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Cover and table of contents
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 September 25, 2021
or
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 0-31983
GARMIN LTD**.**
(Exact name of Company as specified in its charter)
| Switzerland | 98-0229227 | |
| (State or other jurisdiction | (I.R.S. Employer | |
| of incorporation or organization) | identification no.) | |
| Mühlentalstrasse 2 | ||
| 8200 Schaffhausen | ||
| Switzerland | 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 | The Nasdaq Stock Market LLC | ||
| (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).
Yes ☑ NO ☐
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 October 22, 2021
Registered Shares, CHF 0.10 par value: 192,322,049 (excluding treasury shares)
Garmin Ltd.
Form 10-Q
Quarter Ended September 25, 2021
Table of Contents
i
Pa****rt I - Financial Information
Item I - Condensed Consolidated Financial Statements
Garmin Ltd. and Subsidiaries
Condensed Consolidated Ba****lance Sheets (Unaudited)
(In thousands, except per share information)
| September 25, 2021 | December 26, 2020 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 1,639,056 | $ | 1,458,442 | ||||
| Marketable securities | 345,214 | 387,642 | ||||||
| Accounts receivable, net | 639,345 | 849,469 | ||||||
| Inventories | 1,113,503 | 762,084 | ||||||
| Deferred costs | 16,046 | 20,145 | ||||||
| Prepaid expenses and other current assets | 255,802 | 191,569 | ||||||
| Total current assets | 4,008,966 | 3,669,351 | ||||||
| Property and equipment, net | 974,981 | 855,539 | ||||||
| Operating lease right-of-use assets | 89,934 | 94,626 | ||||||
| Marketable securities | 1,253,589 | 1,131,175 | ||||||
| Deferred income taxes | 251,983 | 245,455 | ||||||
| Noncurrent deferred costs | 13,035 | 16,510 | ||||||
| Intangible assets, net | 809,163 | 828,566 | ||||||
| Other assets | 169,838 | 190,151 | ||||||
| Total assets | $ | 7,571,489 | $ | 7,031,373 | ||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 318,604 | $ | 258,885 | ||||
| Salaries and benefits payable | 173,566 | 181,937 | ||||||
| Accrued warranty costs | 42,849 | 42,643 | ||||||
| Accrued sales program costs | 78,251 | 109,891 | ||||||
| Deferred revenue | 87,770 | 86,865 | ||||||
| Accrued advertising expense | 30,044 | 31,950 | ||||||
| Other accrued expenses | 146,426 | 149,817 | ||||||
| Income taxes payable | 109,862 | 68,585 | ||||||
| Dividend payable | 386,567 | 233,644 | ||||||
| Total current liabilities | 1,373,939 | 1,164,217 | ||||||
| Deferred income taxes | 127,733 | 116,844 | ||||||
| Noncurrent income taxes | 78,176 | 92,810 | ||||||
| Noncurrent deferred revenue | 42,022 | 49,934 | ||||||
| Noncurrent operating lease liabilities | 71,527 | 75,958 | ||||||
| Other liabilities | 23,354 | 15,494 | ||||||
| Stockholders’ equity: | ||||||||
| Shares, CHF 0.10 par value, 198,077 shares authorized and issued; 192,322shares outstanding at September 25, 2021 and 191,571 shares outstanding at December 26, 2020 | 17,979 | 17,979 | ||||||
| Additional paid-in capital | 1,950,464 | 1,880,354 | ||||||
| Treasury stock | (303,373 | ) | (320,016 | ) | ||||
| Retained earnings | 4,034,912 | 3,754,372 | ||||||
| Accumulated other comprehensive income | 154,756 | 183,427 | ||||||
| Total stockholders’ equity | 5,854,738 | 5,516,116 | ||||||
| Total liabilities and stockholders’ equity | $ | 7,571,489 | $ | 7,031,373 |
See accompanying notes.
Garmin Ltd. and Subsidiaries
Condensed Consolidated State****ments of Income (Unaudited)
(In thousands, except per share information)
| 13-Weeks Ended | 39-Weeks Ended | |||||||||||||||
| September 25, 2021 | September 26, 2020 | September 25, 2021 | September 26, 2020 | |||||||||||||
| Net sales | $ | 1,191,973 | $ | 1,109,194 | $ | 3,591,206 | $ | 2,835,168 | ||||||||
| Cost of goods sold | 496,026 | 441,211 | 1,472,852 | 1,144,816 | ||||||||||||
| Gross profit | 695,947 | 667,983 | 2,118,354 | 1,690,352 | ||||||||||||
| Advertising expense | 36,705 | 33,866 | 110,705 | 90,031 | ||||||||||||
| Selling, general and administrative expenses | 162,515 | 142,134 | 485,896 | 411,335 | ||||||||||||
| Research and development expense | 214,057 | 174,882 | 618,253 | 506,013 | ||||||||||||
| Total operating expense | 413,277 | 350,882 | 1,214,854 | 1,007,379 | ||||||||||||
| Operating income | 282,670 | 317,101 | 903,500 | 682,973 | ||||||||||||
| Other income (expense): | ||||||||||||||||
| Interest income | 6,897 | 7,777 | 21,568 | 30,258 | ||||||||||||
| Foreign currency (losses) gains | (15,014 | ) | 10,113 | (30,621 | ) | (9,802 | ) | |||||||||
| Other income | 833 | 1,726 | 3,511 | 8,515 | ||||||||||||
| Total other income (expense) | (7,284 | ) | 19,616 | (5,542 | ) | 28,971 | ||||||||||
| Income before income taxes | 275,386 | 336,717 | 897,958 | 711,944 | ||||||||||||
| Income tax provision | 16,347 | 23,300 | 101,894 | 53,168 | ||||||||||||
| Net income | $ | 259,039 | $ | 313,417 | $ | 796,064 | $ | 658,776 | ||||||||
| Net income per share: | ||||||||||||||||
| Basic | $ | 1.35 | $ | 1.64 | $ | 4.14 | $ | 3.45 | ||||||||
| Diluted | $ | 1.34 | $ | 1.63 | $ | 4.13 | $ | 3.44 | ||||||||
| Weighted average common shares outstanding: | ||||||||||||||||
| Basic | 192,322 | 191,234 | 192,123 | 191,021 | ||||||||||||
| Diluted | 193,185 | 191,998 | 192,955 | 191,760 |
See accompanying notes.
Garmin Ltd. and Subsidiaries
Condensed Consolidated Statements o****f Comprehensive Income (Unaudited)
(In thousands)
| 13-Weeks Ended | 39-Weeks Ended | |||||||||||||||
| September 25, 2021 | September 26, 2020 | September 25, 2021 | September 26, 2020 | |||||||||||||
| Net income | $ | 259,039 | $ | 313,417 | $ | 796,064 | $ | 658,776 | ||||||||
| Foreign currency translation adjustment | (8,702 | ) | 26,721 | (16,313 | ) | 45,358 | ||||||||||
| Change in fair value of available-for-sale marketable securities, net of deferred taxes | (3,169 | ) | 2,528 | (12,358 | ) | 17,746 | ||||||||||
| Comprehensive income | $ | 247,168 | $ | 342,666 | $ | 767,393 | $ | 721,880 |
See accompanying notes.
Garmin Ltd. and Subsidiaries
Condensed Consolidated Stateme****nts of Stockholders’ Equity (Unaudited)
For the 13-Weeks Ended September 25, 2021 and September 26, 2020
(In thousands, except per share information)
| Common Stock | Additional Paid-In Capital | Treasury Stock | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Total | |||||||||||||||||||
| Balance at June 27, 2020 | $ | 17,979 | $ | 1,851,695 | $ | **(**326,310 | ) | $ | 3,107,768 | $ | 89,729 | $ | 4,740,861 | |||||||||||
| Net income | — | — | — | 313,417 | — | 313,417 | ||||||||||||||||||
| Translation adjustment | — | — | — | — | 26,721 | 26,721 | ||||||||||||||||||
| Adjustment related to unrealized gains (losses) on available-for-sale securities net of income tax effects of $31 | — | — | — | — | 2,528 | 2,528 | ||||||||||||||||||
| Comprehensive income | 342,666 | |||||||||||||||||||||||
| Dividends declared | — | — | — | **(**26 | ) | — | **(**26 | ) | ||||||||||||||||
| Issuance of treasury stock related to equity awards | — | **(**1,207 | ) | 1,207 | — | — | — | |||||||||||||||||
| Stock compensation | — | 22,031 | — | — | — | 22,031 | ||||||||||||||||||
| Purchase of treasury stock related to equity awards | — | — | **(**1,191 | ) | — | — | **(**1,191 | ) | ||||||||||||||||
| Balance at September 26, 2020 | $ | 17,979 | $ | 1,872,519 | $ | **(**326,294 | ) | $ | 3,421,159 | $ | 118,978 | $ | 5,104,341 | |||||||||||
| Common Stock | Additional Paid-In Capital | Treasury Stock | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Total | |||||||||||||||||||
| Balance at June 26, 2021 | $ | 17,979 | $ | 1,927,137 | $ | **(**303,369 | ) | $ | 3,775,874 | $ | 166,627 | $ | 5,584,248 | |||||||||||
| Net income | — | — | — | 259,039 | — | 259,039 | ||||||||||||||||||
| Translation adjustment | — | — | — | — | **(**8,702 | ) | **(**8,702 | ) | ||||||||||||||||
| Adjustment related to unrealized gains (losses) on available-for-sale securities net of income tax effects of $609 | — | — | — | — | **(**3,169 | ) | **(**3,169 | ) | ||||||||||||||||
| Comprehensive income | 247,168 | |||||||||||||||||||||||
| Dividends declared | — | — | — | **(**1 | ) | — | **(**1 | ) | ||||||||||||||||
| Issuance of treasury stock related to equity awards | — | **(**28 | ) | 28 | — | — | — | |||||||||||||||||
| Stock compensation | — | 23,355 | — | — | — | 23,355 | ||||||||||||||||||
| Purchase of treasury stock related to equity awards | — | — | **(**32 | ) | — | — | **(**32 | ) | ||||||||||||||||
| Balance at September 25, 2021 | $ | 17,979 | $ | 1,950,464 | $ | **(**303,373 | ) | $ | 4,034,912 | $ | 154,756 | $ | 5,854,738 | |||||||||||
See accompanying notes.
Garmin Ltd. and Subsidiaries
Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)
For the 39-Weeks Ended September 25, 2021 and September 26, 2020
(In thousands, except per share information)
| Common Stock | Additional Paid-In Capital | Treasury Stock | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Total | |||||||||||||||||||
| Balance at December 28, 2019 | $ | 17,979 | $ | 1,835,622 | $ | **(**345,040 | ) | $ | 3,229,061 | $ | 55,874 | $ | 4,793,496 | |||||||||||
| Net income | — | — | — | 658,776 | — | 658,776 | ||||||||||||||||||
| Translation adjustment | — | — | — | — | 45,358 | 45,358 | ||||||||||||||||||
| Adjustment related to unrealized gains (losses) on available-for-sale securities net of income tax effects of $2,903 | — | — | — | — | 17,746 | 17,746 | ||||||||||||||||||
| Comprehensive income | 721,880 | |||||||||||||||||||||||
| Dividends declared ($2.44 per share) | — | — | — | **(**466,678 | ) | — | **(**466,678 | ) | ||||||||||||||||
| Issuance of treasury stock related to equity awards | — | **(**16,618 | ) | 31,820 | — | — | 15,202 | |||||||||||||||||
| Stock compensation | — | 53,515 | — | — | — | 53,515 | ||||||||||||||||||
| Purchase of treasury stock related to equity awards | — | — | **(**13,074 | ) | — | — | **(**13,074 | ) | ||||||||||||||||
| Balance at September 26, 2020 | $ | 17,979 | $ | 1,872,519 | $ | **(**326,294 | ) | $ | 3,421,159 | $ | 118,978 | $ | 5,104,341 | |||||||||||
| Common Stock | Additional Paid-In Capital | Treasury Stock | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Total | |||||||||||||||||||
| Balance at December 26, 2020 | $ | 17,979 | $ | 1,880,354 | $ | **(**320,016 | ) | $ | 3,754,372 | $ | 183,427 | $ | 5,516,116 | |||||||||||
| Net income | — | — | — | 796,064 | — | 796,064 | ||||||||||||||||||
| Translation adjustment | — | — | — | — | **(**16,313 | ) | **(**16,313 | ) | ||||||||||||||||
| Adjustment related to unrealized gains (losses) on available-for-sale securities net of income tax effects of $2,918 | — | — | — | — | **(**12,358 | ) | **(**12,358 | ) | ||||||||||||||||
| Comprehensive income | 767,393 | |||||||||||||||||||||||
| Dividends declared ($2.68 per share) | — | — | — | **(**515,524 | ) | — | **(**515,524 | ) | ||||||||||||||||
| Issuance of treasury stock related to equity awards | — | 1,454 | 34,279 | — | — | 35,733 | ||||||||||||||||||
| Stock compensation | — | 68,656 | — | — | — | 68,656 | ||||||||||||||||||
| Purchase of treasury stock related to equity awards | — | — | **(**17,636 | ) | — | — | **(**17,636 | ) | ||||||||||||||||
| Balance at September 25, 2021 | $ | 17,979 | $ | 1,950,464 | $ | **(**303,373 | ) | $ | 4,034,912 | $ | 154,756 | $ | 5,854,738 | |||||||||||
See accompanying notes.
Garmin Ltd. and Subsidiaries
Condensed Consolidated Stateme****nts of Cash Flows (Unaudited)
(In thousands)
| 39-Weeks Ended | ||||||||
| September 25, 2021 | September 26, 2020 | |||||||
| Operating Activities: | ||||||||
| Net income | $ | 796,064 | $ | 658,776 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation | 75,272 | 57,141 | ||||||
| Amortization | 38,485 | 32,969 | ||||||
| Loss (gain) on sale or disposal of property and equipment | 246 | (1,815 | ) | |||||
| Unrealized foreign currency losses | 24,390 | 4,384 | ||||||
| Deferred income taxes | 8,358 | 14,353 | ||||||
| Stock compensation expense | 68,656 | 53,515 | ||||||
| Realized gain on marketable securities | (513 | ) | (1,316 | ) | ||||
| Changes in operating assets and liabilities, net of acquisitions: | ||||||||
| Accounts receivable, net of allowance for doubtful accounts | 197,024 | 59,474 | ||||||
| Inventories | (357,387 | ) | (56,063 | ) | ||||
| Other current and non-current assets | (31,398 | ) | (27,019 | ) | ||||
| Accounts payable | 57,602 | (11,939 | ) | |||||
| Other current and non-current liabilities | (39,941 | ) | (18,299 | ) | ||||
| Deferred revenue | (6,914 | ) | (21,148 | ) | ||||
| Deferred costs | 7,547 | 9,855 | ||||||
| Income taxes payable | 5,974 | (53,419 | ) | |||||
| Net cash provided by operating activities | 843,465 | 699,449 | ||||||
| Investing activities: | ||||||||
| Purchases of property and equipment | (187,960 | ) | (137,072 | ) | ||||
| Proceeds from sale of property and equipment | 26 | 1,965 | ||||||
| Purchase of intangible assets | (1,408 | ) | (1,643 | ) | ||||
| Purchase of marketable securities | (1,081,789 | ) | (702,487 | ) | ||||
| Redemption of marketable securities | 975,318 | 808,554 | ||||||
| Acquisitions, net of cash acquired | (15,893 | ) | (148,648 | ) | ||||
| Net cash used in investing activities | (311,706 | ) | (179,331 | ) | ||||
| Financing activities: | ||||||||
| Dividends | (362,602 | ) | (333,975 | ) | ||||
| Proceeds from issuance of treasury stock related to equity awards | 35,733 | 15,202 | ||||||
| Purchase of treasury stock related to equity awards | (17,636 | ) | (13,074 | ) | ||||
| Net cash used in financing activities | (344,505 | ) | (331,847 | ) | ||||
| Effect of exchange rate changes on cash and cash equivalents | (6,172 | ) | 7,900 | |||||
| Net increase in cash, cash equivalents, and restricted cash | 181,082 | 196,171 | ||||||
| Cash, cash equivalents, and restricted cash at beginning of period | 1,458,748 | 1,027,638 | ||||||
| Cash, cash equivalents, and restricted cash at end of period | $ | 1,639,830 | $ | 1,223,809 |
See accompanying notes.
Garmin Ltd. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 25, 2021
(In thousands, except per share information)
1. Accounting Policies
Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Certain prior period amounts have been reclassified or presented to conform to the current period presentation. 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. Operating results for the 13-week and 39-week periods ended September 25, 2021 are not necessarily indicative of the results that may be expected for the year ending December 25, 2021.
The Condensed Consolidated Balance Sheet at December 26, 2020 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the Consolidated Financial Statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 26, 2020.
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 September 25, 2021 and September 26, 2020 both contain operating results for 13 weeks.
Significant Accounting Policies
For a description of the significant accounting policies and methods used in the preparation of the Company’s Condensed Consolidated Financial Statements, refer to Note 2, “Summary of Significant Accounting Policies” in the Notes to the Consolidated Financial Statements in Part II, Item 8 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 26, 2020. There were no material changes to the Company’s significant accounting policies during the 39-week period ended September 25, 2021.
Recently Issued Accounting Standards and Pronouncements
We do not expect any recently adopted accounting standards, or recently issued accounting pronouncements not yet adopted, 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:
| September 25, 2021 | December 26, 2020 | |||||||
| Raw materials | $ | 463,314 | $ | 282,287 | ||||
| Work-in-process | 173,117 | 147,821 | ||||||
| Finished goods | 477,072 | 331,976 | ||||||
| Inventories | $ | 1,113,503 | $ | 762,084 |
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”.
| 13-Weeks Ended | 39-Weeks Ended | |||||||||||||||
| September 25, 2021 | September 26, 2020 | September 25, 2021 | September 26, 2020 | |||||||||||||
| Numerator: | ||||||||||||||||
| Numerator for basic and diluted net income per share – net income | $ | 259,039 | $ | 313,417 | $ | 796,064 | $ | 658,776 | ||||||||
| Denominator: | ||||||||||||||||
| Denominator for basic net income per share – weighted-average common shares | 192,322 | 191,234 | 192,123 | 191,021 | ||||||||||||
| Effect of dilutive equity awards | 863 | 764 | 832 | 739 | ||||||||||||
| Denominator for diluted net income per share – adjusted weighted-average common shares | 193,185 | 191,998 | 192,955 | 191,760 | ||||||||||||
| Basic net income per share | $ | 1.35 | $ | 1.64 | $ | 4.14 | $ | 3.45 | ||||||||
| Diluted net income per share | $ | 1.34 | $ | 1.63 | $ | 4.13 | $ | 3.44 | ||||||||
| Shares excluded from diluted net income per share calculation: | ||||||||||||||||
| Anti-dilutive equity awards | 311 | 409 | 313 | 410 |
4. Segment Information
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 our reported segments.
The Company’s Chief Executive Officer, who has been identified as the Chief Operating Decision Maker (CODM), uses operating income as the measure of profit or loss, combined with other measures, to assess segment performance and allocate resources. Operating income represents net sales less costs of goods sold and operating expenses. Net sales are directly attributed to each segment. Most costs of goods sold and the majority of operating expenses are also directly attributed to each segment, while certain other costs of goods sold and operating expenses are allocated to the segments in a manner appropriate to the specific facts and circumstances of the expenses being allocated.
Net sales (“revenue”), gross profit, and operating income for each of the Company’s 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 | Total Auto | Consumer Auto | Auto OEM | Total | |||||||||||||||||||||||||
| 13-Weeks Ended September 25, 2021 | ||||||||||||||||||||||||||||||||
| Net sales | $ | 342,316 | $ | 323,856 | $ | 180,165 | $ | 207,534 | $ | 138,102 | $ | 82,914 | $ | 55,188 | $ | 1,191,973 | ||||||||||||||||
| Gross profit | 183,028 | 210,522 | 131,260 | 116,152 | 54,985 | 39,342 | 15,643 | 695,947 | ||||||||||||||||||||||||
| Operating income (loss) | 77,788 | 123,946 | 51,296 | 53,726 | (24,086 | ) | 11,305 | (35,391 | ) | 282,670 | ||||||||||||||||||||||
| 13-Weeks Ended September 26, 2020 | ||||||||||||||||||||||||||||||||
| Net sales | $ | 328,446 | $ | 334,844 | $ | 151,112 | $ | 165,437 | $ | 129,355 | $ | 82,659 | $ | 46,696 | $ | 1,109,194 | ||||||||||||||||
| Gross profit | 177,794 | 223,704 | 107,927 | 100,423 | 58,135 | 43,319 | 14,816 | 667,983 | ||||||||||||||||||||||||
| Operating income (loss) | 87,083 | 147,477 | 28,597 | 50,482 | 3,462 | 18,178 | (14,716 | ) | 317,101 | |||||||||||||||||||||||
| 39-Weeks Ended September 25, 2021 | ||||||||||||||||||||||||||||||||
| Net sales | $ | 1,063,642 | $ | 903,715 | $ | 534,886 | $ | 678,698 | $ | 410,265 | $ | 231,587 | $ | 178,678 | $ | 3,591,206 | ||||||||||||||||
| Gross profit | 581,765 | 590,355 | 389,376 | 390,141 | 166,717 | 113,567 | 53,150 | 2,118,354 | ||||||||||||||||||||||||
| Operating income (loss) | 268,489 | 339,031 | 146,974 | 205,042 | (56,036 | ) | 35,388 | (91,424 | ) | 903,500 | ||||||||||||||||||||||
| 39-Weeks Ended September 26, 2020 | ||||||||||||||||||||||||||||||||
| Net sales | $ | 846,688 | $ | 716,146 | $ | 465,850 | $ | 486,269 | $ | 320,215 | $ | 196,942 | $ | 123,273 | $ | 2,835,168 | ||||||||||||||||
| Gross profit | 446,936 | 469,150 | 338,770 | 288,103 | 147,393 | 98,348 | 49,045 | 1,690,352 | ||||||||||||||||||||||||
| Operating income (loss) | 190,075 | 262,057 | 103,483 | 134,195 | (6,837 | ) | 25,628 | (32,465 | ) | 682,973 |
Net sales to external customers by geographic region were as follows for the 13-week and 39-week periods ended September 25, 2021 and September 26, 2020. Note that APAC includes Asia Pacific and Australian Continent and EMEA includes Europe, the Middle East and Africa:
| 13-Weeks Ended | 39-Weeks Ended | |||||||||||||||
| September 25, 2021 | September 26, 2020 | September 25, 2021 | September 26, 2020 | |||||||||||||
| Americas | $ | 573,331 | $ | 521,869 | $ | 1,723,415 | $ | 1,372,360 | ||||||||
| EMEA | 442,622 | 407,859 | 1,330,855 | 1,042,928 | ||||||||||||
| APAC | 176,020 | 179,466 | 536,936 | 419,880 | ||||||||||||
| Net sales to external customers | $ | 1,191,973 | $ | 1,109,194 | $ | 3,591,206 | $ | 2,835,168 |
Net property and equipment by geographic region as of September 25, 2021 and September 26, 2020 are presented below.
| Americas | APAC | EMEA | Total | |||||||||||||
| September 25, 2021 | ||||||||||||||||
| Property and equipment, net | $ | 511,182 | $ | 344,263 | $ | 119,536 | $ | 974,981 | ||||||||
| September 26, 2020 | ||||||||||||||||
| Property and equipment, net | $ | 465,575 | $ | 255,656 | $ | 92,330 | $ | 813,561 |
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.
| 13-Weeks Ended | 39-Weeks Ended | |||||||||||||||
| September 25, 2021 | September 26, 2020 | September 25, 2021 | September 26, 2020 | |||||||||||||
| Balance - beginning of period | $ | 44,575 | $ | 39,293 | $ | 42,643 | $ | 39,758 | ||||||||
| Accrual for products sold (1) | 13,272 | 15,613 | 47,717 | 47,140 | ||||||||||||
| Expenditures | (14,998 | ) | (14,904 | ) | (47,511 | ) | (46,896 | ) | ||||||||
| Balance - end of period | $ | 42,849 | $ | 40,002 | $ | 42,849 | $ | 40,002 |
(1) Changes in cost estimates related to pre-existing warranties were not material and aggregated with accruals for new warranty contracts in the ‘Accrual for products sold’ line.
6. Commitments and Contingencies
Commitments
The Company is party to certain commitments, which include purchases of inventory, capital expenditures, advertising, and other services in connection with conducting our business. The aggregate amount of purchase orders and other commitments open as of September 25, 2021 was approximately $1,424,000. We cannot determine the aggregate amount of such purchase orders that represent contractual obligations because purchase orders may represent authorizations to purchase rather than binding agreements.
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 $774 and $306 on September 25, 2021 and December 26, 2020, 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
In the normal course of business, the Company and its subsidiaries are parties to various legal claims, investigations and complaints, including matters alleging patent infringement and other intellectual property claims. The Company evaluates, on a quarterly and annual basis, developments in legal proceedings, investigations, claims, and other loss contingencies that could affect any required accrual or disclosure or estimate of reasonably possible loss or range of loss. An estimated loss from a loss contingency is accrued by a charge to income if it is probable that an asset has been impaired or a liability has been incurred and the amount of the loss can be reasonably estimated. If a range of loss is estimated, and some amount within that range appears to be a better estimate than any other amount within that range, then that amount is accrued. If no amount within the range can be identified as a better estimate than any other amount, the Company accrues the minimum amount in the range.
If an outcome unfavorable to the Company is determined to be probable, but the amount of loss cannot be reasonably estimated or is determined to be reasonably possible, but not probable, we disclose the nature of the contingency and an estimate of the possible loss or range of loss or a statement that such an estimate cannot be made. The Company’s aggregate range of reasonably possible losses includes (1) matters where a liability has been accrued and there is a reasonably possible loss in excess of the amount accrued for that liability, and (2) matters where a loss is believed to be reasonably possible, but not probable, and a liability therefore has not been accrued. This aggregate range only represents the Company’s estimate of reasonably possible losses and does not represent the Company’s maximum loss exposure. The assessment regarding whether a loss is probable or reasonably possible, and whether the loss or a range of loss is estimable, often involves a series of complex judgments about future events. In assessing the probability of an outcome in a lawsuit, claim or assessment that could be unfavorable to the Company, we consider the following factors, among others: a) the nature of the litigation, claim, or assessment; b) the progress of the case; c) the opinions or views of legal counsel and other advisers; d) our experience in similar cases; e) the experience of other entities in similar cases; and f) how we intend to respond to the lawsuit, claim, or assessment. Costs incurred in defending lawsuits, claims or assessments are expensed as incurred.
Management of the Company currently does not believe it is reasonably possible that the Company may have incurred a material loss, or a material loss in excess of recorded accruals, with respect to loss contingencies in the aggregate, for the fiscal quarter ended September 25, 2021. 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 39-week periods ended September 25, 2021 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 $16,347 in the 13-week period ended September 25, 2021, compared to income tax expense of $23,300 in the 13-week period ended September 26, 2020. The effective tax rate was 5.9% in the third quarter of 2021, compared to 6.9% in the third quarter of 2020. The decrease was primarily due to the impact of return-to-provision adjustments associated with filing the U.S. tax return during the 13-week period ended September 25, 2021 compared to the year-ago quarter.
The Company recorded income tax expense of $101,894 in the first three quarters of 2021, compared to income tax expense of $53,168 in the first three quarters of 2020. The effective tax rate was 11.3% in the first three quarters of 2021, compared to 7.5% in the first three quarters of 2020. The increase was primarily due to a decrease in uncertain tax position reserves released in the first three quarters of 2021 compared to the first three quarters of 2020.
8. Marketable Securities
The FASB ASC topic entitled Fair Value Measurements and Disclosures defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The accounting guidance classifies the inputs used to measure fair value into the following hierarchy:
| Level 1 | Unadjusted quoted prices in active markets for the identical asset or liability |
| Level 2 | Observable inputs for the asset or liability, either directly or indirectly, such as quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability |
| Level 3 | Unobservable inputs for the asset or liability |
The Company endeavors to utilize the best available information in measuring fair value. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Valuation is based on prices obtained from an independent pricing vendor using both market and income approaches. The primary inputs to the valuation include quoted prices for similar assets in active markets, quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields, and credit spreads.
The method described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
Marketable securities classified as available-for-sale securities are summarized below:
| Available-For-Sale Securities as of September 25, 2021 | ||||||||||||||||||
| Fair Value Level | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||||
| U.S. Treasury securities | Level 2 | $ | 400 | $ | 1 | $ | — | $ | 401 | |||||||||
| Agency securities | Level 2 | 7,975 | — | (43 | ) | 7,932 | ||||||||||||
| Mortgage-backed securities | Level 2 | 159,299 | 707 | (625 | ) | 159,381 | ||||||||||||
| Corporate securities | Level 2 | 1,051,416 | 16,021 | (5,606 | ) | 1,061,831 | ||||||||||||
| Municipal securities | Level 2 | 335,507 | 2,748 | (1,845 | ) | 336,410 | ||||||||||||
| Other | Level 2 | 33,436 | 56 | (644 | ) | 32,848 | ||||||||||||
| Total | $ | 1,588,033 | $ | 19,533 | $ | **(**8,763 | ) | $ | 1,598,803 |
| Available-For-Sale Securities as of December 26, 2020 | ||||||||||||||||||
| Fair Value Level | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||||
| U.S. Treasury securities | Level 2 | $ | 400 | $ | 6 | $ | — | $ | 406 | |||||||||
| Agency securities | Level 2 | 5,954 | 56 | — | 6,010 | |||||||||||||
| Mortgage-backed securities | Level 2 | 239,445 | 1,051 | (1,923 | ) | 238,573 | ||||||||||||
| Corporate securities | Level 2 | 984,696 | 25,962 | (1,637 | ) | 1,009,021 | ||||||||||||
| Municipal securities | Level 2 | 214,515 | 3,644 | (223 | ) | 217,936 | ||||||||||||
| Other | Level 2 | 47,760 | 167 | (1,056 | ) | 46,871 | ||||||||||||
| Total | $ | 1,492,770 | $ | 30,886 | $ | **(**4,839 | ) | $ | 1,518,817 |
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 $9,671 as of September 25, 2021, 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 39-week period ended September 25, 2021.
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 37% of securities in the Company’s portfolio were at an unrealized loss position as of September 25, 2021.
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 September 25, 2021 and December 26, 2020.
| As of September 25, 2021 | ||||||||||||||||||||||||
| Less than 12 Consecutive Months | 12 Consecutive Months or Longer | Total | ||||||||||||||||||||||
| Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | |||||||||||||||||||
| U.S. Treasury securities | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
| Agency securities | (43 | ) | 6,957 | — | — | (43 | ) | 6,957 | ||||||||||||||||
| Mortgage-backed securities | (103 | ) | 14,116 | (522 | ) | 8,289 | (625 | ) | 22,405 | |||||||||||||||
| Corporate securities | (4,400 | ) | 377,924 | (1,206 | ) | 66,783 | (5,606 | ) | 444,707 | |||||||||||||||
| Municipal securities | (1,746 | ) | 176,509 | (99 | ) | 15,287 | (1,845 | ) | 191,796 | |||||||||||||||
| Other | (341 | ) | 15,259 | (303 | ) | 7,553 | (644 | ) | 22,812 | |||||||||||||||
| Total | $ | **(**6,633 | ) | $ | 590,765 | $ | **(**2,130 | ) | $ | 97,912 | $ | **(**8,763 | ) | $ | 688,677 |
| As of December 26, 2020 | ||||||||||||||||||||||||
| Less than 12 Consecutive Months | 12 Consecutive Months or Longer | Total | ||||||||||||||||||||||
| Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | |||||||||||||||||||
| U.S. Treasury securities | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
| Agency securities | — | — | — | — | — | — | ||||||||||||||||||
| Mortgage-backed securities | (1,849 | ) | 85,688 | (74 | ) | 2,122 | (1,923 | ) | 87,810 | |||||||||||||||
| Corporate securities | (1,065 | ) | 199,187 | (572 | ) | 8,625 | (1,637 | ) | 207,812 | |||||||||||||||
| Municipal securities | (223 | ) | 50,403 | — | — | (223 | ) | 50,403 | ||||||||||||||||
| Other | (726 | ) | 22,600 | (330 | ) | 3,426 | (1,056 | ) | 26,026 | |||||||||||||||
| Total | $ | **(**3,863 | ) | $ | 357,878 | $ | **(**976 | ) | $ | 14,173 | $ | **(**4,839 | ) | $ | 372,051 |
As of September 25, 2021 and December 26, 2020, 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, municipal, and other securities presented above because we do not consider the declines in fair value to have resulted from credit losses. We have not observed a significant deterioration in credit quality of these securities, which are 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. The Company does not intend to sell the securities, and it is not more likely than not that the Company will be required to sell the securities, before the respective recoveries of their amortized cost bases, which may be maturity.
The amortized cost and fair value of marketable securities at September 25, 2021, by maturity, are shown below.
| Amortized Cost | Fair Value | |||||||
| Due in one year or less | $ | 342,809 | $ | 345,214 | ||||
| Due after one year through five years | 1,174,790 | 1,183,662 | ||||||
| Due after five years through ten years | 67,278 | 67,038 | ||||||
| Due after ten years | 3,156 | 2,889 | ||||||
| $ | 1,588,033 | $ | 1,598,803 |
9. Accumulated Other Comprehensive Income
The following provides required disclosure of changes in accumulated other comprehensive income (AOCI) balances by component for the 13-week and 39-week periods ended September 25, 2021:
| 13-Weeks Ended September 25, 2021 | ||||||||||||
| Foreign currency translation adjustment | Net gains (losses) on available-for-sale securities | Total | ||||||||||
| Balance - beginning of period | $ | 155,342 | $ | 11,285 | $ | 166,627 | ||||||
| Other comprehensive income before reclassification, net of income tax benefit of $588 | (8,702 | ) | (3,051 | ) | (11,753 | ) | ||||||
| Amounts reclassified from Accumulated other comprehensive income to Other income, net of income tax expense of $21 included in Income tax provision | — | (118 | ) | (118 | ) | |||||||
| Net current-period other comprehensive income | (8,702 | ) | (3,169 | ) | (11,871 | ) | ||||||
| Balance - end of period | $ | 146,640 | $ | 8,116 | $ | 154,756 |
| 39-Weeks Ended September 25, 2021 | ||||||||||||
| Foreign currency translation adjustment | Net gains (losses) on available-for-sale securities | Total | ||||||||||
| Balance - beginning of period | $ | 162,953 | $ | 20,474 | $ | 183,427 | ||||||
| Other comprehensive income before reclassification, net of income tax benefit of $2,864 | (16,313 | ) | (11,900 | ) | (28,213 | ) | ||||||
| Amounts reclassified from Accumulated other comprehensive income to Other income, net of income tax expense of $54 included in Income tax provision | — | (458 | ) | (458 | ) | |||||||
| Net current-period other comprehensive income | (16,313 | ) | (12,358 | ) | (28,671 | ) | ||||||
| Balance - end of period | $ | 146,640 | $ | 8,116 | $ | 154,756 |
10. Revenue
In order to further depict how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors, we disaggregate revenue (or “net sales”) by geographic region, major product category, and pattern of recognition.
Disaggregated revenue by geographic region (Americas, APAC, and EMEA) is presented in Note 4 – Segment Information. 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:
| 13-Weeks Ended | 39-Weeks Ended | |||||||||||||||
| September 25, 2021 | September 26, 2020 | September 25, 2021 | September 26, 2020 | |||||||||||||
| Point in time | $ | 1,132,339 | $ | 1,060,718 | $ | 3,429,686 | $ | 2,696,593 | ||||||||
| Over time | 59,634 | 48,476 | 161,520 | 138,575 | ||||||||||||
| Net sales | $ | 1,191,973 | $ | 1,109,194 | $ | 3,591,206 | $ | 2,835,168 |
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 39-week period ended September 25, 2021 are presented below:
| 39-Weeks Ended | ||||||||
| September 25, 2021 | ||||||||
| Deferred Revenue (1) | Deferred Costs (2) | |||||||
| Balance, beginning of period | $ | 136,799 | $ | 36,655 | ||||
| Deferrals in period | 154,513 | 11,488 | ||||||
| Recognition of deferrals in period | (161,520 | ) | (19,062 | ) | ||||
| Balance, end of period | $ | 129,792 | $ | 29,081 |
(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 $161,520 of deferred revenue recognized in the 39-week period ended September 25, 2021, $68,121 was deferred as of the beginning of the period. Approximately two-thirds of the $129,792 of deferred revenue at the end of the period, September 25, 2021, is recognized ratably over a period of three years or less.
Next: Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations