Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The discussion set forth below, as well as other portions of this Quarterly Report, 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 26, 2020. 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 26, 2020.
Unless otherwise indicated, amounts set forth in the discussion below are in thousands.
Company Overview
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 are organized in the six operating segments of fitness, outdoor, aviation, marine, consumer auto, and auto OEM. The operating segments offer products through our network of subsidiary distributors and independent dealers and distributors, our own webshop, as well as through various auto, aviation, and marine original equipment manufacturers (OEMs). Each of the operating segments is managed separately.
Business Environment Update
The COVID-19 pandemic has created disruption and uncertainty in the global economy and has affected our business, suppliers, and customers. The pandemic has generally had an unfavorable impact on net sales and profitability of our aviation and auto segments, however, the impact has lessened during the first half of 2021. Conversely, we believe net sales and profitability of our fitness, outdoor, and marine segments have benefited from a shift in consumer behavior and demand toward the products these segments offer, which continued through the second quarter of 2021.
Our global supply chain is routinely subject to component shortages, increased lead times, cost fluctuations, and logistics constraints. These factors have been further amplified by the pandemic. While we have not yet experienced material impacts, we expect these supply chain challenges to continue through at least the end of calendar year 2021.
The current business environment may evolve in ways that could impact our operations and financial results. Further, the nature and degree of the effects of the pandemic and supply chain challenges over time remains uncertain. Refer to Part II, Item 1A, “Risk Factors” of this Quarterly Report for further discussion of the risks and uncertainties facing our Company.
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):
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13-Weeks Ended
|
|
|
26-Weeks Ended
|
|
|
|
June 26,
2021
|
|
|
June 27,
2020
|
|
|
June 26,
2021
|
|
|
June 27,
2020
|
|
Net sales
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
Cost of goods sold
|
|
|
41
|
%
|
|
|
41
|
%
|
|
|
41
|
%
|
|
|
41
|
%
|
Gross profit
|
|
|
59
|
%
|
|
|
59
|
%
|
|
|
59
|
%
|
|
|
59
|
%
|
Advertising
|
|
|
3
|
%
|
|
|
3
|
%
|
|
|
3
|
%
|
|
|
3
|
%
|
Selling, general and administrative
|
|
|
12
|
%
|
|
|
15
|
%
|
|
|
13
|
%
|
|
|
16
|
%
|
Research and development
|
|
|
15
|
%
|
|
|
19
|
%
|
|
|
17
|
%
|
|
|
19
|
%
|
Total operating expenses
|
|
|
31
|
%
|
|
|
38
|
%
|
|
|
33
|
%
|
|
|
38
|
%
|
Operating income
|
|
|
28
|
%
|
|
|
22
|
%
|
|
|
26
|
%
|
|
|
21
|
%
|
Other income (expense)
|
|
|
0
|
%
|
|
|
1
|
%
|
|
|
0
|
%
|
|
|
1
|
%
|
Income before income taxes
|
|
|
28
|
%
|
|
|
23
|
%
|
|
|
26
|
%
|
|
|
22
|
%
|
Income tax provision
|
|
|
4
|
%
|
|
|
2
|
%
|
|
|
4
|
%
|
|
|
2
|
%
|
Net income
|
|
|
24
|
%
|
|
|
21
|
%
|
|
|
22
|
%
|
|
|
20
|
%
|
The segment table located in Note 4 to the Condensed Consolidated Financial Statements sets forth the Company’s results of operations including net sales, gross profit, and operating income for each of the Company’s five reported segments during the periods shown, as well as supplemental information for the consumer auto and auto OEM operating segments that management believes is useful. For each line item in the table, the total of the fitness, outdoor, aviation, marine, and auto segments’ amounts equals the amount in the Condensed Consolidated Statements of Income included in Item 1.
Comparison of 13-Weeks ended June 26, 2021 and June 27, 2020
Net Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
13-Weeks Ended June 26, 2021
|
|
|
Year-over-Year Change
|
|
|
13-Weeks Ended June 27, 2020
|
|
Fitness
|
|
$
|
413,201
|
|
|
|
40
|
%
|
|
$
|
294,642
|
|
Percentage of Total Net Sales
|
|
|
31
|
%
|
|
|
|
|
|
34
|
%
|
Outdoor
|
|
|
323,405
|
|
|
|
57
|
%
|
|
|
206,200
|
|
Percentage of Total Net Sales
|
|
|
24
|
%
|
|
|
|
|
|
24
|
%
|
Aviation
|
|
|
180,832
|
|
|
|
43
|
%
|
|
|
126,140
|
|
Percentage of Total Net Sales
|
|
|
14
|
%
|
|
|
|
|
|
14
|
%
|
Marine
|
|
|
261,790
|
|
|
|
66
|
%
|
|
|
157,827
|
|
Percentage of Total Net Sales
|
|
|
20
|
%
|
|
|
|
|
|
18
|
%
|
Auto
|
|
|
147,677
|
|
|
|
74
|
%
|
|
|
85,058
|
|
Percentage of Total Net Sales
|
|
|
11
|
%
|
|
|
|
|
|
10
|
%
|
Consumer Auto
|
|
|
86,278
|
|
|
|
56
|
%
|
|
|
55,270
|
|
Percentage of Total Net Sales
|
|
|
7
|
%
|
|
|
|
|
|
6
|
%
|
Auto OEM
|
|
|
61,399
|
|
|
|
106
|
%
|
|
|
29,788
|
|
Percentage of Total Net Sales
|
|
|
5
|
%
|
|
|
|
|
|
4
|
%
|
Total
|
|
$
|
1,326,905
|
|
|
|
53
|
%
|
|
$
|
869,867
|
|
Net sales increased 53% for the 13-week period ended June 26, 2021 when compared to the year-ago quarter. Net sales of most segments were adversely impacted by the COVID-19 pandemic in the prior year quarter, and therefore a portion of the year-over-year growth is attributable to the relatively low prior year comparable. We believe the fitness, outdoor, and marine segments have since benefited from a shift in consumer behavior and demand, and the generally unfavorable impact that the pandemic has had on the aviation and auto segments has lessened during the current period. Additionally, certain product lines have experienced continued strength in the current period.
The increase in fitness revenue was driven by sales growth in cycling and advanced wearables products. Outdoor revenue increased due to sales growth across all categories, led by strong demand for our adventure watches. The increase in aviation revenue was driven by contributions from both OEM and aftermarket product categories. Marine revenue increased due to growth across multiple product categories, led by strong demand for our chartplotters. The consumer auto revenue increase was driven by growth in specialty categories, while the auto OEM increase was due to sales growth in new OEM programs.
Total unit sales in the second quarter of 2021 increased to 4,303 when compared to total unit sales of 3,093 in the second quarter of 2020, which was a smaller increase than that of revenue primarily due to shifts in segment and product mix. Fitness was the largest portion of our revenue mix at 31% in the second quarter of 2021 compared to 34% in the second quarter of 2020.
16
Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
13-Weeks Ended June 26, 2021
|
|
|
Year-over-Year Change
|
|
|
13-Weeks Ended June 27, 2020
|
|
Fitness
|
|
$
|
225,192
|
|
|
|
44
|
%
|
|
$
|
156,817
|
|
Percentage of Segment Net Sales
|
|
|
54
|
%
|
|
|
|
|
|
53
|
%
|
Outdoor
|
|
|
208,158
|
|
|
|
56
|
%
|
|
|
133,189
|
|
Percentage of Segment Net Sales
|
|
|
64
|
%
|
|
|
|
|
|
65
|
%
|
Aviation
|
|
|
131,934
|
|
|
|
43
|
%
|
|
|
92,036
|
|
Percentage of Segment Net Sales
|
|
|
73
|
%
|
|
|
|
|
|
73
|
%
|
Marine
|
|
|
152,609
|
|
|
|
63
|
%
|
|
|
93,470
|
|
Percentage of Segment Net Sales
|
|
|
58
|
%
|
|
|
|
|
|
59
|
%
|
Auto
|
|
|
62,958
|
|
|
|
58
|
%
|
|
|
39,918
|
|
Percentage of Segment Net Sales
|
|
|
43
|
%
|
|
|
|
|
|
47
|
%
|
Consumer Auto
|
|
|
42,261
|
|
|
|
57
|
%
|
|
|
26,917
|
|
Percentage of Segment Net Sales
|
|
|
49
|
%
|
|
|
|
|
|
49
|
%
|
Auto OEM
|
|
|
20,697
|
|
|
|
59
|
%
|
|
|
13,001
|
|
Percentage of Segment Net Sales
|
|
|
34
|
%
|
|
|
|
|
|
44
|
%
|
Total
|
|
$
|
780,851
|
|
|
|
51
|
%
|
|
$
|
515,430
|
|
Percentage of Total Net Sales
|
|
|
59
|
%
|
|
|
|
|
|
59
|
%
|
Gross profit dollars in the second quarter of 2021 increased 51%, primarily due to the increase in net sales compared to the year-ago quarter, as described above. Consolidated gross margin was relatively flat when compared to the year-ago quarter.
The fitness, outdoor, marine, and consumer auto gross margins were adversely impacted by higher freight costs, which were partially offset in the fitness and outdoor segments by lower costs of goods, and fitness further benefited from a favorable product mix. The auto OEM gross margin decrease was primarily attributable to product mix associated with growth in new auto OEM programs, which have lower gross margin. The auto OEM gross margin is generally expected to be lower than the prior year and current quarter through 2021 and beyond, as new auto OEM programs continue to increase as a percentage of product mix.
Advertising Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising
|
|
13-Weeks Ended June 26, 2021
|
|
|
Year-over-Year Change
|
|
|
13-Weeks Ended June 27, 2020
|
|
Fitness
|
|
$
|
19,394
|
|
|
|
47
|
%
|
|
$
|
13,219
|
|
Percentage of Segment Net Sales
|
|
|
5
|
%
|
|
|
|
|
|
4
|
%
|
Outdoor
|
|
|
12,426
|
|
|
|
46
|
%
|
|
|
8,491
|
|
Percentage of Segment Net Sales
|
|
|
4
|
%
|
|
|
|
|
|
4
|
%
|
Aviation
|
|
|
1,264
|
|
|
|
158
|
%
|
|
|
490
|
|
Percentage of Segment Net Sales
|
|
|
1
|
%
|
|
|
|
|
|
0
|
%
|
Marine
|
|
|
6,425
|
|
|
|
17
|
%
|
|
|
5,470
|
|
Percentage of Segment Net Sales
|
|
|
2
|
%
|
|
|
|
|
|
3
|
%
|
Auto
|
|
|
3,430
|
|
|
|
112
|
%
|
|
|
1,615
|
|
Percentage of Segment Net Sales
|
|
|
2
|
%
|
|
|
|
|
|
2
|
%
|
Consumer Auto
|
|
|
3,428
|
|
|
|
113
|
%
|
|
|
1,612
|
|
Percentage of Segment Net Sales
|
|
|
4
|
%
|
|
|
|
|
|
3
|
%
|
Auto OEM
|
|
|
2
|
|
|
|
(33
|
%)
|
|
|
3
|
|
Percentage of Segment Net Sales
|
|
|
0
|
%
|
|
|
|
|
|
0
|
%
|
Total
|
|
$
|
42,939
|
|
|
|
47
|
%
|
|
$
|
29,285
|
|
Percentage of Total Net Sales
|
|
|
3
|
%
|
|
|
|
|
|
3
|
%
|
Advertising expense as a percent of revenue was relatively flat when compared to the year-ago quarter and increased 47% in absolute dollars. The total absolute dollar increase was primarily attributable to increased media and cooperative spend in the fitness and outdoor segments.
Selling, General and Administrative Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, General & Admin. Expenses
|
|
13-Weeks Ended June 26, 2021
|
|
|
Year-over-Year Change
|
|
|
13-Weeks Ended June 27, 2020
|
|
Fitness
|
|
$
|
55,060
|
|
|
|
29
|
%
|
|
$
|
42,648
|
|
Percentage of Segment Net Sales
|
|
|
13
|
%
|
|
|
|
|
|
14
|
%
|
Outdoor
|
|
|
42,394
|
|
|
|
32
|
%
|
|
|
32,002
|
|
Percentage of Segment Net Sales
|
|
|
13
|
%
|
|
|
|
|
|
16
|
%
|
Aviation
|
|
|
19,520
|
|
|
|
3
|
%
|
|
|
18,871
|
|
Percentage of Segment Net Sales
|
|
|
11
|
%
|
|
|
|
|
|
15
|
%
|
Marine
|
|
|
28,679
|
|
|
|
27
|
%
|
|
|
22,652
|
|
Percentage of Segment Net Sales
|
|
|
11
|
%
|
|
|
|
|
|
14
|
%
|
Auto
|
|
|
20,106
|
|
|
|
27
|
%
|
|
|
15,843
|
|
Percentage of Segment Net Sales
|
|
|
14
|
%
|
|
|
|
|
|
19
|
%
|
Consumer Auto
|
|
|
10,029
|
|
|
|
2
|
%
|
|
|
9,804
|
|
Percentage of Segment Net Sales
|
|
|
12
|
%
|
|
|
|
|
|
18
|
%
|
Auto OEM
|
|
|
10,077
|
|
|
|
67
|
%
|
|
|
6,039
|
|
Percentage of Segment Net Sales
|
|
|
16
|
%
|
|
|
|
|
|
20
|
%
|
Total
|
|
$
|
165,759
|
|
|
|
26
|
%
|
|
$
|
132,016
|
|
Percentage of Total Net Sales
|
|
|
12
|
%
|
|
|
|
|
|
15
|
%
|
17
Selling, general and administrative expense increased 26% in absolute dollars and was 270 basis points lower as a percent of revenue compared to the year-ago quarter. The absolute dollar increase in the second quarter of 2021 was primarily attributable to increased personnel related expenses and information technology costs, and the decrease as a percent of revenue was primarily due to greater leverage of operating costs.
Research and Development Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Research & Development
|
|
13-Weeks Ended June 26, 2021
|
|
|
Year-over-Year Change
|
|
|
13-Weeks Ended June 27, 2020
|
|
Fitness
|
|
$
|
33,772
|
|
|
|
17
|
%
|
|
$
|
28,969
|
|
Percentage of Segment Net Sales
|
|
|
8
|
%
|
|
|
|
|
|
10
|
%
|
Outdoor
|
|
|
31,282
|
|
|
|
24
|
%
|
|
|
25,282
|
|
Percentage of Segment Net Sales
|
|
|
10
|
%
|
|
|
|
|
|
12
|
%
|
Aviation
|
|
|
60,340
|
|
|
|
6
|
%
|
|
|
57,109
|
|
Percentage of Segment Net Sales
|
|
|
33
|
%
|
|
|
|
|
|
45
|
%
|
Marine
|
|
|
27,753
|
|
|
|
27
|
%
|
|
|
21,795
|
|
Percentage of Segment Net Sales
|
|
|
11
|
%
|
|
|
|
|
|
14
|
%
|
Auto
|
|
|
47,834
|
|
|
|
47
|
%
|
|
|
32,585
|
|
Percentage of Segment Net Sales
|
|
|
32
|
%
|
|
|
|
|
|
38
|
%
|
Consumer Auto
|
|
|
13,120
|
|
|
|
16
|
%
|
|
|
11,264
|
|
Percentage of Segment Net Sales
|
|
|
15
|
%
|
|
|
|
|
|
20
|
%
|
Auto OEM
|
|
|
34,714
|
|
|
|
63
|
%
|
|
|
21,321
|
|
Percentage of Segment Net Sales
|
|
|
57
|
%
|
|
|
|
|
|
72
|
%
|
Total
|
|
$
|
200,981
|
|
|
|
21
|
%
|
|
$
|
165,740
|
|
Percentage of Total Net Sales
|
|
|
15
|
%
|
|
|
|
|
|
19
|
%
|
Research and development expense as a percent of revenue decreased 390 basis points when compared to the year-ago quarter and increased 21% in absolute dollars. The decrease as a percent of revenue was primarily due to the increase in sales, as described above, and greater leverage of expenses. The absolute dollar increase was primarily due to higher engineering personnel costs across all of our operating segments. The auto OEM increase in absolute dollars and as a percent of revenue was primarily attributable to higher engineering personnel costs related to investments in auto OEM programs and a lower proportion of such costs being contractually reimbursable. This trend of increased auto OEM research and development expense compared to the prior year is expected to continue through 2021 as we expect higher total costs and the majority of costs will not be contractually reimbursable.
Operating Income
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss)
|
|
13-Weeks Ended June 26, 2021
|
|
|
Year-over-Year Change
|
|
|
13-Weeks Ended June 27, 2020
|
|
Fitness
|
|
$
|
116,966
|
|
|
|
62
|
%
|
|
$
|
71,981
|
|
Percentage of Segment Net Sales
|
|
|
28
|
%
|
|
|
|
|
|
24
|
%
|
Outdoor
|
|
|
122,056
|
|
|
|
81
|
%
|
|
|
67,414
|
|
Percentage of Segment Net Sales
|
|
|
38
|
%
|
|
|
|
|
|
33
|
%
|
Aviation
|
|
|
50,810
|
|
|
|
226
|
%
|
|
|
15,566
|
|
Percentage of Segment Net Sales
|
|
|
28
|
%
|
|
|
|
|
|
12
|
%
|
Marine
|
|
|
89,752
|
|
|
|
106
|
%
|
|
|
43,553
|
|
Percentage of Segment Net Sales
|
|
|
34
|
%
|
|
|
|
|
|
28
|
%
|
Auto
|
|
|
(8,412
|
)
|
|
|
(17
|
%)
|
|
|
(10,125
|
)
|
Percentage of Segment Net Sales
|
|
|
(6
|
%)
|
|
|
|
|
|
-12
|
%
|
Consumer Auto
|
|
|
15,684
|
|
|
|
270
|
%
|
|
|
4,237
|
|
Percentage of Segment Net Sales
|
|
|
18
|
%
|
|
|
|
|
|
8
|
%
|
Auto OEM
|
|
|
(24,096
|
)
|
|
|
68
|
%
|
|
|
(14,362
|
)
|
Percentage of Segment Net Sales
|
|
|
(39
|
%)
|
|
|
|
|
|
(48
|
%)
|
Total
|
|
$
|
371,172
|
|
|
|
97
|
%
|
|
$
|
188,389
|
|
Percentage of Total Net Sales
|
|
|
28
|
%
|
|
|
|
|
|
22
|
%
|
Operating income increased 97% in absolute dollars and increased 630 basis points as a percent of revenue when compared to the year-ago quarter. This increase was due to revenue growth and lower operating expenses as a percent of revenue, as described above. Auto OEM experienced an operating loss in the current quarter, and we expect this trend to continue through 2021, primarily due to a lower gross margin and increased expense associated with certain programs, as described above.
Other Income (Expense)
|
|
|
|
|
|
|
|
|
Other Income (Expense)
|
|
13-Weeks Ended June 26, 2021
|
|
|
13-Weeks Ended June 27, 2020
|
|
Interest income
|
|
$
|
7,018
|
|
|
$
|
10,455
|
|
Foreign currency gains (losses)
|
|
|
(7,326
|
)
|
|
|
(4,493
|
)
|
Other income
|
|
|
1,195
|
|
|
|
3,241
|
|
Total
|
|
$
|
887
|
|
|
$
|
9,203
|
|
18
The average return on cash and investments, including interest and capital gains/loss returns during the second quarter of 2021 was 0.9% compared to 1.6% during the same quarter of 2020. 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 $7.3 million currency loss recognized in the second quarter of 2021 was primarily due to the U.S. Dollar weakening against the Taiwan Dollar, partially offset by the U.S. Dollar weakening against the Euro and the British Pound Sterling, within the 13-week period ended June 26, 2021. During this period, the U.S. Dollar weakened 2.5% against the Taiwan Dollar, resulting in a loss of $9.5 million, while the U.S. Dollar weakened 1.2% against the Euro and 0.7% against the British Pound Sterling, resulting in gains of $1.2 million and $0.4 million, respectively. The remaining net currency gain of $0.6 million was related to the timing of transactions and impacts of other currencies, each of which was individually immaterial.
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.
Income Tax Provision
The Company recorded income tax expense of $55.1 million in the 13-week period ended June 26, 2021, compared to income tax expense of $13.4 million in the 13-week period ended June 27, 2020. The effective tax rate was 14.8% in the second quarter of 2021, compared to 6.8% in the second quarter of 2020. The increase was primarily due to a decrease in uncertain tax position reserves released in the 13-week period ended June 26, 2021 compared to the year-ago quarter.
Net Income
As a result of the above, net income for the 13-week period ended June 26, 2021 was $317.0 million compared to $184.2 million for the 13-week period ended June 27, 2020, an increase of $132.8 million.
Comparison of 26-Weeks ended June 26, 2021 and June 27, 2020
Net Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
26-Weeks Ended June 26, 2021
|
|
|
Year-over-Year Change
|
|
|
26-Weeks Ended June 27, 2020
|
|
Fitness
|
|
$
|
721,326
|
|
|
|
39
|
%
|
|
$
|
518,242
|
|
Percentage of Total Net Sales
|
|
|
30
|
%
|
|
|
|
|
|
30
|
%
|
Outdoor
|
|
|
579,859
|
|
|
|
52
|
%
|
|
|
381,302
|
|
Percentage of Total Net Sales
|
|
|
24
|
%
|
|
|
|
|
|
22
|
%
|
Aviation
|
|
|
354,721
|
|
|
|
13
|
%
|
|
|
314,739
|
|
Percentage of Total Net Sales
|
|
|
15
|
%
|
|
|
|
|
|
18
|
%
|
Marine
|
|
|
471,163
|
|
|
|
47
|
%
|
|
|
320,832
|
|
Percentage of Total Net Sales
|
|
|
20
|
%
|
|
|
|
|
|
19
|
%
|
Auto
|
|
|
272,163
|
|
|
|
43
|
%
|
|
|
190,860
|
|
Percentage of Total Net Sales
|
|
|
11
|
%
|
|
|
|
|
|
11
|
%
|
Consumer Auto
|
|
|
148,673
|
|
|
|
30
|
%
|
|
|
114,283
|
|
Percentage of Total Net Sales
|
|
|
6
|
%
|
|
|
|
|
|
7
|
%
|
Auto OEM
|
|
|
123,490
|
|
|
|
61
|
%
|
|
|
76,577
|
|
Percentage of Total Net Sales
|
|
|
5
|
%
|
|
|
|
|
|
4
|
%
|
Total
|
|
$
|
2,399,232
|
|
|
|
39
|
%
|
|
$
|
1,725,975
|
|
19
Net sales increased 39% for the 26-week period ended June 26, 2021 when compared to the year-ago period. Net sales of most segments were adversely impacted by the COVID-19 pandemic for part of the prior year period, and therefore a portion of the year-over-year growth is attributable to the relatively low prior year comparable. We believe the fitness, outdoor, and marine segments have since benefited from a shift in consumer behavior and demand, and the generally unfavorable impact that the pandemic has had on the aviation and auto segments has lessened during the current period. Additionally, certain product lines have experienced continued strength in the current period.
The increase in fitness revenue was driven by sales growth in cycling and advanced wearables products. Outdoor revenue increased due to sales growth across all categories, led by strong demand for our adventure watches. The increase in aviation revenue was driven by sales growth in the OEM product category. Marine revenue increased due to growth across multiple product categories, led by strong demand for our chartplotters. The consumer auto revenue increase was driven by growth in specialty categories, while the auto OEM increase was due to sales growth in new OEM programs.
Total unit sales in the first half of 2021 increased to 7,763 when compared to total unit sales of 6,024 in the first half of 2020, which was a smaller increase than that of revenue primarily due to shifts in segment and product mix. Fitness was the largest portion of our revenue mix at 30% in the first half of 2021 compared to 30% in the first half of 2020.
Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
26-Weeks Ended June 26, 2021
|
|
|
Year-over-Year Change
|
|
|
26-Weeks Ended June 27, 2020
|
|
Fitness
|
|
$
|
398,737
|
|
|
|
48
|
%
|
|
$
|
269,142
|
|
Percentage of Segment Net Sales
|
|
|
55
|
%
|
|
|
|
|
|
52
|
%
|
Outdoor
|
|
|
379,833
|
|
|
|
55
|
%
|
|
|
245,447
|
|
Percentage of Segment Net Sales
|
|
|
66
|
%
|
|
|
|
|
|
64
|
%
|
Aviation
|
|
|
258,116
|
|
|
|
12
|
%
|
|
|
230,844
|
|
Percentage of Segment Net Sales
|
|
|
73
|
%
|
|
|
|
|
|
73
|
%
|
Marine
|
|
|
273,989
|
|
|
|
46
|
%
|
|
|
187,680
|
|
Percentage of Segment Net Sales
|
|
|
58
|
%
|
|
|
|
|
|
58
|
%
|
Auto
|
|
|
111,732
|
|
|
|
25
|
%
|
|
|
89,257
|
|
Percentage of Segment Net Sales
|
|
|
41
|
%
|
|
|
|
|
|
47
|
%
|
Consumer Auto
|
|
|
74,225
|
|
|
|
35
|
%
|
|
|
55,029
|
|
Percentage of Segment Net Sales
|
|
|
50
|
%
|
|
|
|
|
|
48
|
%
|
Auto OEM
|
|
|
37,507
|
|
|
|
10
|
%
|
|
|
34,228
|
|
Percentage of Segment Net Sales
|
|
|
30
|
%
|
|
|
|
|
|
45
|
%
|
Total
|
|
$
|
1,422,407
|
|
|
|
39
|
%
|
|
$
|
1,022,370
|
|
Percentage of Total Net Sales
|
|
|
59
|
%
|
|
|
|
|
|
59
|
%
|
Gross profit dollars in the first half of 2021 increased 39%, primarily due to the increase in net sales compared to the year-ago period, as described above. Consolidated gross margin was relatively flat when compared to the year-ago quarter.
The fitness, outdoor, and consumer auto gross margin increases of 330, 110, and 170 basis points, respectively, were primarily attributable to product mix, partially offset by higher freight costs. The auto OEM gross margin decrease of 1,430 basis points was primarily attributable to product mix associated with growth in new auto OEM programs. This auto OEM product mix and associated lower gross margin trend is generally expected to continue through 2021 and beyond.
Advertising Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising
|
|
26-Weeks Ended June 26, 2021
|
|
|
Year-over-Year Change
|
|
|
26-Weeks Ended June 27, 2020
|
|
Fitness
|
|
$
|
32,698
|
|
|
|
40
|
%
|
|
$
|
23,358
|
|
Percentage of Segment Net Sales
|
|
|
5
|
%
|
|
|
|
|
|
5
|
%
|
Outdoor
|
|
|
21,141
|
|
|
|
37
|
%
|
|
|
15,398
|
|
Percentage of Segment Net Sales
|
|
|
4
|
%
|
|
|
|
|
|
4
|
%
|
Aviation
|
|
|
2,084
|
|
|
|
16
|
%
|
|
|
1,802
|
|
Percentage of Segment Net Sales
|
|
|
1
|
%
|
|
|
|
|
|
1
|
%
|
Marine
|
|
|
12,760
|
|
|
|
10
|
%
|
|
|
11,612
|
|
Percentage of Segment Net Sales
|
|
|
3
|
%
|
|
|
|
|
|
4
|
%
|
Auto
|
|
|
5,317
|
|
|
|
33
|
%
|
|
|
3,995
|
|
Percentage of Segment Net Sales
|
|
|
2
|
%
|
|
|
|
|
|
2
|
%
|
Consumer Auto
|
|
|
5,306
|
|
|
|
39
|
%
|
|
|
3,810
|
|
Percentage of Segment Net Sales
|
|
|
4
|
%
|
|
|
|
|
|
3
|
%
|
Auto OEM
|
|
|
11
|
|
|
|
(94
|
%)
|
|
|
185
|
|
Percentage of Segment Net Sales
|
|
|
0
|
%
|
|
|
|
|
|
0
|
%
|
Total
|
|
$
|
74,000
|
|
|
|
32
|
%
|
|
$
|
56,165
|
|
Percentage of Total Net Sales
|
|
|
3
|
%
|
|
|
|
|
|
3
|
%
|
Advertising expense as a percent of revenue was relatively flat when compared to the year-ago period and increased 32% in absolute dollars. The total absolute dollar increase was primarily attributable to increased media and cooperative spend in the fitness and outdoor segments.
20
Selling, General and Administrative Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, General & Admin. Expenses
|
|
26-Weeks Ended June 26, 2021
|
|
|
Year-over-Year Change
|
|
|
26-Weeks Ended June 27, 2020
|
|
Fitness
|
|
$
|
107,163
|
|
|
|
26
|
%
|
|
$
|
85,301
|
|
Percentage of Segment Net Sales
|
|
|
15
|
%
|
|
|
|
|
|
16
|
%
|
Outdoor
|
|
|
82,666
|
|
|
|
27
|
%
|
|
|
65,072
|
|
Percentage of Segment Net Sales
|
|
|
14
|
%
|
|
|
|
|
|
17
|
%
|
Aviation
|
|
|
38,277
|
|
|
|
2
|
%
|
|
|
37,647
|
|
Percentage of Segment Net Sales
|
|
|
11
|
%
|
|
|
|
|
|
12
|
%
|
Marine
|
|
|
56,003
|
|
|
|
17
|
%
|
|
|
48,033
|
|
Percentage of Segment Net Sales
|
|
|
12
|
%
|
|
|
|
|
|
15
|
%
|
Auto
|
|
|
39,272
|
|
|
|
18
|
%
|
|
|
33,149
|
|
Percentage of Segment Net Sales
|
|
|
14
|
%
|
|
|
|
|
|
17
|
%
|
Consumer Auto
|
|
|
18,959
|
|
|
|
(10
|
%)
|
|
|
21,000
|
|
Percentage of Segment Net Sales
|
|
|
13
|
%
|
|
|
|
|
|
18
|
%
|
Auto OEM
|
|
|
20,313
|
|
|
|
67
|
%
|
|
|
12,149
|
|
Percentage of Segment Net Sales
|
|
|
16
|
%
|
|
|
|
|
|
16
|
%
|
Total
|
|
$
|
323,381
|
|
|
|
20
|
%
|
|
$
|
269,202
|
|
Percentage of Total Net Sales
|
|
|
13
|
%
|
|
|
|
|
|
16
|
%
|
Selling, general and administrative expense increased 20% in absolute dollars and was 210 basis points lower as a percent of revenue compared to the year-ago period. The absolute dollar increase in the first half of 2021 was primarily attributable to increased personnel related expenses and information technology costs.
Research and Development Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Research & Development
|
|
26-Weeks Ended June 26, 2021
|
|
|
Year-over-Year Change
|
|
|
26-Weeks Ended June 27, 2020
|
|
Fitness
|
|
$
|
68,174
|
|
|
|
19
|
%
|
|
$
|
57,491
|
|
Percentage of Segment Net Sales
|
|
|
9
|
%
|
|
|
|
|
|
11
|
%
|
Outdoor
|
|
|
60,941
|
|
|
|
21
|
%
|
|
|
50,396
|
|
Percentage of Segment Net Sales
|
|
|
11
|
%
|
|
|
|
|
|
13
|
%
|
Aviation
|
|
|
122,076
|
|
|
|
5
|
%
|
|
|
116,508
|
|
Percentage of Segment Net Sales
|
|
|
34
|
%
|
|
|
|
|
|
37
|
%
|
Marine
|
|
|
53,911
|
|
|
|
22
|
%
|
|
|
44,323
|
|
Percentage of Segment Net Sales
|
|
|
11
|
%
|
|
|
|
|
|
14
|
%
|
Auto
|
|
|
99,093
|
|
|
|
59
|
%
|
|
|
62,413
|
|
Percentage of Segment Net Sales
|
|
|
36
|
%
|
|
|
|
|
|
33
|
%
|
Consumer Auto
|
|
|
25,876
|
|
|
|
14
|
%
|
|
|
22,769
|
|
Percentage of Segment Net Sales
|
|
|
17
|
%
|
|
|
|
|
|
20
|
%
|
Auto OEM
|
|
|
73,217
|
|
|
|
85
|
%
|
|
|
39,644
|
|
Percentage of Segment Net Sales
|
|
|
59
|
%
|
|
|
|
|
|
52
|
%
|
Total
|
|
$
|
404,195
|
|
|
|
22
|
%
|
|
$
|
331,131
|
|
Percentage of Total Net Sales
|
|
|
17
|
%
|
|
|
|
|
|
19
|
%
|
Research and development expense as a percent of revenue decreased 230 basis points when compared to the year-ago quarter and increased 22% in absolute dollars. The decrease as a percent of revenue was primarily due to the increase in sales, as described above, and greater leverage of expenses. The absolute dollar increase was primarily due to higher engineering personnel costs across all of our operating segments. The auto OEM increase in absolute dollars and as a percent of revenue was primarily attributable to higher engineering personnel costs related to investments in auto OEM programs and a lower proportion of such costs being contractually reimbursable. This trend of increased auto OEM research and development expense compared to the prior year is expected to continue through 2021 as we expect higher total costs and the majority of costs will not be contractually reimbursable.
Operating Income
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income
|
|
26-Weeks Ended June 26, 2021
|
|
|
Year-over-Year Change
|
|
|
26-Weeks Ended June 27, 2020
|
|
Fitness
|
|
$
|
190,702
|
|
|
|
85
|
%
|
|
$
|
102,992
|
|
Percentage of Segment Net Sales
|
|
|
26
|
%
|
|
|
|
|
|
20
|
%
|
Outdoor
|
|
|
215,085
|
|
|
|
88
|
%
|
|
|
114,581
|
|
Percentage of Segment Net Sales
|
|
|
37
|
%
|
|
|
|
|
|
30
|
%
|
Aviation
|
|
|
95,679
|
|
|
|
28
|
%
|
|
|
74,887
|
|
Percentage of Segment Net Sales
|
|
|
27
|
%
|
|
|
|
|
|
24
|
%
|
Marine
|
|
|
151,315
|
|
|
|
81
|
%
|
|
|
83,712
|
|
Percentage of Segment Net Sales
|
|
|
32
|
%
|
|
|
|
|
|
26
|
%
|
Auto
|
|
|
(31,950
|
)
|
|
|
210
|
%
|
|
|
(10,300
|
)
|
Percentage of Segment Net Sales
|
|
|
(12
|
%)
|
|
|
|
|
|
(5
|
%)
|
Consumer Auto
|
|
|
24,084
|
|
|
|
223
|
%
|
|
|
7,450
|
|
Percentage of Segment Net Sales
|
|
|
16
|
%
|
|
|
|
|
|
7
|
%
|
Auto OEM
|
|
|
(56,034
|
)
|
|
|
216
|
%
|
|
|
(17,750
|
)
|
Percentage of Segment Net Sales
|
|
|
(45
|
%)
|
|
|
|
|
|
(23
|
%)
|
Total
|
|
$
|
620,831
|
|
|
|
70
|
%
|
|
$
|
365,872
|
|
Percentage of Total Net Sales
|
|
|
26
|
%
|
|
|
|
|
|
21
|
%
|
21
Operating income increased 70% in absolute dollars and increased 470 basis points as a percent of revenue when compared to the year-ago period. This increase was due to revenue growth and lower operating expenses as a percent of revenue, as described above. Auto OEM experienced an operating loss in the current quarter, and we expect this trend to continue through 2021, primarily due to a lower gross margin and increased expense associated with certain programs, as described above.
Other Income (Expense)
|
|
|
|
|
|
|
|
|
Other Income (Expense)
|
|
26-Weeks Ended June 26, 2021
|
|
|
26-Weeks Ended June 27, 2020
|
|
Interest income
|
|
$
|
14,670
|
|
|
$
|
22,481
|
|
Foreign currency losses
|
|
|
(15,607
|
)
|
|
|
(19,916
|
)
|
Other Income
|
|
|
2,679
|
|
|
|
6,789
|
|
Total
|
|
$
|
1,742
|
|
|
$
|
9,354
|
|
The average return on cash and investments, including interest and capital gain/loss returns during the 26-week periods ended June 26, 2021 and June 27, 2020 was 1.0% and 1.7%, respectively. 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 $15.6 million currency loss recognized in the 26-week period ended June 26, 2021 was primarily due to the U.S. Dollar weakening against the Taiwan Dollar and strengthening against the Euro, partially offset by the U.S. Dollar weakening against the British Pound Sterling, within the 26-week period ended June 26, 2021. During this period, the U.S. Dollar weakened 0.8% against the Taiwan Dollar and strengthened 2.2% against the Euro, resulting in losses of $4.8 million and $9.8 million, respectively, while the U.S. Dollar weakened 2.4% against the British Pound Sterling resulting in a gain of $1.8 million. The remaining net currency loss of $2.8 million was related to the timing of transactions and impacts of other currencies, each of which was individually immaterial.
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.
Income Tax Provision
The Company recorded income tax expense of $85.5 million in the first half of 2021 compared to income tax expense of $29.9 million in the first half of 2020. The effective tax rate was 13.7% in the first half of 2021, compared to 8.0% in the first half of 2020. The increase was primarily due to a decrease in uncertain tax position reserves released in the first half of 2021 compared to the first half of 2020.
Net Income
As a result of the above, net income for the 26-week period ended June 26, 2021 was $537.0 million compared to $345.4 million for the 26-week period ended June 27, 2020, an increase of $191.6 million.
22
Liquidity and Capital Resources
As of June 26, 2021, we had approximately $3.2 billion of cash, 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 2021 and 2020 were approximately 1.0% and 1.7%, 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.
Operating Activities
|
|
|
|
|
|
|
|
|
|
|
26-Weeks Ended
|
|
|
26-Weeks Ended
|
|
|
|
June 26, 2021
|
|
|
June 27, 2020
|
|
Net cash provided by operating activities
|
|
$
|
598,042
|
|
|
$
|
425,111
|
|
The $172.9 million increase in cash provided by operating activities during the first half of 2021 compared to the first half of 2020 was due to an increase in net income of $191.7 million and an increase in other non-cash adjustments to net income of $33.7 million. These increases were partially offset by an increase in cash used in working capital of $52.5 million (which included an increase of $120.1 million in cash paid for inventory and a decrease of $74.2 million in net receipts of accounts receivable, partially offset by a decrease of $95.6 million net cash used in accounts payable, a decrease of $33.7 million in net cash used for income taxes, and a decrease of $12.5 million in net cash used in other activities).
Investing Activities
|
|
|
|
|
|
|
|
|
|
|
26-Weeks Ended
|
|
|
26-Weeks Ended
|
|
|
|
June 26, 2021
|
|
|
June 27, 2020
|
|
Net cash (used in) provided by investing activities
|
|
$
|
(198,020
|
)
|
|
$
|
114,938
|
|
The $313.0 million decrease in cash used in investing activities during the first half of 2021 compared to the first half of 2020 was primarily due to an increase in net purchases of marketable securities of $255.0 million, an increase in net purchases of property and equipment of $50.2 million, and an increase in cash payments for acquisitions of $8.0 million.
Financing Activities
|
|
|
|
|
|
|
|
|
|
|
26-Weeks Ended
|
|
|
26-Weeks Ended
|
|
|
|
June 26, 2021
|
|
|
June 27, 2020
|
|
Net cash used in financing activities
|
|
$
|
(215,731
|
)
|
|
$
|
(214,131
|
)
|
The $1.6 million increase in cash used in financing activities during the first half of 2021 compared to the first half of 2020 was due to an increase in dividend payments of $16.4 million and an increase in purchases of treasury stock related to equity awards of $5.7 million, partially offset by an increase in proceeds from the issuance of treasury stock of $20.5 million.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
23
Critical Accounting Policies and Estimates
General
Garmin’s discussion and analysis of its financial condition and results of operations are based upon Garmin’s Condensed 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 26, 2020. There were no significant changes to the Company’s critical accounting policies and estimates in the 13-week and 26-week periods ended June 26, 2021.