United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 25, 2022
or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 001-41118
GARMIN LTD.
(Exact name of Company as specified in its charter)
Switzerland
98-0229227
(State or other jurisdiction
(I.R.S. Employer
of incorporation or organization)
identification no.)
Mühlentalstrasse 2
8200 Schaffhausen
N/A
(Address of principal executive offices)
(Zip Code)
Company’s telephone number, including area code: +41 52 630 1600
Securities registered pursuant to Section 12(b) of the Act:
Registered Shares, CHF 0.10 Per Share Par Value
GRMN
New York Stock Exchange
(Title of each class)
(Trading Symbol)
(Name of each exchange on which registered)
Indicate by check mark whether the Company (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Company was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☑ NO ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
☑
Accelerated Filer
Non-accelerated Filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. YES ☐ NO ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES ☐ NO ☑
Number of shares outstanding of the registrant’s common shares as of July 22, 2022
Registered Shares, CHF 0.10 par value: 192,855,133 (excluding treasury shares)
Garmin Ltd.
Form 10-Q
Quarter Ended June 25, 2022
Table of Contents
Page
Part I - Financial Information
1
Item 1.
Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets at June 25, 2022 and December 25, 2021 (Unaudited)
Condensed Consolidated Statements of Income for the 13-Weeks and 26-Weeks ended June 25, 2022 and June 26, 2021 (Unaudited)
2
Condensed Consolidated Statements of Comprehensive Income for the 13-Weeks and 26-Weeks ended June 25, 2022 and June 26, 2021 (Unaudited)
3
Condensed Consolidated Statements of Stockholders’ Equity for the 13-Weeks and 26-Weeks ended June 25, 2022 and June 26, 2021 (Unaudited)
4
Condensed Consolidated Statements of Cash Flows for the 26-Weeks ended June 25, 2022 and June 26, 2021 (Unaudited)
6
Notes to Condensed Consolidated Financial Statements (Unaudited)
7
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
15
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
23
Item 4.
Controls and Procedures
Part II - Other Information
24
Legal Proceedings
Item 1A.
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
Defaults Upon Senior Securities
Mine Safety Disclosures
Item 5.
Other Information
Item 6.
Exhibits
25
Signature Page
26
i
Item I - Condensed Consolidated Financial Statements
Garmin Ltd. and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
(In thousands, except per share information)
June 25,2022
December 25,2021
Assets
Current assets:
Cash and cash equivalents
$
1,087,381
1,498,058
Marketable securities
526,639
347,980
Accounts receivable, net
698,859
843,445
Inventories
1,454,868
1,227,609
Deferred costs
14,541
15,961
Prepaid expenses and other current assets
340,329
328,719
Total current assets
4,122,617
4,261,772
Property and equipment, net
1,113,562
1,067,478
Operating lease right-of-use assets
128,615
89,457
Noncurrent marketable securities
1,247,490
1,268,698
Deferred income tax assets
347,998
260,205
Noncurrent deferred costs
10,818
12,361
Goodwill
561,395
575,080
Other intangible assets, net
194,070
215,993
Other noncurrent assets
87,131
103,383
Total assets
7,813,696
7,854,427
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
319,732
370,048
Salaries and benefits payable
178,670
211,371
Accrued warranty costs
39,949
45,467
Accrued sales program costs
89,981
121,514
Other accrued expenses
216,862
225,988
Deferred revenue
86,553
87,654
Income taxes payable
127,685
128,083
Dividend payable
564,454
258,023
Total current liabilities
1,623,886
1,448,148
Deferred income tax liabilities
118,062
117,595
Noncurrent income taxes payable
60,233
62,539
Noncurrent deferred revenue
38,297
41,618
Noncurrent operating lease liabilities
106,952
70,044
Other noncurrent liabilities
333
324
Stockholders’ equity:
Shares, CHF 0.10 par value, 198,077 shares authorized and issued; 193,058 shares outstanding at June 25, 2022 and 192,608 shares outstanding at December 25, 2021
17,979
Additional paid-in capital
2,008,931
1,960,722
Treasury stock (5,019 and 5,469 shares, respectively)
(315,886
)
(303,114
Retained earnings
4,225,521
4,320,737
Accumulated other comprehensive (loss) income
(70,612
117,835
Total stockholders’ equity
5,865,933
6,114,159
Total liabilities and stockholders’ equity
See accompanying notes.
Condensed Consolidated Statements of Income (Unaudited)
13-Weeks Ended
26-Weeks Ended
June 26,2021
Net sales
1,240,833
1,326,905
2,413,496
2,399,232
Cost of goods sold
512,007
546,054
1,022,190
976,825
Gross profit
728,826
780,851
1,391,306
1,422,407
Advertising expense
43,357
42,939
77,490
74,000
Selling, general and administrative expenses
191,211
180,717
381,995
352,705
Research and development expense
201,518
186,023
410,524
374,871
Total operating expense
436,086
409,679
870,009
801,576
Operating income
292,740
371,172
521,297
620,831
Other income (expense):
Interest income
8,495
7,018
16,048
14,670
Foreign currency losses
(22,439
(7,326
(25,946
(15,607
Other income
170
1,195
3,431
2,679
Total other income (expense)
(13,774
887
(6,467
1,742
Income before income taxes
278,966
372,059
514,830
622,573
Income tax provision
21,093
55,062
45,366
85,548
Net income
257,873
316,997
469,464
537,025
Net income per share:
Basic
1.34
1.65
2.43
2.80
Diluted
1.33
1.64
2.78
Weighted average common shares outstanding:
193,074
192,150
192,980
192,023
193,450
192,871
193,515
192,840
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
(In thousands)
Foreign currency translation adjustment
(64,895
27,680
(121,807
(7,611
Change in fair value of available-for-sale marketable securities, net of deferred taxes
(16,628
(1,305
(66,640
(9,189
Comprehensive income
176,350
343,372
281,017
520,225
Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)
For the 13-Weeks Ended June 25, 2022 and June 26, 2021
CommonStock
AdditionalPaid-InCapital
TreasuryStock
RetainedEarnings
AccumulatedOtherComprehensiveIncome (Loss)
Total
Balance at March 27, 2021
1,892,934
(309,522
3,974,184
140,252
5,715,827
—
Translation adjustment
Adjustment related to unrealized gains (losses) on available-for-sale securities net of income tax effects of $78
Dividends declared ($2.68 per share)
(515,307
Issuance of treasury stock related to equity awards
11,600
6,476
18,076
Stock compensation
22,603
Purchase of treasury stock related to equity awards
(323
Balance at June 26, 2021
1,927,137
(303,369
3,775,874
166,627
5,584,248
Balance at March 26, 2022
1,982,561
(294,711
4,532,102
10,911
6,248,842
Adjustment related to unrealized gains (losses) on available-for-sale securities net of income tax effects of $4,757
Dividends declared ($2.92 per share)
(564,454
11,322
9,582
20,904
15,048
(111
Purchase of treasury stock under share repurchase plan
(30,646
Balance at June 25, 2022
For the 26-Weeks Ended June 25, 2022 and June 26, 2021
Balance at December 26, 2020
1,880,354
(320,016
3,754,372
183,427
5,516,116
Adjustment related to unrealized gains (losses) on available-for-sale securities net of income tax effects of $2,308
(515,523
1,482
34,251
35,733
45,301
(17,604
Balance at December 25, 2021
Adjustment related to unrealized gains (losses) on available-for-sale securities net of income tax effects of $19,459
(564,680
8,454
32,596
41,050
39,755
(14,722
5
Condensed Consolidated Statements of Cash Flows (Unaudited)
Operating Activities:
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation
58,986
48,776
Amortization
23,870
25,903
(Gain) loss on sale or disposal of property and equipment
(1,666
207
Unrealized foreign currency losses
21,217
12,205
Deferred income taxes
(66,382
5,560
Stock compensation expense
Realized loss (gain) on marketable securities
773
(374
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable, net of allowance for doubtful accounts
122,428
103,928
(294,766
(177,193
Other current and noncurrent assets
775
(27,279
(29,829
44,144
Other current and noncurrent liabilities
(74,273
(39,377
(4,246
(7,317
2,920
5,863
Income taxes
(3,550
20,670
Net cash provided by operating activities
265,476
598,042
Investing activities:
Purchases of property and equipment
(134,798
(146,542
Proceeds from sale of property and equipment
1,672
8
Purchase of intangible assets
(887
(1,170
Purchase of marketable securities
(873,110
(755,360
Redemption of marketable securities
620,796
720,937
Acquisitions, net of cash acquired
(10,828
(15,893
Net cash used in investing activities
(397,155
(198,020
Financing activities:
Dividends
(258,249
(233,860
Proceeds from issuance of treasury stock related to equity awards
(25,117
Net cash used in financing activities
(257,038
(215,731
Effect of exchange rate changes on cash and cash equivalents
(21,999
(2,819
Net (decrease) increase in cash, cash equivalents, and restricted cash
(410,716
181,472
Cash, cash equivalents, and restricted cash at beginning of period
1,498,843
1,458,748
Cash, cash equivalents, and restricted cash at end of period
1,088,127
1,640,220
June 25, 2022
1.Accounting Policies
Basis of Presentation and Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements include the accounts of Garmin Ltd. and wholly-owned subsidiaries (collectively, the “Company” or “Garmin”). Intercompany balances and transactions have been eliminated.
The 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. The condensed consolidated balance sheet at December 25, 2021 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. Additionally, the condensed consolidated financial statements should be read in conjunction with Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Form 10-Q, and the Company’s Annual Report on Form 10-K for the year ended December 25, 2021. Operating results for the 13-week and 26-week periods ended June 25, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.
The Company’s fiscal year is based on a 52- or 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 25, 2022 and June 26, 2021 both contain operating results for 13 weeks.
Changes in Classification and Allocation
Certain prior period amounts have been reclassified or presented to conform to the current period presentation.
In the first quarter of fiscal 2022, the Company refined the methodology used in classifying certain indirect costs in accordance with the way the Company's management is now using the information in decision making, which management believes provides a more meaningful representation of costs incurred to support research and development activities. As a result, the Company’s condensed consolidated statements of income have been recast for the 13-week and 26-week periods ended June 26, 2021 to reflect reclassifications of $14,958 and $29,323, respectively, from research and development expense to selling, general, and administrative expense.
Additionally, in the first quarter of fiscal 2022, the methodology used to allocate certain selling, general, and administrative expenses to the segments was refined to allocate these expenses in a more direct manner to provide the Company's Chief Operating Decision Maker (CODM) with a more meaningful representation of segment profit or loss. The Company’s composition of operating segments and reportable segments did not change.
These changes in classification and allocation had no effect on the Company’s consolidated operating or net income.
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 25, 2021. There were no material changes to the Company’s significant accounting policies during the 26-week period ended June 25, 2022.
Recently Issued Accounting Standards and Pronouncements
Recently adopted accounting standards and recently issued accounting pronouncements not yet adopted are not expected to have a material impact on the Company’s consolidated financial statements, accounting policies, processes, or systems.
2. Inventories
The components of inventories consist of the following:
December 25, 2021
Raw materials
581,560
509,435
Work-in-process
206,573
213,801
Finished goods
666,735
504,373
3. Earnings Per Share
The following table sets forth the computation of basic and diluted net income per share. Stock options, stock appreciation rights, and restricted stock units are collectively referred to as “equity awards”.
June 26, 2021
Numerator:
Numerator for basic and diluted net income per share – net income
Denominator:
Denominator for basic net income per share – weighted-average common shares
Effect of dilutive equity awards
376
721
535
817
Denominator for diluted net income per share – adjusted weighted-average common shares
Basic net income per share
Diluted net income per share
Shares excluded from diluted net income per share calculation:
Anti-dilutive equity awards
757
313
761
315
4.Segment Information and Geographic Data
Garmin is organized in the six operating segments of fitness, outdoor, aviation, marine, consumer auto, and auto OEM. The fitness, outdoor, aviation, and marine operating segments represent reportable segments. The consumer auto and auto OEM operating segments, which serve the auto market, do not meet the quantitative thresholds to separately qualify as reportable segments, and they are therefore reported together in an “all other” category captioned as auto. Fitness, outdoor, aviation, marine, and auto are collectively referred to as the Company's reported segments.
The Company’s Chief Executive Officer, who has been identified as the 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.
As indicated in Note 1 to the condensed consolidated financial statements, in the first quarter of fiscal 2022 the methodology used to allocate certain selling, general, and administrative expenses to the segments was refined to allocate these expenses in a more direct manner to provide the Company’s CODM with a more meaningful representation of segment profit or loss. The Company’s composition of operating segments and reportable segments did not change. Results for the 13-week and 26-week periods ended June 26, 2021 have been recast below to conform with the current period presentation.
Net sales (“revenue”), gross profit, and operating income for each of the Company’s five reported segments are presented below, along with supplemental financial information for the auto OEM and consumer auto operating segments that management believes is useful.
Auto
Fitness
Outdoor
Aviation
Marine
TotalAuto
ConsumerAuto
AutoOEM
13-Weeks Ended June 25, 2022
272,095
381,915
204,739
242,794
139,290
80,328
58,962
134,016
253,255
147,931
137,406
56,218
37,253
18,965
Operating income (loss)
23,462
154,250
61,745
68,619
(15,336
9,121
(24,457
13-Weeks Ended June 26, 2021
413,201
323,405
180,832
261,790
147,677
86,278
61,399
225,192
208,158
131,934
152,609
62,958
42,261
20,697
113,733
120,843
51,126
91,091
(5,621
16,355
(21,976
26-Weeks Ended June 25, 2022
492,992
766,519
379,505
496,863
277,617
145,458
132,159
240,205
500,751
275,474
265,987
108,889
68,213
40,676
24,043
303,229
101,871
127,501
(35,347
12,953
(48,300
26-Weeks Ended June 26, 2021
721,326
579,859
354,721
471,163
272,163
148,673
123,490
398,737
379,833
258,116
273,989
111,732
74,225
37,507
184,415
212,854
96,140
153,997
(26,575
25,393
(51,968
Net sales to external customers by geographic region were as follows for the 13-week and 26-week periods ended June 25, 2022 and June 26, 2021. Note that APAC includes Asia Pacific and Australian Continent and EMEA includes Europe, the Middle East and Africa:
Americas
646,172
646,393
1,216,807
1,150,085
EMEA
412,550
488,724
810,027
888,232
APAC
182,111
191,788
386,662
360,915
Net sales to external customers
9
5. Warranty Reserves
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 auto, aviation, and marine 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.
Balance - beginning of period
40,698
39,288
42,643
Accrual for products sold (1)
14,154
22,988
25,025
34,445
Expenditures
(14,903
(17,701
(30,543
(32,513
Balance - end of period
44,575
(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 that require the future purchase of goods or services (“unconditional purchase obligations”). The Company’s unconditional purchase obligations primarily consist of payments for inventory, capital expenditures, and other indirect purchases in connection with conducting the business. The aggregate amount of purchase orders and other commitments open as of June 25, 2022 that may represent noncancellable unconditional purchase obligations having a remaining term in excess of one year was approximately $323,000.
Certain cash balances are held as collateral in relation to bank guarantees. This restricted cash is reported within other assets on the condensed consolidated balance sheets and totaled $746 and $785 on June 25, 2022 and December 25, 2021, respectively. The total of the cash and cash equivalents balance and the restricted cash reported within other assets in the condensed consolidated balance sheets equals the total cash, cash equivalents, and restricted cash shown in the condensed consolidated statements of cash flows.
Contingencies
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 25, 2022. 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 25, 2022 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.
7.Income Taxes
The Company recorded income tax expense of $21,093 in the 13-week period ended June 25, 2022, compared to income tax expense of $55,062 in the 13-week period ended June 26, 2021. The effective tax rate was 7.6% in the second quarter of 2022, compared to 14.8% in the second quarter of 2021. The decrease was primarily due to income mix by jurisdiction and an increase in U.S. tax deductions and credits in the second quarter of 2022 compared to the second quarter of 2021.
10
The Company recorded income tax expense of $45,366 in the first half of 2022, compared to income tax expense of $85,548 in the first half of 2021. The effective tax rate was 8.8% in the first half of 2022, compared to 13.7% in the first half of 2021. The decrease was primarily due to income mix by jurisdiction and an increase in U.S. tax deductions and credits in the first half of 2022 compared to the first half of 2021.
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 Securitiesas of June 25, 2022
Fair Value Level
Amortized Cost
Gross Unrealized Gains
Gross Unrealized Losses
Fair Value
Agency securities
7,000
(597
6,403
Mortgage-backed securities
158,957
(3,494
155,466
Commercial paper
200,329
Corporate debt securities
1,147,667
249
(64,004
1,083,912
Municipal securities
339,483
78
(23,260
316,301
Other
13,366
(1,648
11,718
1,866,802
330
(93,003
1,774,129
Available-For-Sale Securitiesas of December 25, 2021
(110
6,890
149,692
257
(880
149,069
1,079,390
9,830
(11,827
1,077,393
356,037
1,870
(4,864
353,043
31,134
22
(873
30,283
1,623,253
11,979
(18,554
1,616,678
11
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.
Accrued interest receivable, which totaled $11,164 as of June 25, 2022, 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 25, 2022.
The Company recognizes impairments relating to credit losses of available-for-sale securities through an allowance for credit losses and other income on the Company’s condensed consolidated statements of income. Impairment not relating to credit losses is recorded in other comprehensive income on the Company’s condensed consolidated balance sheets. The cost of securities sold is based on the specific identification method. Approximately 91% of securities in the Company’s portfolio were at an unrealized loss position as of June 25, 2022.
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 25, 2022 and December 25, 2021.
As of June 25, 2022
Less than 12 Consecutive Months
12 Consecutive Months or Longer
(2,549
45,338
(945
5,709
51,047
(42,712
781,300
(21,292
218,091
999,391
(15,155
219,841
(8,105
81,579
301,420
(75
1,685
(1,573
8,553
10,238
(61,088
1,054,567
(31,915
313,932
1,368,499
As of December 25, 2021
(148
18,909
(732
7,598
26,507
(9,466
499,084
(2,361
85,033
584,117
(4,247
226,009
(617
29,405
255,414
(467
17,845
(406
7,205
25,050
(14,438
768,737
(4,116
129,241
897,978
As of June 25, 2022 and December 25, 2021, 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 agency, mortgage-backed, corporate debt, municipal, and other securities presented above because the Company's management does not consider the declines in fair value to have resulted from credit losses. Management has not observed a significant deterioration in credit quality of these securities, which are highly rated with moderate to low credit risk. 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. Management 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.
12
The amortized cost and fair value of marketable securities at June 25, 2022, by maturity, are shown below.
Due in one year or less
528,438
Due after one year through five years
1,295,777
1,208,474
Due after five years through ten years
38,483
35,575
Due after ten years
4,104
3,441
9. Stockholders' Equity
Under Swiss corporate law, dividends must be approved by shareholders at the annual general meeting of the Company’s shareholders. On June 10, 2022, the shareholders approved a dividend of $2.92 per share payable in four equal installments on dates determined by the Board of Directors, which was recorded as a reduction of retained earnings. The Company paid dividends of $258,249 for the 26-week period ended June 25, 2022.
Share Repurchase Program
On April 22, 2022, the Board of Directors approved a share repurchase program (the “Program”) authorizing the Company to repurchase up to $300,000 of the common shares of Garmin Ltd. The timing and volume of share repurchases are subject to market conditions, business conditions and applicable laws, and are at management’s discretion. Share repurchases may be made from time to time in the open market or in privately negotiated transactions, including under plans complying with the provisions of Rule 10b5-1 and Rule 10b-18 of the Securities Exchange Act of 1934, as amended. The Program does not require the purchase of any minimum number of shares and may be suspended or discontinued at any time. The share repurchase authorization expires on December 29, 2023. As of June 25, 2022, the Company had repurchased 308 shares for $30,646. There remains approximately $269,354 available to repurchase additional shares under the Program.
10. 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 25, 2022:
Foreign currencytranslation adjustment
Net gains (losses) on available-for-sale securities
66,503
(55,592
Other comprehensive income (loss) before reclassification, net of income tax benefit of $4,969
(17,191
(82,086
Amounts reclassified from accumulated other comprehensive income (loss) to other income, net of income tax benefit of $212 included in income tax provision
563
Net current-period other comprehensive income (loss)
(81,523
1,608
(72,220
123,415
(5,580
Other comprehensive income (loss) before reclassification, net of income tax benefit of $19,670
(67,202
(189,009
Amounts reclassified from accumulated other comprehensive income (loss) to other income, net of income tax benefit of $211 included in income tax provision
562
(188,447
13
11. Revenue
In order to further depict how the nature, amount, timing and uncertainty of the Company's revenue and cash flows are affected by economic factors, revenue (or “net sales”) is disaggregated 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 and Geographic Data. Note 4 also contains disaggregated revenue information of the six major product categories identified by the Company – fitness, outdoor, aviation, marine, consumer auto, and auto OEM.
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 and outdoor segments 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:
Point in time
1,179,123
1,274,569
2,293,324
2,297,346
Over time
61,710
52,336
120,172
101,886
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 25, 2022 are presented below:
26-Weeks EndedJune 25, 2022
Deferred Revenue (1)
Deferred Costs (2)
Balance, beginning of period
129,272
28,322
Deferrals in period
115,750
7,731
Recognition of deferrals in period
(120,172
(10,694
Balance, end of period
124,850
25,359
(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 $120,172 of deferred revenue recognized in the 26-week period ended June 25, 2022, $55,945 was deferred as of the beginning of the period. Approximately seventy-five percent of the $124,850 of deferred revenue at the end of the period, June 25, 2022, is recognized ratably over a period of three years or less.
14
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 25, 2021. 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 25, 2021. Unless the context otherwise requires, references in this document to "we", "us", "our" and similar terms refer to Garmin Ltd. and its subsidiaries.
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, many of which feature Global Positioning System (GPS) navigation, and applications that are designed for people who live an active lifestyle. 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
Intensifying headwinds including high inflation, rising interest rates, and the strengthening of the U.S. Dollar relative to other major currencies have led to uncertainty in the economic environment. Additionally, while 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 current environment, including Russia’s invasion of Ukraine and the lingering impacts of the COVID-19 pandemic. We expect these economic and supply chain challenges to persist through at least the end of 2022.
While Russia’s invasion of Ukraine has not had a material direct impact on our business, and our related exposure is limited, the nature and degree of the effects of that conflict, as well as the effects of the current economic environment 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
As indicated in Note 1 to the condensed consolidated financial statements, in the first quarter of fiscal 2022 the Company refined the methodology used in classifying certain indirect costs as research and development expense, which we believe provides a more meaningful representation of costs incurred to support research and development activities.
Additionally, as indicated in Note 1 and Note 4 to the condensed consolidated financial statements, in the first quarter of fiscal 2022 the methodology used to allocate certain selling, general, and administrative expenses to the segments was refined to allocate these expenses in a more direct manner to provide the Company’s CODM with a more meaningful representation of segment profit or loss. The Company’s composition of operating segments and reportable segments did not change.
These changes in classification and allocation had no effect on the Company’s consolidated operating or net income. The amounts presented below for selling, general, and administrative expense, research and development expense, segment operating expense, and segment operating income for the 13-week and 26-week periods ended June 26, 2021 have been recast to conform with the current period presentation.
Comparison of 13-Weeks ended June 25, 2022 and June 26, 2021
Net Sales
Year-over-Year Change
(34
%)
Percentage of Total Net Sales
%
31
18
16
(7
20
(6
Consumer Auto
Auto OEM
(4
Net sales decreased 6% for the 13-week period ended June 25, 2022 when compared to the year-ago quarter. Total unit sales in the second quarter of 2022 decreased to 3,743 when compared to total unit sales of 4,303 in the second quarter of 2021, which differs from the percent decrease in revenue primarily due to shifts in segment and product mix. Outdoor was the largest portion of our revenue mix at 31% in the second quarter of 2022 compared to fitness at 31% in the second quarter of 2021.
The increase in outdoor revenue was primarily driven by strong demand for our adventure watches. Aviation revenue increased due to growth in both OEM and aftermarket product categories. Fitness revenue decreased due to declines across all product categories, driven primarily by our advanced wearables and cycling products. Marine revenue decreased primarily due to supply chain constraints that limited our ability to satisfy all demand for our products. The decrease in auto revenue was due to sales declines in both consumer auto and auto OEM products.
Gross Profit
(40
Percentage of Segment Net Sales
49
54
66
64
72
73
(10
57
58
(11
40
43
(12
46
(8
32
34
59
Gross profit dollars in the second quarter of 2022 decreased 7%, primarily due to the decrease in net sales when compared to the year-ago quarter, as described above. Consolidated gross margin was relatively flat when compared to the year-ago quarter, as a stronger U.S. Dollar and higher freight costs were offset by a favorable segment and product mix.
The fitness, outdoor, marine, consumer auto, and auto OEM gross margins were adversely impacted by the strengthening of the U.S. Dollar relative to other major currencies, which created downward pressure on revenues, as well as by higher freight costs. In the outdoor segment, these impacts were more than offset by a favorable product mix.
Operating Expense
Selling, General and administrative expenses
35
Total operating expense increased 430 basis points and 6% in absolute dollars when compared to the year-ago quarter.
Advertising expense as a percent of revenue and in absolute dollars was relatively flat when compared to the year-ago quarter.
Selling, general and administrative expense increased 180 basis points as a percent of revenue and 6% in absolute dollars compared to the year-ago quarter. The absolute dollar expense increase in the second quarter of 2022 was primarily attributable to increased personnel related expenses and information technology costs. A decrease in fitness expense was less than the decrease in fitness sales, resulting in an increase of 640 basis points as a percent of revenue. Increases in marine, consumer auto, and auto OEM expense, along with the corresponding decreases in sales, resulted in increases as a percent of revenue of 200, 190, and 180 basis points, respectively. Outdoor and aviation expense generally increased in line with the corresponding increases in sales.
Research and development expense increased 220 basis points as a percent of revenue and 8% in absolute dollars when compared to the year-ago quarter. The absolute dollar expense increase was primarily due to higher engineering personnel costs. An increase in aviation expense was more than offset by the increase in aviation sales, resulting in a decrease of 270 basis points as a percent of revenue. Increases in fitness, marine, and consumer auto expense, along with the corresponding decreases in sales, resulted in increases as a percent of revenue of 580, 210, and 280 basis points, respectively. Auto OEM expense was relatively flat in absolute dollars and increased 230 basis points as a percent of revenue as sales declined from the year-ago quarter. Outdoor expense generally increased in line with the increase in sales.
Operating Income
Operating Income (Loss)
(79
28
37
21
30
(25
173
(44
19
(41
(36
(21
Operating income decreased 21% in absolute dollars and 440 basis points as a percent of revenue when compared to the year-ago quarter. This decrease as a percent of revenue was due to a relatively flat gross margin compared to the year-ago quarter and higher expenses, while net sales declined, as described above. Auto OEM experienced an operating loss in the current quarter, and we expect this trend to continue through 2022 as we continue to invest in certain auto OEM programs.
17
Other Income (Expense)
The average interest rate returns on cash and investments during the second quarter of 2022 was 1.2%, compared to 0.9% during the same quarter of 2021.
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, Japanese Yen, and Polish Zloty. 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 $22.4 million currency loss recognized in the second quarter of 2022 was primarily due to the U.S. Dollar strengthening against the Australian Dollar, Polish Zloty, Euro, Chinese Yuan, British Pound Sterling, and Japanese Yen, partially offset by the U.S. Dollar strengthening against the Taiwan Dollar, within the 13-week period ended June 25, 2022. During this period, the U.S. Dollar strengthened 8.3% against the Australian Dollar, 3.1% against the Polish Zloty, 3.9% against the Euro, 4.9% against the Chinese Yuan, 7.0% against the British Pound Sterling, and 9.7% against the Japanese Yen resulting in losses of $7.2 million, $5.3 million, $3.8 million, $3.0 million, $2.4 million, and $2.3 million, respectively, partially offset by the U.S. Dollar strengthening 3.5% against the Taiwan Dollar, resulting in a gain of $8.9 million. The remaining net currency loss of $7.3 million was related to the impacts of other currencies, each of which was individually immaterial.
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, partially offset by the U.S. Dollar weakening 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 impacts of other currencies, each of which was individually immaterial.
Income Tax Provision
The Company recorded income tax expense of $21.1 million in the 13-week period ended June 25, 2022, compared to income tax expense of $55.1 million in the 13-week period ended June 26, 2021. The effective tax rate was 7.6% in the second quarter of 2022, compared to 14.8% in the second quarter of 2021. The decrease was primarily due to income mix by jurisdiction and an increase in U.S. tax deductions and credits in the 13-week period ended June 25, 2022 compared to the year-ago quarter.
Net Income
As a result of the above, net income for the 13-week period ended June 25, 2022 was $257.9 million compared to $317.0 million for the 13-week period ended June 26, 2021, a decrease of $59.1 million.
Comparison of 26-Weeks ended June 25, 2022 and June 26, 2021
(32
(2
Net sales increased 1% for the 26-week period ended June 25, 2022 when compared to the year-ago period. Total unit sales in the first half of 2022 decreased to 7,182 when compared to total unit sales of 7,763 in the first half of 2021, which differs from the increase in revenue primarily due to shifts in segment and product mix. Outdoor was the largest portion of our revenue mix at 32% in the first half of 2022 compared to fitness at 30% in the first half of 2021.
The increase in outdoor revenue was primarily driven by strong demand for our adventure watches. Aviation revenue increased due to growth in both OEM and aftermarket product categories. Marine revenue increased due to growth across multiple product categories, led by strong demand for our sonar products. The increase in auto revenue was due to sales growth in auto OEM products, partially offset by sales declines in our consumer auto products. Fitness revenue decreased due to declines across all product categories, driven primarily by our advanced wearables and cycling products.
55
65
(3
39
41
47
50
Gross profit dollars in the first half of 2022 decreased 2% and consolidated gross margin decreased 160 basis points when compared to the year-ago period, primarily due to higher freight costs and the strengthening of the U.S. Dollar relative to other major currencies, which created downward pressure on revenues.
The fitness, outdoor, marine, and consumer auto gross margins were adversely impacted by higher freight costs and a stronger U.S. Dollar. In the outdoor segment, these impacts were partially offset by a favorable product mix.
36
33
Total operating expense increased 260 basis points as a percent of revenue and 9% in absolute dollars when compared to the year-ago period.
Advertising expense as a percent of revenue was relatively flat when compared to the year-ago period and increased 5% in absolute dollars. The absolute dollar increase was primarily attributable to increased spend on tradeshows.
Selling, general and administrative expense increased 110 basis points as a percent of revenue and 8% in absolute dollars when compared to the year-ago period. The absolute dollar increase in the first half of 2022 was primarily attributable to increased personnel related expenses and information technology costs. An increase in outdoor expense was more than offset by the increase in outdoor sales, resulting in a decrease of 140 basis points as percent of revenue. Consumer auto expense increased, while consumer auto sales decreased, resulting in a 160 basis point increase in expense as a percent of revenue. A decrease in fitness expense was less than the decrease in fitness sales, resulting in an increase of 660 basis points as a percent of revenue. Aviation, marine and auto OEM expense generally increased in line with the increase in sales.
Research and development expense increased 140 basis points as a percent of revenue and 10% in absolute dollars when compared to the year-ago period. The absolute dollar increase was primarily due to higher engineering personnel costs. An increase in outdoor expense was more than offset by the increase in outdoor sales, resulting in a decrease of 120 basis points as percent of revenue. A decrease in auto OEM expense, along with the increase in auto OEM sales, resulted in a decrease of 510 basis points as a percent of revenue. An increase in marine expense was greater than the increase in marine sales, resulting in an increase as a percent of revenue of 120 basis points. Increases in fitness and consumer auto expense, along with the corresponding decreases in sales, resulted in increases as a percent of revenue of 630 and 300 basis points, respectively. Aviation expense generally increased in line with the increase in sales.
(87
42
27
(17
(13
(49
(37
(42
(16
Operating income decreased 16% in absolute dollars and 430 basis points as a percent of revenue when compared to the year-ago period. This decrease as a percent of revenue was due to lower gross margin and higher expenses as a percent of revenue, as described above. Auto OEM experienced an operating loss in the current period, and we expect this trend to continue through 2022 as we continue to invest in certain auto OEM programs.
Other Income
The average interest rate returns on cash and investments during the 26-week periods ended June 25, 2022 and June 26, 2021 were 1.1% and 1.0%, respectively.
The $25.9 million currency loss recognized in the 26-week period ended June 25, 2022 was primarily due to the U.S. Dollar strengthening against the Australian Dollar, Polish Zloty, Euro, Chinese Yuan, British Pound Sterling, and Japanese Yen partially offset by the U.S. Dollar strengthening against the Taiwan Dollar, within the 26-week period ended June 25, 2022. During this period, the U.S. Dollar strengthened 4.9% against the Australian Dollar, 8.6% against the Polish Zloty, 6.7% against the Euro, 4.9% against the Chinese Yuan, 8.4% against the British Pound Sterling, and 15.4% against the Japanese Yen resulting in losses of $6.6 million, $11.3 million, $8.9 million, $3.0 million, $2.5 million, and $3.9 million, respectively, partially offset by the U.S. Dollar strengthening 6.8% against the Taiwan Dollar, resulting in a gain of $17.1 million. The remaining net currency loss of $6.8 million was related to the impacts of other currencies, each of which was individually immaterial.
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, partially offset by the U.S. Dollar weakening 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 impacts of other currencies, each of which was individually immaterial.
The Company recorded income tax expense of $45.4 million in the first half of 2022, compared to income tax expense of $85.5 million in the first half of 2021. The effective tax rate was 8.8% in the first half of 2022, compared to 13.7% in the first half of 2021. The decrease was primarily due to income mix by jurisdiction and an increase in U.S. tax deductions and credits in the first half of 2022 compared to the first half of 2021.
As a result of the above, net income for the 26-week period ended June 25, 2022 was $469.5 million compared to $537.0 million for the 26-week period ended June 26, 2021, a decrease of $67.6 million.
Liquidity and Capital Resources
As of June 25, 2022, we had approximately $2.9 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, fund share repurchases, 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 2022 and 2021 were approximately 1.1% and 1.0%, 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.
Cash Flows
Cash provided by operating activities totaled $265.5 million for the first half of 2022, compared to $598.0 million for the first half of 2021. The decrease was primarily due to higher purchases of inventory associated with the Company's strategy to increase days of supply to support our increasingly diversified product lines, optimize shipping methods, and mitigate increased lead times for raw materials.
Cash used in investing activities totaled $397.2 million in the first half of 2022, compared to $198.0 million for the first half of 2021. The increase was primarily due to higher net purchases of marketable securities, as more desirable investment opportunities were available compared to the first half of 2021.
Cash used in financing activities totaled $257.0 million for the first half of 2022, compared to $215.7 million for the first half of 2021. This increase was primarily due to the purchase of treasury stock under the share repurchase plan, and higher cash dividend payments in the first half of 2022, as our declared dividend increased from $0.61 per share for the four calendar quarters beginning in June 2020 to $0.67 per share for the four calendar quarters beginning in June 2021.
Use of Cash
Operating Leases
The Company has lease arrangements for certain real estate properties, vehicles, and equipment. Leased properties are typically used for office space, distribution, and retail. As of June 25, 2022, the Company had fixed lease payment obligations of $149.3 million, with $28.2 million payable within 12 months.
Inventory Purchase Obligations
The Company obtains various raw materials and components for its products from a variety of third party suppliers. The Company’s inventory purchase obligations are primarily noncancelable. As of June 25, 2022, the Company had inventory purchase obligations of $1,142.8 million, with $854.3 million payable within 12 months.
Other Purchase Obligations
The Company’s other purchase obligations primarily consist of noncancelable commitments for capital expenditures and other indirect purchases in connection with conducting our business. As of June 25, 2022, the Company had other purchase obligations of $404.1 million, with $250.2 million payable within 12 months.
Critical Accounting Policies and Estimates
General
Our discussion and analysis of financial condition and results of operations are based upon the Company’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 management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to customer sales programs and incentives, product returns, bad debts, inventories, investments, intangible assets, income taxes, warranty obligations, and contingencies and litigation. We base our estimates on historical experience and 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 25, 2021. There were no significant changes to the Company’s critical accounting policies and estimates in the 13-week and 26-week periods ended June 25, 2022.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There are numerous market risks that can affect our future business, financial condition and results of operations. In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part II, Item 7A, "Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the fiscal year ended December 25, 2021. There have been no material changes during the 13-week and 26-week periods ended June 25, 2022 in the risks described in our Annual Report on Form 10-K related to market sensitivity, inflation, foreign currency exchange rate risk and interest rate risk.
Item 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures. The Company maintains a system of disclosure controls and procedures that are designed to provide reasonable assurance that information, which is required to be timely disclosed, is accumulated and communicated to management in a timely fashion. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. As of June 25, 2022, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded as of June 25, 2022 that our disclosure controls and procedures were effective such that the information relating to the Company, required to be disclosed in our Securities and Exchange Commission (“SEC”) reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to the Company’s management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
(b) Changes in internal control over financial reporting. There has been no change in the Company’s internal controls over financial reporting that occurred during the Company’s fiscal quarter ended June 25, 2022 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
Item 1. Legal Proceedings
In the normal course of business, the Company and its subsidiaries are parties to various legal claims, actions, and complaints, including matters involving patent infringement, other intellectual property, product liability, customer claims and various other risks. It is not possible to predict with certainty whether or not the Company and its subsidiaries will ultimately be successful in any of these legal matters, or if not, what the impact might be. However, the Company’s management does not expect that the results in any of these legal proceedings will have a material adverse effect on the Company’s results of operations, financial position or cash flows. For additional information, see Note 6 – Commitments and Contingencies in the above Condensed Consolidated Financial Statements and Part I, Item 3, “Legal Proceedings” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 25, 2021.
Item 1A. Risk Factors
There are many risks and uncertainties that can affect our future business, financial performance or share price. In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 25, 2021. There have been no material changes during the 26-week period ended June 25, 2022 in the risks described in our Annual Report on Form 10-K. These risks, however, are not the only risks facing our Company. Additional risks and uncertainties, including those not currently known to us or that we currently deem to be immaterial, also may materially adversely affect our business, financial condition and/or operating results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
Share repurchase activity during the 13-week period ended June 25, 2022, summarized on a trade-date basis, was as follows (in thousands, except per share amounts):
Period
Total Number of Shares Purchased (1)
Average Price Paid Per Share (2)
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
Approximate Dollar Value of Shares That May Yet Be Purchased Under the Program
March 27, 2022 - April 23, 2022
300,000
April 24, 2022 - May 21, 2022
101.07
296,078
May 22, 2022 - June 25, 2022
269
99.42
269,354
308
(1) The Board of Directors approved a share repurchase program on April 22, 2022 (the "Program"), authorizing the Company to purchase up to $300 million of its common shares as determined by management at its discretion. Share repurchases may be made in the open market or in privately negotiated transactions, including under plans complying with the provisions of Rule 10b5-1 and Rule 10b-18 of the Securities Exchange Act of 1934, as amended. The timing and volume of share repurchases are subject to market conditions, business conditions and applicable laws, and are at management’s discretion. The Program does not require the purchase of any minimum number of shares and may be suspended or discontinued at any time. The share repurchase authorization expires on December 29, 2023. See Note 9 in Part I, Item 1 of this Quarterly Report for additional information related to share repurchases.
(2) Average price paid per share includes costs associated with the repurchases.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Item 6. Exhibits
Exhibit 31.1
Certification of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a).
Exhibit 31.2
Certification of Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a).
Exhibit 32.1
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.2
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 101.INS
XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
Exhibit 101.SCH
Inline XBRL Taxonomy Extension Schema
Exhibit 101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase
Exhibit 101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase
Exhibit 101.LAB
Inline XBRL Taxonomy Extension Label Linkbase
Exhibit 101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase
Exhibit 104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
By
/s/ Douglas G. Boessen
Douglas G. Boessen
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
Dated: July 27, 2022