
37,030
|
|
|
|
34,526
|
|
Amortization
|
|
|
20,502
|
|
|
|
16,208
|
|
(Gain) loss on sale of property and equipment
|
|
|
(1,807
|
)
|
|
|
94
|
|
Unrealized foreign currency losses (gains)
|
|
|
16,678
|
|
|
|
(6,811
|
)
|
Deferred income taxes
|
|
|
272
|
|
|
|
7,077
|
|
Stock compensation expense
|
|
|
31,484
|
|
|
|
30,961
|
|
Realized gain on marketable securities
|
|
|
(331
|
)
|
|
|
(60
|
)
|
Changes in operating assets and liabilities, net of acquisitions:
|
|
|
|
|
|
|
|
|
Accounts receivable, net of allowance for doubtful accounts
|
|
|
178,120
|
|
|
|
6,189
|
|
Inventories
|
|
|
(57,126
|
)
|
|
|
(68,217
|
)
|
Other current and non-current assets
|
|
|
(10,427
|
)
|
|
|
(68,370
|
)
|
Accounts payable
|
|
|
(51,463
|
)
|
|
|
5,960
|
|
Other current and non-current liabilities
|
|
|
(58,662
|
)
|
|
|
(33,001
|
)
|
Deferred revenue
|
|
|
(19,301
|
)
|
|
|
(6,252
|
)
|
Deferred costs
|
|
|
7,817
|
|
|
|
3,876
|
|
Income taxes payable
|
|
|
(13,035
|
)
|
|
|
(10,791
|
)
|
Net cash provided by operating activities
|
|
|
425,111
|
|
|
|
275,218
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(98,270
|
)
|
|
|
(60,495
|
)
|
Proceeds from sale of property and equipment
|
|
|
1,916
|
|
|
|
271
|
|
Purchase of intangible assets
|
|
|
(1,374
|
)
|
|
|
(853
|
)
|
Purchase of marketable securities
|
|
|
(346,129
|
)
|
|
|
(192,168
|
)
|
Redemption of marketable securities
|
|
|
566,688
|
|
|
|
182,860
|
|
Acquisitions, net of cash acquired
|
|
|
(7,893
|
)
|
|
|
(276,014
|
)
|
Net cash provided by (used in) investing activities
|
|
|
114,938
|
|
|
|
(346,399
|
)
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
Dividends
|
|
|
(217,450
|
)
|
|
|
(308,905
|
)
|
Proceeds from issuance of treasury stock related to equity awards
|
|
|
15,202
|
|
|
|
12,982
|
|
Purchase of treasury stock related to equity awards
|
|
|
(11,883
|
)
|
|
|
(12,954
|
)
|
Net cash used in financing activities
|
|
|
(214,131
|
)
|
|
|
(308,877
|
)
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
1,651
|
|
|
|
(1,493
|
)
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash, cash equivalents, and restricted cash
|
|
|
327,569
|
|
|
|
(381,551
|
)
|
Cash, cash equivalents, and restricted cash at beginning of period
|
|
|
1,027,638
|
|
|
|
1,201,805
|
|
Cash, cash equivalents, and restricted cash at end of period
|
|
$
|
1,355,207
|
|
|
$
|
820,254
|
|
See accompanying notes.
6
Garmin Ltd. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 27, 2020
(In thousands, except per share information)
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. 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. Operating results for the 13-week and 26-week periods ended June 27, 2020 are not necessarily indicative of the results that may be expected for the year ending December 26, 2020.
The Condensed Consolidated Balance Sheet at December 28, 2019 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 28, 2019.
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 53-week 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 13-week quarters. The quarters ended June 27, 2020 and June 29, 2019 both contain operating results for 13 weeks.
Significant Accounting Policies
For a description of the significant accounting policies and methods used in the preparation of the Company’s Condensed Consolidated Financial Statements, refer to Note 2, “Summary of Significant Accounting Policies” in the Notes to the Consolidated Financial Statements in Part II, Item 8 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 28, 2019. Other than the policy discussed below, there were no material changes to the Company’s significant accounting policies during the 26-week period ended June 27, 2020.
Marketable Securities
Management determines the appropriate classification of marketable securities at the time of purchase and reevaluates such designation as of each balance sheet date. All of the Company’s marketable securities were considered available-for-sale as of June 27, 2020 and December 28, 2019. Available-for-sale securities are stated at fair value.
The Company recognizes impairments relating to credit losses of available-for-sale securities through an allowance for credit losses and Other income (expense) on the Company’s Condensed Consolidated Statements of Income. Impairment not relating to credit losses is recorded in Other comprehensive income (loss) on the Company’s Condensed Consolidated Balance Sheets.
Testing for impairment of investments requires significant management judgment. The identification of potentially impaired investments, the determination of their fair value, and the assessment of whether any decline in value is relating to credit losses are the key judgment elements. The discovery of new information and the passage of time can significantly change these judgments. Revisions of impairment judgments are made when new information becomes known, and any resulting impairment adjustments are made at that time. The economic environment and volatility of securities markets increase the difficulty of determining fair value and assessing investment impairment.
In making this assessment we evaluate the extent to which the fair value is less than the amortized cost basis, any change in credit rating of the security, adverse conditions specifically related to the security, failure of the issuer to make scheduled payments, and other relevant factors affecting the security. If it is determined that a credit loss exists, the amount of the credit loss is determined by comparing the present value of the expected future cash flows for the security to the amortized cost basis of the security, limited by the amount that the fair value is less than the amortized cost basis.
7
The amortized cost of debt securities classified as available-for-sale is adjusted for amortization of premiums and accretion of discounts to maturity, or in the case of mortgage-backed securities, over the estimated life of the security. Such amortization and realized gains/losses are recorded within Interest income and Other income (expense), respectively, on the Company’s Consolidated Statements of Income. The cost of securities sold is based on the specific identification method.
Recently Adopted Accounting Standards
Financial Instruments – Credit Losses
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 changes how entities assess and measure credit losses of certain financial instruments, including available-for-sale securities and accounts receivable. The Company adopted the new standard as of the beginning of the 2020 fiscal year. The adoption of the standard did not have a material impact on the Company’s Condensed Consolidated Financial Statements.
Receivables – Nonrefundable Fees and Other Costs
In March 2017, the FASB issued Accounting Standards Update No. 2017-08, Receivables – Nonrefundable Fees and Other Costs (Topic 310-20): Premium Amortization on Purchased Callable Debt Securities (“ASU 2017-08”), which shortens the amortization period for certain callable debt securities held at a premium, requiring the premium to be amortized to the earliest call date. The Company adopted the new standard as of the beginning of the 2020 fiscal year. The adoption of the standard did not have a material impact on the Company’s Condensed Consolidated Financial Statements.
Recently Issued Accounting Pronouncements Not Yet Adopted
We do not expect any recently issued accounting pronouncements not yet adopted to have a material impact on the Company’s consolidated financial statements, accounting policies, processes, or systems upon adoption.
The components of inventories consist of the following:
|
|
June 27,
2020
|
|
|
December 28, 2019
|
|
Raw materials
|
|
$
|
276,396
|
|
|
$
|
260,070
|
|
Work-in-process
|
|
|
137,032
|
|
|
|
133,157
|
|
Finished goods
|
|
|
399,815
|
|
|
|
359,681
|
|
Inventories
|
|
$
|
813,243
|
|
|
$
|
752,908
|
|
8
The following table sets forth the computation of basic and diluted net income per share:
|
|
13-Weeks Ended
|
|
|
|
June 27, 2020
|
|
|
June 29, 2019
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Numerator for basic and diluted net income per share - net income
|
|
$
|
184,180
|
|
|
$
|
223,656
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Denominator for basic net income per share – weighted-average common shares
|
|
|
191,024
|
|
|
|
189,855
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive awards
|
|
|
573
|
|
|
|
859
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted net income per share – adjusted weighted-average common shares
|
|
|
191,597
|
|
|
|
190,714
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share
|
|
$
|
0.96
|
|
|
$
|
1.18
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share
|
|
$
|
0.96
|
|
|
$
|
1.17
|
|
|
|
26-Weeks Ended
|
|
|
|
June 27, 2020
|
|
|
June 29, 2019
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Numerator for basic and diluted net income per share - net income
|
|
$
|
345,360
|
|
|
$
|
363,829
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Denominator for basic net income per share – weighted-average common shares
|
|
|
190,914
|
|
|
|
189,728
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive equity awards
|
|
|
726
|
|
|
|
929
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted net income per share – adjusted weighted-average common shares
|
|
|
191,640
|
|
|
|
190,657
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share
|
|
$
|
1.81
|
|
|
$
|
1.92
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share
|
|
$
|
1.80
|
|
|
$
|
1.91
|
|
There were 410 and 411 anti-dilutive stock options, stock appreciation rights and restricted stock units (collectively “equity awards”) excluded from the computations of diluted net income per share for the 13-week and 26-week periods ended June 27, 2020, respectively, and 400 anti-dilutive equity awards excluded from the computations of diluted net income per share for the 13-week and 26-week periods ended June 29, 2019.
There were 10 net shares issued as a result of exercises and releases of equity awards for the 13-week periods ended June 27, 2020 and June 29, 2019, respectively.
There were 341 and 396 net shares issued as a result of exercises and releases of equity awards for the 26-week periods ended June 27, 2020 and June 29, 2019, respectively.
9
There were 196 employee stock purchase plan (ESPP) shares issued from outstanding Treasury stock during the 13-week and 26-week periods ended June 27, 2020.
There were 245 ESPP shares issued from outstanding Treasury stock during the 13-week and 26-week periods ended June 29, 2019.
The Company has identified five reportable segments – auto, aviation, fitness, marine, and outdoor. There are two operating segments, auto personal navigation devices (“auto PND”) and auto original equipment manufacturer solutions (“auto OEM”) that are not reported separately but are aggregated within the auto reportable segment. The Company’s Chief Executive Officer, who has been identified as the Chief Operating Decision Maker (CODM), uses operating income as the measure of profit or loss, combined with other measures, to assess segment performance and allocate resources. Operating income represents net sales less costs of goods sold and operating expenses. Net sales are directly attributed to each segment. Most costs of goods sold and the majority of operating expenses are also directly attributed to each segment, while certain other costs of goods sold and operating expenses are allocated to the segments in a manner appropriate to the specific facts and circumstances of the expenses being allocated.
Net sales (“revenue”), gross profit, and operating income for each of the Company’s reportable segments are presented below.
|
|
Reportable Segments
|
|
|
|
Fitness
|
|
|
Outdoor
|
|
|
Aviation
|
|
|
Auto
|
|
|
Marine
|
|
|
Total
|
|
13-Weeks Ended June 27, 2020
|
|
Net sales
|
|
$
|
294,642
|
|
|
$
|
206,200
|
|
|
$
|
126,140
|
|
|
$
|
85,058
|
|
|
$
|
157,827
|
|
|
$
|
869,867
|
|
Gross profit
|
|
|
156,817
|
|
|
|
133,189
|
|
|
|
92,036
|
|
|
|
39,918
|
|
|
|
93,470
|
|
|
|
515,430
|
|
Operating income
|
|
|
71,981
|
|
|
|
67,414
|
|
|
|
15,566
|
|
|
|
(10,125
|
)
|
|
|
43,553
|
|
|
|
188,389
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13-Weeks Ended June 29, 2019
|
|
Net sales
|
|
$
|
251,653
|
|
|
$
|
210,404
|
|
|
$
|
183,965
|
|
|
$
|
157,411
|
|
|
$
|
151,407
|
|
|
$
|
954,840
|
|
Gross profit
|
|
|
135,136
|
|
|
|
135,508
|
|
|
|
138,177
|
|
|
|
74,861
|
|
|
|
91,683
|
|
|
|
575,365
|
|
Operating income
|
|
|
50,413
|
|
|
|
71,336
|
|
|
|
66,834
|
|
|
|
24,908
|
|
|
|
42,730
|
|
|
|
256,221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26-Weeks Ended June 27, 2020
|
|
Net sales
|
|
$
|
518,242
|
|
|
$
|
381,302
|
|
|
$
|
314,739
|
|
|
$
|
190,860
|
|
|
$
|
320,832
|
|
|
$
|
1,725,975
|
|
Gross profit
|
|
|
269,142
|
|
|
|
245,447
|
|
|
|
230,844
|
|
|
|
89,257
|
|
|
|
187,680
|
|
|
|
1,022,370
|
|
Operating income
|
|
|
102,992
|
|
|
|
114,581
|
|
|
|
74,887
|
|
|
|
(10,300
|
)
|
|
|
83,712
|
|
|
|
365,872
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26-Weeks Ended June 29, 2019
|
|
Net sales
|
|
$
|
431,908
|
|
|
$
|
364,455
|
|
|
$
|
354,741
|
|
|
$
|
284,410
|
|
|
$
|
285,376
|
|
|
$
|
1,720,890
|
|
Gross profit
|
|
|
225,970
|
|
|
|
232,996
|
|
|
|
266,160
|
|
|
|
132,198
|
|
|
|
169,739
|
|
|
|
1,027,063
|
|
Operating income
|
|
|
68,537
|
|
|
|
113,290
|
|
|
|
124,451
|
|
|
|
33,121
|
|
|
|
68,205
|
|
|
|
407,604
|
|
Net sales to external customers by geographic region were as follows for the 13-week and 26-week periods ended June 27, 2020 and June 29, 2019. Note that APAC includes Asia Pacific and Australian Continent and EMEA includes Europe, the Middle East and Africa:
|
|
13-Weeks Ended
|
|
|
26-Weeks Ended
|
|
|
|
June 27, 2020
|
|
|
June 29, 2019
|
|
|
June 27, 2020
|
|
|
June 29, 2019
|
|
Americas
|
|
$
|
423,091
|
|
|
$
|
470,840
|
|
|
$
|
850,491
|
|
|
$
|
850,296
|
|
EMEA
|
|
|
335,201
|
|
|
|
338,595
|
|
|
|
635,069
|
|
|
|
598,615
|
|
APAC
|
|
|
111,575
|
|
|
|
145,405
|
|
|
|
240,415
|
|
|
|
271,979
|
|
Net sales to external customers
|
|
$
|
869,867
|
|
|
$
|
954,840
|
|
|
$
|
1,725,975
|
|
|
$
|
1,720,890
|
|
10
Net property and equipment by geographic region as of June 27, 2020 and June 29, 2019 are presented below.
|
|
Americas
|
|
|
APAC
|
|
|
EMEA
|
|
|
Total
|
|
June 27, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
465,023
|
|
|
$
|
247,617
|
|
|
$
|
78,535
|
|
|
$
|
791,175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 29, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
424,127
|
|
|
$
|
216,648
|
|
|
$
|
61,333
|
|
|
$
|
702,108
|
|
The Company’s standard warranty obligation to its end-users provides for a period of one to two years from the date of shipment, while certain aviation, marine, and auto OEM products have a warranty period of two years or more from the date of installation. The Company’s estimates of costs to service its warranty obligations are based on historical experience and management’s expectations and judgments 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
|
|
|
|
June 27, 2020
|
|
|
June 29, 2019
|
|
Balance - beginning of period
|
|
$
|
39,368
|
|
|
$
|
35,042
|
|
Accrual for products sold (1)
|
|
|
13,659
|
|
|
|
17,366
|
|
Expenditures
|
|
|
(13,734
|
)
|
|
|
(13,078
|
)
|
Balance - end of period
|
|
$
|
39,293
|
|
|
$
|
39,330
|
|
|
|
26-Weeks Ended
|
|
|
|
June 27, 2020
|
|
|
June 29, 2019
|
|
Balance - beginning of period
|
|
$
|
39,758
|
|
|
$
|
38,276
|
|
Accrual for products sold (1)
|
|
|
31,527
|
|
|
|
28,215
|
|
Expenditures
|
|
|
(31,992
|
)
|
|
|
(27,161
|
)
|
Balance - end of period
|
|
$
|
39,293
|
|
|
$
|
39,330
|
|
(1)
|
Changes in cost estimates related to pre-existing warranties were not material and aggregated with accruals for new warranty contracts in the ‘Accrual for products sold’ line.
|
6.
|
Commitments and Contingencies
|
Commitments
The Company is party to certain commitments, which include purchases of raw materials, capital expenditures, advertising, and other indirect purchases in connection with conducting our business. The aggregate amount of purchase orders and other commitments open as of June 27, 2020 was approximately $598,000. We cannot determine the aggregate amount of such purchase orders that represent contractual obligations because purchase orders may represent authorizations to purchase rather than binding agreements. Our purchase orders are based on our current needs and typically fulfilled by our suppliers, contract manufacturers, and logistic providers within short periods of time.
Contingencies
In the normal course of business, the Company and its subsidiaries are parties to various legal claims, investigations and complaints, including matters alleging patent infringement and other intellectual property claims. The Company evaluates, on a quarterly and annual basis, developments in legal proceedings, investigations, claims, and other loss contingencies that could affect any required accrual or disclosure or estimate of reasonably possible loss or range of loss. An estimated loss from a loss contingency is accrued by a charge to income if it is probable that an asset has been impaired or a liability has been incurred and the amount of the loss can be reasonably estimated. If a range of loss is estimated, and some amount within that range appears to be a better estimate than any other amount within that
11
range, then that amount is accrued. If no amount within the range can be identified as a better estimate than any other amount, the Company accrues the minimum amount in the range.
If an outcome unfavorable to the Company is determined to be probable, but the amount of loss cannot be reasonably estimated or is determined to be reasonably possible, but not probable, we disclose the nature of the contingency and an estimate of the possible loss or range of loss or a statement that such an estimate cannot be made. The Company’s aggregate range of reasonably possible losses includes (1) matters where a liability has been accrued and there is a reasonably possible loss in excess of the amount accrued for that liability, and (2) matters where a loss is believed to be reasonably possible, but not probable, and a liability therefore has not been accrued. This aggregate range only represents the Company’s estimate of reasonably possible losses and does not represent the Company’s maximum loss exposure. The assessment regarding whether a loss is probable or reasonably possible, and whether the loss or a range of loss is estimable, often involves a series of complex judgments about future events. In assessing the probability of an outcome in a lawsuit, claim or assessment that could be unfavorable to the Company, we consider the following factors, among others: a) the nature of the litigation, claim, or assessment; b) the progress of the case; c) the opinions or views of legal counsel and other advisers; d) our experience in similar cases; e) the experience of other entities in similar cases; and f) how we intend to respond to the lawsuit, claim, or assessment. Costs incurred in defending lawsuits, claims or assessments are expensed as incurred.
Management of the Company currently does not believe it is reasonably possible that the Company may have incurred a material loss, or a material loss in excess of recorded accruals, with respect to loss contingencies in the aggregate, for the fiscal quarter ended June 27, 2020. The results of legal proceedings, investigations and claims, however, cannot be predicted with certainty. An adverse resolution of one or more of such matters in excess of management’s expectations could have a material adverse effect in the particular quarter or fiscal year in which a loss is recorded, but based on information currently known, the Company does not believe it is likely that losses from such matters would have a material adverse effect on the Company’s business or its consolidated financial position, results of operations or cash flows.
The Company settled or resolved certain matters during the 13-week and 26-week periods ended June 27, 2020 that did not individually or in the aggregate have a material impact on the Company’s business or its consolidated financial position, results of operations or cash flows.
The Company recorded income tax expense of $13,412 in the 13-week period ended June 27, 2020, compared to income tax expense of $52,122 in the 13-week period ended June 29, 2019. The effective tax rate was 6.8% in the second quarter of 2020, compared to 18.9% in the second quarter of 2019. Excluding a $14,308 income tax benefit recognized by the Company in the second quarter of 2020 due to the release of uncertain tax position reserves associated with a 2014 intercompany restructuring, the effective tax rate in the second quarter of 2020 decreased 490 basis points compared to the effective tax rate in the prior year quarter. The decrease was primarily due to a favorable shift in income mix by jurisdiction related to the transaction to migrate intellectual property ownership from Switzerland to the United States, which began in the first quarter of 2020.
The Company recorded income tax expense of $29,866 in the first half of 2020, compared to income tax expense of $78,214 in the first half of 2019. The effective tax rate was 8.0% in the first half of 2020, compared to 17.7% in the first half of 2019. Excluding the $14,308 income tax benefit recognized by the Company in the second quarter of 2020 due to the release of uncertain tax position reserves associated with the 2014 intercompany restructuring, the effective tax rate in the first half of 2020 decreased 590 basis points compared to the effective tax rate in the first half of the prior year. The decrease was primarily due to a favorable shift in income mix by jurisdiction related to the transaction to migrate intellectual property ownership from Switzerland to the United States, which began in the first quarter of 2020.
12
8.Marketable Securities
The FASB ASC topic entitled Fair Value Measurements and Disclosures 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 accounting guidance classifies the inputs used to measure fair value into the following hierarchy:
|
|
|
|
Level 1
|
Unadjusted quoted prices in active markets for the identical asset or liability
|
|
|
|
|
Level 2
|
Observable inputs for the asset or liability, either directly or indirectly, such as quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability
|
|
|
|
|
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. Valuation is based on prices obtained from an independent pricing vendor using both market and income approaches. The primary inputs to the valuation include quoted prices for similar assets in active markets, quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields, and credit spreads.
The method described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
Marketable securities classified as available-for-sale securities are summarized below:
|
|
Available-For-Sale Securities
as of June 27, 2020
|
|
|
|
Fair Value Level
|
|
Amortized Cost
|
|
|
Gross Unrealized
Gains
|
|
|
Gross Unrealized
Losses
|
|
|
Fair Value
|
|
U.S. Treasury securities
|
|
Level 2
|
|
$
|
12,262
|
|
|
$
|
63
|
|
|
$
|
—
|
|
|
$
|
12,325
|
|
Agency securities
|
|
Level 2
|
|
|
16,499
|
|
|
|
146
|
|
|
|
—
|
|
|
|
16,645
|
|
Mortgage-backed securities
|
|
Level 2
|
|
|
207,545
|
|
|
|
1,321
|
|
|
|
(2,729
|
)
|
|
|
206,137
|
|
Corporate securities
|
|
Level 2
|
|
|
874,247
|
|
|
|
24,767
|
|
|
|
(1,878
|
)
|
|
|
897,136
|
|
Municipal securities
|
|
Level 2
|
|
|
170,227
|
|
|
|
3,416
|
|
|
|
(88
|
)
|
|
|
173,555
|
|
Other
|
|
Level 2
|
|
|
72,076
|
|
|
|
116
|
|
|
|
(4,089
|
)
|
|
|
68,103
|
|
Total
|
|
|
|
$
|
1,352,856
|
|
|
$
|
29,829
|
|
|
$
|
(8,784
|
)
|
|
$
|
1,373,901
|
|
|
|
Available-For-Sale Securities
as of December 28, 2019
|
|
|
|
Fair Value Level
|
|
Amortized Cost
|
|
|
Gross Unrealized
Gains
|
|
|
Gross Unrealized
Losses
|
|
|
Fair Value
|
|
U.S. Treasury securities
|
|
Level 2
|
|
$
|
15,204
|
|
|
$
|
5
|
|
|
$
|
(30
|
)
|
|
$
|
15,179
|
|
Agency securities
|
|
Level 2
|
|
|
64,582
|
|
|
|
120
|
|
|
|
(27
|
)
|
|
|
64,675
|
|
Mortgage-backed securities
|
|
Level 2
|
|
|
256,417
|
|
|
|
90
|
|
|
|
(2,485
|
)
|
|
|
254,022
|
|
Corporate securities
|
|
Level 2
|
|
|
980,590
|
|
|
|
8,806
|
|
|
|
(3,746
|
)
|
|
|
985,650
|
|
Municipal securities
|
|
Level 2
|
|
|
163,898
|
|
|
|
1,092
|
|
|
|
(235
|
)
|
|
|
164,755
|
|
Other
|
|
Level 2
|
|
|
98,246
|
|
|
|
111
|
|
|
|
(700
|
)
|
|
|
97,657
|
|
Total
|
|
|
|
$
|
1,578,937
|
|
|
$
|
10,224
|
|
|
$
|
(7,223
|
)
|
|
$
|
1,581,938
|
|
The Company’s investment policy targets low risk investments with the objective of minimizing the potential risk of principal loss. The fair value of securities varies from period to period due to changes in interest rates, the performance of the underlying collateral, and the credit performance of the underlying issuer, among other factors.
13
Accrued interest receivable, which totaled $9,506 as of June 27, 2020, is excluded from both the fair value and amortized cost basis of available-for-sale securities and is included within Prepaid expenses and other current assets on the Company’s Condensed Consolidated Balance Sheets. The Company writes off impaired accrued interest on a timely basis, generally within 30 days of the due date, by reversing interest income. No accrued interest was written off during the 26-week period ended June 27, 2020.
The Company recognizes impairments relating to credit losses of available-for-sale securities through an allowance for credit losses and Other income (expense) on the Company’s Condensed Consolidated Statements of Income. Impairment not relating to credit losses is recorded in Other comprehensive income (loss) on the Company’s Condensed Consolidated Balance Sheets. The cost of securities sold is based on the specific identification method. Approximately 19% of securities in the Company’s portfolio were at an unrealized loss position as of June 27, 2020.
The following tables display additional information regarding gross unrealized losses and fair value by major security type for available-for-sale securities in an unrealized loss position as of June 27, 2020 and December 28, 2019.
|
|
As of June 27, 2020
|
|
|
|
Less than 12 Consecutive Months
|
|
|
12 Consecutive Months or Longer
|
|
|
Total
|
|
|
|
Gross Unrealized Losses
|
|
|
Fair Value
|
|
|
Gross Unrealized Losses
|
|
|
Fair Value
|
|
|
Gross Unrealized Losses
|
|
|
Fair Value
|
|
U.S. Treasury securities
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Agency securities
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Mortgage-backed securities
|
|
|
(2,604
|
)
|
|
|
117,813
|
|
|
|
(125
|
)
|
|
|
3,078
|
|
|
|
(2,729
|
)
|
|
|
120,891
|
|
Corporate securities
|
|
|
(777
|
)
|
|
|
69,985
|
|
|
|
(1,101
|
)
|
|
|
18,432
|
|
|
|
(1,878
|
)
|
|
|
88,417
|
|
Municipal securities
|
|
|
(88
|
)
|
|
|
21,417
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(88
|
)
|
|
|
21,417
|
|
Other
|
|
|
(3,383
|
)
|
|
|
51,234
|
|
|
|
(706
|
)
|
|
|
3,844
|
|
|
|
(4,089
|
)
|
|
|
55,078
|
|
Total
|
|
$
|
(6,852
|
)
|
|
$
|
260,449
|
|
|
$
|
(1,932
|
)
|
|
$
|
25,354
|
|
|
$
|
(8,784
|
)
|
|
$
|
285,803
|
|
|
|
As of December 28, 2019
|
|
|
|
Less than 12 Consecutive Months
|
|
|
12 Consecutive Months or Longer
|
|
|
Total
|
|
|
|
Gross Unrealized Losses
|
|
|
Fair Value
|
|
|
Gross Unrealized Losses
|
|
|
Fair Value
|
|
|
Gross Unrealized Losses
|
|
|
Fair Value
|
|
U.S. Treasury securities
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(30
|
)
|
|
$
|
13,087
|
|
|
$
|
(30
|
)
|
|
$
|
13,087
|
|
Agency securities
|
|
|
(16
|
)
|
|
|
20,808
|
|
|
|
(11
|
)
|
|
|
20,812
|
|
|
|
(27
|
)
|
|
|
41,620
|
|
Mortgage-backed securities
|
|
|
(745
|
)
|
|
|
79,007
|
|
|
|
(1,740
|
)
|
|
|
86,392
|
|
|
|
(2,485
|
)
|
|
|
165,399
|
|
Corporate securities
|
|
|
(1,585
|
)
|
|
|
183,691
|
|
|
|
(2,161
|
)
|
|
|
100,926
|
|
|
|
(3,746
|
)
|
|
|
284,617
|
|
Municipal securities
|
|
|
(218
|
)
|
|
|
34,165
|
|
|
|
(17
|
)
|
|
|
9,522
|
|
|
|
(235
|
)
|
|
|
43,687
|
|
Other
|
|
|
(410
|
)
|
|
|
34,540
|
|
|
|
(290
|
)
|
|
|
21,559
|
|
|
|
(700
|
)
|
|
|
56,099
|
|
Total
|
|
$
|
(2,974
|
)
|
|
$
|
352,211
|
|
|
$
|
(4,249
|
)
|
|
$
|
252,298
|
|
|
$
|
(7,223
|
)
|
|
$
|
604,509
|
|
As of June 27, 2020 and December 28, 2019, the Company had not recognized an allowance for credit losses on any securities in an unrealized loss position.
The Company has not recorded an allowance for credit losses and charge to Other income for the unrealized losses on mortgage-backed, corporate, municipal, and other securities presented above because we do not consider the declines in fair value to have resulted from credit losses. We have not observed a significant deterioration in credit quality of these securities, which are rated as investment grade with moderate to low credit risk. The declines in value are largely attributable to current global economic conditions. The securities continue to make timely principal and interest payments, and the fair values are expected to recover as they approach maturity. The Company does not intend to sell the securities, and it is not more likely than not that the Company will be required to sell the securities, before the respective recoveries of their amortized cost bases, which may be maturity.
The amortized cost and fair value of marketable securities at June 27, 2020, by maturity, are shown below.
|
|
Amortized Cost
|
|
|
Fair Value
|
|
Due in one year or less
|
|
$
|
380,256
|
|
|
$
|
380,880
|
|
Due after one year through five years
|
|
|
849,952
|
|
|
|
868,799
|
|
Due after five years through ten years
|
|
|
115,855
|
|
|
|
118,061
|
|
Due after ten years
|
|
|
6,793
|
|
|
|
6,161
|
|
|
|
$
|
1,352,856
|
|
|
$
|
1,373,901
|
|
14
9.
|
Accumulated Other Comprehensive Income
|
The following provides required disclosure of changes in accumulated other comprehensive income (AOCI) balances by component for the 13-week and 26-week periods ended June 27, 2020:
|
|
13-Weeks Ended June 27, 2020
|
|
|
|
Foreign currency
translation adjustment
|
|
|
Net gains (losses) on available-for-sale securities
|
|
|
Total
|
|
Balance - beginning of period
|
|
$
|
49,113
|
|
|
$
|
(17,306
|
)
|
|
$
|
31,807
|
|
Other comprehensive income before reclassification, net of income tax expense of $5,634
|
|
|
24,813
|
|
|
|
33,165
|
|
|
|
57,978
|
|
|
Amounts reclassified from Accumulated other comprehensive income to Other income (expense), net of income tax expense of $3 included in Income tax provision
|
|
|
—
|
|
|
|
(56
|
)
|
|
|
(56
|
)
|
Net current-period other comprehensive income
|
|
|
24,813
|
|
|
|
33,109
|
|
|
|
57,922
|
|
Balance - end of period
|
|
$
|
73,926
|
|
|
$
|
15,803
|
|
|
$
|
89,729
|
|
|
|
26-Weeks Ended June 27, 2020
|
|
|
|
Foreign currency
translation adjustment
|
|
|
Net gains (losses) on available-for-sale securities
|
|
|
Total
|
|
Balance - beginning of period
|
|
$
|
55,289
|
|
|
$
|
585
|
|
|
$
|
55,874
|
|
Other comprehensive income before reclassification, net of income tax expense of $2,872
|
|
|
18,637
|
|
|
|
15,503
|
|
|
|
34,140
|
|
Amounts reclassified from Accumulated other comprehensive income to Other income (expense), net of income tax expense of $46 included in Income tax provision
|
|
|
—
|
|
|
|
(285
|
)
|
|
|
(285
|
)
|
Net current-period other comprehensive income
|
|
|
18,637
|
|
|
|
15,218
|
|
|
|
33,855
|
|
Balance - end of period
|
|
$
|
73,926
|
|
|
$
|
15,803
|
|
|
$
|
89,729
|
|
In order to further depict how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors, we disaggregate revenue (or “net sales”) by geographic region, major product category, and pattern of recognition.
Disaggregated revenue by geographic region (Americas, APAC, and EMEA) is presented in Note 4 – Segment Information. The Company has identified six major product categories – auto PND, auto OEM, aviation, fitness, marine, and outdoor. Note 4 also contains disaggregated revenue information of the aviation, fitness, marine, and outdoor major product categories. Auto segment revenue presented in Note 4 is comprised of the auto PND and auto OEM major product categories, as depicted below.
|
|
Auto Revenue by Major Product Category
|
|
|
|
13-Weeks Ended
|
|
|
26-Weeks Ended
|
|
|
|
June 27, 2020
|
|
|
June 29, 2019
|
|
|
June 27, 2020
|
|
|
June 29, 2019
|
|
Auto PND
|
|
|
65
|
%
|
|
|
68
|
%
|
|
|
60
|
%
|
|
|
64
|
%
|
Auto OEM
|
|
|
35
|
%
|
|
|
32
|
%
|
|
|
40
|
%
|
|
|
36
|
%
|
15
A large majority of the Company’s sales are recognized on a point in time basis, usually once the product is shipped and title and risk of loss have transferred to the customer. Sales recognized over a period of time are primarily within the auto segment and relate to performance obligations that are satisfied over the life of the product or contractual service period. Revenue disaggregated by the timing of transfer of the goods or services is presented in the table below:
|
|
13-Weeks Ended
|
|
|
26-Weeks Ended
|
|
|
|
June 27, 2020
|
|
|
June 29, 2019
|
|
|
June 27, 2020
|
|
|
June 29, 2019
|
|
Point in time
|
|
$
|
825,579
|
|
|
$
|
911,099
|
|
|
$
|
1,635,876
|
|
|
$
|
1,635,275
|
|
Over time
|
|
|
44,288
|
|
|
|
43,741
|
|
|
|
90,099
|
|
|
|
85,615
|
|
Net sales
|
|
$
|
869,867
|
|
|
$
|
954,840
|
|
|
$
|
1,725,975
|
|
|
$
|
1,720,890
|
|
Transaction price and costs associated with the Company’s unsatisfied performance obligations are reflected as deferred revenue and deferred costs, respectively, on the Company’s Condensed Consolidated Balance Sheets. Such amounts are recognized ratably over the applicable service period or estimated useful life. Changes in deferred revenue and costs during the 26-week period ended June 27, 2020 are presented below:
|
|
26-Weeks Ended
|
|
|
|
June 27, 2020
|
|
|
|
Deferred
Revenue (1)
|
|
|
Deferred
Costs (2)
|
|
Balance, beginning of period
|
|
$
|
161,891
|
|
|
$
|
48,598
|
|
Deferrals in period
|
|
|
70,795
|
|
|
|
8,134
|
|
Recognition of deferrals in period
|
|
|
(90,099
|
)
|
|
|
(15,951
|
)
|
Balance, end of period
|
|
$
|
142,587
|
|
|
$
|
40,781
|
|
(1)
|
Deferred revenue is comprised of both Deferred revenue and Noncurrent deferred revenue per the Condensed Consolidated Balance Sheets
|
(2)
|
Deferred costs are comprised of both Deferred costs and Noncurrent deferred costs per the Condensed Consolidated Balance Sheets
|
Of the $90,099 of deferred revenue recognized in the 26-week period ended June 27, 2020, $57,716 was deferred as of the beginning of the period.
Approximately two-thirds of the $142,587 of deferred revenue at the end of the period, June 27, 2020, is recognized ratably over a period of three years or less.
11.Subsequent Events
On June 30, 2020, the Company acquired the shares of Firstbeat Analytics Oy, a privately-held provider of physiological analytics and metrics for consumer devices in the health, wellness, fitness and performance markets. This acquisition was not material.
16
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
The discussion set forth below, as well as other portions of this Quarterly Report, contain statements concerning potential future events. Such forward-looking statements are based upon assumptions by 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 the Company’s assumptions prove incorrect or should unanticipated circumstances arise, 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 Part II, Item 1A of this Quarterly Report on Form 10-Q and in the Company’s Annual Report on Form 10-K for the year ended December 28, 2019. 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 website 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 28, 2019.
The Company is a leading worldwide provider of wireless devices and applications that are designed for people who live an active lifestyle, many of which feature Global Positioning System (GPS) navigation. We operate in five reportable segments, which serve the auto, aviation, fitness, marine, and outdoor markets. The Company’s segments offer products through its network of subsidiary distributors and independent dealers and distributors and some also maintain relationships with original equipment manufacturers (OEMs). However, the nature of products and types of customers for the five segments may vary significantly. As such, the segments are managed separately.
Impacts of COVID-19
The novel coronavirus (COVID-19) pandemic has created disruption and uncertainty in the global economy and has affected our business, suppliers, and customers, as described below. Although the impact to the Company’s financial results was not significant in the first quarter of 2020, consolidated net sales and operating income were adversely impacted during the second quarter of 2020. However, as described below in the Results of Operations, our operating segments were not all impacted equally, and the diversity of our business and product offerings mitigated the impacts to our consolidated net sales and operating income. We experienced lower demand for certain of our products due to limitations on economic activity caused by governmental restrictions and as our customers faced economic hardships. During the second quarter of 2020, demand for certain of our products and net sales for all of our segments saw improvement compared to the beginning of the quarter.
Sustained adverse impacts to us, our suppliers or our customers may also affect the future valuation of certain assets and therefore may increase the likelihood of an impairment charge, write-off, write-down, reserve, or accelerated expense associated with such assets, including marketable securities, accounts receivable, inventories, prepaid expenses, property and equipment, tax assets, goodwill, indefinite and finite-lived intangible assets, capitalized preproduction design and development costs, and other assets.
With pre-existing fundamentals such as trade credit insurance, direct online sales through our webshops, direct fulfillment arrangements with certain retailers, our strong cash and marketable securities position, market and product diversity, a vertically integrated business model, and ample inventory on hand, we were well-positioned to mitigate the initial impacts of COVID-19. While COVID-19 continues to further evolve into a complicated and prolonged global pandemic, we have implemented additional mitigation measures, such as initiating additional direct fulfillment arrangements with retailers, mitigating single source supplier dependencies, additional cleaning and sanitation within our facilities to maintain a healthy and safe environment for essential on-site functions, enhancing functionality and security of technology for employees who are working from home, and planning the safe reintegration of our on-site workforce as the pandemic evolves, governmental restrictions are gradually lifted and public health guidance evolves. These mitigation efforts complement our top priorities of ensuring the health and safety of our employees and continuing to serve our customers. Additional benefits have been provided to many of our employees, including increased flexible work arrangements, remote work access, and flexible paid leave policies. We are also mitigating impacts to operating income
17
and liquidity by monitoring our expense structure and balance sheet, reducing and prioritizing certain discretionary operating expenses and capital expenditures, and slowing the number of new employees hired.
Although we believe we have taken appropriate actions to help mitigate risks associated with COVID-19 as described above, the duration and magnitude of COVID-19 impacts to our business operations and financial results may be affected by a number of factors including the uncertainty around the evolution of the pandemic, the imposition or relaxation of government restrictions on business and social gathering activities, voluntary behavior changes associated with public health guidance, and those presented below in Item 1A. Risk Factors of this Quarterly Report.
Recent Systems Outage
The Company was the victim of a cyber attack that encrypted some of our systems on July 23, 2020. As a result, many of our online services were interrupted including website functions, customer support, customer facing applications, and company communications. We immediately began to assess the nature of the attack and started remediation. We have no indication that any customer data, including payment information from Garmin Pay™, was accessed, lost or stolen. Additionally, the functionality of Garmin products was not affected, other than the ability to access online services. Critical affected business systems have been restored. We do not expect any material impact to our operations or financial results because of this outage.
Results of Operations
The following table sets forth the Company’s results of operations as a percent of net sales during the periods shown (the table may not foot due to rounding):
|
|
13-Weeks Ended
|
|
|
|
June 27,
2020
|
|
|
June 29,
2019
|
|
Net sales
|
|
|
100
|
%
|
|
|
100
|
%
|
Cost of goods sold
|
|
|
41
|
%
|
|
|
40
|
%
|
Gross profit
|
|
|
59
|
%
|
|
|
60
|
%
|
Advertising
|
|
|
3
|
%
|
|
|
4
|
%
|
Selling, general and administrative
|
|
|
15
|
%
|
|
|
13
|
%
|
Research and development
|
|
|
19
|
%
|
|
|
16
|
%
|
Total operating expenses
|
|
|
38
|
%
|
|
|
33
|
%
|
Operating income
|
|
|
22
|
%
|
|
|
27
|
%
|
Other income (expense)
|
|
|
1
|
%
|
|
|
2
|
%
|
Income before income taxes
|
|
|
23
|
%
|
|
|
29
|
%
|
Income tax provision
|
|
|
2
|
%
|
|
|
5
|
%
|
Net income
|
|
|
21
|
%
|
|
|
23
|
%
|
|
|
26-Weeks Ended
|
|
|
|
June 27,
2020
|
|
|
June 29,
2019
|
|
Net sales
|
|
|
100
|
%
|
|
|
100
|
%
|
Cost of goods sold
|
|
|
41
|
%
|
|
|
40
|
%
|
Gross profit
|
|
|
59
|
%
|
|
|
60
|
%
|
Advertising
|
|
|
3
|
%
|
|
|
4
|
%
|
Selling, general and administrative
|
|
|
16
|
%
|
|
|
15
|
%
|
Research and development
|
|
|
19
|
%
|
|
|
17
|
%
|
Total operating expenses
|
|
|
38
|
%
|
|
|
36
|
%
|
Operating income
|
|
|
21
|
%
|
|
|
24
|
%
|
Other income (expense)
|
|
|
1
|
%
|
|
|
2
|
%
|
Income before income taxes
|
|
|
22
|
%
|
|
|
26
|
%
|
Income tax provision
|
|
|
2
|
%
|
|
|
5
|
%
|
Net income
|
|
|
20
|
%
|
|
|
21
|
%
|
The segment table located in Note 4 to the Condensed Consolidated Financial Statements sets forth the Company’s results of operations (in thousands) including net sales, gross profit, and operating income for each of the Company’s five reportable segments during the periods shown. For each line item in the table, the total of the fitness,
18
outdoor, aviation, auto, and marine segments’ amounts equals the amount in the Condensed Consolidated Statements of Income included in Item 1.
Comparison of 13-Weeks ended June 27, 2020 and June 29, 2019
(Amounts included in the following discussion are stated in thousands unless otherwise indicated)
Net Sales
Net Sales
|
|
13-Weeks Ended June 27, 2020
|
|
|
Year-over-Year Change
|
|
|
13-Weeks Ended June 29, 2019
|
|
Fitness
|
|
$
|
294,642
|
|
|
|
17
|
%
|
|
$
|
251,653
|
|
Percentage of Total Net Sales
|
|
|
34
|
%
|
|
|
|
|
|
|
26
|
%
|
Outdoor
|
|
|
206,200
|
|
|
|
(2
|
%)
|
|
|
210,404
|
|
Percentage of Total Net Sales
|
|
|
24
|
%
|
|
|
|
|
|
|
22
|
%
|
Aviation
|
|
|
126,140
|
|
|
|
(31
|
%)
|
|
|
183,965
|
|
Percentage of Total Net Sales
|
|
|
14
|
%
|
|
|
|
|
|
|
19
|
%
|
Auto
|
|
|
85,058
|
|
|
|
(46
|
%)
|
|
|
157,411
|
|
Percentage of Total Net Sales
|
|
|
10
|
%
|
|
|
|
|
|
|
17
|
%
|
Marine
|
|
|
157,827
|
|
|
|
4
|
%
|
|
|
151,407
|
|
Percentage of Total Net Sales
|
|
|
18
|
%
|
|
|
|
|
|
|
16
|
%
|
Total
|
|
$
|
869,867
|
|
|
|
(9
|
%)
|
|
$
|
954,840
|
|
Net sales declined 9% for the 13-week period ended June 27, 2020 when compared to the year-ago quarter. The net sales decline was primarily a result of COVID-19 impacts to our business. Sales in each of our segments were significantly impacted early in the current year quarter but improved throughout the quarter. The fitness and marine segments were able to achieve net sales growth when compared to the year-ago quarter and were able to partially offset declines in the outdoor, aviation, and auto segments. Fitness was the largest portion of our revenue mix at 34% in the second quarter of 2020 compared to 26% in the second quarter of 2019. Total unit sales in the second quarter of 2020 decreased to 3,093 when compared to total unit sales of 3,838 in the second quarter of 2019, which was a larger decrease than that of revenue primarily due to shifts in segment and product mix.
Fitness segment revenue increased 17% when compared to the year-ago quarter, primarily driven by sales growth in advanced wearables and cycling products. Marine segment revenue increased 4% when compared to the year-ago quarter, primarily driven by sales growth in multiple product categories, led primarily by chartplotters and advanced sonars. Outdoor segment revenue declined 2% when compared to the year-ago quarter, as declines in handhelds were mostly offset by strong demand of adventure watches. Aviation segment revenue declined 31% from the year-ago quarter, primarily due to the pandemic’s negative impact to OEM and aftermarket product categories, and the ADS-B market rapidly maturing. Auto segment revenue declined 46% from the year-ago quarter, as auto PND and auto OEM sales were unfavorably impacted by the pandemic, which resulted in less driving activity and lower production of new vehicles associated with factory closures and reduced demand during the second quarter of 2020.
Gross Profit
Gross Profit
|
|
13-Weeks Ended June 27, 2020
|
|
|
Year-over-Year Change
|
|
|
13-Weeks Ended June 29, 2019
|
|
Fitness
|
|
$
|
156,817
|
|
|
|
16
|
%
|
|
$
|
135,136
|
|
Percentage of Segment Net Sales
|
|
|
53
|
%
|
|
|
|
|
|
|
54
|
%
|
Outdoor
|
|
|
133,189
|
|
|
|
(2
|
%)
|
|
|
135,508
|
|
Percentage of Segment Net Sales
|
|
|
65
|
%
|
|
|
|
|
|
|
64
|
%
|
Aviation
|
|
|
92,036
|
|
|
|
(33
|
%)
|
|
|
138,177
|
|
Percentage of Segment Net Sales
|
|
|
73
|
%
|
|
|
|
|
|
|
75
|
%
|
Auto
|
|
|
39,918
|
|
|
|
(47
|
%)
|
|
|
74,861
|
|
Percentage of Segment Net Sales
|
|
|
47
|
%
|
|
|
|
|
|
|
48
|
%
|
Marine
|
|
|
93,470
|
|
|
|
2
|
%
|
|
|
91,683
|
|
Percentage of Segment Net Sales
|
|
|
59
|
%
|
|
|
|
|
|
|
61
|
%
|
Total
|
|
$
|
515,430
|
|
|
|
(10
|
%)
|
|
$
|
575,365
|
|
Percentage of Total Net Sales
|
|
|
59
|
%
|
|
|
|
|
|
|
60
|
%
|
Gross profit dollars in the second quarter of 2020 decreased 10%, primarily due to the decline in net sales compared to the year-ago quarter, as described above. Consolidated gross margin decreased slightly when compared to the year-ago quarter, primarily due to increased freight expense associated with higher air shipment costs and segment mix. Gross margin was relatively flat in the fitness, outdoor and auto segments, and decreased in the aviation and marine segments when compared to the year-ago quarter.
19
The aviation segment gross margin decrease of 210 basis points was primarily attributable to product mix. The marine segment gross margin decrease of 130 basis points was primarily attributable to higher freight costs.
Advertising Expense
Advertising
|
|
13-Weeks Ended June 27, 2020
|
|
|
Year-over-Year Change
|
|
|
13-Weeks Ended June 29, 2019
|
|
Fitness
|
|
$
|
13,219
|
|
|
|
(26
|
%)
|
|
$
|
17,928
|
|
Percentage of Segment Net Sales
|
|
|
4
|
%
|
|
|
|
|
|
|
7
|
%
|
Outdoor
|
|
|
8,491
|
|
|
|
(29
|
%)
|
|
|
11,965
|
|
Percentage of Segment Net Sales
|
|
|
4
|
%
|
|
|
|
|
|
|
6
|
%
|
Aviation
|
|
|
490
|
|
|
|
(70
|
%)
|
|
|
1,642
|
|
Percentage of Segment Net Sales
|
|
|
0
|
%
|
|
|
|
|
|
|
1
|
%
|
Auto
|
|
|
1,615
|
|
|
|
(63
|
%)
|
|
|
4,403
|
|
Percentage of Segment Net Sales
|
|
|
2
|
%
|
|
|
|
|
|
|
3
|
%
|
Marine
|
|
|
5,470
|
|
|
|
(2
|
%)
|
|
|
5,585
|
|
Percentage of Segment Net Sales
|
|
|
3
|
%
|
|
|
|
|
|
|
4
|
%
|
Total
|
|
$
|
29,285
|
|
|
|
(29
|
%)
|
|
$
|
41,523
|
|
Percentage of Total Net Sales
|
|
|
3
|
%
|
|
|
|
|
|
|
4
|
%
|
Advertising expense as a percent of revenue was slightly lower when compared to the year-ago quarter and decreased 29% in absolute dollars. The total absolute dollar decrease was primarily attributable to decreased media advertising in the fitness and outdoor segments.
Selling, General and Administrative Expense
Selling, General & Admin. Expenses
|
|
13-Weeks Ended June 27, 2020
|
|
|
Year-over-Year Change
|
|
|
13-Weeks Ended June 29, 2019
|
|
Fitness
|
|
$
|
42,648
|
|
|
|
7
|
%
|
|
$
|
39,964
|
|
Percentage of Segment Net Sales
|
|
|
14
|
%
|
|
|
|
|
|
|
16
|
%
|
Outdoor
|
|
|
32,002
|
|
|
|
5
|
%
|
|
|
30,409
|
|
Percentage of Segment Net Sales
|
|
|
16
|
%
|
|
|
|
|
|
|
14
|
%
|
Aviation
|
|
|
18,871
|
|
|
|
20
|
%
|
|
|
15,683
|
|
Percentage of Segment Net Sales
|
|
|
15
|
%
|
|
|
|
|
|
|
9
|
%
|
Auto
|
|
|
15,843
|
|
|
|
(18
|
%)
|
|
|
19,373
|
|
Percentage of Segment Net Sales
|
|
|
19
|
%
|
|
|
|
|
|
|
12
|
%
|
Marine
|
|
|
22,652
|
|
|
|
(3
|
%)
|
|
|
23,309
|
|
Percentage of Segment Net Sales
|
|
|
14
|
%
|
|
|
|
|
|
|
15
|
%
|
Total
|
|
$
|
132,016
|
|
|
|
3
|
%
|
|
$
|
128,738
|
|
Percentage of Total Net Sales
|
|
|
15
|
%
|
|
|
|
|
|
|
13
|
%
|
Selling, general and administrative expense increased 3% in absolute dollars and was 170 basis points higher as a percent of revenue compared to the year-ago quarter. The absolute dollar increase in the second quarter of 2020 was primarily attributable to increased personnel and information technology costs, partially offset by lower legal related costs.
Research and Development Expense
Research & Development
|
|
13-Weeks Ended June 27, 2020
|
|
|
Year-over-Year Change
|
|
|
13-Weeks Ended June 29, 2019
|
|
Fitness
|
|
$
|
28,969
|
|
|
|
8
|
%
|
|
$
|
26,831
|
|
Percentage of Segment Net Sales
|
|
|
10
|
%
|
|
|
|
|
|
|
11
|
%
|
Outdoor
|
|
|
25,282
|
|
|
|
16
|
%
|
|
|
21,798
|
|
Percentage of Segment Net Sales
|
|
|
12
|
%
|
|
|
|
|
|
|
10
|
%
|
Aviation
|
|
|
57,109
|
|
|
|
6
|
%
|
|
|
54,018
|
|
Percentage of Segment Net Sales
|
|
|
45
|
%
|
|
|
|
|
|
|
29
|
%
|
Auto
|
|
|
32,585
|
|
|
|
24
|
%
|
|
|
26,177
|
|
Percentage of Segment Net Sales
|
|
|
38
|
%
|
|
|
|
|
|
|
17
|
%
|
Marine
|
|
|
21,795
|
|
|
|
9
|
%
|
|
|
20,059
|
|
Percentage of Segment Net Sales
|
|
|
14
|
%
|
|
|
|
|
|
|
13
|
%
|
Total
|
|
$
|
165,740
|
|
|
|
11
|
%
|
|
$
|
148,883
|
|
Percentage of Total Net Sales
|
|
|
19
|
%
|
|
|
|
|
|
|
16
|
%
|
Research and development expense as a percent of revenue increased 350 basis points when compared to the year-ago quarter and increased 11% in absolute dollars. The absolute dollar increase was primarily due to higher engineering personnel costs related to wearable, aviation, and auto OEM product development. The aviation segment increase as a percent of revenue was primarily due to the decline in sales, as described above. The auto segment increase in absolute dollars and as a percent of revenue was primarily attributable to auto OEM product development, in
20
addition to the impact of the decline in sales, as described above. Our research and development spending is focused on product development, improving existing software capabilities, and exploring new categories.
Operating Income
Operating Income
|
|
13-Weeks Ended June 27, 2020
|
|
|
Year-over-Year Change
|
|
|
13-Weeks Ended June 29, 2019
|
|
Fitness
|
|
$
|
71,981
|
|
|
|
43
|
%
|
|
$
|
50,413
|
|
Percentage of Segment Net Sales
|
|
|
24
|
%
|
|
|
|
|
|
|
20
|
%
|
Outdoor
|
|
|
67,414
|
|
|
|
(5
|
%)
|
|
|
71,336
|
|
Percentage of Segment Net Sales
|
|
|
33
|
%
|
|
|
|
|
|
|
34
|
%
|
Aviation
|
|
|
15,566
|
|
|
|
(77
|
%)
|
|
|
66,834
|
|
Percentage of Segment Net Sales
|
|
|
12
|
%
|
|
|
|
|
|
|
36
|
%
|
Auto
|
|
|
(10,125
|
)
|
|
|
(141
|
%)
|
|
|
24,908
|
|
Percentage of Segment Net Sales
|
|
|
(12
|
%)
|
|
|
|
|
|
|
16
|
%
|
Marine
|
|
|
43,553
|
|
|
|
2
|
%
|
|
|
42,730
|
|
Percentage of Segment Net Sales
|
|
|
28
|
%
|
|
|
|
|
|
|
28
|
%
|
Total
|
|
$
|
188,389
|
|
|
|
(26
|
%)
|
|
$
|
256,221
|
|
Percentage of Total Net Sales
|
|
|
22
|
%
|
|
|
|
|
|
|
27
|
%
|
Operating income declined 26% in absolute dollars and 520 basis points as a percent of revenue when compared to the year-ago quarter. The decline in operating income in the current quarter was primarily attributable to revenue declines, as described above, a slight reduction in gross margin, and increased total operating expenses, as discussed above. Operating income, in absolute dollars and as a percent of revenue, decreased in the aviation segment primarily due to sales declines in the current quarter, when compared to the year-ago quarter. The auto segment experienced an operating loss in the current quarter, primarily due to investments in auto OEM product development and lower sales, as described above.
We anticipate that COVID-19 will have a continued unfavorable impact on net sales and profitability of our aviation and auto segments for the remainder of fiscal 2020.
Other Income (Expense)
Other Income (Expense)
|
|
13-Weeks Ended June 27, 2020
|
|
|
13-Weeks Ended June 29, 2019
|
|
Interest income
|
|
$
|
10,455
|
|
|
$
|
13,735
|
|
Foreign currency (losses) gains
|
|
|
(4,493
|
)
|
|
|
3,413
|
|
Other income
|
|
|
3,241
|
|
|
|
2,409
|
|
Total
|
|
$
|
9,203
|
|
|
$
|
19,557
|
|
The average return on cash and investments, including interest and capital gains/losses, during the second quarter of 2020 was 1.6% compared to 2.2% during the same quarter of 2019. Interest income decreased primarily due to lower yields on fixed-income securities.
Foreign currency gains and losses for the Company are driven by movements of a number of currencies in relation to the U.S. Dollar. The Taiwan Dollar is the functional currency of Garmin Corporation, the Euro is the functional currency of several subsidiaries, and the U.S. Dollar is the functional currency of Garmin (Europe) Ltd., although some transactions and balances are denominated in British Pounds. Other notable currency exposures include the Australian Dollar, Chinese Yuan, and Japanese Yen. The majority of the Company’s consolidated foreign currency gain or loss is typically driven by the significant cash and marketable securities, receivables and payables held in a currency other than the functional currency at a given legal entity.
The $4.5 million currency loss recognized in the second quarter of 2020 was primarily due to the U.S. Dollar weakening against the Taiwan Dollar, partially offset by the U.S. Dollar weakening against the Australian Dollar, within the 13-week period ended June 27, 2020. During this period, the U.S. Dollar weakened 2.4% against the Taiwan Dollar, resulting in a loss of $10.8 million, while the U.S. Dollar weakened 13.6% against the Australian Dollar, resulting in a gain of $4.5 million. The remaining net currency gain of $1.8 million was related to the timing of transactions and impacts of other currencies, each of which was individually immaterial.
The $3.4 million currency gain recognized in the second quarter of 2019 was primarily due to the U.S. Dollar weakening against the Euro and strengthening against the Taiwan Dollar, partially offset by the U.S. Dollar strengthening against the British Pound Sterling, within the 13-week period ended June 29, 2019. During this period, the U.S. Dollar weakened 1.4% against the Euro and strengthened 0.3% against the Taiwan Dollar, resulting in gains of $3.7 million and $1.7 million, respectively, while the U.S. Dollar strengthened 2.6% against the British Pound Sterling, resulting in a loss of
21
$0.7 million. The remaining net currency loss of $1.3 million was related to the timing of transactions and impacts of other currencies, each of which was individually immaterial.
Income Tax Provision
The Company recorded income tax expense of $13.4 million in the 13-week period ended June 27, 2020, compared to income tax expense of $52.1 million in the 13-week period ended June 29, 2019. The effective tax rate was 6.8% in the second quarter of 2020, compared to 18.9% in the second quarter of 2019. Excluding a $14.3 million income tax benefit recognized by the Company in the second quarter of 2020 due to the release of uncertain tax position reserves associated with a 2014 intercompany restructuring, the effective tax rate in the second quarter of 2020 decreased 490 basis points compared to the effective tax rate in the prior year quarter. The decrease was primarily due to a favorable shift in income mix by jurisdiction related to the transaction to migrate intellectual property ownership from Switzerland to the United States, which began in the first quarter of 2020.
Net Income
As a result of the above, net income for the 13-week period ended June 27, 2020 was $184.2 million compared to $223.7 million for the 13-week period ended June 29, 2019, a decrease of $39.5 million.
Comparison of 26-Weeks ended June 27, 2020 and June 29, 2019
Net Sales
Net Sales
|
|
26-Weeks Ended June 27, 2020
|
|
|
Year-over-Year Change
|
|
|
26-Weeks Ended June 29, 2019
|
|
Fitness
|
|
$
|
518,242
|
|
|
|
20
|
%
|
|
$
|
431,908
|
|
Percentage of Total Net Sales
|
|
|
30
|
%
|
|
|
|
|
|
|
25
|
%
|
Outdoor
|
|
|
381,302
|
|
|
|
5
|
%
|
|
|
364,455
|
|
Percentage of Total Net Sales
|
|
|
22
|
%
|
|
|
|
|
|
|
21
|
%
|
Aviation
|
|
|
314,739
|
|
|
|
(11
|
%)
|
|
|
354,741
|
|
Percentage of Total Net Sales
|
|
|
18
|
%
|
|
|
|
|
|
|
21
|
%
|
Auto
|
|
|
190,860
|
|
|
|
(33
|
%)
|
|
|
284,410
|
|
Percentage of Total Net Sales
|
|
|
11
|
%
|
|
|
|
|
|
|
17
|
%
|
Marine
|
|
|
320,832
|
|
|
|
12
|
%
|
|
|
285,376
|
|
Percentage of Total Net Sales
|
|
|
19
|
%
|
|
|
|
|
|
|
17
|
%
|
Total
|
|
$
|
1,725,975
|
|
|
|
0
|
%
|
|
$
|
1,720,890
|
|
Net sales for the 26-week period ended June 27, 2020 were flat when compared to the year-ago period. The growth in net sales in the first quarter of 2020 generally offset declines in the second quarter of 2020, when compared to the respective year-ago quarters. Fitness was the largest portion of our revenue mix at 30% in the first half of 2020 compared to 25% in the first half of 2019. Total unit sales in the first half of 2020 decreased to 6,024 when compared to total unit sales of 7,019 in the first half of 2019, primarily due to shifts in segment and product mix and the impacts of COVID-19 to our net sales during the second quarter of 2020.
Fitness segment revenue increased 20% when compared to the year-ago period, primarily driven by sales growth in advanced wearables and cycling products. Outdoor segment revenue increased 5% when compared to the year-ago period, primarily driven by sales growth in adventure watches. Marine segment revenue increased 12% when compared to the year-ago period, primarily driven by sales growth in multiple product categories, led primarily by chartplotters and advanced sonars. Aviation segment revenue decreased 11% from the year-ago period, primarily due to the pandemic’s negative impact to OEM and aftermarket product categories, and the ADS-B market rapidly maturing. Auto segment revenue decreased 33% from the year-ago period, primarily due to the ongoing PND market contraction and lower auto OEM sales, factors which were compounded in the second quarter of 2020 by COVID-19 and its associated impact on consumers, retailers, and the automotive manufacturers.
22
Gross Profit
Gross Profit
|
|
26-Weeks Ended June 27, 2020
|
|
|
Year-over-Year Change
|
|
|
26-Weeks Ended June 29, 2019
|
|
Fitness
|
|
$
|
269,142
|
|
|
|
19
|
%
|
|
$
|
225,970
|
|
Percentage of Segment Net Sales
|
|
|
52
|
%
|
|
|
|
|
|
|
52
|
%
|
Outdoor
|
|
|
245,447
|
|
|
|
5
|
%
|
|
|
232,996
|
|
Percentage of Segment Net Sales
|
|
|
64
|
%
|
|
|
|
|
|
|
64
|
%
|
Aviation
|
|
|
230,844
|
|
|
|
(13
|
%)
|
|
|
266,160
|
|
Percentage of Segment Net Sales
|
|
|
73
|
%
|
|
|
|
|
|
|
75
|
%
|
Auto
|
|
|
89,257
|
|
|
|
(32
|
%)
|
|
|
132,198
|
|
Percentage of Segment Net Sales
|
|
|
47
|
%
|
|
|
|
|
|
|
46
|
%
|
Marine
|
|
|
187,680
|
|
|
|
11
|
%
|
|
|
169,739
|
|
Percentage of Segment Net Sales
|
|
|
58
|
%
|
|
|
|
|
|
|
59
|
%
|
Total
|
|
$
|
1,022,370
|
|
|
|
0
|
%
|
|
$
|
1,027,063
|
|
Percentage of Total Net Sales
|
|
|
59
|
%
|
|
|
|
|
|
|
60
|
%
|
Gross profit dollars in the first half of 2020 remained relatively flat when compared to the year-ago period. Gross margin was relatively flat in the fitness, outdoor, auto, and marine segments, and decreased in the aviation segment when compared to the year-ago period.
The aviation segment gross margin decrease of 170 basis points was primarily attributable to product mix.
Advertising Expense
Advertising
|
|
26-Weeks Ended June 27, 2020
|
|
|
Year-over-Year Change
|
|
|
26-Weeks Ended June 29, 2019
|
|
Fitness
|
|
$
|
23,358
|
|
|
|
(16
|
%)
|
|
$
|
27,917
|
|
Percentage of Segment Net Sales
|
|
|
5
|
%
|
|
|
|
|
|
|
6
|
%
|
Outdoor
|
|
|
15,398
|
|
|
|
(20
|
%)
|
|
|
19,136
|
|
Percentage of Segment Net Sales
|
|
|
4
|
%
|
|
|
|
|
|
|
5
|
%
|
Aviation
|
|
|
1,802
|
|
|
|
(37
|
%)
|
|
|
2,865
|
|
Percentage of Segment Net Sales
|
|
|
1
|
%
|
|
|
|
|
|
|
1
|
%
|
Auto
|
|
|
3,995
|
|
|
|
(45
|
%)
|
|
|
7,305
|
|
Percentage of Segment Net Sales
|
|
|
2
|
%
|
|
|
|
|
|
|
3
|
%
|
Marine
|
|
|
11,612
|
|
|
|
(3
|
%)
|
|
|
11,916
|
|
Percentage of Segment Net Sales
|
|
|
4
|
%
|
|
|
|
|
|
|
4
|
%
|
Total
|
|
$
|
56,165
|
|
|
|
(19
|
%)
|
|
$
|
69,139
|
|
Percentage of Total Net Sales
|
|
|
3
|
%
|
|
|
|
|
|
|
4
|
%
|
Advertising expense as a percent of revenue was slightly lower when compared to the year-ago period and decreased 19% in absolute dollars. The total absolute dollar decrease was primarily attributable to decreased media advertising in the fitness and outdoor segments.
Selling, General and Administrative Expense
Selling, General & Admin. Expenses
|
|
26-Weeks Ended June 27, 2020
|
|
|
Year-over-Year Change
|
|
|
26-Weeks Ended June 29, 2019
|
|
Fitness
|
|
$
|
85,301
|
|
|
|
10
|
%
|
|
$
|
77,538
|
|
Percentage of Segment Net Sales
|
|
|
16
|
%
|
|
|
|
|
|
|
18
|
%
|
Outdoor
|
|
|
65,072
|
|
|
|
11
|
%
|
|
|
58,711
|
|
Percentage of Segment Net Sales
|
|
|
17
|
%
|
|
|
|
|
|
|
16
|
%
|
Aviation
|
|
|
37,647
|
|
|
|
20
|
%
|
|
|
31,311
|
|
Percentage of Segment Net Sales
|
|
|
12
|
%
|
|
|
|
|
|
|
9
|
%
|
Auto
|
|
|
33,149
|
|
|
|
(14
|
%)
|
|
|
38,668
|
|
Percentage of Segment Net Sales
|
|
|
17
|
%
|
|
|
|
|
|
|
14
|
%
|
Marine
|
|
|
48,033
|
|
|
|
(3
|
%)
|
|
|
49,291
|
|
Percentage of Segment Net Sales
|
|
|
15
|
%
|
|
|
|
|
|
|
17
|
%
|
Total
|
|
$
|
269,202
|
|
|
|
5
|
%
|
|
$
|
255,519
|
|
Percentage of Total Net Sales
|
|
|
16
|
%
|
|
|
|
|
|
|
15
|
%
|
Selling, general and administrative expense increased 5% in absolute dollars and was slightly higher as a percent of revenue compared to the year-ago period. The absolute dollar increase in the first half of 2020 was primarily attributable to expenses from recent acquisitions and increased personnel and information technology costs, partially offset by lower legal related costs.
23
Research and Development Expense
Research & Development
|
|
26-Weeks Ended June 27, 2020
|
|
|
Year-over-Year Change
|
|
|
26-Weeks Ended June 29, 2019
|
|
Fitness
|
|
$
|
57,491
|
|
|
|
11
|
%
|
|
$
|
51,978
|
|
Percentage of Segment Net Sales
|
|
|
11
|
%
|
|
|
|
|
|
|
12
|
%
|
Outdoor
|
|
|
50,396
|
|
|
|
20
|
%
|
|
|
41,859
|
|
Percentage of Segment Net Sales
|
|
|
13
|
%
|
|
|
|
|
|
|
11
|
%
|
Aviation
|
|
|
116,508
|
|
|
|
8
|
%
|
|
|
107,533
|
|
Percentage of Segment Net Sales
|
|
|
37
|
%
|
|
|
|
|
|
|
30
|
%
|
Auto
|
|
|
62,413
|
|
|
|
18
|
%
|
|
|
53,104
|
|
Percentage of Segment Net Sales
|
|
|
33
|
%
|
|
|
|
|
|
|
19
|
%
|
Marine
|
|
|
44,323
|
|
|
|
10
|
%
|
|
|
40,327
|
|
Percentage of Segment Net Sales
|
|
|
14
|
%
|
|
|
|
|
|
|
14
|
%
|
Total
|
|
$
|
331,131
|
|
|
|
12
|
%
|
|
$
|
294,801
|
|
Percentage of Total Net Sales
|
|
|
19
|
%
|
|
|
|
|
|
|
17
|
%
|
Research and development expense as a percent of revenue increased 210 basis points when compared to the year-ago period and increased 12% in absolute dollars. The absolute dollar increase was primarily due to higher engineering personnel costs related to wearable, aviation, and auto OEM product development. The aviation segment increase as a percent of revenue was primarily due to the decline in sales, as described above. The auto segment increase in absolute dollars and as a percent of revenue was primarily attributable to auto OEM product development, in addition to the decline in sales, as described above. Our research and development spending is focused on product development, improving existing software capabilities, and exploring new categories.
Operating Income
Operating Income
|
|
26-Weeks Ended June 27, 2020
|
|
|
Year-over-Year Change
|
|
|
26-Weeks Ended June 29, 2019
|
|
Fitness
|
|
$
|
102,992
|
|
|
|
50
|
%
|
|
$
|
68,537
|
|
Percentage of Segment Net Sales
|
|
|
20
|
%
|
|
|
|
|
|
|
16
|
%
|
Outdoor
|
|
|
114,581
|
|
|
|
1
|
%
|
|
|
113,290
|
|
Percentage of Segment Net Sales
|
|
|
30
|
%
|
|
|
|
|
|
|
31
|
%
|
Aviation
|
|
|
74,887
|
|
|
|
(40
|
%)
|
|
|
124,451
|
|
Percentage of Segment Net Sales
|
|
|
24
|
%
|
|
|
|
|
|
|
35
|
%
|
Auto
|
|
|
(10,300
|
)
|
|
|
(131
|
%)
|
|
|
33,121
|
|
Percentage of Segment Net Sales
|
|
|
(5
|
%)
|
|
|
|
|
|
|
12
|
%
|
Marine
|
|
|
83,712
|
|
|
|
23
|
%
|
|
|
68,205
|
|
Percentage of Segment Net Sales
|
|
|
26
|
%
|
|
|
|
|
|
|
24
|
%
|
Total
|
|
$
|
365,872
|
|
|
|
(10
|
%)
|
|
$
|
407,604
|
|
Percentage of Total Net Sales
|
|
|
21
|
%
|
|
|
|
|
|
|
24
|
%
|
Operating income decreased 10% in absolute dollars and 250 basis points as a percent of revenue when compared to the year-ago period. The decrease in operating income was due to declines experienced during the second quarter of 2020 when compared to the year-ago quarter, which was partially offset by operating income growth in the first quarter of 2020 when compared to the year-ago quarter. Operating income, in absolute dollars and as a percent of revenue, decreased in the aviation segment primarily due to sales declines in the second quarter of 2020 when compared to the second quarter of 2019. The auto segment experienced an operating loss in the 26-week period ended June 27, 2020, primarily due to investments in auto OEM product development and lower sales, as described above.
We anticipate that COVID-19 will have a continued unfavorable impact on net sales and profitability of our aviation and auto segments for the remainder of fiscal 2020.
Other Income (Expense)
Other Income (Expense)
|
|
26-Weeks Ended June 27, 2020
|
|
|
26-Weeks Ended June 29, 2019
|
|
Interest income
|
|
$
|
22,481
|
|
|
$
|
27,439
|
|
Foreign currency (losses) gains
|
|
|
(19,916
|
)
|
|
|
3,727
|
|
Other income
|
|
|
6,789
|
|
|
|
3,273
|
|
Total
|
|
$
|
9,354
|
|
|
$
|
34,439
|
|
The average returns on cash and investments, including interest and capital gains/losses, during the 26-week period ended June 27, 2020 and the 26-week period ended June 29, 2019 were 1.7% and 2.2%, respectively. Interest income decreased primarily due to lower yields on fixed-income securities.
24
Foreign currency gains and losses for the Company are driven by movements of a number of currencies in relation to the U.S. Dollar. The Taiwan Dollar is the functional currency of Garmin Corporation, the Euro is the functional currency of several subsidiaries, and the U.S. Dollar is the functional currency of Garmin (Europe) Ltd., although some transactions and balances are denominated in British Pounds. Other notable currency exposures include the Australian Dollar, Chinese Yuan, and Japanese Yen. The majority of the Company’s consolidated foreign currency gain or loss is typically driven by the significant cash and marketable securities, receivables and payables held in a currency other than the functional currency at a given legal entity.
The $19.9 million currency loss recognized in the 26-week period ended June 27, 2020 was primarily due to the U.S. Dollar weakening against the Taiwan Dollar and strengthening against the British Pound Sterling and Australian Dollar within the 26-week period ended June 27, 2020. During this period, the U.S. Dollar weakened 2.1% against the Taiwan Dollar, resulting in a loss of $8.7 million, while the U.S. Dollar strengthened 5.7% against the British Pound Sterling and 0.9% against the Australian Dollar, resulting in losses of $2.5 million and $0.5 million, respectively. The remaining net currency loss of $8.2 million was related to the timing of transactions and impacts of other currencies, each of which was individually immaterial.
The $3.7 million currency gain recognized in the 26-week period ended June 29, 2019 was primarily due to the strengthening of the U.S. Dollar against the Taiwan Dollar, partially offset by the U.S. Dollar strengthening against the Euro, within the 26-week period ended June 29, 2019. During this period, the U.S. Dollar strengthened 1.2% against the Taiwan Dollar, resulting in a gain of $7.4 million, while the U.S. Dollar strengthened 0.6% against the Euro, resulting in a loss of $4.1 million. The remaining net currency gain of $0.4 million was related to the timing of transactions and impacts of other currencies, each of which was individually immaterial.
Income Tax Provision
The Company recorded income tax expense of $29.9 million in the first half of 2020 compared to income tax expense of $78.2 million in the first half of 2019. The effective tax rate was 8.0% in the first half of 2020, compared to 17.7% in the first half of 2019. Excluding a $14.3 million income tax benefit recognized by the Company in the second quarter of 2020 due to the release of uncertain tax position reserves associated with the 2014 intercompany restructuring, the effective tax rate in the first half of 2020 decreased 590 basis points compared to the effective tax rate in the first half of 2019. The decrease was primarily due to a favorable shift in income mix by jurisdiction related to the transaction to migrate intellectual property ownership from Switzerland to the United States, which began in the first quarter of 2020.
Net Income
As a result of the above, net income for the 26-week period ended June 27, 2020 was $345.4 million compared to $363.8 million for the 26-week period ended June 29, 2019, a decrease of $18.5 million.
Liquidity and Capital Resources
As of June 27, 2020, we had approximately $2.7 billion of cash and cash equivalents and marketable securities. We primarily use cash flow from operations, and expect that future cash requirements may be used, to fund our capital expenditures, support our working capital requirements, pay dividends, and fund strategic acquisitions. We believe that our existing cash balances and cash flow from operations will be sufficient to meet our short- and long-term projected working capital needs, capital expenditures, and other cash requirements.
It is management’s goal to invest the on-hand cash in accordance with the investment policy, which has been approved by the Company’s 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 low credit risk. Garmin’s average interest rate returns on cash and investments during the first half of 2020 and 2019 were approximately 1.7% and 2.2%, respectively. The fair value of our securities varies from period to period due to changes in interest rates, in the performance of the underlying collateral, and in the credit performance of the underlying issuer, among other factors. See Note 8 for additional information regarding marketable securities.
25
Operating Activities
|
|
26-Weeks Ended
|
|
|
26-Weeks Ended
|
|
|
|
June 27, 2020
|
|
|
June 29, 2019
|
|
Net cash provided by operating activities
|
|
$
|
425,111
|
|
|
$
|
275,218
|
|
The $149.9 million increase in cash provided by operating activities during the first half of 2020 compared to the first half of 2019 was due to a decrease in cash used in working capital of $148.8 million (which included an increase of $171.9 million in net receipts of accounts receivable, a decrease of $11.1 million in cash paid for inventory, an increase of $57.4 million net cash used in accounts payable, and a decrease of $23.2 million net cash used in other activities) offset by an increase of $2.2 million net cash used for income taxes. Additional changes were due to the year over year decrease in net income of $18.5 million and an increase in other non-cash adjustments to net income of $21.8 million.
Investing Activities
|
|
26-Weeks Ended
|
|
|
26-Weeks Ended
|
|
|
|
June 27, 2020
|
|
|
June 29, 2019
|
|
Net cash provided by (used in) investing activities
|
|
$
|
114,938
|
|
|
$
|
(346,399
|
)
|
The $461.3 million increase in cash provided by investing activities during the first half of 2020 compared to the first half of 2019 was primarily due to an increase in net redemptions of marketable securities of $229.8 million, a decrease in cash payments for acquisitions of $268.1 million, and partially offset by increased net purchases of property and equipment of $36.1 million.
Financing Activities
|
|
26-Weeks Ended
|
|
|
26-Weeks Ended
|
|
|
|
June 27, 2020
|
|
|
June 29, 2019
|
|
Net cash used in financing activities
|
|
$
|
(214,131
|
)
|
|
$
|
(308,877
|
)
|
The $94.7 million decrease in cash used in financing activities during the first half of 2020 compared to the first half of 2019 was primarily due to a decrease in cash dividends of $91.4 million associated with the timing of dividend payments that resulted in three dividend payments in the first half of 2019 compared to two dividend payments in the first half of 2020.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Critical Accounting Policies and Estimates
General
Garmin’s discussion and analysis of its financial condition and results of operations are based upon Garmin’s Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The presentation of these financial statements requires Garmin to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, Garmin evaluates its estimates, including those related to bad debts, inventories, investments, intangible assets, income taxes, warranty obligations, contingencies, customer sales programs and incentives, product returns, relative standalone selling prices, and progress toward completion of performance obligations in certain contracts with customers. Garmin bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
For a description of the significant accounting policies and methods used in the preparation of the Company’s Condensed Consolidated Financial Statements, refer to Note 2, “Summary of Significant Accounting Policies” in the Notes to the Consolidated Financial Statements in Part II, Item 8 and “Critical Accounting Policies and Estimates” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 28, 2019. There were no significant
26
changes to the Company’s critical accounting policies and estimates in the 13-week and 26-week periods ended June 27, 2020.