GARMIN LTD. 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 endedDecember 26, 2020 . This report has been filed with theSecurities and Exchange Commission (the "SEC" or the "Commission") inWashington, D.C. and can be obtained by contacting theSEC's public reference operations or obtaining it through theSEC'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 endedDecember 26, 2020 .
Unless otherwise indicated, amounts set forth in the discussion below are in thousands.
Company Overview The Company is a leading worldwide provider of wireless devices and applications that are designed for people who live an active lifestyle, many of which feature Global Positioning System (GPS) navigation. We are organized in the six operating segments of fitness, outdoor, aviation, marine, consumer auto, and auto OEM. The operating segments offer products through our network of subsidiary distributors and independent dealers and distributors, our own webshop, as well as through various auto, aviation, and marine original equipment manufacturers (OEMs). Each of the operating segments is managed separately. Business Environment Update The COVID-19 pandemic has created disruption and uncertainty in the global economy and has affected our business, suppliers, and customers. The pandemic has generally had an unfavorable impact on net sales and profitability of our aviation and auto segments, however, the impact has lessened during the first half of 2021. Conversely, we believe net sales and profitability of our fitness, outdoor, and marine segments have benefited from a shift in consumer behavior and demand toward the products these segments offer, which continued through the second quarter of 2021. Our global supply chain is routinely subject to component shortages, increased lead times, cost fluctuations, and logistics constraints. These factors have been further amplified by the pandemic. While we have not yet experienced material impacts, we expect these supply chain challenges to continue through at least the end of calendar year 2021. The current business environment may evolve in ways that could impact our operations and financial results. Further, the nature and degree of the effects of the pandemic and supply chain challenges over time remains uncertain. Refer to Part II, Item 1A, "Risk Factors" of this Quarterly Report for further discussion of the risks and uncertainties facing our Company. Results of Operations
The following table sets forth the Company's results of operations as a percent of net sales during the periods shown (the table may not foot due to rounding):
15
--------------------------------------------------------------------------------
13-Weeks Ended 26-Weeks Ended
June 26, June 27, June 26, June 27,
2021 2020 2021 2020
Net sales 100 % 100 % 100 % 100 %
Cost of goods sold 41 % 41 % 41 % 41 %
Gross profit 59 % 59 % 59 % 59 %
Advertising 3 % 3 % 3 % 3 %
Selling, general and administrative 12 % 15 % 13 % 16 %
Research and development 15 % 19 % 17 % 19 %
Total operating expenses 31 % 38 % 33 % 38 %
Operating income 28 % 22 % 26 % 21 %
Other income (expense) 0 % 1 % 0 % 1 %
Income before income taxes 28 % 23 % 26 % 22 %
Income tax provision 4 % 2 % 4 % 2 %
Net income 24 % 21 % 22 % 20 %
The segment table located in Note 4 to the Condensed Consolidated Financial
Statements sets forth the Company's results of operations including net sales,
gross profit, and operating income for each of the Company's five reported
segments during the periods shown, as well as supplemental information for the
consumer auto and auto OEM operating segments that management believes is
useful. For each line item in the table, the total of the fitness, outdoor,
aviation, marine, and auto segments' amounts equals the amount in the Condensed
Consolidated Statements of Income included in Item 1.
Comparison of 13-Weeks ended
Net Sales 13-Weeks Ended 13-Weeks Ended Net Sales June 26, 2021 Year-over-Year Change June 27, 2020 Fitness$ 413,201 40 %$ 294,642 Percentage of Total Net Sales 31 % 34 % Outdoor 323,405 57 % 206,200 Percentage of Total Net Sales 24 % 24 % Aviation 180,832 43 % 126,140 Percentage of Total Net Sales 14 % 14 % Marine 261,790 66 % 157,827 Percentage of Total Net Sales 20 % 18 % Auto 147,677 74 % 85,058 Percentage of Total Net Sales 11 % 10 % Consumer Auto 86,278 56 % 55,270 Percentage of Total Net Sales 7 % 6 % Auto OEM 61,399 106 % 29,788 Percentage of Total Net Sales 5 % 4 % Total$ 1,326,905 53 %$ 869,867 Net sales increased 53% for the 13-week period endedJune 26, 2021 when compared to the year-ago quarter. Net sales of most segments were adversely impacted by the COVID-19 pandemic in the prior year quarter, and therefore a portion of the year-over-year growth is attributable to the relatively low prior year comparable. We believe the fitness, outdoor, and marine segments have since benefited from a shift in consumer behavior and demand, and the generally unfavorable impact that the pandemic has had on the aviation and auto segments has lessened during the current period. Additionally, certain product lines have experienced continued strength in the current period. The increase in fitness revenue was driven by sales growth in cycling and advanced wearables products. Outdoor revenue increased due to sales growth across all categories, led by strong demand for our adventure watches. The increase in aviation revenue was driven by contributions from both OEM and aftermarket product categories. Marine revenue increased due to growth across multiple product categories, led by strong demand for our chartplotters. The consumer auto revenue increase was driven by growth in specialty categories, while the auto OEM increase was due to sales growth in new OEM programs. Total unit sales in the second quarter of 2021 increased to 4,303 when compared to total unit sales of 3,093 in the second quarter of 2020, which was a smaller increase than that of revenue primarily due to shifts in segment and product mix. Fitness was the largest portion of our revenue mix at 31% in the second quarter of 2021 compared to 34% in the second quarter of 2020. 16 --------------------------------------------------------------------------------
Gross Profit
13-Weeks Ended 13-Weeks Ended
Gross Profit June 26, 2021 Year-over-Year Change June 27, 2020
Fitness $ 225,192 44 % $ 156,817
Percentage of Segment Net Sales 54 % 53 %
Outdoor 208,158 56 % 133,189
Percentage of Segment Net Sales 64 % 65 %
Aviation 131,934 43 % 92,036
Percentage of Segment Net Sales 73 % 73 %
Marine 152,609 63 % 93,470
Percentage of Segment Net Sales 58 % 59 %
Auto 62,958 58 % 39,918
Percentage of Segment Net Sales 43 % 47 %
Consumer Auto 42,261 57 % 26,917
Percentage of Segment Net Sales 49 % 49 %
Auto OEM 20,697 59 % 13,001
Percentage of Segment Net Sales 34 % 44 %
Total $ 780,851 51 % $ 515,430
Percentage of Total Net Sales 59 % 59 %
Gross profit dollars in the second quarter of 2021 increased 51%, primarily due to the increase in net sales compared to the year-ago quarter, as described above. Consolidated gross margin was relatively flat when compared to the year-ago quarter.
The fitness, outdoor, marine, and consumer auto gross margins were adversely
impacted by higher freight costs, which were partially offset in the fitness and
outdoor segments by lower costs of goods, and fitness further benefited from a
favorable product mix. The auto OEM gross margin decrease was primarily
attributable to product mix associated with growth in new auto OEM programs,
which have lower gross margin. The auto OEM gross margin is generally expected
to be lower than the prior year and current quarter through 2021 and beyond, as
new auto OEM programs continue to increase as a percentage of product mix.
Advertising Expense
13-Weeks Ended 13-Weeks Ended
Advertising June 26, 2021 Year-over-Year Change June 27, 2020
Fitness $ 19,394 47 % $ 13,219
Percentage of Segment Net Sales 5 % 4 %
Outdoor 12,426 46 % 8,491
Percentage of Segment Net Sales 4 % 4 %
Aviation 1,264 158 % 490
Percentage of Segment Net Sales 1 % 0 %
Marine 6,425 17 % 5,470
Percentage of Segment Net Sales 2 % 3 %
Auto 3,430 112 % 1,615
Percentage of Segment Net Sales 2 % 2 %
Consumer Auto 3,428 113 % 1,612
Percentage of Segment Net Sales 4 % 3 %
Auto OEM 2 (33 %) 3
Percentage of Segment Net Sales 0 % 0 %
Total $ 42,939 47 % $ 29,285
Percentage of Total Net Sales 3 % 3 %
Advertising expense as a percent of revenue was relatively flat when compared to
the year-ago quarter and increased 47% in absolute dollars. The total absolute
dollar increase was primarily attributable to increased media and cooperative
spend in the fitness and outdoor segments.
Selling, General and Administrative Expense
13-Weeks Ended 13-Weeks Ended
Selling, General & Admin. Expenses
$ 55,060 29 % $ 42,648
Percentage of Segment Net Sales 13 % 14 %
Outdoor 42,394 32 % 32,002
Percentage of Segment Net Sales 13 % 16 %
Aviation 19,520 3 % 18,871
Percentage of Segment Net Sales 11 % 15 %
Marine 28,679 27 % 22,652
Percentage of Segment Net Sales 11 % 14 %
Auto 20,106 27 % 15,843
Percentage of Segment Net Sales 14 % 19 %
Consumer Auto 10,029 2 % 9,804
Percentage of Segment Net Sales 12 % 18 %
Auto OEM 10,077 67 % 6,039
Percentage of Segment Net Sales 16 % 20 %
Total $ 165,759 26 % $ 132,016
Percentage of Total Net Sales 12 % 15 %
17
-------------------------------------------------------------------------------- Selling, general and administrative expense increased 26% in absolute dollars and was 270 basis points lower as a percent of revenue compared to the year-ago quarter. The absolute dollar increase in the second quarter of 2021 was primarily attributable to increased personnel related expenses and information technology costs, and the decrease as a percent of revenue was primarily due to greater leverage of operating costs.
Research and Development Expense
13-Weeks Ended 13-Weeks Ended
Research & Development June 26, 2021 Year-over-Year Change June 27, 2020
Fitness $ 33,772 17 % $ 28,969
Percentage of Segment Net Sales 8 % 10 %
Outdoor 31,282 24 % 25,282
Percentage of Segment Net Sales 10 % 12 %
Aviation 60,340 6 % 57,109
Percentage of Segment Net Sales 33 % 45 %
Marine 27,753 27 % 21,795
Percentage of Segment Net Sales 11 % 14 %
Auto 47,834 47 % 32,585
Percentage of Segment Net Sales 32 % 38 %
Consumer Auto 13,120 16 % 11,264
Percentage of Segment Net Sales 15 % 20 %
Auto OEM 34,714 63 % 21,321
Percentage of Segment Net Sales 57 % 72 %
Total $ 200,981 21 % $ 165,740
Percentage of Total Net Sales 15 % 19 %
Research and development expense as a percent of revenue decreased 390 basis
points when compared to the year-ago quarter and increased 21% in absolute
dollars. The decrease as a percent of revenue was primarily due to the increase
in sales, as described above, and greater leverage of expenses. The absolute
dollar increase was primarily due to higher engineering personnel costs across
all of our operating segments. The auto OEM increase in absolute dollars and as
a percent of revenue was primarily attributable to higher engineering personnel
costs related to investments in auto OEM programs and a lower proportion of such
costs being contractually reimbursable. This trend of increased auto OEM
research and development expense compared to the prior year is expected to
continue through 2021 as we expect higher total costs and the majority of costs
will not be contractually reimbursable.
Operating Income
13-Weeks Ended 13-Weeks Ended
Operating Income (Loss) June 26, 2021 Year-over-Year Change June 27, 2020
Fitness $ 116,966 62 % $ 71,981
Percentage of Segment Net Sales 28 % 24 %
Outdoor 122,056 81 % 67,414
Percentage of Segment Net Sales 38 % 33 %
Aviation 50,810 226 % 15,566
Percentage of Segment Net Sales 28 % 12 %
Marine 89,752 106 % 43,553
Percentage of Segment Net Sales 34 % 28 %
Auto (8,412 ) (17 %) (10,125 )
Percentage of Segment Net Sales (6 %) -12 %
Consumer Auto 15,684 270 % 4,237
Percentage of Segment Net Sales 18 % 8 %
Auto OEM (24,096 ) 68 % (14,362 )
Percentage of Segment Net Sales (39 %) (48 %)
Total $ 371,172 97 % $ 188,389
Percentage of Total Net Sales 28 % 22 %
Operating income increased 97% in absolute dollars and increased 630 basis
points as a percent of revenue when compared to the year-ago quarter. This
increase was due to revenue growth and lower operating expenses as a percent of
revenue, as described above. Auto OEM experienced an operating loss in the
current quarter, and we expect this trend to continue through 2021, primarily
due to a lower gross margin and increased expense associated with certain
programs, as described above.
Other Income (Expense)
13-Weeks Ended 13-Weeks Ended
Other Income (Expense) June 26, 2021 June 27, 2020
Interest income $ 7,018 $ 10,455
Foreign currency gains (losses) (7,326 ) (4,493 )
Other income 1,195 3,241
Total $ 887 $ 9,203
18
--------------------------------------------------------------------------------
The average return on cash and investments, including interest and capital gains/loss returns during the second quarter of 2021 was 0.9% compared to 1.6% during the same quarter of 2020. Interest income decreased primarily due to lower yields on fixed-income securities.
Foreign currency gains and losses for the Company are driven by movements of a number of currencies in relation to theU.S. Dollar. The Taiwan Dollar is the functional currency ofGarmin Corporation , the Euro is the functional currency of several subsidiaries, and theU.S. Dollar is the functional currency ofGarmin (Europe) Ltd. , although some transactions and balances are denominated in British Pounds. Other notable currency exposures include the Australian Dollar, Chinese Yuan, and Japanese Yen. The majority of the Company's consolidated foreign currency gain or loss is typically driven by the significant cash and marketable securities, receivables and payables held in a currency other than the functional currency at a given legal entity. The$7.3 million currency loss recognized in the second quarter of 2021 was primarily due to theU.S. Dollar weakening against the Taiwan Dollar, partially offset by theU.S. Dollar weakening against the Euro and the British Pound Sterling, within the 13-week period endedJune 26, 2021 . During this period, theU.S. Dollar weakened 2.5% against the Taiwan Dollar, resulting in a loss of$9.5 million , while theU.S. Dollar weakened 1.2% against the Euro and 0.7% against the British Pound Sterling, resulting in gains of$1.2 million and$0.4 million , respectively. The remaining net currency gain of$0.6 million was related to the timing of transactions and impacts of other currencies, each of which was individually immaterial. The$4.5 million currency loss recognized in the second quarter of 2020 was primarily due to theU.S. Dollar weakening against the Taiwan Dollar, partially offset by theU.S. Dollar weakening against the Australian Dollar, within the 13-week period endedJune 27, 2020 . During this period, theU.S. Dollar weakened 2.4% against the Taiwan Dollar, resulting in a loss of$10.8 million , while theU.S. Dollar weakened 13.6% against the Australian Dollar, resulting in a gain of$4.5 million . The remaining net currency gain of$1.8 million was related to the timing of transactions and impacts of other currencies, each of which was individually immaterial. Income Tax Provision
The Company recorded income tax expense of
Net Income
As a result of the above, net income for the 13-week period ended
Comparison of 26-Weeks ended
Net Sales 26-Weeks Ended 26-Weeks Ended Net Sales June 26, 2021 Year-over-Year Change June 27, 2020 Fitness$ 721,326 39 %$ 518,242 Percentage of Total Net Sales 30 % 30 % Outdoor 579,859 52 % 381,302 Percentage of Total Net Sales 24 % 22 % Aviation 354,721 13 % 314,739 Percentage of Total Net Sales 15 % 18 % Marine 471,163 47 % 320,832 Percentage of Total Net Sales 20 % 19 % Auto 272,163 43 % 190,860 Percentage of Total Net Sales 11 % 11 % Consumer Auto 148,673 30 % 114,283 Percentage of Total Net Sales 6 % 7 % Auto OEM 123,490 61 % 76,577 Percentage of Total Net Sales 5 % 4 % Total$ 2,399,232 39 %$ 1,725,975 19
-------------------------------------------------------------------------------- Net sales increased 39% for the 26-week period endedJune 26, 2021 when compared to the year-ago period. Net sales of most segments were adversely impacted by the COVID-19 pandemic for part of the prior year period, and therefore a portion of the year-over-year growth is attributable to the relatively low prior year comparable. We believe the fitness, outdoor, and marine segments have since benefited from a shift in consumer behavior and demand, and the generally unfavorable impact that the pandemic has had on the aviation and auto segments has lessened during the current period. Additionally, certain product lines have experienced continued strength in the current period.
The increase in fitness revenue was driven by sales growth in cycling and advanced wearables products. Outdoor revenue increased due to sales growth across all categories, led by strong demand for our adventure watches. The increase in aviation revenue was driven by sales growth in the OEM product category. Marine revenue increased due to growth across multiple product categories, led by strong demand for our chartplotters. The consumer auto revenue increase was driven by growth in specialty categories, while the auto OEM increase was due to sales growth in new OEM programs.
Total unit sales in the first half of 2021 increased to 7,763 when compared to
total unit sales of 6,024 in the first half of 2020, which was a smaller
increase than that of revenue primarily due to shifts in segment and product
mix. Fitness was the largest portion of our revenue mix at 30% in the first half
of 2021 compared to 30% in the first half of 2020.
Gross Profit
26-Weeks Ended 26-Weeks Ended
Gross Profit June 26, 2021 Year-over-Year Change June 27, 2020
Fitness $ 398,737 48 % $ 269,142
Percentage of Segment Net Sales 55 % 52 %
Outdoor 379,833 55 % 245,447
Percentage of Segment Net Sales 66 % 64 %
Aviation 258,116 12 % 230,844
Percentage of Segment Net Sales 73 % 73 %
Marine 273,989 46 % 187,680
Percentage of Segment Net Sales 58 % 58 %
Auto 111,732 25 % 89,257
Percentage of Segment Net Sales 41 % 47 %
Consumer Auto 74,225 35 % 55,029
Percentage of Segment Net Sales 50 % 48 %
Auto OEM 37,507 10 % 34,228
Percentage of Segment Net Sales 30 % 45 %
Total $ 1,422,407 39 % $ 1,022,370
Percentage of Total Net Sales 59 % 59 %
Gross profit dollars in the first half of 2021 increased 39%, primarily due to
the increase in net sales compared to the year-ago period, as described above.
Consolidated gross margin was relatively flat when compared to the year-ago
quarter.
The fitness, outdoor, and consumer auto gross margin increases of 330, 110, and
170 basis points, respectively, were primarily attributable to product mix,
partially offset by higher freight costs. The auto OEM gross margin decrease of
1,430 basis points was primarily attributable to product mix associated with
growth in new auto OEM programs. This auto OEM product mix and associated lower
gross margin trend is generally expected to continue through 2021 and beyond.
Advertising Expense
26-Weeks Ended 26-Weeks Ended
Advertising June 26, 2021 Year-over-Year Change June 27, 2020
Fitness $ 32,698 40 % $ 23,358
Percentage of Segment Net Sales 5 % 5 %
Outdoor 21,141 37 % 15,398
Percentage of Segment Net Sales 4 % 4 %
Aviation 2,084 16 % 1,802
Percentage of Segment Net Sales 1 % 1 %
Marine 12,760 10 % 11,612
Percentage of Segment Net Sales 3 % 4 %
Auto 5,317 33 % 3,995
Percentage of Segment Net Sales 2 % 2 %
Consumer Auto 5,306 39 % 3,810
Percentage of Segment Net Sales 4 % 3 %
Auto OEM 11 (94 %) 185
Percentage of Segment Net Sales 0 % 0 %
Total $ 74,000 32 % $ 56,165
Percentage of Total Net Sales 3 % 3 %
Advertising expense as a percent of revenue was relatively flat when compared to
the year-ago period and increased 32% in absolute dollars. The total absolute
dollar increase was primarily attributable to increased media and cooperative
spend in the fitness and outdoor segments.
20
--------------------------------------------------------------------------------Selling, General and Administrative Expense
26-Weeks Ended 26-Weeks Ended
Selling, General & Admin. Expenses
$ 107,163 26 % $ 85,301 Percentage of Segment Net Sales 15 % 16 % Outdoor 82,666 27 % 65,072 Percentage of Segment Net Sales 14 % 17 % Aviation 38,277 2 % 37,647 Percentage of Segment Net Sales 11 % 12 % Marine 56,003 17 % 48,033 Percentage of Segment Net Sales 12 % 15 % Auto 39,272 18 % 33,149 Percentage of Segment Net Sales 14 % 17 % Consumer Auto 18,959 (10 %) 21,000 Percentage of Segment Net Sales 13 % 18 % Auto OEM 20,313 67 % 12,149 Percentage of Segment Net Sales 16 % 16 % Total$ 323,381 20 %$ 269,202 Percentage of Total Net Sales 13 % 16 % Selling, general and administrative expense increased 20% in absolute dollars and was 210 basis points lower as a percent of revenue compared to the year-ago period. The absolute dollar increase in the first half of 2021 was primarily attributable to increased personnel related expenses and information technology costs.
Research and Development Expense
26-Weeks Ended 26-Weeks Ended
Research & Development June 26, 2021 Year-over-Year Change June 27, 2020
Fitness $ 68,174 19 % $ 57,491
Percentage of Segment Net Sales 9 % 11 %
Outdoor 60,941 21 % 50,396
Percentage of Segment Net Sales 11 % 13 %
Aviation 122,076 5 % 116,508
Percentage of Segment Net Sales 34 % 37 %
Marine 53,911 22 % 44,323
Percentage of Segment Net Sales 11 % 14 %
Auto 99,093 59 % 62,413
Percentage of Segment Net Sales 36 % 33 %
Consumer Auto 25,876 14 % 22,769
Percentage of Segment Net Sales 17 % 20 %
Auto OEM 73,217 85 % 39,644
Percentage of Segment Net Sales 59 % 52 %
Total $ 404,195 22 % $ 331,131
Percentage of Total Net Sales 17 % 19 %
Research and development expense as a percent of revenue decreased 230 basis
points when compared to the year-ago quarter and increased 22% in absolute
dollars. The decrease as a percent of revenue was primarily due to the increase
in sales, as described above, and greater leverage of expenses. The absolute
dollar increase was primarily due to higher engineering personnel costs across
all of our operating segments. The auto OEM increase in absolute dollars and as
a percent of revenue was primarily attributable to higher engineering personnel
costs related to investments in auto OEM programs and a lower proportion of such
costs being contractually reimbursable. This trend of increased auto OEM
research and development expense compared to the prior year is expected to
continue through 2021 as we expect higher total costs and the majority of costs
will not be contractually reimbursable.
Operating Income
26-Weeks Ended 26-Weeks Ended
Operating Income June 26, 2021 Year-over-Year Change June 27, 2020
Fitness $ 190,702 85 % $ 102,992
Percentage of Segment Net Sales 26 % 20 %
Outdoor 215,085 88 % 114,581
Percentage of Segment Net Sales 37 % 30 %
Aviation 95,679 28 % 74,887
Percentage of Segment Net Sales 27 % 24 %
Marine 151,315 81 % 83,712
Percentage of Segment Net Sales 32 % 26 %
Auto (31,950 ) 210 % (10,300 )
Percentage of Segment Net Sales (12 %) (5 %)
Consumer Auto 24,084 223 % 7,450
Percentage of Segment Net Sales 16 % 7 %
Auto OEM (56,034 ) 216 % (17,750 )
Percentage of Segment Net Sales (45 %) (23 %)
Total $ 620,831 70 % $ 365,872
Percentage of Total Net Sales 26 % 21 %
21
--------------------------------------------------------------------------------
Operating income increased 70% in absolute dollars and increased 470 basis
points as a percent of revenue when compared to the year-ago period. This
increase was due to revenue growth and lower operating expenses as a percent of
revenue, as described above. Auto OEM experienced an operating loss in the
current quarter, and we expect this trend to continue through 2021, primarily
due to a lower gross margin and increased expense associated with certain
programs, as described above.
Other Income (Expense)
26-Weeks Ended 26-Weeks Ended
Other Income (Expense) June 26, 2021 June 27, 2020
Interest income $ 14,670 $ 22,481
Foreign currency losses (15,607 ) (19,916 )
Other Income 2,679 6,789
Total $ 1,742 $ 9,354
The average return on cash and investments, including interest and capital
gain/loss returns during the 26-week periods ended June 26, 2021 and June 27,
2020 was 1.0% and 1.7%, respectively. Interest income decreased primarily due to
lower yields on fixed-income securities.
Foreign currency gains and losses for the Company are driven by movements of a
number of currencies in relation to the U.S. Dollar. The Taiwan Dollar is the
functional currency of Garmin Corporation , the Euro is the functional currency
of several subsidiaries, and the U.S. Dollar is the functional currency of
Garmin (Europe) Ltd. , although some transactions and balances are denominated in
British Pounds. Other notable currency exposures include the Australian Dollar,
Chinese Yuan, and Japanese Yen. The majority of the Company's consolidated
foreign currency gain or loss is typically driven by the significant cash and
marketable securities, receivables and payables held in a currency other than
the functional currency at a given legal entity.
The $15.6 million currency loss recognized in the 26-week period ended June 26,
2021 was primarily due to the U.S. Dollar weakening against the Taiwan Dollar
and strengthening against the Euro, partially offset by the U.S. Dollar
weakening against the British Pound Sterling, within the 26-week period ended
June 26, 2021 . During this period, the U.S. Dollar weakened 0.8% against the
Taiwan Dollar and strengthened 2.2% against the Euro, resulting in losses of
$4.8 million and $9.8 million , respectively, while the U.S. Dollar weakened 2.4%
against the British Pound Sterling resulting in a gain of $1.8 million . The
remaining net currency loss of $2.8 million was related to the timing of
transactions and impacts of other currencies, each of which was individually
immaterial.
The $19.9 million currency loss recognized in the 26-week period ended June 27,
2020 was primarily due to the U.S. Dollar weakening against the Taiwan Dollar
and strengthening against the British Pound Sterling and Australian Dollar,
within the 26-week period ended June 27, 2020 . During this period, the U.S.
Dollar weakened 2.1% against the Taiwan Dollar, resulting in a loss of $8.7
million , while the U.S. Dollar strengthened 5.7% against the British Pound
Sterling and 0.9% against the Australian Dollar, resulting in losses of $2.5
million and $0.5 million , respectively. The remaining net currency loss of $8.2
million was related to the timing of transactions and impacts of other
currencies, each of which was individually immaterial.
Income Tax Provision
The Company recorded income tax expense of $85.5 million in the first half of
2021 compared to income tax expense of $29.9 million in the first half of 2020.
The effective tax rate was 13.7% in the first half of 2021, compared to 8.0% in
the first half of 2020. The increase was primarily due to a decrease in
uncertain tax position reserves released in the first half of 2021 compared to
the first half of 2020.
Net Income
As a result of the above, net income for the 26-week period ended
22
--------------------------------------------------------------------------------Liquidity and Capital Resources
As ofJune 26, 2021 , we had approximately$3.2 billion of cash, cash equivalents and marketable securities. We primarily use cash flow from operations, and expect that future cash requirements may be used, to fund our capital expenditures, support our working capital requirements, pay dividends, and fund strategic acquisitions. We believe that our existing cash balances and cash flow from operations will be sufficient to meet our short- and long-term projected working capital needs, capital expenditures, and other cash requirements. It is management's goal to invest the on-hand cash in accordance with the investment policy, which has been approved by the Company's Board of Directors. The investment policy's primary purpose is to preserve capital, maintain an acceptable degree of liquidity, and maximize yield within the constraint of low credit risk. Garmin's average interest rate returns on cash and investments during the first half of 2021 and 2020 were approximately 1.0% and 1.7%, respectively. The fair value of our securities varies from period to period due to changes in interest rates, in the performance of the underlying collateral, and in the credit performance of the underlying issuer, among other factors. See Note 8 for additional information regarding marketable securities. Operating Activities 26-Weeks Ended 26-Weeks EndedJune 26, 2021 June 27, 2020
Net cash provided by operating activities
The$172.9 million increase in cash provided by operating activities during the first half of 2021 compared to the first half of 2020 was due to an increase in net income of$191.7 million and an increase in other non-cash adjustments to net income of$33.7 million . These increases were partially offset by an increase in cash used in working capital of$52.5 million (which included an increase of$120.1 million in cash paid for inventory and a decrease of$74.2 million in net receipts of accounts receivable, partially offset by a decrease of$95.6 million net cash used in accounts payable, a decrease of$33.7 million in net cash used for income taxes, and a decrease of$12.5 million in net cash used in other activities). Investing Activities 26-Weeks Ended 26-Weeks Ended June 26, 2021 June 27, 2020 Net cash (used in) provided by investing activities $ (198,020 ) $ 114,938 The$313.0 million decrease in cash used in investing activities during the first half of 2021 compared to the first half of 2020 was primarily due to an increase in net purchases of marketable securities of$255.0 million , an increase in net purchases of property and equipment of$50.2 million , and an increase in cash payments for acquisitions of$8.0 million . Financing Activities 26-Weeks Ended 26-Weeks Ended June 26, 2021 June 27, 2020
Net cash used in financing activities
The$1.6 million increase in cash used in financing activities during the first half of 2021 compared to the first half of 2020 was due to an increase in dividend payments of$16.4 million and an increase in purchases of treasury stock related to equity awards of$5.7 million , partially offset by an increase in proceeds from the issuance of treasury stock of$20.5 million .
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
23
--------------------------------------------------------------------------------Critical Accounting Policies and Estimates
General Garmin's discussion and analysis of its financial condition and results of operations are based upon Garmin's Condensed Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted inthe United States . The presentation of these financial statements requires Garmin to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, Garmin evaluates its estimates, including those related to bad debts, inventories, investments, intangible assets, income taxes, warranty obligations, contingencies, customer sales programs and incentives, product returns, relative standalone selling prices, and progress toward completion of performance obligations in certain contracts with customers. Garmin bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. For a description of the significant accounting policies and methods used in the preparation of the Company's Condensed Consolidated Financial Statements, refer to Note 2, "Summary of Significant Accounting Policies" in the Notes to the Consolidated Financial Statements in Part II, Item 8 and "Critical Accounting Policies and Estimates" in Part II, Item 7 of the Company's Annual Report on Form 10-K for the fiscal year endedDecember 26, 2020 . There were no significant changes to the Company's critical accounting policies and estimates in the 13-week and 26-week periods endedJune 26, 2021 .
© Edgar Online, source
