United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the year ended December 29, 2001
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)
Cayman Islands 98-0229227
(State or other jurisdiction (I.R.S. Employer identification no.)
of incorporation or organization)
5th Floor, Harbour Place, P.O. Box 30464 SMB, N/A
103 South Church Street (Zip Code)
George Town, Grand Cayman, Cayman Islands
(Address of principal executive offices)
Company's telephone number, including area code: (345)-946-5203*
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Shares, $0.01 Per Share Par Value
(Title of Class)
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 [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Company's knowledge, in a definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Aggregate market value of the voting and non-voting shares held by
non-affiliates of the Company as of March 22, 2002, based on the closing price
of the Registrant's common shares on the Nasdaq Stock Market for that date
Common Shares, $.01 par value - $1,166,074,202
Number of shares outstanding of the Company's common shares as of March 22,
2002:
Common Shares, $.01 par value - 107,779,568
Documents incorporated by reference:
Portions of the following documents are incorporated herein by reference into
Part of the Form 10-K as indicated:
Part of Form 10-K into
Document which Incorporated
Part III
Company's Definitive Proxy Statement for the 2002 Annual Meeting of Shareholders
which will be filed no later than 120 days after December 29, 2001
*The executive offices of the Registrant's principal United States subsidiary
are located at 1200 East 151st Street, Olathe, Kansas 66062.
The telephone number there is (913) 397-8200.
Garmin Ltd.
2001 Form 10-K Annual Report
Table of Contents
Cautionary Statement With Respect To Forward-Looking Comments............1
Part I
Item 1. Business.........................................................1
Item 2. Properties......................................................10
Item 3. Legal Proceedings...............................................11
Item 4. Submission of Matters to a Vote of Security Holders.............11
Executive Officers and Significant Employees of the Company.....11
Part II
Item 5. Market for the Company's Common Stock and Related
Stockholder Matters........................................12
Item 6. Selected Consolidated Financial Data............................13
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................15
Item 7A. Quantitative and Qualitative Disclosures About Market Risk......36
Item 8. Financial Statements and Supplementary Data.....................37
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure...................................62
Part III
Item 10. Directors and Executive Officers of the Company.................62
Item 11. Executive Compensation..........................................62
Item 12. Security Ownership of Certain Beneficial Owners and Management..62
Item 13. Certain Relationships and Related Transactions..................62
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K...................................................63
Signatures......................................................66
GARMIN, the GARMIN logo, the GARMIN globe design, the GARMIN 'swoosh' design,
STREETPILOT, ETREX, ETREX SUMMIT, EMAP, TRACBACK, DCG, GPSMAP, GPS II, GPS III,
GPSCOM, PHASETRAC 12, TRACPAK, G CHART, PERSONAL NAVIGATOR, GUIDANCE BY GARMIN,
AUTOLOCATE, NAVTALK and SEE-THRU are included among the registered trademarks of
Garmin, and ETREX CAMO, ETREX LEGEND, ETREX MARINER, ETREX VENTURE, ETREX VISTA,
METROGUIDE, MAPSOURCE, CLICK STICK, BLUECHART, GPS V and RINO are trademarks of
Garmin Ltd. or its subsidiaries. All other trademarks and trade names referred
to in this Form 10-K are the property of their respective owners.
CAUTIONARY STATEMENT WITH RESPECT TO FORWARD-LOOKING COMMENTS
The discussions set forth in this Annual Report on Form 10-K contain statements
concerning potential future events. Such forward-looking statements are based
upon assumptions by the Company's management, as of the date of this Annual
Report, including assumptions about risks and uncertainties faced by the
Company. In addition, management may make forward-looking statements orally or
in other writings, including, but not limited to, in press releases, in the
annual report to shareholders and in the Company's other filings with the
Securities and Exchange Commission. 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. Readers are cautioned not to place
undue reliance on these forward-looking statements, which speak only as of their
date. If any of management's assumptions prove incorrect or should unanticipated
circumstances arise, the Company's 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 Item 7, 'Management's Discussion and
Analysis of Financial Condition and Results of Operations', of this Form 10-K
under the heading 'Company-Specific Trends and Risks'. Readers are strongly
encouraged to consider those factors when evaluating any forward-looking
statements concerning the Company. The Company will not update any
forward-looking statements in this Annual Report to reflect future events or
developments.
Part I
Item 1. Business
This discussion of the business of Garmin Ltd. ('Garmin' or the 'Company')
should be read in conjunction with, and is qualified by reference to,
'Management's Discussion and Analysis of the Company's Financial Condition and
Results of Operations' ('MD&A') under Item 7 herein and the information set
forth in response to Item 101 of Regulation S-K in such Item 7 is incorporated
herein by reference in partial response to this Item 1. In addition, pursuant to
Rule 12b-23 under the Securities Exchange Act of 1934, as amended, the segment
and geographic information included in Item 8, 'Financial Statements and
Supplementary Data', Note 11 is incorporated herein by reference in partial
response to this Item 1.
The Company was incorporated in the Cayman Islands on July 24, 2000 as a
holding company for Garmin Corporation, a Taiwan corporation, in order to
facilitate a public offering of Garmin shares in the United States.
The Company owns, directly or indirectly, all of the operating companies in
the Garmin group, except for one share of Garmin Corporation held of record, but
not beneficially, by each of six shareholders as nominees to satisfy the
requirement under Taiwan law in effect at the time of the formation of the
Company that Garmin Corporation have at least seven shareholders, and 4,000
shares of Garmin Corporation held by two related shareholders who did not
convert their Garmin Corporation shares to shares of the Company. These 4,006
shares represent approximately 0.004% of the outstanding shares of Garmin
Corporation.
Recent Developments in the Company's Business
Sequoia Instruments, Inc.
On November 29, 2001, Garmin announced that it had acquired substantially
all the assets of Sequoia Instruments, Inc. ('Sequoia'), a research and
development company which has developed technology relating to Global
Positioning System ('GPS') aided Air Data and Attitude Heading and Reference
Systems ('ADHRS') for aircraft. Garmin paid Sequoia $3,625,000 for the assets
and the purchase agreement provides for additional payments to Sequoia totaling
$1,000,000 upon the certification and shipment of products based upon the
technology acquired from Sequoia.
Shareholder Rights Plan
On October 24, 2001, Garmin's Board of Directors adopted a shareholder
rights plan (the 'Rights Plan'). Pursuant to the Rights Plan, the Board declared
a dividend of one preferred share purchase right on each outstanding common
share of Garmin to shareholders of record as of November 1, 2001. The rights
trade together with Garmin's common shares. The rights generally will become
exercisable if a person or group acquires or announces an intention to acquire
15 percent or more of Garmin's outstanding common shares. Each right (other than
those held by the new 15 percent shareholder) will then be exercisable to
purchase preferred shares of Garmin (or in certain instances other securities of
Garmin) having at that time a market value equal to two times the then current
exercise price. Under certain circumstances, the rights will entitle
shareholders to purchase shares in an acquiring company at a 50 percent
discount. The rights will expire on October 31, 2011 unless earlier redeemed.
Garmin's Board of Directors may redeem the rights at a price of $0.002 per right
generally at any time before the rights become exercisable.
Share Repurchase Program
On September 24, 2001, Garmin announced that its Board of Directors
approved a share repurchase program authorizing Garmin to purchase up to five
million common shares of Garmin Ltd. as market and business conditions warrant.
The purchases may be made from time to time on the open market or in negotiated
transactions in compliance with Rule 10b-18 promulgated by the Securities and
Exchange Commission. The timing and amounts of any purchases will be determined
by Garmin's management depending on market conditions and other factors deemed
relevant. The share repurchase authorization expires on December 31, 2002. As of
March 22, 2002, Garmin had purchased a total of 595,200 shares pursuant to this
share repurchase authorization at a total cost of $9.8 million. All such
purchased shares have been cancelled and now form part of the authorized but
unissued capital of Garmin, since Cayman Islands law does not permit a company
to hold its own shares.
Management of Garmin International, Inc.
On March 27, 2002, Dr. Min H. Kao was appointed as President of Garmin's
principal U.S. subsidiary, Garmin International, Inc. ('Garmin International')
and Gary L. Burrell was appointed Chairman of Garmin International. Dr. Kao
previously served as Vice President of Garmin International since April 1991 and
Mr. Burrell previously served as President of Garmin International since August
1990. Both Dr. Kao and Mr. Burrell continue to serve as directors of Garmin
International and of Garmin and as Co-Chairmen and Co-CEOs of Garmin.
Company Overview
Garmin is a leading, worldwide provider of navigation, communications and
information devices, most of which are enabled by GPS technology. Garmin
designs, develops, manufactures and markets under the GARMIN brand a diverse
family of hand-held, portable and fixed mount GPS-enabled products and other
navigation, communications and information products for the general aviation and
consumer markets. Each of Garmin's GPS products utilizes its proprietary
integrated circuit and receiver designs to collect, calculate and display
location, direction, speed and other information in forms optimized for specific
uses.
Overview of the Global Positioning System
The Global Positioning System first made available by the U.S. government
for commercial use in 1983, is a worldwide navigation system which enables the
precise determination of geographic location using established satellite
technology. The system consists of a constellation of orbiting satellites. The
satellites and their ground control and monitoring stations are maintained and
operated by the United States Department of Defense, which maintains an ongoing
satellite replenishment program to ensure continuous global system coverage.
Access to the system is provided free of charge by the U.S. government.
Reception of GPS signals from the satellites requires line-of-sight
visibility between the satellites and the receiver. GPS receivers generally do
not work indoors and when a receiver is outside, buildings, hills and dense
foliage can block reception. GPS receivers can be very compact, and it is not
necessary to have a large dish antenna to receive GPS signals.
Prior to May 2000, the U.S. Department of Defense intentionally degraded
the accuracy of civilian GPS signals in a process known as Selective
Availability ('SA') for national security purposes. SA variably degraded GPS
position accuracy to a radius of 100 meters. On May 2, 2000, the U.S. Department
of Defense discontinued SA. With SA removed, a GPS receiver can calculate its
position to an accuracy of 10 meters or less, significantly enhancing the
utility of GPS for most applications.
The accuracy and utility of GPS can be enhanced even further through
augmentation techniques which compute any remaining errors in the signal and
broadcast these corrections to a GPS device. The Federal Aviation Administration
('FAA') is developing a Wide Area Augmentation System ('WAAS') comprising
ground reference stations and additional satellites which will improve the
accuracy of GPS positioning available in the United States and portions of
Canada and Mexico to approximately 3 meters. WAAS is intended to support the use
of GPS as the primary means of enroute, terminal and approach navigation for
aviation in the United States. The increased accuracy offered by WAAS is
expected also to enhance the utility of WAAS-enabled GPS receivers for consumer
applications. The FAA has stated that it expects the WAAS system to have initial
operating capability by December 2003.
Products
Garmin has achieved a leading market position and a record of growth in
revenues and profits by offering ergonomically designed, user friendly products
with innovative features and designs covering a broad range of applications and
price points.
Garmin's target markets currently consist of the consumer segment, which
primarily includes marine, recreational and automotive products, and the
aviation segment, which consists of panel mount and portable products for use in
general aviation aircraft.
While the marine, recreational, automotive and aviation product lines will
continue to be the core of Garmin's business in the near-term, GPS capabilities
are becoming increasingly commercially viable in a wide range of consumer
products and services, including wireless consumer and mobile information
devices (such as Family Radio Service and General Mobile Radio Service two-way
radios, cellular phones and personal digital assistants). Garmin's goal is to
take advantage of its brand name and its product development experience to
expand its product line in these potentially high-growth GPS markets.
Consumer
Garmin currently offers a wide range of consumer products, including hand-
held GPS receivers, our StreetPilot(R) portable automotive navigation device and
fixed-mount GPS/Sounder products, targeted toward the marine and recreational
market segments. Garmin believes that its consumer products are known for their
value leadership, high performance, innovation and ergonomics. Garmin's
StreetPilot III won the 2001 Consumer Electronics Association Design and
Engineering Showcase award for mobile electronics. The StreetPilot III also won
an Editors Choice award from Cnet.com in 2001.
Garmin also offers a broad set of accessories for its products. For
instance, Garmin's MapSource(TM)CDs, which can be loaded into selected GPS
products through a personal computer, provide detailed mapping information for
the United States and Canada and a number of European countries. With this
information, Garmin's StreetPilot, GPS V, eTrex(R) Venture, eTrex Legend, eTrex
Vista, and eMap(TM) products can provide the customer with detailed information
concerning business listings and points of interest. A user can choose a
business listing (e.g., restaurants, hotels, and shops) and the unit will
display the location of the destination on a map along with the user's location
and the distance from the user's location. Garmin's BlueChart(TM) CD's and data
cards, which are compatible with selected GPS chartplotter and handheld
products, provide detailed nautical chart data for boaters.
The table below includes a sampling of some of the products that Garmin
currently offers to consumers.
Handheld and portable consumer products:
eMap Pocket-size GPS with built-in basic map showing highways
and major streets for personal use and business travel.
MapSource compatibility allows street level mapping, points
of interest and address location functionality.
eTrex
(6 models) Ultra compact full feature handheld GPS design for outdoor
enthusiasts. All models are waterproof and have rugged designs.
The eTrex Summit and eTrex Vista have electronic compass and
barometric altimeter functions. eTrex Venture has a worldwide
database of cities. eTrex Legend and eTrex Vista have internal
basemaps of either North and South America or Europe. eTrex
Camo features a camouflaged design and a hunting and fishing
almanac. The eTrex class of products represented approximately
20 percent of total consolidated revenues during fiscal year
2001. The eTrex class of products represented less than 10
percent of total consolidated revenues during fiscal years 2000
and 1999.
StreetPilot
(3 models) Portable automotive navigation systems with basemap and
MapSource compatibility allowing street level mapping, points
of interest and address location functionality. The ColorMap
model features a color display. StreetPilot III features
"turn by turn" automatic route guidance and voice prompting
and a high resolution color display.
GPS 12
(3 models) Rugged handhelds for serious outdoor enthusiasts. Capabilities
and features available in different GPS 12 models include
basic navigation, color graphics, built-in database of cities,
basemaps and MapSource compatibility.
GPSMAP 76
(2 models) Handheld GPS with large display and a waterproof case which
floats in water. Preloaded with U.S. tidal data and has
MapSource and BlueChart compatibility. GPSMAP 76S(expected to
be available in April 2002)features a barometric altimeter and
an electronic compass.
GPS V Portable GPS with 'turn by turn' automatic route guidance,
MapSource compatibility for street level mapping and unique
selectable vertical or horizontal displays.
Marine fixed-mount units:
GPS126,128 and 152
Low cost fixed-mount GPS's for boating with either a built-in
antenna or an external antenna for exposed installations. GPS
152 has internal database of U.S.cities and navigation aids and
has the compatibility of uploading points of interest data from
a personal computer with MapSource CD-ROM's.
GPSMAP
(11 models) Marine GPS/plotter combinations for boating and fishing
enthusiasts of different levels.Features available on different
models include a variety of display sizes(ranging in size from
3.8" to 10"), high-contrast LCD graphics, monochrome 16-color
or 256-color displays and the capability of uploading mapping
and nautical chart data from a personal computer with MapSource
and BlueChart CD-ROM's.
Sounder products:
FishFinders
(6 models) Fishfinders feature DCG(R)and See-Thru(R)technology, which aid
fishermen in defining the ocean/lake bottom and spotting fish
in hidden or obscured areas. Fishfinder Blue series products
have dual frequency transducers for optimal performance in deep
water.
GPSMAP/Sounder
(3 models) 'All-in-one' product lines with GPS, chartplotter and sonar
functionality. These units come with different display sizes
(ranging in size from 4.2" to 7.25") and the capability of
uploading mapping and nautical chart data. Certain models
feature dual frequency transducers for optimal sonar
performance in deep water.
Consumer communications products:
NavTalk GSM A handheld unit that combines a 900 MHz/1800 MHz GSM digital
cellular telephone and a full-featured GPS receiver with
mapping display, 'turn by turn' automatic route guidance and
voice prompting. Features the ability to transmit location
from one unit to another unit and to location-based service
companies.
VHF 720 & 725 Waterproof, portable handheld marine radios with either 3-watt
or 5-watt power output provide clear VHF communication
capabilities for all types of boaters.
Aviation
Garmin's panel mounted product line includes GPS-enabled navigation, VHF
communications transmitters/receivers, traditional VHF navigation receivers,
instrument landing receivers, digital transponders (which transmit either an
aircraft's altitude or its flight identification number in response to requests
transmitted by ground-based air traffic control radar systems or air traffic
avoidance devices on other aircraft), marker beacon receivers and audio panels.
Garmin's aviation products have won prestigious awards throughout the
industry for their innovative features and ease of use. Garmin was the first
company to offer a GPS receiver, the GPS 155/165, which met the Federal Aviation
Administration's requirements for certain kinds of instrument approaches and did
so a full year ahead of its competitors. The GPS 155/165 with its instrument
approach capability won Flying Magazine's outstanding achievement award for
1994. The GNS 430/530 offers multiple features and capabilities integrated into
a single product. This high level of integration minimizes the use of precious
space in the cockpit, enhances the quality and safety of flight through the use
of modern designs and components and reduces the cost of equipping an aircraft
with modern electronics. The GNS 430 was also recognized by Flying Magazine as
the Editor's Choice Product of the Year for 1998. In 1994 and again in 2000,
Garmin earned recognition from the Aircraft Electronics Association for
outstanding contribution to the general aviation electronics industry. The
GPSMAP 295 won Aviation Consumer Magazine's Gear of the Year award for best
aviation portable product in 2000 and again in 2001.
Garmin's panel mounted aviation products are sold in the retrofit market
where older aircraft are fitted with the latest electronics from Garmin's broad
product line. Garmin believes this market continues to have good growth
potential as aircraft owners elect to upgrade their existing aircraft at a cost
that is lower than purchasing a new aircraft.
Garmin has also gained market share as an original equipment manufacturer
supplier to leading airframe manufacturers such as the New Piper Aircraft
Company, Raytheon Aircraft Company, Mooney Aircraft Corporation, Cirrus Design
Corporation and Eurocopter. Garmin anticipates further growth in its sales to
the original equipment manufacturers market as its product offerings expand to
include weather information and primary flight instruments that use the latest
display technologies.
The table below includes a sampling of some of the aviation products
currently offered by Garmin:
Handheld and portable aviation products:
GPS 92 Value-priced unit for recreational pilots with built-in
Jeppesen(R) database. The Jeppesen database includes airports,
navigation beacons,controlled airspace,runway data and final
approach waypoints.
GPS III Pilot Aviation style GPS III, with built-in maps and Jeppesen
database.
GPSMAP 195 Portable GPS receiver with 4.1" moving map display and built-in
aviation database.
GPSMAP 295 A high-end portable GPS receiver designed specifically for the
serious aviator. Features include a 16-color display and
built-in aviation database; it can download MapSource CD-ROM
information through a personal computer for street level map
details.
Panel-mount aviation products:
GNC 300XL TSO Instrument Flight Rules ('IFR') certified product that
combines a GPS receiver with VHF radio and features moving map
graphics.
400 Series
(3 models) The GNS 430 is the world's first 'all-in-one' IFR certified
GPS navigation receiver/traditional VHF navigation
receiver/instrument landing systems receiver and VHF
communication transmitter/receiver. Features available in
different 400 series models include 4 color map graphics, GPS,
communication and navigation capabilities.
500 Series
(2 models) These units combine the features of the 400 series along with a
larger 5" color display.
GI-102A &
106A Course deviation indicators (CDIs). The GI-106A features an
instrument landing system receiver to aid in landing.
GMA 340 A feature-rich audio panel with six-place stereo intercom and
independent pilot/co-pilot communications capabilities.
GTX 320A &
327 FAA-certified transponders which transmit altitude or flight
information to air traffic control radar systems or other
aircraft's air traffic avoidance devices and feature solid-state
construction for longer life. The GTX 327 offers a digital
display with unique timing functions.
Aviation communications products:
NavTalk Pilot GPS-enabled cellular telephone, with built-in aviation database,
offers AirCell(R) airborne service so that pilots can make and
receive cellular telephone calls while airborne.
Sales and Marketing
Garmin's consumer products are sold through a worldwide network of
approximately 2,500 independent dealers and distributors in approximately 100
countries who meet our sales and customer service qualifications. Garmin intends
to selectively grow its dealer network geographically and by product lines.
Marketing support is provided geographically from Garmin's offices in Olathe,
Kansas (North, South and Central America), Romsey, U.K. (Europe, Middle East and
Africa) and Shijr, Taiwan (Asia and Australasia). Garmin's distribution strategy
is intended to increase Garmin's global penetration and presence while
maintaining high quality standards to ensure end-user satisfaction.
In 2001, Garmin established a new subsidiary in Kansas, Garmin USA, Inc.,
to handle consumer and aviation product sales activities in the USA. Also in
2001, Garmin's subsidiary, Garmin Foreign Sales Corporation, was dissolved in
view of the changes to U.S. tax laws enacted in the Foreign Sales Corporation
Repeal and Extraterritorial Income Exclusion Act of 2000.
Garmin's U.S. consumer segment marketing is handled through its dealers who
are serviced by a staff of regional sales managers and in-house sales
associates. Some of Garmin's largest consumer products dealers include:
- Bass Pro Shops - a freshwater sports specialist with a sophisticated
catalog sales effort and 'super store' locations;
- Boat America/Boat U.S. - A major marine dealer featuring memberships
for special buying privileges;
- Boaters World - a leading off-shore marine retailer with multiple
locations;
- Cabela's - a major catalog retailer for the outdoor marine market;
- Wal-Mart - one of the world's largest mass retailers;
- West Marine - one of the largest U.S. marine retailers specializing
in offshore boating equipment; and
- Best Buy - one of the largest U.S. electronics retailers
Garmin's European consumer segment marketing is handled through in-country
distributors who resell to dealers. Working closely with Garmin's in-house sales
and marketing staff in Romsey, U.K., these distributors are responsible for
inventory levels and staff training requirements at each retail location.
Garmin's Taiwan-based marketing team handles its Asia marketing effort.
Aviation marketing is handled through dealers around the world. Garmin's
largest aviation dealers include Sportsmen's Market, Tropic Aero and JA Air
Center. All have the training, equipment and certified staff required for the
at-airport installation of Garmin's most sophisticated IFR avionics equipment.
Visual Flight Rules ('VFR') equipment including handheld GPS receivers, is
sold through dealers, usually at airport locations or through catalogs.
In addition to the traditional distribution channels mentioned, Garmin
enjoys significant market penetration with original equipment manufacturers. In
the consumer market, Garmin's products are standard equipment on boats
manufactured by Ranger Boats and Lund Boat Company. In the aviation market,
Garmin's avionics are standard equipment on airplanes built by The New Piper
Aircraft Company, Raytheon Aircraft Company, Mooney Aircraft Corporation and
Cirrus Design Corporation. Other aircraft and boat manufacturers offer Garmin's
products as optional equipment.
Competition
The market for navigation, communications and information products is
highly competitive. Garmin believes the principal competitive factors impacting
the market for its products are features, quality, design, customer service,
brand, price, time-to-market and availability. Garmin believes that it generally
competes favorably in these areas.
Garmin believes that its principal competitors for consumer GPS-enabled
product lines are Thales Navigation, Inc. ('Thales'), Lowrance Electronics Inc.
('Lowrance'), Cobra Electronics Corporation ('Cobra'), Raymarine Ltd.
('Raymarine'), Furuno Electronic Company, the Standard Horizon Division of Yaesu
Co. Ltd. ('Standard'), Navman Ltd. and Simrad AS ('Simrad'). For Garmin's
fishfinder/depth sounder product lines, Garmin believes that its principal
competitors are Lowrance, Furuno, Raymarine, Simrad and the Humminbird division
of Techsonic Industries, Inc. ('Humminbird'). Garmin believes that its
principal competitors for marine VHF transceiver product lines are Standard,
Shakespeare Corporation, Humminbird, Raymarine, Uniden Corporation, Simrad and
Icom, Inc. For Garmin's general aviation product lines, Garmin considers its
principal competitors to be Lowrance and Thales, for portable GPS units, and UPS
Aviation Technologies, a subsidiary of United Parcel Service, Inc., Honeywell,
Inc., Northstar Technologies, Goodrich Corporation, Meggitt PLC and Avidyne
Corporation for panel-mount GPS and display units. For Garmin's Family Radio
Service and General Mobile Radio Service product line, Garmin believes that its
principal competitors are Motorola, Inc. ('Motorola'), Cobra and Audiovox
Corporation. For Garmin's cellular product line, Garmin believes that its
principal competitors are Nokia Oy, Telefon AB LM Ericsson, Motorola, Benefon
Oy, Siemens AG ('Siemens'), Sony Corporation and Samsung. For Garmin's GPS
sensor board product lines, Garmin believes its principal competitors are
Trimble Navigation, Ltd., Conexant, Inc., Thales, Motorola, Philips N.V.
('Philips') and SiRF Technology, Inc. For Garmin's automotive product lines,
Garmin considers its principal competitors to be Thales, Alpine Electronics,
Inc., Denso KK, Visteon, the On-Star Division of General Motors Corporation,
Xanavi Informatics Corporation, Robert Bosch GmbH, Siemens and Philips. For
Garmin's personal digital assistant product line, Garmin considers its principal
competitors to be Palm, Inc. and Handspring, Inc.
Research and Development
Garmin's product innovations are driven by its strong emphasis on research
and development and the close partnership between Garmin's engineering and
manufacturing teams. Garmin's products are created by its engineering and design
staff of approximately 275 people worldwide. Garmin's manufacturing staff
includes manufacturing process engineers who work closely with Garmin's design
engineers to ensure manufacturability and manufacturing cost control for its
products. Garmin's design staff includes industrial designers, as well as
software engineers, electrical engineers and mechanical engineers. Garmin
believes the industrial design of its products has played an important role in
Garmin's success. Once a development project is initiated and approved, a
multi-disciplinary team is created to design the product and transition it into
manufacturing.
Below is a table of Garmin's expenditures on research and development over
the last three fiscal years.
Fiscal Years Ended
---------------------------------------------------------------------
December 29, December 30, December 25,
2001 2000 1999
---------------------------------------------------------------------
(In thousands)
Research and development $28,164 $21,764 $17,339
Manufacturing and Operations
Garmin believes that one of its core competencies is its manufacturing
capability at both its Shijr, Taiwan facility and its Olathe, Kansas facility.
Garmin's vertically integrated approach has provided it the following
competitive advantages:
Reduced time-to-market. Utilizing concurrent engineering techniques,
Garmin's products are introduced to production at an early development stage and
the feedback provided by manufacturing is incorporated into the design before
mass production begins. In this manner, Garmin can significantly reduce the time
required to move a product from its design phase to mass production deliveries,
with improved quality and yields. Reducing time to market has enabled Garmin to
offer several industry firsts, such as the NavTalk GPS-enabled wireless phone
and the GNS 430, which integrates traditional aviation navigation and
communications systems with GPS in a single package.
Design and process optimization. Using its manufacturing resources, Garmin
can rapidly prototype design concepts, products and processes in order to
achieve higher efficiency, lower cost and best value for the customer. Garmin's
ability to fully explore product design and manufacturing process concepts has
enabled it to optimize its designs to minimize size and weight in a GPS device
that is fully functional, waterproof, and rugged.
Logistical agility. Operating its own manufacturing facilities helps Garmin
minimize problems common to the electronics industry, such as component
shortages and long component lead times. Many products can be re-engineered to
bypass component shortages or reduce cost and the new designs can quickly fill
the distribution pipeline. Garmin can react rapidly to changes in market demand
by maintaining a safety stock of long-lead components or by rescheduling
components from one product line to another.
Garmin's design and manufacturing processes are certified to ISO 9001/2 for
superior quality. Garmin's Taiwan manufacturing facility also achieved QS 9000
quality certification in 2001. QS 9000 is a quality standard for automotive
suppliers. In addition Garmin's aviation panel-mount products are designed
according to processes which are approved and monitored by the FAA.
Intellectual Property
Garmin's success and ability to compete is dependent in part on its
proprietary technology. Garmin relies on a combination of patent, copyright,
trademark and trade secret laws, as well as confidentiality agreements, to
establish and protect our proprietary rights. As of March 22, 2002, Garmin held
63 U.S. patents that expire at various dates no earlier than 2006. As of March
22, 2002, Garmin had 99 U.S. patent applications pending. Garmin's U.S. patents
do not create any patent rights in foreign countries. In addition, Garmin often
relies on licenses of intellectual property for use in its business. For
example, Garmin obtains licenses for digital cartography technology for use in
our products from various sources. Garmin's registered U.S. trademarks include:
GARMIN; the GARMIN logo; the GARMIN globe design; the GARMIN 'swoosh' design;
STREETPILOT; ETREX; ETREX SUMMIT; EMAP; TRACBACK; DCG; PERSONAL NAVIGATOR;
GPSMAP; GPS II; GPS III; GUIDANCE BY GARMIN; GPSCOM; PHASETRAC 12; TRACPAK; G
CHART; AUTOLOCATE; NAVTALK and SEE-THRU. Our mark GARMIN and certain other
trademarks have also been registered in selected foreign countries. Garmin's
trademarks include ETREX CAMO; ETREX LEGEND; ETREX MARINER; ETREX VENTURE; ETREX
VISTA; METROGUIDE; MAPSOURCE; CLICK STICK, BLUECHART, GPS V and RINO. Some of
Garmin's patents and its registered trademarks and trademarks are owned by
Garmin's subsidiary, Garmin Corporation.
Garmin believes that its continued success depends in large part on the
intellectual skills of its employees and their ability to continue to innovate.
Garmin will continue to file and prosecute patent applications when appropriate
to attempt to protect Garmin's rights in its proprietary technologies.
It is possible that Garmin's current patents, or patents which it may later
acquire, may be successfully challenged or invalidated in whole or in part. It
is also possible that Garmin may not obtain issued patents for inventions it
seeks to protect. It is also possible that Garmin may not develop proprietary
products or technologies in the future that are patentable, or that any patent
issued to Garmin may not provide it with any competitive advantages, or that the
patents of others will harm or altogether preclude Garmin's ability to do
business. Legal protections afford only limited protection for Garmin's
technology. Despite Garmin's efforts to protect its proprietary rights,
unauthorized parties may attempt to copy aspects of Garmin's products or to
obtain and use information that Garmin regards as proprietary. Litigation may be
necessary in the future to enforce Garmin's intellectual property rights, to
protect its trade secrets, to determine the validity and scope of the
proprietary rights of others or to defend against claims of infringement or
invalidity. Any resulting litigation could result in substantial costs and
diversion of Garmin's resources. Garmin's means of protecting its proprietary
rights may not be adequate and Garmin's competitors may independently develop
similar technology.
Regulations
Garmin's aviation products that are intended for installation in type
certificated aircraft are required to be certified by the FAA, its European
counterpart, the Joint Aviation Authorities, and other comparable organizations
before they can be used in an aircraft. The telecommunications industry is
highly regulated, and the regulatory environment in which Garmin operates is
subject to change. In accordance with Federal Communication Commission ("FCC")
rules and regulations, wireless transceiver and cellular handset products are
required to be certified by the FCC and comparable authorities in foreign
countries where they are sold. Garmin's products sold in Europe are required to
comply with relevant directives of the European Commission. A delay in receiving
required certifications for new products or enhancements to Garmin's products or
losing certification for Garmin's existing products could adversely affect its
business.
Because Garmin Corporation, one of the Company's principal subsidiaries, is
located in Taiwan, foreign exchange control laws and regulations of Taiwan with
respect to remittances into and out of Taiwan may have an impact on Garmin's
operations. The Taiwan Foreign Exchange Control Statute, and regulations
thereunder, provide that all foreign exchange transactions must be executed by
banks designated to handle such business by the Ministry of Finance of Taiwan
and by the Central Bank of China, also referred to as the CBC. Current
regulations favor trade-related foreign exchange transactions. Consequently,
foreign currency earned from exports of merchandise and services may now be
retained and used freely by exporters, while all foreign currency needed for the
import of merchandise and services may be purchased freely from the designated
foreign exchange banks. Aside from trade-related foreign exchange transactions,
Taiwan companies and residents may, without foreign exchange approval, remit
outside and into Taiwan foreign currencies of up to $50 million and $5 million
respectively, or their equivalent, each calendar year. Currency conversions
within the limits are processed by the designated banks and do not have to be
reviewed and approved by the CBC. The above limits apply to remittances
involving a conversion between NT Dollars and U.S. Dollars or other foreign
currencies. The CBC typically approves foreign exchange in excess of the limits
if a party applies with the CBC for review and presents legitimate business
reasons justifying the currency conversion. A requirement is also imposed on all
enterprises to register all medium and long-term foreign debt with the CBC.
Employees
As of December 29, 2001, Garmin had 1,329 full-time employees worldwide, of
whom 629 were in the United States, 664 were in Taiwan and 36 were in the United
Kingdom. None of Garmin's employees are represented by a labor union or covered
by a collective bargaining agreement. Garmin considers its employee relations to
be good.
Item 2. Properties
Garmin's U.S. subsidiaries, Garmin International, Inc. and Garmin USA, Inc.
occupy a 240,000 square foot facility on 41 acres in Olathe, Kansas, where all
aviation panel-mount products are manufactured and Garmin products are
warehoused, distributed, and supported for North and South America. The
expansion of the Olathe facility from 103,000 to 240,000 square feet was
substantially completed in March, 2001. Garmin's subsidiary, Garmin Realty, LLC
also purchased an additional 46 acres of land on the Olathe site in February,
2000 for future expansion. In connection with the bond financings for the
facility in Olathe and the expansion of that facility, the City of Olathe holds
the legal title to this property which is leased to Garmin's subsidiaries by the
City. Upon the payment in full of the outstanding bonds, the City of Olathe is
obligated to transfer title to Garmin's subsidiaries for the aggregate sum of
$200. In December 2001, Garmin International, Inc. entered into a ground lease
for 148,320 square feet of land at New Century Airport in Gardner, Kansas. This
ground lease expires in 2026. In January 2002, Garmin International, Inc.
completed construction of a 25,034 square foot aircraft hangar, flight test and
certification facility on this land for use in development and certification of
aviation products.
Garmin's subsidiary, Garmin Corporation, owns a 249,326 square foot
facility in Shijr, Taipei County, Taiwan where it manufactures all of Garmin's
consumer and portable aviation products and warehouses, markets and supports
products for the Pacific Rim countries. Garmin Corporation occupies 208,375
square feet at this facility and leases the remaining 41,082 square feet to
third parties.
Garmin's subsidiary, Garmin (Europe) Ltd., leases an aggregate of 28,358
square feet under two leases in Romsey, England for warehousing, marketing and
supporting Garmin products in Europe, Africa and the Middle East. Garmin
(Europe) Ltd. also repairs products at this facility. These leases expire in
2010 and 2015 respectively. Garmin International, Inc. also leases an aggregate
of 3,233 square feet of office space in Tempe, Arizona for software development,
and Wichita, Kansas for support for Garmin's aviation original equipment
manufacturer operations.
Item 3. Legal Proceedings
From time to time, Garmin may be involved in litigation relating to claims
arising out of our operations. As of March 22, 2002, Garmin was not a party to
any material legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Executive Officers and Significant Employees of the Company
Pursuant to General Instruction G(3) of Form 10-K and instruction 3 to
paragraph (b) of Item 401 of Regulation S-K, the following list is included as
an unnumbered Item in Part I of this Annual Report on Form 10-K in lieu of being
included in the Company's Definitive Proxy Statement in connection with its
annual meeting of shareholders scheduled for June 7, 2002.
Gary L. Burrell, age 64, has served as Co-Chairman and Co-Chief Executive
Officer of Garmin Ltd. since August 2000. He has been a director of Garmin
Corporation since January 1990. He served as President of Garmin Corporation
from January 1990 to December 1998. Mr. Burrell has also been Chairman of Garmin
International, Inc. since March 2002, a director of Garmin International, Inc.
since August 1990 and he served as President of Garmin International, Inc. from
August 1990 to March 2002. Mr. Burrell has been Chairman of Garmin USA, Inc.
since March 2002 and a director of Garmin USA, Inc. since December 2001. He
served as President of Garmin USA, Inc. from December 2001 to March 2002. Mr.
Burrell has been a director and Chairman of Garmin (Europe) Ltd. since 1992. Mr.
Burrell was a director of Garmin Foreign Sales Corporation from May 1998 to
December 2001 and President from July 1998 to December 2001. Mr. Burrell holds a
BS degree in Electrical Engineering from Wichita State University and a MS
degree in Electrical Engineering from Rensselaer Polytechnic Institute.
Dr. Min H. Kao, age 53, has served as Co-Chairman and Co-Chief Executive
Officer of Garmin Ltd. since August 2000. He has been President of Garmin
Corporation since January 1999. He has also been Chairman and a director of
Garmin Corporation since January 1990. Dr. Kao has been President of Garmin
International, Inc. since March 2002 and a director of Garmin International,
Inc. since August 1990. He served as Vice President of Garmin International,
Inc. from April 1991 to March 2002. Dr. Kao has been President of Garmin USA,
Inc. since March 2002 and a director of Garmin USA, Inc. since December 2001. He
served as Vice President of Garmin USA, Inc. from December 2001 to March 2002.
He has been a director of Garmin (Europe) Ltd. since 1992. Dr. Kao was a
director of Garmin Foreign Sales Corporation from May 1998 to December 2001 and
Vice President from July 1998 to December 2001. Dr. Kao holds Ph.D. and MS
degrees in Electrical Engineering from the University of Tennessee and a BS
degree in Electrical Engineering from National Taiwan University.
Kevin S. Rauckman, age 39, has served as Chief Financial Officer and
Treasurer of Garmin Ltd. since August 2000. He has been Director of Finance and
Treasurer of Garmin International, Inc. since January 1999 and a director of
Garmin International, Inc. since April 2001. He has been Treasurer and a
director of Garmin USA, Inc. since December 2001. Mr. Rauckman was a director
and Treasurer of Garmin Foreign Sales Corporation from January 1999 to December
2001. Previously, Mr. Rauckman served as Director of Finance and in other
finance capacities for one of Allied Signal's (now known as Honeywell
International, Inc.) Aerospace units from May 1996 to January 1999 and served as
Finance Manager with Unisys Corporation, a technology hardware and consulting
services company, from June 1993 to April 1996. Mr. Rauckman holds BS and MBA
degrees in Business from the University of Kansas.
Andrew R. Etkind, age 46, has served as General Counsel and Secretary of
Garmin Ltd. since August 2000. He has been General Counsel of Garmin
International, Inc. since February 1998 and Secretary since October 1998. He has
been General Counsel and Secretary of Garmin USA, Inc. since December 2001.
Previously, Mr. Etkind served as Senior Attorney for Alumax Inc., a manufacturer
of aluminum and aluminum products, from March 1996 to January 1998 and was Vice
President, General Counsel and Secretary of Information Management Resources,
Inc., a software systems development and consulting company, from July 1993
to February 1996. Mr. Etkind holds BA, MA and LLM degrees from Cambridge
University, England and a JD degree from the University of Michigan Law
School.
Gary V. Kelley, age 55, has been Director of Marketing of Garmin
International, Inc. since 1992 and has been a director of Garmin (Europe) Ltd.
since 1993. Mr. Kelley holds a BBA degree from Baker University. He also holds a
commercial pilot license with instrument and flight instructor ratings.
All executive officers are elected by and serve at the discretion of the
Company's Board of Directors. None of the executive officers have employment
agreements with the Company. There are no arrangements or understandings between
the executive officers and any other person pursuant to which he or she was or
is to be selected as an officer. None of the executive officers are related to
one another. Dr. Min H. Kao is the brother of Ruey-Jeng Kao, a Director of
Garmin Ltd. and a supervisor of Garmin Corporation. Elected by the shareholders
of Garmin Corporation, a supervisor serves as an ex-officio member of its Board
of Directors to protect the interests of all shareholders.
PART II
Item 5. Market for the Company's Common Stock and Related Stockholder Matters
The Company's common shares have traded on the Nasdaq National Market under
the symbol 'GRMN' since its initial public offering on December 8, 2000. As of
March 22, 2002 there were approximately 129 shareholders of record.
No cash dividends have been paid since the initial public offering of the
Company's common shares on December 8, 2000. The Company intends to retain its
earnings for use in its business and therefore does not anticipate paying any
cash dividends in the foreseeable future.
The date of the Company's initial public offering was December 8, 2000. The
range of high and low closing sales prices of the Company's common shares as
reported on the Nasdaq Stock Market for each fiscal quarter of fiscal years 2000
and 2001 was as follows:
Year Ended Year Ended
---------------------------------------------------------------------------
December 29, 2001 December 30, 2000
---------------------------------------------------------------------------
High Low High Low
---------------------------------------------------------------------------
First Quarter $25.13 $17.00 N/A N/A
---------------------------------------------------------------------------
Second Quarter $24.68 $18.00 N/A N/A
---------------------------------------------------------------------------
Third Quarter $23.36 $14.40 N/A N/A
---------------------------------------------------------------------------
Fourth Quarter $21.32 $15.50 $21.19 $18.19
---------------------------------------------------------------------------
During the fourth fiscal quarter of fiscal year 2001, Garmin expended a
total of $13.4 million of the $104.4 million net proceeds from its December 8,
2000 initial public offering (the 'IPO') as follows: $3.6 million was used to
acquire substantially all the assets of Sequoia Instruments, Inc. and $9.8
million was used to purchase a total of 595,200 shares of Garmin pursuant to a
share repurchase program approved by Garmin's Board of Directors. See 'Recent
Developments in the Company's Business' under Item 1 herein.
Garmin plans to use the remaining $91.0 million net proceeds from the IPO
for working capital and other general corporate purposes, including possible
share repurchases, acquisitions or strategic partnerships. Garmin currently has
no specific plan for allocating those proceeds among working capital and other
general corporate purposes. Garmin currently has no commitments to make any
material investments or acquisitions and will retain broad discretion in the
allocation of net proceeds from the IPO.
Item 6. Selected Financial Data
The following table sets forth selected consolidated financial data of the
Company. The selected consolidated balance sheet data as of December 29, 2001
and December 30, 2000 and the selected consolidated statement of income data for
the years ended December 29, 2001, December 30, 2000 and December 25, 1999 were
derived from the Company's audited consolidated financial statements and the
related notes thereto which are included in Item 8 of this annual report on Form
10-K. The selected consolidated balance sheet data as of December 25, 1999,
December 26, 1998 and December 31, 1997 and the selected consolidated statement
of income data for the years ended December 25, 1998 and December 31, 1997 were
derived from the Company's audited consolidated financial statements, not
included herein.
The information set forth below is not necessarily indicative of the
results of future operations and should be read together with 'Management's
Discussion and Analysis of Financial Condition and Results of Operations' and
the consolidated financial statements and notes to those statements included in
Items 7 and 8 and Part II of this Form 10-K.
Years Ended (1)
Dec. 29, Dec. 30, Dec. 25, Dec. 26, Dec. 31,
2001 2000 1999 1998 1997
(in thousands, except per share data)
Consolidated Statements of
Income Data:
Net sales $369,119 $345,741 $232,586 $169,030 160,280
Cost of goods sold 170,960 162,015 105,654 82,787 93,620
-------- -------- -------- -------- -------
Gross profit 198,159 183,726 126,932 86,243 66,660
Operating expenses;
Selling, general and
administrative 38,709 32,669 27,063 24,680 17,102
Research and
development 28,164 21,764 17,339 14,876 12,657
------- ------- ------- ------ ------
Total operating expenses 66,873 54,433 44,402 39,556 29,759
------- ------- ------- ------ ------
Operating income 131,286 129,293 82,530 46,687 36,901
Other income, net (2), (3) 20,749 11,629 1,602 833 11,971
------- ------- ------ ------ ------
Income before income
taxes 152,035 140,922 84,132 47,520 48,872
Income tax provision 38,587 35,259 19,965 12,354 12,780
------- ------- ------ ------ ------
Net income $113,448 $105,663 $64,167 $35,166 $36,092
======== ======== ======= ======= =======
Net income per share:
Basic $1.05 $1.05 $0.64 $0.35 $0.37
Diluted $1.05 $1.05 $0.64 $0.35 $0.37
Weighted average common
shares outstanding:
Basic 108,097 100,489 100,000 99,624 98,876
Diluted 108,447 100,506 100,000 99,624 98,876
Cash dividends per share (4) $0.00 $0.29 $0.13 $0.12 $0.09
Balance Sheet Data (at end of
Period):
Cash and cash equivalents $192,842 $251,731 $104,079 $80,360 $64,243
Marketable securities $131,584 $0 $0 $0 $0
Total assets $532,155 $463,347 $250,090 $174,532 $143,482
Total debt (5) $32,188 $46,946 $27,720 $9,708 $15,823
Total stockholders' equity $453,969 $365,239 $194,599 $135,940 $104,204
(1) Our fiscal year-end is the last Saturday of the calendar year and does not
always fall on December 31. Prior to 1998, our fiscal years ended on
December 31.
(2) Other income, net mainly consists of interest income, interest expense and
foreign currency gain(loss).
(3) Includes $11.6 million, $7.0 million, and $10.0 million of foreign currency
gains during 2001, 2000, and 1997, respectively.
(4) Represents cash dividends per share based on the actual number of shares
outstanding at the time of the dividend, as adjusted for the 1.12379256
for 1 stock split of our common shares, effected through a stock dividend
on November 6, 2000. There were no cash dividends issued during 2001.
(5) Total debt consists of notes payable and long-term debt.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion and analysis of our financial condition and
results of operations focuses on and is intended to clarify the results of our
operations, certain changes in our financial position, liquidity, capital
structure and business developments for the periods covered by the consolidated
financial statements included in this Form 10-K. This discussion should be read
in conjunction with, and is qualified by reference to, the other related
information including, but not limited to, the audited consolidated financial
statements (including the notes thereto and the independent auditor's report
thereon), the description of our business, all as set forth in this Form 10-K,
as well as the risk factors discussed below (the 'Company-Specific Trends and
Risks').
As previously noted, the discussion set forth below, as well as other
portions of this Form 10-K, contains statements concerning potential future
events. 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 our assumptions on which the statements are based prove
incorrect or should unanticipated circumstances arise, our 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, the Company-Specific Trends and Risks. Readers
are strongly encouraged to consider those factors when evaluating any such
forward-looking statement. We will not update any forward-looking statements in
this Form 10-K.
Prior to 1998, the Company's fiscal year was based on a calendar year. In
1998, the Company elected to change its fiscal year to a 52-53 week period
ending on the last Saturday of the calendar year. Fiscal year 2000 contained 53
weeks compared to 52 weeks for fiscal years 2001, 1999 and 1998. Unless
otherwise stated, all years and dates refer to the Company's fiscal year and
fiscal periods. Unless the context otherwise requires, references in this
document to 'we', 'us', 'our' and similar terms refer to Garmin Ltd. and its
subsidiaries.
Overview
We are a leading worldwide provider of navigation, communications and
information devices, most of which are enabled by Global Positioning System, or
GPS, technology. We operate in two business segments, the consumer and aviation
markets. Both of our segments offer products through our network of independent
dealers and distributors. However, the nature of products and types of customers
for the two segments vary significantly. As such, the segments are managed
separately. Our consumer segment includes portable GPS receivers and accessories
for marine, recreation, land and automotive applications sold primarily to
retail outlets. Our aviation products are portable and panel-mount avionics for
Visual Flight Rules and Instrument Flight Rules navigation and are sold
primarily to retail outlets and certain aircraft manufacturers.
Since our first products were delivered in 1991, we have generated positive
income from operations each year and have funded our growth from these profits.
Our sales have increased at a compounded annual growth rate of 23% since 1997
and our net income has increased at a compounded annual growth rate of 33% since
1997. All of this growth has been organic; none has occurred as a result of any
acquisition or merger.
Since our principal locations are in the United States, Taiwan and the
U.K., we experience some foreign currency fluctuations in our operating results.
The functional currency of our European operations is the U.S. dollar (effective
in 2001) and the functional currency of our Asian operations is the Taiwan
Dollar. Minimal transactions of our European operations are now denominated in
British Pound Sterling. We experienced $11.6 million, $7.0 million, and $10.0
million in foreign currency gains during fiscal years 2001, 2000, and 1997,
respectively. To date, we have not entered into hedging transactions with either
the British Pound Sterling or the Taiwan Dollar, although we may utilize hedging
transactions in the future.
Critical Accounting Policies and Estimates
General
The Company's discussion and analysis of its financial condition and results of
operations are based upon the Company's consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States. The presentation of these financial statements requires
the Company to make estimates and judgements that affect the reported amounts of
assets, liabilities, revenues and expenses, and related disclosure of contingent
assets and liabilities. On an on-going basis, the Company evaluates its
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. The Company 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 judgements 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.
Revenue Recognition
The Company records estimated reductions to revenue for customer sales programs
and incentive offerings including rebates, price protection, promotions and
other volume-based incentives. If market conditions were to decline, the Company
may take actions to increase customer incentive offerings possibly resulting in
an incremental reduction of revenue at the time the incentive is offered.
Bad Debt
The Company maintains allowances for doubtful accounts for estimated losses
resulting from the inability of its customers to make required payments. If the
financial condition of the Company's customers were to deteriorate, resulting in
an impairment of their ability to make payments, additional allowances may be
required.
Warranties
The Company's products sold are generally covered by a warranty for periods
ranging from one to two years. The Company accrues a warranty reserve for
estimated costs to provide warranty services. The Company's estimate of costs to
service its warranty obligations is based on historical experience and
expectation of future conditions. To the extent the Company experiences
increased warranty claim activity or increased costs associated with servicing
those claims, its warranty accrual will increase resulting in decreased gross
profit.
Inventory
The Company writes down its inventory for estimated obsolescence or unmarketable
inventory equal to the difference between the cost of inventory and the
estimated market value based upon assumptions about future demand and market
conditions. If actual market conditions are less favorable than those projected
by management, additional inventory write-downs may be required.
Income Taxes
It is the Company's policy to record a valuation allowance to reduce its
deferred tax assets to an amount that it believes is more likely than not to be
realized. While the Company has considered future taxable income and ongoing
prudent and feasible tax planning strategies in assessing the need for the
valuation allowance, in the event the Company were to determine that it would
not be able to realize all or part of its net deferred tax assets in the future,
an adjustment to the deferred tax assets would be charged to income in the
period such determination was made. Likewise, should the Company determine that
it would be able to realize its deferred tax assets in the future in excess of
its net recorded amount, an adjustment to the deferred tax assets would increase
income in the period such determination was made.
Net Sales
Our net sales are generated through sales to our global dealer and
distributor network and to original equipment manufacturers. We recognize sales
when products are shipped. Our sales are largely of a consumer nature; therefore
backlog levels are not necessarily indicative of our future sales results. We
aim to achieve a quick turnaround on orders we receive, and we typically ship
most orders within 72 hours.
Net sales are subject to some seasonal fluctuation. Typically, sales of our
consumer products are highest in the second quarter, due to increased demand
during the spring and summer marine season, and in the fourth quarter, due to
increased demand during the holiday buying season. Our aviation products do not
experience much seasonal variation, but are more influenced by the timing of the
release of new products when the initial demand is typically the strongest.
Gross Profit
The most significant components of our cost of goods sold are raw material,
labor and depreciation. Raw material costs, which are our most significant cost
item, generally have not fluctuated materially as a percentage of sales since
early 1998, when we negotiated lower raw material costs with our key suppliers.
As a result, gross profit increased substantially as a percentage of sales in
1998 from that realized in prior years.
In 2000, we experienced upward pricing pressures on our high technology
components, but had offset those with efficiencies in our manufacturing
processes. We did not experience significant pricing pressure in fiscal 2001.
Our existing practice of performing in-house, the design and manufacture of our
products has enabled us to utilize alternative lower cost components from
different suppliers and, where necessary, to redesign our products to permit us
to use these lower cost components. We believe that because of our practice of
performing in-house, the design, manufacture and marketing of our products, both
the Taipei, Taiwan and Olathe, Kansas manufacturing plants have experienced
relatively low costs of manufacturing, compared to our competition. In general,
products manufactured in Taiwan have been our highest volume products. Our
manufacturing labor costs historically have been lower in Taiwan than in Olathe.
Sales price variability has had and can be expected to have an effect on
our gross profit. In the past, prices of some of our handheld devices sold into
the consumer market have declined due to market pressures and introduction of
new products sold at lower price points. The average selling prices of our
aviation products have increased due to the introduction of more advanced and
innovative products. In conjunction with the effects of lower labor costs
experienced on Taiwan production, the effect of the sales price variability
inherent within the mix of GPS-enabled products sold could have a significant
impact on our gross profit.
Selling, General and Administrative Expenses
- Our selling, general and administrative expenses consist primarily of:
- salaries for sales and marketing personnel;
- salaries and related costs for executives and administrative personnel;
- advertising, marketing, and other brand building costs;
- accounting and legal costs;
- information systems and infrastructure costs;
- travel and related costs; and
- occupancy and other overhead costs.
Since we plan to increase market penetration in the future, we expect
selling, general and administrative expenses to continue to increase for the
foreseeable future. We intend to increase advertising and marketing expenses in
order to build increased brand awareness in the consumer marketplace, especially
as we enter into new markets, such as wireless and PDA. We do not anticipate
that these increased expenses will significantly impact our financial results in
2002 and subsequent periods.
Research and Development
The majority of our research and development costs represent salaries for
our engineers, costs for high technology components used in product and
prototype development, and costs of test equipment needed during product
development.
We have continued to grow our research and development capabilities since
our inception. Substantially all of the research and development of our products
is performed in the United States.
We are committed to increasing the level of innovative design and
development of new products as we strive for expanded ability to serve our
existing consumer and aviation markets as well as new markets for GPS-enabled
devices. We continue to grow our research and development budget on absolute
terms. Research and development expenses may also grow at a faster rate when
compared to our projected revenue growth for fiscal year 2002.
Customers
No customer accounted for greater than 10% of our sales in the year ended
December 29, 2001. Our top ten customers accounted for approximately 26% of net
sales. We have experienced average sales days in our customer accounts
receivable between 35 and 45 days since 1998.
Income Taxes
We have experienced a relatively low effective tax rate in Taiwan due to
lower marginal tax rates and substantial tax incentives offered by the Taiwanese
government on certain high-technology capital investments. Therefore, profits
earned in Taiwan have been taxed at a lower rate than those in the United States
and Europe. As a result, our consolidated effective tax rate was approximately
25% during 2001. We have taken advantage of this tax benefit in Taiwan since our
inception and we expect to continue to benefit from lower effective tax rates at
least through 2004. The current Taiwan tax incentives that Garmin has received
approval for will end in 2004. We have applied for additional incentives for
years beyond 2004. However, there can be no assurance that such tax incentives
will be granted after 2004.
Results of Operations
The following table sets forth our results of operations as a percentage of
net sales during the periods shown:
Fiscal Years Ended
---------------------------------------------------
Dec. 29, Dec. 30, Dec. 25,
2001 2000 1999
Net sales 100.0% 100.0% 100.0%
Cost of goods sold 46.3% 46.9% 45.4%
Gross profit 53.7% 53.1% 54.6%
Operating expenses:
Selling, general and
administrative 10.5% 9.4% 11.6%
Research and development 7.6% 6.3% 7.5%
Total operating expenses 18.1% 15.7% 19.1%
Operating income 35.6% 37.4% 35.5%
Other income, net 5.6% 3.4% 0.7%
Income before income taxes 41.2% 40.8% 36.2%
Provision for income taxes 10.5% 10.2% 8.6%
Net income 30.7% 30.6% 27.6%
-------------------------------------------------------------------------------
The following table sets forth our results of operations for each of our
two segments through income before income taxes during the periods shown. For
each line item in the table, the total of the consumer and aviation segments'
amounts equals the amount in the consolidated statements of income included in
Item 8.
Fiscal Years Ended
------------------------------------------------------------------------------------
Dec. 29, 2001 Dec. 30, 2000 Dec. 25, 1999
Consumer Aviation Consumer Aviation Consumer Aviation
(in thousands)
Net sales $263,358 $105,761 $230,183 $115,558 $169,164 $63,422
Cost of goods sold 130,836 40,124 114,656 47,359 78,088 27,566
Gross profit 132,522 65,637 115,527 68,199 91,076 35,856
Operating expenses:
Selling, general and 29,018 9,691 23,756 8,913 20,486 6,577
administrative
Research and development 18,197 9,967 14,210 7,554 11,431 5,908
Total operating expenses 47,215 19,658 37,966 16,467 31,917 12,485
Operating income 85,307 45,979 77,561 51,732 59,159 23,371
Other income, net 17,204 3,545 10,542 1,087 1,290 312
Income before income taxes $102,511 $49,524 $88,103 $52,819 $60,449 $23,683
------------------------------- ------------- ------------- ------------- ------------- -------------- -------------
Comparison of Fiscal Years Ended December 29, 2001 and December 30, 2000
Net Sales
Net sales increased $23.4 million, or 6.8%, to $369.1 million for fiscal
year ended December 29, 2001, from $345.7 million for fiscal year ended December
30, 2000. The increase during fiscal 2001 was primarily due to the introduction
of 25 new products and overall demand for our consumer products. Sales from our
consumer products accounted for 71.3% of net revenues for fiscal 2001 compared
to 66.6% during fiscal 2000. Sales from our aviation products accounted for
28.7% of net revenues for fiscal 2001 compared to 33.4% during fiscal 2000.
Total consumer and aviation units increased 8.8% to 1,331,000 in 2001 from
1,223,000 in 2000. In general, management believes that continuous innovation
and the introduction of new products are essential for future revenue growth.
Net sales for the consumer segment increased $33.2 million, or 14.4%, to
$263.4 million for fiscal 2001 from $230.2 million for fiscal 2000. The increase
was primarily due to the introduction of 22 new consumer products and overall
demand for our consumer products as total units were up 9.7%. It is management's
opinion that the continued demand for the Company's consumer products is due to
the emergence of the GPS market in general, and overall increased consumer
awareness of the capabilities and applications of GPS.
Net sales for the aviation segment decreased $9.8 million, or 8.5%, to
$105.8 million for fiscal 2001 from $115.6 million for fiscal 2000. The decrease
for fiscal 2001 was primarily due to declining economic conditions and the shut
down of U.S. airspace as a result of the terrorist attacks that occurred on
September 11, 2001. In addition to the shut down of U.S. airspace, the general
aviation industry was further impacted by the additional restrictions
implemented by the Federal Aviation Administration (FAA) on those flights that
fly utilizing Visual Flight Rules (VFR). The FAA restricted VFR flight inside 30
enhanced Class B (a 20-25 mile radius around the 30 largest metropolitan areas
in the country) airspace areas. The Aircraft Owners and Pilots Association
(AOPA) estimated that these restrictions affected approximately 41,800 general
aviation aircraft based at 282 airports inside the 30 enhanced Class B airspace
areas. The AOPA estimates that approximately 90% of all general aviation flights
are conducted VFR, and that only 15% of general aviation pilots are current to
fly utilizing Instrument Flight Rules (IFR). These restrictions impacted our
revenues since many general aviation aircraft were grounded and were unable to
fly to aviation dealers to buy our products. As a result of the factors
indicated above, total aviation units sold during fiscal 2001 declined 9.3% when
compared to fiscal 2000.
As of February 20, 2002, there continue to be temporary flight restrictions
on several general aviation airports across the nation as a result of the
September 11 terrorist attacks. As stated above, the Company's aviation segment
represents approximately one-third of total revenues. Should the FAA continue to
impose more restrictions, or elect to shutdown U.S. airspace in the future,
these factors could have a material adverse effect on our business.
Gross Profit
Gross profit increased $14.5 million, or 7.9%, to $198.2 million for fiscal
year 2001 from $183.7 million in fiscal year 2000. The increase is primarily
attributed to the introduction of 25 new products and overall demand for our
consumer products. Gross profit as a percentage of net revenues improved to
53.7% in 2001 from 53.1% in 2000. The improvement in gross margin was primarily
due to the introduction of new higher margin products, improved manufacturing
efficiencies on many of the new products introduced throughout the year, and a
reduction of material costs.
Gross profit for the consumer segment increased $17.0 million, or 14.7%, to
$132.5 million for fiscal 2001 from $115.5 million in fiscal 2000. The increase
is primarily attributed to the introduction of 22 new consumer products and
overall demand for our consumer products. Gross profit as a percentage of net
revenues remained relatively flat at 50.3% for 2001 when compared to 50.2% for
2000.
Gross profit for the aviation segment decreased $2.6 million, or 3.8%, to
$65.6 million for fiscal 2001 from $68.2 million for fiscal 2000. The decline in
gross profit is primarily due to the decrease in revenues associated with
declining economic conditions and the shut down of U.S. airspace as a result of
the terrorist attacks that occurred on September 11, 2001. Gross profit as a
percentage of net revenues improved to 62.1% in 2001 from 59.0% in 2000. This
improvement as a percentage of net revenues is primarily attributed to product
mix as we experienced a 13.9% increase in higher margin panel mount unit sales
during 2001 when compared to 2000.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $6.0 million, or
18.5%, to $38.7 million (10.5% of net revenues) for fiscal 2001 from $32.7
million (9.4% of net revenues) for fiscal 2000. Selling, general and
administrative expenses increased $5.3 million, or 22.2%, in the consumer
segment and increased $0.8 million, or 8.7% in the aviation segment. The
increase in expense was primarily attributable to increases in employment
generally across the organization (net increase of 32 employees), increased
advertising costs (up 27.6%) associated with new product releases, increased
costs associated with being a public company, and increases in insurance
premiums. Overall, selling, general and administrative expenses increased at a
higher rate than revenues due to the need to ramp-up for the release of new
products. Management expects its selling, general and administrative expenses to
increase approximately 15% to 20% during fiscal 2002 on an absolute dollar basis
due to the anticipated introduction of new products for 2002.
Research and Development Expenses
Research and development expenses increased $6.4 million, or 29.4%, to
$28.2 million (7.6% of net revenues) for fiscal year 2001 from $21.8 million
(6.3% of net revenues) for fiscal year 2000. Research and development expenses
increased $4.0 million, or 28.1%, in the consumer segment and increased $2.4
million, or 31.9%, in the aviation segment. The increase in expense was
primarily attributable to the development and introduction of 25 new products,
and the addition of 50 new engineers to our staff during fiscal 2001. Management
believes that one of the key strategic initiatives for future growth and success
of the Company is continuous innovation, development, and introduction of new
products. Management expects that its research and development expenses will
increase approximately 25% to 30% during fiscal 2002 on an absolute dollar basis
due to the anticipated introduction of new products for fiscal 2002. Management
expects to continue to invest in the research and development of new products
and technology in order to maintain the Company's competitive advantage in the
markets in which it competes.
Other Income (Expense)
Other income (expense) principally consists of interest income, interest
expense and foreign currency exchange gains and losses. Other income for fiscal
year 2001 amounted to $20.7 million compared to other income of $11.6 million
for fiscal year 2000. Interest income for fiscal 2001 amounted to $11.2 million
compared to $6.9 million for fiscal 2000, the increase being attributable to the
growth of the Company's cash and cash equivalents from profitable operations
during the period on which interest income is earned. Interest expense decreased
to $2.2 million for fiscal 2001 from $2.3 million for fiscal 2000, due primarily
to the reduction of debt and a lower interest rate environment during fiscal
2001.
We recognized a foreign currency exchange gain of $11.6 million for fiscal
2001 compared to a gain of $7.0 million for fiscal 2000. The $11.6 million gain
was due to the significantly increased strength of the U.S. Dollar compared to
the Taiwan Dollar during 2001, when the exchange rate increased to 35.17 TD/USD
at December 29, 2001 from 33.01 TD/USD at December 30, 2000. The $7.0 million
gain during 2000 was due to the significantly increased strength of the U.S.
Dollar compared to the Taiwan Dollar during 2000, when the exchange rate
increased to 33.01 TD/USD at December 30, 2000 from 31.30 TD/USD at December 25,
1999.
Income Tax Provision
Income tax expense increased by $3.3 million, to $38.6 million, for fiscal
year 2001 from $35.3 million for fiscal year 2000 due to our higher taxable
income. The effective tax rate was 25.4% for fiscal 2001 versus 25.0% for fiscal
2000. The increase is attributable to the source of taxable income between each
of our subsidiaries changing slightly during 2001. Management believes that the
effective tax rate for fiscal 2002 will be comparable to fiscal 2001.
Net Income
As a result of the above, net income increased 7.4% to $113.4 million for
fiscal year 2001 compared to $105.7 million for fiscal year 2000.
Comparison of Fiscal Years Ended December 30, 2000 and December 25, 1999
Net Sales
Our net sales were $345.7 million in fiscal 2000, a 49% increase over net
sales of $232.6 million in fiscal 1999. The increase in sales during this period
was driven by increased demand across nearly all product lines which reflects
the overall growth of the GPS market. Sales from our consumer products accounted
for 66.6% of net sales in fiscal 2000 compared to 72.7% of net sales in fiscal
1999. Sales from our aviation products accounted for 33.4% of net sales in
fiscal 2000 compared to 27.3% of net sales in fiscal 1999. Net sales increased
$61.0 million, or 36%, in the consumer segment and $52.1 million, or 82%, in the
aviation segment. In May 2000, President Clinton withdrew the prior government
degradation placed on GPS accuracy. Although difficult to quantify, management
believes that the withdrawal of this degradation has helped drive increased
demand for and sales of consumer GPS devices in 2000. The aviation sales growth
was driven by new products introduced in early 2000 and continued strong demand
of our panel mount aviation products that were introduced in early 1999.
Gross Profit
Gross profit was $183.7 million in fiscal 2000, a 45% increase over gross
profit of $126.9 million in fiscal 1999. Gross profit as a percent of net sales
decreased to 53.1% in fiscal 2000 from 54.6% in fiscal 1999 due primarily to
inventory charges that were recorded during 2000 to reserve for excess stocks
and technological obsolescence related to the transition to new products
expected during fiscal 2001, offset by the effects of increased efficiencies
from higher sales volume across all products and the 6.1 percentage point shift
in the mix to higher margin aviation sales. Gross profit increased $24.5
million, or 27%, in the consumer segment and $32.3 million, or 90%, in the
aviation segment. The percentage increase in gross profits for each segment is
generally comparable to the percentage increase in that segment's net sales with
the consumer segment gross profit affected more by the inventory charges
mentioned above.
Selling, General and Administrative Expenses
Despite a 49% increase in net sales, selling, general and administrative
expenses only increased 21%, to $32.7 million (9.4% of net sales) in fiscal 2000
from $27.1 million (11.6% of net sales) in fiscal 1999. Selling, general and
administrative expenses increased $3.3 million, or 16%, in the consumer segment
and $2.3 million, or 36%, in the aviation segment. The increase in expense
reflects increased employment generally across the organization but also
specifically in the areas of customer service and marketing, in support of our
increased sales in both segments. The percentage increase was higher in the
aviation segment than in the consumer segment due to the significant increase in
aviation net sales as compared to consumer sales growth. We also experienced an
increase in our cooperative advertising costs, which is an ongoing program with
our key dealers and distributors in both segments.
Research and Development Expense
Research and development expense increased approximately 26% to $21.8
million (6.3% of net sales) in fiscal 2000 from $17.3 million (7.5% of net
sales) in fiscal 1999. Research and development expense increased $2.8 million,
or 24%, in the consumer segment and $1.6 million, or 28%, in the aviation
segment. The increase in expense was due primarily to additional product
development costs in both consumer and aviation segments as well as additional
software development in the consumer segment. The percentage increase was
slightly higher in the aviation segment due to the development of Garmin's next
generation aviation products.
Other Income (Expense)
Other income (expense) principally consists of interest income, interest
expense and foreign currency exchange gains and losses. Other income (expense)
for fiscal 2000 amounted to $11.6 million compared to $1.6 million in fiscal
1999. Interest income during fiscal 2000 amounted to $6.9 million compared to
$4.3 million in fiscal 1999, the increase being attributable to the growth of
Garmin's cash and cash equivalents during the year on which interest income is
earned. Interest expense increased to $2.3 million in fiscal 2000 from $0.6
million in fiscal 1999, due primarily to the additional long-term debt required
to finance the 1999 purchase of our new Taiwan facility and further expand our
Olathe, Kansas facility in 2000. We recognized a foreign currency exchange gain
of $7.0 million during fiscal 2000 compared to a $1.5 million loss in fiscal
1999 due to the significant strengthening of the U.S. Dollar compared to the
Taiwan Dollar during fiscal year 2000, when the exchange rate increased from
31.30 TD/USD at December 25, 1999 to 33.01 TD/USD at December 30, 2000.
Income Tax Provision
Income tax expense increased by $15.3 million, to $35.3 million, in fiscal
2000 from $20.0 million in fiscal 1999, due to our higher taxable income. The
effective tax rate was 25.0% in fiscal 2000 versus 23.7% in fiscal 1999. The
increase is partly attributable to a surtax on undistributed earnings in Taiwan
that Garmin will pay in 2001. The tax cost of distributing earnings from Garmin
Corporation, Garmin's Taiwan subsidiary, to the Company significantly exceeds
the amount of the surtax. Prior to Garmin's reorganization, completed in
September 2000 in contemplation of its IPO, distributions made to Garmin
Corporation shareholders resulted in minimal tax cost to Garmin.
Net Income
As a result of the above, net income in fiscal 2000 was $105.7 million
compared to $64.2 million in fiscal 1999.
Liquidity and Capital Resources
Net cash generated by operations was $130.0 million, $83.5 million, and
$48.5 million for fiscal years 2001, 2000 and 1999, respectively. We operate
with a strong customer driven approach and therefore carry sufficient inventory
to meet customer demand. Because we desire to respond quickly to our customers
and minimize order fulfillment time, our inventory levels are generally high
enough to meet most demand. We also attempt to carry sufficient inventory levels
on key components so that potential supplier shortages have as minimal an impact
as possible on our ability to deliver our finished products. We do not
anticipate that our inventory management techniques will have a negative impact
on our financial results in the future. We were able to reduce inventory levels
during fiscal year 2001 by $28.7 million when compared to fiscal year end 2000,
without impairing our ability to meet customer demand, by effectively managing
the introduction of 25 new products during the year.
During fiscal 2001, our capital expenditures totaled $14.9 million, which
was $9.9 million less than during 2000. In fiscal 2000 and 1999, our capital
expenditures totaled approximately $24.8 million and $32.2 million,
respectively. The expenditures in fiscal 2001 were incurred primarily for the
completed expansion of our Olathe, Kansas facility ($3.2 million), the
construction of our new flight test and certification facility ($1.6 million)
located at the New Century Airport in Olathe, Kansas, and for general corporate
purposes. The expenditures in fiscal 2000 and 1999 were incurred primarily to
increase our manufacturing capacity both in the United States and in Taiwan. We
financed these capital expenditures through net operating cash flow and debt
from outside financial institutions.
The fiscal 2000 capital expenditures were primarily for our Olathe, Kansas
building and land expansion project that was approximately 80% complete as of
December 30, 2000. The 1999 capital expenditures were primarily for the purchase
of building and land for our Taiwan factory. We expect our needs for capital in
2002 to be less than those incurred during 2001 since the recent expansions are
complete. We expect our future capital requirements to consist primarily of
purchases of production machinery and equipment to expand capacity. A portion
will also be used for conversion of available space in our Olathe, Kansas
building for assembly use and expansion of our testing operations using our
facility in Shijr, Taiwan. We may use a portion of the net proceeds from our
December 2000 IPO to acquire targeted strategic businesses.
In addition to capital expenditures, cash flow used in investing activities
principally relates to the purchase of fixed income securities associated with
the investment of our on-hand cash balances and approximately $15.7 million
related to the purchase of licenses and our acquisition of Sequoia Instruments,
Inc. It is management's goal to invest the on-hand cash consistent with the
Company's investment policy, which has been approved by the 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
maximum safety. The Company's average return on its investments during fiscal
year 2001 was approximately 4.0%.
Cash flow used in financing activities during 2001 relates primarily to the
reduction of our Taiwan debt and stock repurchase program. The Company retired
approximately $14.2 million of its long-term debt during fiscal 2001.
Additionally, the Company repurchased 595,200 shares of its common stock under
its stock repurchase program that was approved by the Board of Directors on
September 24, 2001. The cash flow source from financing activities during 2000
was due primarily to the issuance of debt and IPO proceeds less dividend
distributions.
We currently use cash flow from operations to fund our capital
expenditures, to repay debt and to support our working capital requirements. We
expect that future cash requirements will principally be for capital
expenditures, repayment of indebtedness and working capital requirements.
Cash dividends paid to stockholders were $0.0, $29.0 million, and $7.5
million during fiscal years 2001, 2000 and 1999, respectively. Included in cash
dividends for fiscal 2000 was a special one-time dividend of $17.4 million that
was paid in order to provide funds to shareholders to pay withholding taxes and
stock transfer taxes related to the reorganization of Garmin Corporation. We do
not anticipate paying additional dividends in the foreseeable future.
We believe that our existing cash balances and cash flow from operations
will be sufficient to meet our projected capital expenditures, working capital
and other cash requirements at least through the end of fiscal 2002.
Contractual Obligations and Commercial Commitments
On March 23, 2000, Garmin International, Inc. completed a $20.0 million
20-year Taxable Industrial Revenue Bond issuance for the expansion of its
Olathe, Kansas facility. At December 29, 2001, outstanding principal under the
2000 Bonds totaled $20.0 million. Interest on the 2000 Bonds is payable monthly
at a variable interest rate (2.10% at December 29, 2001), which is adjusted
weekly to the current market rate as determined by the remarketing agent of the
2000 Bonds with principal due upon maturity on April 15, 2020.
The 2000 Bonds are secured by an irrevocable letter of credit totaling
$20.3 million with facility fees of 0.75%. This renewable letter of credit
initially expires on September 20, 2004. The bank has required a sinking fund be
established with semiannual payments of $0.7 million beginning April 2002.
On January 1, 1995, Garmin International, Inc. completed a $9.5 million
30-year Tax-Exempt Industrial Revenue Bond issuance for the construction of its
new corporate headquarters located in Olathe, Kansas. Upon completion of the
project in 1996, Garmin International retired bonds totaling $0.2 million. At
December 29, 2001 and December 30, 2000, outstanding principal under the Bonds
totaled $9.3 million. Interest on the Bonds is payable monthly at a variable
interest rate (1.75% and 5.15% at December 29, 2001 and December 30, 2000,
respectively), which is adjusted weekly to the current market rate as determined
by the remarketing agent for the Bonds with principal due upon maturity on
January 1, 2025.
The Bonds are secured by an irrevocable letter of credit totaling $9.7
million, with facility fees of 0.75% annually, through September 30, 2004,
renewable on an annual basis thereafter. The bank has the option of requiring
Garmin International, Inc. to establish a sinking fund related to the principal
balance outstanding on the Bonds, which it had not exercised through December
29, 2001. The letter of credit is secured by a mortgage on all assets financed
with the proceeds of the Bonds and is guaranteed by Garmin Corporation.
Our reimbursement agreements contain restrictive covenants, which include,
among other things, financial covenants requiring minimum cash flow leverage,
maximum capitalization, minimum tangible net worth, and other affirmative and
negative covenants. We do not expect these limitations to have a material effect
on our business or results of operations. We are in compliance with all
covenants contained in the reimbursement agreements.
During 1999, Garmin Corporation borrowed $18.0 million to finance the
purchase of land and a new manufacturing facility in Shijr, Taiwan. The
outstanding balance of $2.8 million at December 29, 2001, was paid in full in
January 2002.
We utilize interest rate swap agreements to manage interest rate exposure.
The principal objective of such financial derivative contracts is to moderate
the effect of fluctuations in interest rates. We, as a matter of policy, do not
speculate in financial markets and therefore do not hold these contracts for
trading purposes. We utilize what are considered simple instruments, such as
non-leveraged interest rate swaps, to accomplish our objectives.
The company has the option at any time during the year to retire a portion
or all of its long-term debt.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Recent Accounting Pronouncements
In October 2001, the Financial Accounting Standards Board (FASB) issued
Statement No. 144, 'Accounting for the Impairment or Disposal of Long-Lived
Assets,' which is effective for fiscal years beginning after December 15, 2001.
This new standard, when in effect, will supersede SFAS Statement No. 121,
'Accounting for the Impairment of Long-Lived Assets and for the Long-Lived
Assets to Be Disposed Of,' providing one accounting model for the review of
asset impairment. Statement No. 144 retains much of the recognition and
measurement provisions of Statement No. 121, but removes goodwill from its
scope. It also requires long-lived assets to be disposed of other than by sale
to be considered as held and used until disposed of, requiring the depreciable
life to be adjusted as an accounting change. Criteria to classify long-lived
assets to be disposed of by sale has changed from SFAS Statement No. 121, but
these costs will continue to be reported at the lower of their carrying amount
or fair value less cost to sell, and will cease to be depreciated.
Statement 144 will also supercede the section of the Accounting Principles
Board (APB) Opinion No. 30, which prescribes reporting for the effects of a
disposal of a segment of a business. This statement retains the basic
presentation provisions of the opinion, but requires losses on a disposal or
discontinued operation to be recognized as incurred. It also broadens the
definition of a discontinued operation to include a component of an entity. This
statement is not expected to have a material impact on our financial statements.
In July 2001, the FASB issued Statement No. 143, 'Accounting for Asset
Retirement Obligations.' The objective of this statement is to provide
accounting guidance for legal obligations associated with the retirement of
long-lived assets by requiring the fair value of a liability for the asset
retirement obligation to be recognized in the period in which it is incurred.
When the liability is initially recognized, the asset retirement costs should
also be capitalized by increasing the carrying amount of the related long-lived
asset. The liability is then accreted to its present value each period and the
capitalized costs are depreciated over the useful life of the associated asset.
This statement is effective for fiscal years beginning after June 15, 2002, and
is not expected to have a material impact on our financial statements.
In June 2001, the (FASB) issued Statement No. 141, 'Business Combinations,'
and Statement No. 142, 'Goodwill and Other Intangible Assets.' Statement No. 141
supercedes APB Opinion No. 16, 'Business Combinations,' and FASB Statement No.
28, 'Accounting for Pre-acquisition Contingencies of Purchased Enterprises.'
This statement requires accounting for all business combinations using the
purchase method, and changes the criteria for recognizing intangible assets
apart from goodwill. This statement is effective for all business combinations
initiated after June 30, 2001. Statement No. 142 supercedes APB Opinion No. 17,
'Intangible Assets' and addresses how purchased intangibles should be accounted
for upon acquisition. The statement also addresses how goodwill and other
intangible assets should be accounted for after they have been initially
recognized in the financial statements. All intangibles will be subject to
periodic impairment testing and will be adjusted to fair value. This statement
is effective for fiscal years beginning after December 15, 2001, and is not
expected to have a material impact on our business.
In June 1998 and June 1999, the Financial Accounting Standards Board, or
FASB, issued Statement of Financial Accounting Standards, or SFAS, No. 133,
Accounting for Derivative Instruments and Hedging Activities and SFAS No. 137,
Accounting for Derivative Instruments and Hedging Activities--Deferral of the
Effective Date of FASB Statement No. 133. These statements require companies to
record derivatives on the balance sheet as assets or liabilities, measured at
fair value. Gains or losses resulting from changes in the values of those
derivatives would be accounted for depending on the use of the derivative and
whether it qualifies for hedge accounting. SFAS No. 133 was effective for our
fiscal year ending December 29, 2001. The adoption of SFAS No. 133 has not had a
material impact on our financial condition or results of operations.
Company-Specific Trends and Risks
You should carefully consider the risks described below regarding an investment
in our common shares. The risks described below are not the only ones facing our
company. Additional risks and uncertainties not presently known to us or that we
currently believe to be immaterial may also impair our business operations. If
any of the following risks occur, our business, financial condition or operating
results could be materially adversely affected.
Risks Related to the Company
Our Global Positioning System products depend upon satellites maintained by the
United States Department of Defense. If a significant number of these satellites
become inoperable, unavailable or are not replaced or if the policies of the
United States government for the use of the Global Positioning System without
charge are changed or if there is interference with Global Positioning System
signals, our business will suffer.
The Global Positioning System is a satellite-based navigation and
positioning system consisting of a constellation of orbiting satellites. The
satellites and their ground control and monitoring stations are maintained and
operated by the United States Department of Defense. The Department of Defense
does not currently charge users for access to the satellite signals. These
satellites and their ground support systems are complex electronic systems
subject to electronic and mechanical failures and possible sabotage. The
satellites were originally designed to have lives of 7.5 years and are subject
to damage by the hostile space environment in which they operate. However, of
the current deployment of satellites in place, the average age is 6 years and
some have been operating for more than 11 years.
If a significant number of satellites were to become inoperable,
unavailable or are not replaced, it would impair the current utility of our
Global Positioning System products and the growth of current and additional
market opportunities. In addition, there can be no assurance that the U.S.
government will remain committed to the operation and maintenance of Global
Positioning System satellites over a long period, or that the policies of the
U.S. government that provide for the use of the Global Positioning System
without charge and without accuracy degradation will remain unchanged. Because
of the increasing commercial applications of the Global Positioning System,
other U.S. government agencies may become involved in the administration or the
regulation of the use of Global Positioning System signals.
European governments have expressed interest in building an independent
satellite navigation system known as Galileo. Depending on the as yet
undetermined design and operation of this system, it is possible that it could
cause interference with Global Positioning System signals.
Any of the foregoing factors could affect the willingness of buyers of our
products to select Global Positioning System-based products instead of products
based on competing technologies.
A shut down of U.S. airspace would harm our business.
On September 11, 2001, terrorists hijacked and crashed four passenger
aircraft operated by commercial air carriers, resulting in major loss of life
and property. Following the terorist attacks, the Federal Aviation
Administration ('FAA') ordered all aircraft operating in the U.S. to be grounded
for several days. In addition to this shut down of U.S. airspace, the general
aviation industry was further impacted by the additional restrictions
implemented by the FAA on those flights that fly utilizing Visual Flight Rules
(VFR). The FAA restricted VFR flight inside 30 enhanced Class B (a 20-25 mile
radius around the 30 largest metropolitan areas in the USA) airspace areas. The
Aircraft Owners and Pilots Association (AOPA) estimated that these restrictions
affected approximately 41,800 general aviation aircraft based at 282 airports
inside the 30 enhanced Class B airspace areas. The AOPA estimates that
approximately 90% of all general aviation flights are conducted VFR, and that
only 15% of general aviation pilots are current to fly utilizing Instrument
Flight Rules (IFR). These restrictions impacted our revenues in the aviation
segment since many general aviation aircraft were grounded and this caused
potential customers to forgo or defer purchasing our aviation products.
The shut down of U.S. airspace following the September 11, 2001 also caused
delays in the shipment of our products manufactured in our Taiwan manufacturing
facility to our distribution facility in Olathe, Kansas, thereby adversely
affecting our ability to supply new and existing products to our dealers and
distributors.
Any future shut down of U.S. airspace or imposition of restrictions on
general aviation could have a material adverse effect on our business and
financial results.
Any reallocation of radio frequency spectrum could cause interference with
the reception of Global Positioning System signals. This interference could
harm our business.
Our Global Positioning System technology is dependent on the use of radio
frequency spectrum. The assignment of spectrum is controlled by an international
organization known as the International Telecommunications Union ('ITU'). The
Federal Communications Commission ('FCC') is responsible for the assignment of
spectrum for non-government use in the United States in accordance with ITU
regulations. Any ITU or FCC reallocation of radio frequency spectrum, including
frequency band segmentation or sharing of spectrum, could cause interference
with the reception of Global Positioning System signals and may materially and
adversely affect the utility and reliability of our products, which would, in
turn, cause a material adverse effect on our operating results. In addition,
emissions from mobile satellite service and other equipment operating in
adjacent frequency bands or inband may materially and adversely affect the
utility and reliability of our products, which could result in a material
adverse effect on our operating results.
Ultra-Wideband radio devices could cause interference with the reception of
Global Positioning System signals if the FCC were to change its rules. This
interference could harm our business.
On February 14, 2002, the FCC adopted a First Report and Order that permits
certain Ultra-Wideband ('UWB') radio devices to operate on an unlicensed basis
in frequency bands above or below the frequency band used by the Global
Positioning System. The FCC has stated that it plans to review the rules of
operation for UWB devices again within a six to twelve month period following
the date of adoption of its First Report and Order. If the FCC were to issue a
further rule authorizing operation of UWB devices in the frequency band used by
the Global Positioning System, such devices might cause interference with the
reception of Global Positioning System signals. Such interference could reduce
demand for Global Positioning System products in the future. Any resulting
change in market demand for Global Positioning System products could have a
material adverse effect on our financial results.
If we are not successful in the continued development, introduction or timely
manufacture of new products, demand for our products could decrease.
We expect that a significant portion of our future revenue will continue to
be derived from sales of newly introduced products. The market for our products
is characterized by rapidly changing technology, evolving industry standards and
changes in customer needs. If we fail to modify or improve our products in
response to changes in technology, industry standards or customer needs, our
products could rapidly become less competitive or obsolete. We must continue to
make significant investments in research and development in order to continue to
develop new products, enhance existing products and achieve market acceptance
for such products. However, there can be no assurance that development stage
products will be successfully completed or, if developed, will achieve
significant customer acceptance.
If we are unable to successfully develop and introduce competitive new
products, and enhance our existing products, our future results of operations
would be adversely affected. Our pursuit of necessary technology may require
substantial time and expense. We may need to license new technologies to respond
to technological change. These licenses may not be available to us on terms that
we can accept. We may not succeed in adapting our products to new technologies
as they emerge. Development and manufacturing schedules for technology products
are difficult to predict, and there can be no assurance that we will achieve
timely initial customer shipments of new products. The timely availability of
these products in volume and their acceptance by customers are important to our
future success. We have previously experienced delays in shipping certain of our
products and any future delays, whether due to manufacturing delays, lack of
market acceptance, delays in regulatory approval, or otherwise, could have a
material adverse effect on our results of operations.
If we do not correctly anticipate demand for our products, we may not be able to
secure sufficient quantities or cost-effective production of our products or we
could have costly excess production or inventories.
Historically, we have experienced steady increases in demand for our
products (although we did experience a decline in demand for our aviation
products in 2001 due to declining economic conditions and the shut down of U.S.
airspace as a result of the terrorist attacks that occurred on September 11,
2001) and we have generally been able to increase production to meet that
demand. However, the demand for our products depends on many factors and will be
difficult to forecast. We expect that it will become more difficult to forecast
demand as we introduce and support multiple products and as competition in the
market for our products intensifies. Significant unanticipated fluctuations in
demand could cause the following problems in our operations:
- If demand increases beyond what we forecast, we would have to rapidly
increase production. We would depend on suppliers to provide
additional volumes of components and those suppliers might not be
able to increase production rapidly enough to meet unexpected demand.
- Rapid increases in production levels to meet unanticipated demand
could result in higher costs for manufacturing and supply of
components and other expenses. These higher costs could lower our
profit margins. Further, if production is increased rapidly,
manufacturing quality could decline, which may also lower our
margins.
- If forecasted demand does not develop, we could have excess
production resulting in higher inventories of finished products and
components, which would use cash and could lead to write-offs of some
or all of the excess inventories. Lower than forecasted demand could
also result in excess manufacturing capacity at our facilities,
which could result in lower margins.
We may become subject to significant product liability costs.
If our aviation products malfunction or contain errors or defects, airplane
collisions or crashes could occur resulting in property damage, personal injury
or death. Malfunctions or errors or defects in our marine navigational products
could cause boats to run aground or cause other wreckage, personal injury or
death. If any of these events occurs, we could be subject to significant
liability for personal injury and property damage. We maintain insurance against
accident-related risks involving our products. However, there can be no
assurance that such insurance would be sufficient to cover the cost of damages
to others or that such insurance will continue to be available at commercially
reasonable rates. If we are unable to maintain sufficient insurance to cover
product liability costs, our business could be harmed.
We depend on our suppliers, some of which are the sole source for specific
components, and our production would be seriously harmed if these suppliers are
not able to meet our demand and alternative sources are not available, or if
the costs of components rise.
We are dependent on third party suppliers for various components used in
our current products. Some of the components that we procure from third party
suppliers include semiconductors and electroluminescent panels, liquid crystal
displays, memory chips and microprocessors. The cost, quality and availability
of components are essential to the successful production and sale of our
products. Some components come from our sole source suppliers. International
Business Machines Corporation, RF Micro Devices, Inc. NEC Electronics, Inc. and
Texas Instruments Taiwan Ltd. are each the sole source supplier to us of certain
application-specific integrated circuits incorporating our proprietary designs
which they manufacture for us. Intel Corporation is the sole source supplier of
certain microprocessors used in some of our products. Analog Devices, Inc. is
the sole source supplier of a microprocessor used in our NavTalk GSM product.
Alternative sources may not be currently available for these sole source
components.
In the past, we have experienced shortages, particularly involving
components that are also used in cellular phones. In addition, if there are
shortages in supply of components, the costs of such components may rise. If
suppliers are unable to meet our demand for components on a timely basis and if
we are unable to obtain an alternative source or if the price of the alternative
source is prohibitive, or if the costs of components rise, our ability to
maintain timely and cost-effective production of our products would be seriously
harmed.
We license mapping data for use in our products from various sources. There
are only a limited number of suppliers of mapping data for each geographical
region. If we are unable to continue licensing such mapping data and are unable
to obtain an alternative source, or if the price of the alternative source is
prohibitive, our ability to supply mapping data for use in our products would be
seriously harmed.
We rely on independent dealers and distributors to sell our products, and
disruption to these channels would harm our business.
Because we sell a majority of our products to independent dealers and
distributors, we are subject to many risks, including risks related to their
inventory levels and support for our products. In particular, our dealers and
distributors maintain significant levels of our products in their inventories.
If dealers and distributors attempt to reduce their levels of inventory or if
they do not maintain sufficient levels to meet customer demand, our sales could
be negatively impacted.
Our dealers and distributors also sell products offered by our competitors.
If our competitors offer our dealers and distributors more favorable terms,
those dealers and distributors may de-emphasize or decline to carry our
products. In the future, we may not be able to retain or attract a sufficient
number of qualified dealers and distributors. If we are unable to maintain
successful relationships with dealers and distributors or to expand our
distribution channels, our business will suffer.
If we fail to manage our growth and expansion effectively, we may not be able
to successfully manage our business.
Our ability to successfully offer our products and implement our business
plan in a rapidly evolving market requires an effective planning and management
process. We continue to increase the scope of our operations domestically and
internationally and have grown our shipments and headcount substantially. This
growth has placed, and our anticipated growth in future operations will continue
to place, a significant strain on our management systems and resources.
Our business may suffer if we are not able to hire and retain sufficient
qualified personnel or if we lose our key personnel.
Our future success depends partly on the continued contribution of our key
executive, engineering, sales, marketing, manufacturing and administrative
personnel. We currently do not have employment agreements with any of our key
executive officers. We do not have key man life insurance on any of our key
executive officers and do not currently intend to obtain such insurance. The
loss of the services of any of our senior level management, or other key
employees, could harm our business. Recruiting and retaining the skilled
personnel we require to maintain our market position may be difficult. For
example, in recent years there has been a nationwide shortage of qualified
electrical engineers and software engineers who are necessary for us to design
and develop new products and therefore, it has been challenging to recruit such
personnel. If we fail to hire and retain qualified employees, we may not be able
to maintain and expand our business.
Our sales and gross margins for our products may fluctuate or erode.
Our sales and gross margins for our products may fluctuate from period to
period due to a number of factors, including product mix, competition and unit
volumes. In particular, the average selling prices of a specific product tend to
decrease over that product's life. To offset such decreases, we intend to rely
primarily on obtaining yield improvements and corresponding cost reductions in
the manufacture of existing products and on introducing new products that
incorporate advanced features and therefore can be sold at higher average
selling prices. However, there can be no assurance that we will be able to
obtain any such yield improvements or cost reductions or introduce any such new
products in the future. To the extent that such cost reductions and new product
introductions do not occur in a timely manner or our customers' products do not
achieve market acceptance, our business, financial condition and results of
operations could be materially adversely affected. As we introduce new product
lines that serve cellular handset, personal digital assistant, Family Radio
Service and original equipment manufacturer automotive and sensor board
applications, we may experience a decline in our overall gross margins from
sales of these potentially high volume but low margin product lines.
Our quarterly operating results are subject to fluctuations and seasonality.
Our operating results are difficult to predict. Our future quarterly
operating results may fluctuate significantly. If this occurs, the price of our
stock would likely decline. As we expand our operations, our operating expenses,
particularly our sales, marketing and research and development costs, may
increase. If revenues decrease and we are unable to reduce those costs rapidly,
our operating results would be negatively affected.
Historically, our revenues have usually been weaker in the first and third
quarters of each fiscal year and have, from time to time, been lower than the
preceding quarter. Our devices are highly consumer-oriented, and consumer buying
is traditionally lower in these quarters. Sales of certain of our consumer
products tend to be higher in our second fiscal quarter due to increased
consumer spending for such products during the recreational marine and fishing
season. Sales of certain of our consumer products also tend to be higher in our
fourth fiscal quarter due to increased consumer spending patterns on electronic
devices during the holiday season. In addition, we attempt to time our new
product releases to coincide with relatively higher consumer spending in the
second and fourth fiscal quarters, which contributes to these seasonal
variations.
Because our reporting currency is in U.S. Dollars and the functional currency of
one of our primary operating subsidiaries is in Taiwan Dollars, exchange rate
fluctuations impact the financial statements of this operating subsidiary and
our consolidated financial statements.
Foreign exchange effects on our financial statements can be material
because our reporting currency is in U.S. Dollars while the functional currency
of Garmin Corporation, one of our operating subsidiaries, is in Taiwan Dollars.
We are exposed to foreign exchange risks related to recurring foreign currency
payments, principally in U.S. Dollars. In addition, fluctuations in exchange
rates between the U.S. Dollar and the Taiwan Dollar, may have an adverse impact
on the financial statements of Garmin Corporation, and, as a consequence, upon
consolidation have an indirect adverse effect on our consolidated financial
statements.
If we are unable to compete effectively with existing or new competitors, our
resulting loss of competitive position could result in price reductions, fewer
customer orders, reduced margins and loss of market share.
The markets for our products are highly competitive and we expect
competition to increase in the future. We plan to enter the cellular handset
market and will be competing against Telefon AB LM Ericsson, Motorola, Inc. and
Nokia Oy with certain products. These competitors, as well as some of our
existing competitors or potential competitors, such as Honeywell International,
Inc. and UPS Aviation Technologies, have significantly greater financial,
technical and marketing resources than we do. These competitors may be able to
respond more rapidly to new or emerging technologies or changes in customer
requirements. They may also be able to devote greater resources to the
development, promotion and sale of their products. Increased competition could
result in price reductions, fewer customer orders, reduced margins and loss of
market share. Our failure to compete successfully against current or future
competitors could seriously harm our business, financial condition and results
of operations.
Our intellectual property rights are important to our operations, and we could
suffer loss if they infringe upon other's rights or are infringed upon by
others.
We rely on a combination of patents, copyrights, trademarks and trade
secrets, confidentiality provisions and licensing arrangements to establish and
protect our proprietary rights. To this end, we hold rights to a number of
patents and registered trademarks and regularly file applications to attempt to
protect our rights in new technology and trademarks. However, there is no
guarantee that our patent applications will become issued patents, or that our
trademark applications will become registered trademarks. Moreover, even if
approved, our patents or trademarks may thereafter be successfully challenged by
others or otherwise become invalidated for a variety of reasons. In addition,
the only patents we have obtained are U.S. patents. Thus, any patents or
trademarks we currently have or may later acquire may not provide us a
significant competitive advantage.
Third parties may claim that we are infringing their intellectual property
rights. Such claims could have a serious adverse effect on our business and
financial condition. Litigation concerning patents or other intellectual
property can be costly and time consuming. We may seek licenses from such
parties, but they could refuse to grant us a license or demand commercially
unreasonable terms. We might not have sufficient resources to pay for the
licenses. Such infringement claims could also cause us to incur substantial
liabilities and to suspend or permanently cease the use of critical technologies
or processes or the production or sale of major products.
Failure to obtain required certifications of our products on a timely basis
could harm our business.
We have certain products, especially in our aviation segment, that are
subject to governmental and similar certifications before they can be sold. For
example, Federal Aviation Administration ('FAA') certification is required for
all of our aviation products that are intended for installation in type
certificated aircraft. To the extent that it is required, certification is an
expensive and time consuming process that requires significant focus and
resources. An inability to obtain, or excessive delay in obtaining, such
certifications could have an adverse effect on our ability to introduce new
products and, therefore, our operating results. In addition, we cannot assure
you that our certified products will not be decertified. Any such
decertification could have an adverse effect on our operating results.
Our business is subject to economic, political and other risks associated with
international sales and operations.
Our business is subject to risks associated with doing business
internationally. We estimate that approximately 25.3% of our net sales in the
fiscal year ended December 29, 2001 represented products shipped to
international destinations. Accordingly, our future results could be harmed by a
variety of international factors, including:
- changes in foreign currency exchange rates;
- changes in a specific country's or region's political or economic
conditions, particularly in emerging markets;
- trade protection measures and import or export licensing
requirements;
- potentially negative consequences from changes in tax laws;
- difficulty in managing widespread sales and manufacturing operations;
and
- less effective protection of intellectual property.
We may experience unique economic and political risks associated with companies
that operate in Taiwan.
Relations between Taiwan and the People's Republic of China, also referred
to as the PRC, and other factors affecting the political or economic conditions
of Taiwan in the future could affect our business and the market price and the
liquidity of our shares. Our principal manufacturing facilities where we
manufacture all of our products, except our panel-mounted aviation products, are
located in Taiwan.
Taiwan has a unique international political status. The PRC asserts
sovereignty over all of China, including Taiwan, certain other islands and all
of mainland China. The PRC government does not recognize the legitimacy of the
Taiwan government. Although significant economic and cultural relations have
been established during recent years between Taiwan and the PRC, the PRC
government has indicated that it may use military force to gain control over
Taiwan in certain circumstances, such as the declaration of independence by
Taiwan. Relations between Taiwan and the PRC have on occasion adversely affected
the market value of Taiwanese companies and could negatively affect our
operations in Taiwan in the future.
There is uncertainty as to our shareholders' ability to enforce certain foreign
civil liabilities in the Cayman Islands and Taiwan.
We are a Cayman Islands company and a substantial portion of our assets are
located outside the United States, particularly in Taiwan. As a result, it may
be difficult for you to effect service of process within the United States upon
us. In addition, there is uncertainty as to whether the courts of the Cayman
Islands and Taiwan would recognize or enforce judgments of United States courts
obtained against us predicated upon the civil liability provisions of the
securities laws of the United States or any state thereof, or be competent to
hear original actions brought in the Cayman Islands or Taiwan against us
predicated upon the securities laws of the United States or any state thereof.
Our shareholders may face difficulties in protecting their interests because
we are incorporated under Cayman Islands law.
Our corporate affairs are governed by our Memorandum and Articles of
Association and by the Companies Law (2001 Second Revision) and the common law
of the Cayman Islands. The rights of our shareholders and the fiduciary
responsibilities of our directors under Cayman Islands law are not as clearly
established as under statutes or judicial precedent in existence in
jurisdictions in the United States. Therefore, our public shareholders may have
more difficulty in protecting their interests in the face of actions by the
management, directors or our controlling shareholders than would shareholders of
a corporation incorporated in a jurisdiction in the United States, due to the
comparatively less developed nature of Cayman Islands law in this area.
We may pursue strategic acquisitions, investments, strategic partnerships or
other ventures, and our business could be materially harmed if we fail to
successfully identify, complete and integrate such transactions.
We intend to evaluate acquisition opportunities and opportunities to make
investments in complementary businesses, technologies, services or products, or
to enter into any strategic partnerships with parties who can provide access to
those assets, additional product or services offerings or additional industry
expertise. We currently have no commitments to make any material investments or
acquisitions, or to enter into strategic partnerships. We may not identify
suitable acquisition, investment or strategic partnership candidates, or if we
do identify suitable candidates, we may not complete those transactions on
commercially favorable terms, or at all.
Any future acquisition could result in difficulties assimilating acquired
operations and products, diversion of capital and management's attention away
from other business issues and opportunities and amortization of acquired
intangible assets. Integration of acquired companies may result in problems
related to integration of technology and inexperienced management teams. In
addition, the key personnel of the acquired company may decide not to work for
us. Our management has not had experience in assimilating acquired organizations
and products into our operations. We may not successfully integrate any
operations, personnel or products that we may acquire in the future. If we fail
to successfully integrate such transactions, our business could be materially
harmed.
We have benefited in the past from Taiwan government tax incentives offered on
certain high technology capital investments that may not always be available.
Our effective tax rate is lower than the U.S. Federal statutory rate,
because we have benefited from lower tax rates since our inception and from
incentives offered in Taiwan related to our high technology investments in
Taiwan. The loss of these tax benefits could have a significant effect on our
financial results in the future.
Changes in our United States federal income tax classification or in applicable
tax law could result in adverse tax consequences to our shareholders.
We do not believe that we (or any of our non-United States subsidiaries)
are currently a 'foreign personal holding company' or 'passive foreign
investment company' for United States federal income tax purposes. We would
constitute a foreign personal holding company in any taxable year if (1) 60% (or
50% in any year following the year in which we first became a foreign personal
holding company) or more of our gross income were foreign personal holding
company income (which is generally income of a passive nature such as dividends,
interest and royalties) (the 'income test') and (2) more than 50% of the
voting power or value of our equity were owned, directly or indirectly, by five
or fewer U.S. holders that are individuals (the 'shareholder test'). If we (or
any of our non-United States subsidiaries) are classified as a foreign personal
holding company in any taxable year, then each shareholder that is a United
States person would be required to pay tax on its pro rata share of the
undistributed foreign personal holding income of such foreign personal holding
company. We currently satisfy the shareholder test for qualifying as a foreign
personal holding company but intend to manage our affairs so as to attempt to
avoid satisfaction of the income test for qualifying as a foreign personal
holding company, or minimize the impact to our shareholders if we satisfy the
income test, to the extent this management of our affairs would be consistent
with our business goals, although we cannot assure you in this regard.
We do not expect to become a passive foreign investment company. However,
because the passive foreign investment company determination is made annually on
the basis of facts and circumstances that may be beyond our control and because
the principles for applying the passive foreign investment company tests are not
entirely clear, we cannot assure you that we will not become a passive foreign
investment company. If we are a passive foreign investment company in any year,
then any of our shareholders that is a United States person could be liable to
pay tax at ordinary income tax rates plus an interest charge upon some
distributions by us or when that shareholder sells our common shares at a gain.
Further, if we are classified as a passive foreign investment company in any
year in which a United States person is a shareholder, we generally will
continue to be treated as a passive foreign investment company with respect to
such shareholder in all succeeding years, regardless of whether we continue to
satisfy the income or asset tests described above. Additional tax considerations
would apply if we or any of our subsidiaries were a controlled foreign
corporation or a personal holding company.
Risks Relating to Our Shares
We do not plan to pay dividends in the foreseeable future.
We do not currently anticipate paying cash dividends for the foreseeable
future. In addition, if in the future we determined to pay dividends on our
shares, as a holding company, we expect to be principally dependent on receipt
of funds from our operating subsidiaries. Our principal operating subsidiary is
a Taiwan company and dividends payable to us from that company would be subject
to Taiwan withholding tax, which is currently applicable at the rate of 20%.
The markets for high technology stocks have experienced extreme volatility and
our share price may be subject to significant fluctuations and volatility.
The markets for high technology stocks have experienced extreme volatility
that has often been unrelated to the operating performance of the particular
companies. These broad market fluctuations may adversely affect the trading
price of our common shares.
Our officers and directors exert substantial influence over us.
Members of our Board of Directors and our executive officers, together with
members of their families and entities that may be deemed affiliates of or
related to such persons or entities, beneficially own approximately 51.8% of our
outstanding common shares. Accordingly, these shareholders may be able to elect
all members of our Board of Directors and determine the outcome of corporate
actions requiring shareholder approval, such as mergers and acquisitions. This
level of ownership may have a significant effect in delaying, deferring or
preventing a change in control of Garmin and may adversely affect the voting and
other rights of other holders of our common shares.
Prior to 2006, without the approval of a majority of certain of our
shareholders, we may not dispose of our shares of Garmin Corporation or its
assets, even if it would benefit all of our shareholders.
In connection with the reorganization whereby Garmin became the holding
company for Garmin Corporation, shareholders of Garmin Corporation entered into
a shareholders' agreement whereby each shareholder party to the agreement agreed
to take all reasonable actions required to prevent the disposition by Garmin of
any shares of Garmin Corporation or of substantially all of the assets of Garmin
Corporation until after December 31, 2005 except upon approval of a majority in
interest of such shareholders who are U.S. citizens or residents. Certain of our
officers and directors own a substantial portion of these shares.
Provisions in our charter documents might deter, delay or prevent a third party
from acquiring us, which could decrease the value of our shares.
Our Board of Directors has the authority to issue up to 1,000,000 preferred
shares and to determine the price, rights, preferences, privileges and
restrictions, including voting rights, of those shares without any further vote
or action by the shareholders. This could have an adverse impact on the market
price of our common shares. We have no present plans to issue any preferred
shares, but we may do so. The rights of the holders of common shares may be
subject to, and adversely affected by, the rights of the holders of any
preferred shares that may be issued in the future. In addition, we have adopted
a classified board of directors. Our shareholders are unable to remove any
director or the entire board of directors without a super majority vote. In
addition, a super majority vote is required to approve transactions with
interested shareholders. Shareholders do not have the right to call a
shareholders meeting. We have adopted a shareholders' rights plan which under
certain circumstances would significantly impair the ability of third parties to
acquire control of us without prior approval of our Board of Directors. This
shareholders' rights plan and the provisions in our charter documents could make
it more difficult for a third party to acquire us, even if doing so would
benefit our shareholders.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market Sensitivity
We have market risk primarily in connection with the pricing of our
products and services and the purchase of raw materials. Product pricing and raw
materials costs are both significantly influenced by semiconductor market
conditions. Historically, during cyclical industry downturns, we have been able
to offset pricing declines for our products through a combination of improved
product mix and success in obtaining price reductions in raw material costs.
Inflation
We do not believe that inflation has had a material effect on our business,
financial condition or results of operations. If our costs were to become
subject to significant inflationary pressures, we may not be able to fully
offset such higher costs through price increases. Our inability or failure to do
so could adversely affect our business, financial condition and results of
operations.
Foreign Currency Exchange Rate Risk
The operation of the Company's subsidiaries in international markets
results in exposure to movements in currency exchange rates. We generally have
not been significantly affected by foreign exchange fluctuations because, until
recently, the Taiwan Dollar has proven to be relatively stable. However, within
the last two years we have experienced significant foreign currency gains due to
the strengthening of the U.S. dollar. The potential of volatile foreign exchange
rate fluctuations in the future could have a significant effect on our results
of operations.
The principal currency involved is the Taiwan Dollar. Garmin Corporation,
located in Shijr, Taiwan uses the local currency as the functional currency. The
Company translates all assets and liabilities at year-end exchange rates and
income and expense accounts at average rates during the year. In order to
minimize the effect of the currency exchange fluctuations on our operations, we
have elected to retain most of our cash at our Taiwan subsidiary in U.S.
dollars. As discussed above, the exchange rate increased 6.5% during 2001 and
resulted in a foreign currency gain of $11.6 million. If the exchange rate
decreased by a similar percentage, a comparable foreign currency loss would be
recognized.
Interest Rate Risk
As of December 29, 2001, we have interest rate risk in connection with our
industrial revenue bonds that bear interest at a floating rate. Garmin
International, Inc. entered into two interest rate swap agreements, one on July
1, 2000 ($10.0 million) and another on February 6, 2001 ($5.0 million), totaling
$15.0 million to modify the characteristics of its outstanding long-term debt
from a floating rate to a fixed rate basis. These agreements involve the receipt
of floating rate amounts in exchange for fixed rate interest payments over the
life of the agreements without an exchange of the underlying principal amount.
The estimated fair value of the interest swap agreements of $1.5 million is the
amount we would be required to pay to terminate the swap agreements at December
29, 2001. A 10% positive or negative change in the floating counterparty
interest rates associated with the swaps would change the estimated fair value
of the interest rate swap agreements to $1.4 million (positive 10% change) or
$1.6 million (negative 10% change), respectively.
The Company's average outstanding debt during fiscal year 2001 was
approximately $39.3 million. The average interest rate on debt during fiscal
2001 was 5.5%. A 10% positive or negative change in the average interest rate
during fiscal 2001 would have resulted in interest expense of $2.4 million
(positive 10% change) or $1.9 million (negative 10% change), respectively. This
compares to the actual interest expense of $2.2 million during fiscal 2001.
Item 8. Financial Statements and Supplementary Data
Garmin Ltd. and Subsidiaries
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Contents
Report of Independent Auditors...............................................37
Consolidated Balance Sheets at December 29, 2001 and December 30, 2000.......38
Consolidated Statements of Income for the Years Ended December 29, 2001,
December 30, 2000, and December 25, 1999..................................39
Consolidated Statements of Stockholders' Equity for the Years Ended
December 29, 2001, December 30, 2000, and December 25, 1999...............40
Consolidated Statements of Cash Flows for the Years Ended December 29, 2001,
December 30, 2000, and December 25, 1999..................................41
Notes to Consolidated Financial Statements...................................43
Report of Independent Auditors
The Board of Directors and Stockholders
Garmin Ltd.
We have audited the accompanying consolidated balance sheets of Garmin Ltd.
and subsidiaries (the Company) as of December 29, 2001 and December 30, 2000,
and the related consolidated statements of income, stockholders' equity, and
cash flows for each of the three years in the period ended December 29, 2001.
Our audits also included the financial statement schedule listed in the index at
Item 14(a)(2). These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Garmin Ltd. and
subsidiaries at December 29, 2001 and December 30, 2000, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 29, 2001, in conformity with accounting principles
generally accepted in the United States. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
Kansas City, Missouri
February 1, 2002
Garmin Ltd. and Subsidiaries
Consolidated Balance Sheets
(In Thousands, Except Share Information)
December 29, December 30,
2001 2000
------------------------------------
Assets
Current assets:
Cash and cash equivalents $192,842 $251,731
Marketable securities (Note 3) 40,835 -
Accounts receivable, less allowance for doubtful accounts of
$2,627 in 2001 and $1,866 in 2000 47,998 32,719
Inventories 61,132 89,855
Deferred income taxes (Note 8) 7,007 12,293
Prepaid expenses and other current assets 2,921 1,423
------------------------------------
Total current assets 352,735 388,021
Property and equipment (Note 5):
Land and improvements 20,414 21,135
Building and improvements 32,864 29,493
Office furniture and equipment 11,365 9,151
Manufacturing equipment 17,282 16,543
Engineering equipment 11,671 8,237
Vehicles 1,671 245
------------------------------------
95,267 84,804
Accumulated depreciation 25,181 20,100
------------------------------------
70,086 64,704
Restricted cash (Note 5) 1,600 5,848
Marketable securities (Note 3) 90,749 -
Intangible assets 16,985 4,774
------------------------------------
Total assets $532,155 $463,347
====================================
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 18,837 $ 22,496
Salaries and benefits payable 3,308 3,441
Accrued warranty costs 4,777 5,228
Accrued sales program costs 2,518 3,403
Other accrued expenses (Note 9) 2,967 1,091
Income taxes payable 12,444 13,725
Current portion of long-term debt (Note 5) 4,177 587
------------------------------------
Total current liabilities 49,028 49,971
Long-term debt (Note 5) 28,011 46,359
Deferred income taxes (Note 8) 1,147 1,686
Other liabilities - 92
Stockholders' equity:
Preferred stock, $1.00 par value, 1,000,000 shares authorized,
none issued - -
Common stock, $0.01 par value 500,000,000 shares authorized
(Notes 12 and 13):
Shares issued and outstanding - 107,774,918 in 2001 and
108,242,111 in 2000 1,078 1,082
Additional paid-in capital 127,131 133,925
Retained earnings (Notes 5 and 6) 365,087 253,140
Accumulated other comprehensive loss (39,327) (22,908)
------------------------------------
Total stockholders' equity 453,969 365,239
------------------------------------
Total liabilities and stockholders' equity $532,155 $463,347
====================================
See accompanying notes.
Garmin Ltd. and Subsidiaries
Consolidated Statements of Income
(In Thousands, Except Share and Per Share Information)
Year Ended
-----------------------------------------------------
December 29, December 30, December 25,
2001 2000 1999
-----------------------------------------------------
Net sales $369,119 $345,741 $232,586
Cost of goods sold 170,960 162,015 105,654
-----------------------------------------------------
Gross profit 198,159 183,726 126,932
Selling, general, and administrative expenses 38,709 32,669 27,063
Research and development expense 28,164 21,764 17,339
-----------------------------------------------------
66,873 54,433 44,402
-----------------------------------------------------
Operating income 131,286 129,293 82,530
Other income (expense):
Interest income 11,164 6,925 4,327
Interest expense (2,174) (2,287) (577)
Foreign currency 11,573 6,962 (1,469)
Other 186 29 (679)
-----------------------------------------------------
20,749 11,629 1,602
-----------------------------------------------------
Income before income taxes 152,035 140,922 84,132
Income tax provision (benefit):
Current 33,781 39,723 19,130
Deferred 4,806 (4,464) 835
-----------------------------------------------------
38,587 35,259 19,965
-----------------------------------------------------
Net income $113,448 $105,663 $ 64,167
=====================================================
Basic and diluted net income per share (Note 14) $ 1.05 $ 1.05 $ 0.64
=====================================================
See accompanying notes.
Consolidated Statements of Stockholders' Equity
(In Thousands, Except Per Share Information)
Accumulated
Additional Other
Common Stock Paid-In Retained Comprehensive
Shares Dollars Capital Earnings Loss Total
------------------------------------------------------------------------
Balance at December 26, 1998 55,555 $ 555 $ 17,585 $132,247 $(14,447) $135,940
Net income - - - 64,167 - 64,167
Translation adjustment - - - - 2,022 2,022
--------
Comprehensive income 66,189
Cash dividend ($0.13 per
share) - - - (7,530) - (7,530)
80% stock dividend 44,445 445 12,008 (12,453) - -
-------------------------------------------------------------------------
Balance at December 25, 1999 100,000 1,000 29,593 176,431 (12,425) 194,599
Net income - - - 105,663 - 105,663
Translation adjustment - - - - (10,483) (10,483)
--------
Comprehensive income 95,180
Cash dividend ($0.29 per
share) - - - (28,954) - (28,954)
Issuance of common stock in
initial public offering,
net of offering costs 8,242 82 104,332 - - 104,414
------------------------------------------------------------------------
Balance at December 30, 2000 108,242 1,082 133,925 253,140 (22,908) 365,239
Net income - - - 113,448 - 113,448
Translation adjustment - - - - (15,519) (15,519)
Adjustment related to
effective portion of cash
flow hedges, net of
deferred taxes of $579 - - - - (900) (900)
--------
Comprehensive income 97,029
Issuance of common stock
from exercise of stock
options 5 1 70 - - 71
Issuance of common stock
through stock purchase plan 123 1 1,463 - - 1,464
Purchase and retirement of
common stock (595) (6) (8,327) (1,501) - (9,834)
-------------------------------------------------------------------------
Balance at December 29, 2001 107,775 $1,078 $127,131 $365,087 $(39,327) $453,969
=========================================================================
See accompanying notes.
Garmin Ltd. and Subsidiaries
Consolidated Statements of Cash Flows
(In Thousands)
Year Ended
-----------------------------------------------------
December 29, December 30, December 25,
2001 2000 1999
-----------------------------------------------------
Operating activities
Net income $113,448 $105,663 $64,167
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 7,341 7,104 5,554
Amortization 3,527 465 18
Loss on disposal of property and equipment 23 1,605 136
Provision for doubtful accounts 1,137 911 825
Provision for obsolete and slow-moving
inventories 4,000 5,915 1,202
Foreign currency translation (5,593) (4,831) 4,128
Deferred income taxes 4,806 (4,464) 835
Net sale of trading securities - - 2,173
Changes in operating assets and liabilities:
Accounts receivable (17,894) (3,250) (14,657)
Inventories 22,958 (48,024) (14,119)
Prepaid expenses and other current assets (447) (373) (508)
Accounts payable (2,657) 7,961 5,888
Accrued expenses (1,016) 999 1,278
Income taxes payable 358 13,812 (8,450)
-----------------------------------------------------
Net cash provided by operating activities 129,991 83,493 48,470
Purchases of property and equipment (14,883) (24,821) (32,195)
Proceeds from sale of property and equipment 239 5,919 69
Purchases of marketable securities (1,684,985) - -
Sales of marketable securities 1,553,401 - -
Purchase of assets of Sequoia Instruments, Inc. (3,625) - -
Purchases of licenses (12,028) (4,251) -
Change in restricted cash 4,239 (5,856) -
Other (748) 95 (176)
-----------------------------------------------------
Net cash used in investing activities (158,390) (28,914) (32,302)
Financing activities
Dividends - (28,954) (7,530)
Proceeds from issuance of common stock, net of
offering costs - 104,414 -
Proceeds from issuance of common stock through stock
purchase plan 1,464 - -
Proceeds from issuance of common stock from exercise
of stock options 71 - -
Proceeds from issuance of notes payable and long-term
debt - - 18,040
Proceeds from issuance of Industrial Revenue Bonds - 20,000 -
Principal payments on long-term debt (14,189) - -
Principal payments on notes payable - (5) (357)
Purchases of common stock (9,834) - -
-----------------------------------------------------
Net cash (used in) provided by financing activities (22,488) 95,455 10,153
Effect of exchange rate changes on cash (8,002) (2,382) (2,602)
-----------------------------------------------------
Net (decrease) increase in cash and cash equivalents (58,889) 147,652 23,719
Cash and cash equivalents at beginning of year 251,731 104,079 80,360
-----------------------------------------------------
Cash and cash equivalents at end of year $192,842 $251,731 $104,079
=====================================================
GARMIN LTD.SUBSIDIARIES
Consolidated Statements of Cash Flows (continued)
(In Thousands)
Year Ended
-----------------------------------------------------
December 29, December 30, December 25,
2001 2000 1999
-----------------------------------------------------
Supplemental disclosures of cash flow information
Cash paid during the year for income taxes $ 38,844 $ 28,788 $ 28,733
=====================================================
Cash received during the year from income tax refunds $ - $ 12 $ 1,517
=====================================================
Cash paid during the year for interest, net of $405
of capitalized interest in 2000 $ 2,011 $ 2,223 $ 558
=====================================================
Supplemental disclosures of noncash investing and
financing activities
Liability recognized in accrued expenses related to
cash flow hedges and charge to accumulated other
comprehensive loss $ 1,479 $ - $
=====================================================
Issuance of stock dividends $ - $ - $ 12,453
=====================================================
See accompanying notes.
GARMIN LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Organization
On July 24, 2000, the stockholders of Garmin Corporation (GARMIN) incorporated
Garmin Ltd. (the Company) under the laws of the Cayman Islands. Subsequently,
the stockholders of GARMIN executed a Shareholders Agreement to transfer to
Garmin Ltd. their investments in 88,988,394 common shares of stock of GARMIN.
These shares, which represented approximately 100% of the issued and outstanding
common stock of GARMIN as of July 24, 2000, were used by the stockholders to pay
for their subscriptions to 100,000,000 common shares of Garmin Ltd. at a par
value of $0.01 or an aggregate value of $1,000. As such, the exchange of shares
in this reorganization between GARMIN and the newly formed holding company,
Garmin Ltd., completed on September 22, 2000, has been accounted for at
historical cost similar to that in pooling-of-interests accounting. In addition
to the shares of GARMIN owned by Garmin Ltd., one share of GARMIN is held by
each of six shareholders pursuant to the requirement of Taiwan law that a
company have at least seven shareholders and 4,000 shares owned by two related
stockholders who did not convert GARMIN shares to shares of the Company. These
4,006 shares are not reported as or considered to be held by minority interests
in the accompanying consolidated financial statements due to immateriality. As a
result, GARMIN is considered herein to be a wholly owned subsidiary of Garmin
Ltd. As discussed in Note 12, Garmin Ltd. completed an initial public offering
of its common stock in December 2000.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States.
Accordingly, the accompanying consolidated financial statements
GARMIN LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 2. Summary of Significant Accounting Policies (continued)
reflect the accounts of Garmin Ltd. and its wholly owned subsidiaries as if the
reorganization described in Note 1 was effective for all periods presented. All
significant inter-company balances and transactions have been eliminated.
Nature of Business
Garmin Ltd. and subsidiaries (together, the Company) manufacture, market, and
distribute Global Positioning System-enabled products and other related
products. GARMIN was incorporated in Taiwan, Republic of China on January 16,
1990. GARMIN is primarily responsible for the manufacturing of the Company's
consumer and portable aviation products and, to a lesser extent, new product
development and sales and marketing of the Company's products in Asia and the
Far East. Effective April 2001, the Company now acts as distributor for GARMIN.
In April 1990, a 100%-owned subsidiary, Garmin International, Inc. (GII), was
incorporated in the United States. GII is primarily responsible for sales and
marketing of the Company's products in many international markets and in the
United States as well as research and new product development. GII also
manufactures certain products for the Company's aviation segment. During June
1992, GII formed Garmin (Europe) Limited (GEL), a wholly owned subsidiary in the
United Kingdom, to sell its products principally within the European market.
During 2000, GII sold its interest in GEL to Garmin Ltd. As a result, GEL is now
a direct subsidiary of Garmin Ltd. Also during 2000, Garmin Realty LLC was
formed by GII to hold certain real estate. In December 2001, GII formed Garmin
USA as a sales organization.
Fiscal Year
The Company has adopted a 52-53-week period ending on the last Saturday of the
calendar year. Due to the fact that there are not exactly 52 weeks in a calendar
year and there is slightly more than one additional day per year (not including
the effects of leap year) in each calendar year as compared to a 52-week fiscal
year, the Company will have a fiscal year comprising 53 weeks in certain fiscal
years, as determined by when the last Saturday of the calendar year occurs. In
those resulting fiscal years that have 53 weeks, the Company will record an
extra week of sales, costs, and related financial activity. Therefore, the
financial results of those fiscal years, and the associated 14-week quarter,
will not be exactly comparable to the prior and subsequent 52-week fiscal years
and the associated quarters having only 13 weeks. Fiscal 2001 and 1999 include
52 weeks while fiscal 2000 was comprised of 53 weeks.
Foreign Currency Translation
GARMIN utilizes the New Taiwan Dollar as its functional currency. Prior to 2001,
GEL utilized the British pound sterling as its functional currency. However, as
a result of an increase in United States dollar-denominated transactions, GEL
changed its functional currency to the United States dollar effective December
31, 2000. The impact of this change was not material. In accordance with
Statement of Financial Accounting Standards (SFAS) No. 52, Foreign Currency
Translation, the financial statements of GARMIN for all periods presented and
GEL for fiscal 2000 and 1999 have been translated into United States dollars,
the functional currency of Garmin Ltd. and GII, and the reporting currency
herein, for purposes of consolidation at rates prevailing during the year for
sales, costs, and expenses and at end-of-year rates for all assets and
liabilities. The effect of this translation is recorded in a separate component
of stockholders' equity.
GARMIN LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 2. Summary of Significant Accounting Policies (continued)
Transactions in foreign currencies are recorded at the approximate rate of
exchange at the transaction date. Assets and liabilities resulting from
these transactions are translated at the rate of exchange in effect at the
balance sheet date. All differences are recorded in results of operations
and amounted to exchange gains (losses) of approximately $11,573, $6,962,
and $(1,469) for the years ended December 29, 2001, December 30, 2000, and
December 25, 1999, respectively. These gains (losses) are included in other
income (expense) in the accompanying consolidated statements of income. The
gain in fiscal 2001 is the result of the strengthening of the United States
dollar compared to the New Taiwan Dollar in the second and fourth quarters
of fiscal 2001 while the gain in fiscal 2000 is principally attributable to
the strengthening of the United States dollar compared to the New Taiwan
Dollar in the fourth quarter of fiscal 2000.
Cumulative translation adjustments of $38,427 and $22,908 as of December
29, 2001 and December 30, 2000, respectively, have been included in
accumulated other comprehensive loss in the accompanying consolidated
balance sheets.
Earnings Per Share
Basic earnings per share amounts are computed based on the weighted-average
number of common shares outstanding. For purposes of diluted earnings per
share, the number of shares that would be issued from the exercise of
dilutive stock options has been reduced by the number of shares which could
have been purchased from the proceeds of the exercise at the average market
price of the Company's stock during the period the options were
outstanding. See Note 14.
Common Stock
The amount of retained earnings capitalized in connection with the stock
dividends previously issued by the Company has been based on the par value
of the underlying GARMIN common stock, which was the United States dollar
equivalent of ten New Taiwan Dollars.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand, operating accounts, money market funds, and securities with
maturities of three months or less when purchased. The carrying amount of
cash and cash equivalents approximates fair value, given the short maturity
of those instruments.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the weighted-average method (which approximates the first-in,
first-out (FIFO) method) by GARMIN and the FIFO method by GII and GEL.
Inventories consisted of the following:
GARMIN LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 2. Summary of Significant Accounting Policies (continued)
December 29, December 30,
2001 2000
-----------------------------------------
Raw materials $26,381 $46,418
Work-in-process 9,582 8,116
Finished goods 34,723 41,825
Inventory reserv (9,554) (6,504)
-----------------------------------------
$61,132 $89,855
=========================================
Property and Equipment
Property and equipment are recorded at cost and depreciated using the
straight-line method over the following estimated useful lives:
Buildings and improvements 8-55 years
Office furniture and equipment 3-8 years
Manufacturing and engineering equipment 3-8 years
Vehicles 3 years
Long-Lived Assets
In accordance with SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed Of, the Company
reviews long-lived assets for impairment whenever events or changes in
circumstances indicate the carrying amount of an asset may not be fully
recoverable. SFAS No. 121 has not had an impact on the Company's
consolidated financial statements.
Intangible Assets
Intangible assets principally consist of costs incurred with certain
licensing agreements totaling approximately $11,400 and $4,700 at December
29, 2001 and December 30, 2000, respectively. Licenses are being amortized
over the lives of the related license agreements, which are generally three
years. Accumulated amortization is approximately $5,100 and $2,300 at
December 29, 2001 and December 30, 2000, respectively.
Other intangible assets consist of patents as well as goodwill and other
intangible assets acquired in the Company's purchase of Sequoia
Instruments, Inc. in November 2001. The total purchase price of $3,625 was
allocated to goodwill, developed technology, and other intangibles. The
purchase includes additional consideration of $1,000 contingent on the
completion of certain activities expected to occur in 2002 and thereafter.
Patents and other intangible assets are being amortized over the useful
lives of the related assets, which is generally five to ten years.
Accumulated amortization is $391 and $204 at December 29, 2001 and December
30, 2000, respectively.
Investments in Debt Securities
Management determines the appropriate classification of marketable
securities at the time of purchase and reevaluates such designation as of
each balance sheet date.
GARMIN LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 2. Summary of Significant Accounting Policies (continued)
Debt securities not classified as held-to-maturity and marketable equity
securities not classified as trading are classified as available-for-sale.
All of the Company's marketable securities are considered
available-for-sale at December 29, 2001. See Note 3. Available-for-sale
securities are stated at fair value, with the unrealized gains and losses,
net of tax, reported in other comprehensive income. During 2001, there were
no significant unrealized gains or losses reported in other comprehensive
income.
The amortized cost of debt securities classified as available-for-sale is
adjusted for amortization of premiums and accretion of discounts to
maturity, or in the case of mortgage-backed securities, over the estimated
life of the security. Such amortization is included in interest income from
investments. Realized gains and losses, and declines in value judged to be
other-than-temporary are included in net securities gains (losses). The
cost of securities sold is based on the specific identification method.
Realized gains and losses on available-for-sale securities were not
material.
Financial Instruments
GII has entered into interest rate swap agreements to modify the interest
characteristics of portions of its outstanding long-term debt from a
floating rate to a fixed rate basis. These agreements involve the receipt
of floating rate amounts in exchange for fixed rate interest payments over
the life of the agreements without an exchange of the underlying principal
amount. The differential to be paid or received is accrued as interest
rates change and recognized as an adjustment to interest expense related to
the debt. The related amount payable to or receivable from the counterparty
is included in other liabilities or assets. See Note 9.
Income Taxes
The Company accounts for income taxes using the liability method in
accordance with SFAS No. 109, Accounting for Income Taxes. The liability
method provides that deferred tax assets and liabilities are recorded based
on the difference between the tax bases of assets and liabilities and their
carrying amount for financial reporting purposes as measured by the enacted
tax rates and laws that will be in effect when the differences are expected
to reverse. Income taxes have not been accrued at the GARMIN level for the
unremitted earnings of GII or GEL totaling approximately $96,948 and
$77,544 at December 29, 2001 and December 30, 2000, respectively, because
such earnings are intended to be reinvested in these subsidiaries
indefinitely.
Use of Estimates
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts
reported in the consolidated financial statements and accompanying notes.
Actual results could differ from those estimates.
Concentration of Credit Risk
The Company grants credit to certain customers who meet the Company's
pre-established credit requirements. Generally, the Company does not
require security when trade credit is granted to customers. Credit losses
are provided for in the Company's consolidated financial statements and
consistently have been within management's expectations.
Revenue Recognition
The Company recognizes revenue from product sales when the product is
shipped to the customer and title has transferred. The Company assumes no
remaining significant obligations associated with the product sale other
than that related to its warranty programs discussed below.
GARMIN LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 2. Summary of Significant Accounting Policies (continued)
Shipping and handling costs are included in cost of sales in the
accompanying consolidated financial statements.
Product Warranty
The Company provides for estimated warranty costs at the time of sale. The
warranty period is generally for one year from date of shipment with the
exception of certain aviation products for which the warranty period is two
years from the date of installation.
Sales Programs
The Company provides certain monthly and quarterly incentives for its
dealers based on various factors including dealer purchasing volume and
growth. Additionally, the Company provides rebates to end users on certain
products. Estimated rebates and incentives payable to distributors are
regularly reviewed and recorded as accrued expenses on a monthly basis.
These rebates and incentives are recorded as reductions to net sales in the
accompanying consolidated statements of income.
Advertising Costs
The Company expenses advertising costs as incurred. Advertising expense
charged to operations amounted to approximately $14,714, $11,529, and
$8,574 for the years ended December 29, 2001, December 30, 2000, and
December 25, 1999, respectively.
Research and Development
Substantially all research and development is performed by GII in the
United States. Research and development costs, which are expensed as
incurred, amounted to approximately $28,164, $21,764, and $17,339 for the
years ended December 29, 2001, December 30, 2000, and December 25, 1999,
respectively.
Accounting for Stock-Based Compensation
In accordance with Accounting Principles Board (APB) Opinion No. 25 and
related interpretations, the Company uses the intrinsic value-based method
for measuring stock-based compensation cost which measures compensation
cost as the excess, if any, of the quoted market price of Company common
stock at the grant date over the amount the employee must pay for the
stock. Required pro forma disclosures of compensation expense determined
under the fair value method of SFAS No. 123, Accounting for Stock-Based
Compensation, are presented in Note 13.
Derivative Investments and Hedging Activities
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities,
which is required to be adopted in years beginning after June 15, 2000. The
Company adopted the new statement effective December 31, 2000, the
beginning of fiscal 2001. This statement requires the Company to recognize
all derivatives on the balance sheet at fair value. Derivatives not
considered hedges must be adjusted to fair value through income. If a
derivative is a hedge, depending on the nature of the hedge, changes in the
fair value of the derivative will either be offset against the change in
fair value of the hedged asset, liability or firm commitment through
earnings or recognized in other comprehensive income until the hedged item
is recognized in earnings. The ineffective portion of a derivative's change
in fair value will be immediately recognized in earnings. See Note 9.
GARMIN LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 2. Summary of Significant Accounting Policies (continued)
Recent Pronouncements
In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets, which addresses financial accounting and
reporting for the impairment or disposal of long-lived assets and supersedes
SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of, and the accounting and reporting provisions
of APB Opinion No. 30, Reporting the Results of Operations, for a disposal of a
segment of a business. SFAS No. 144 is effective for fiscal years beginning
after December 15, 2001, with earlier application encouraged. The Company
expects to adopt SFAS No. 144 as of December 30, 2001, and it does not expect
that the adoption of the statement will have a significant impact on the
Company's financial position and results of operations.
In June 2001, the FASB issued SFAS No. 141, Business Combinations, and SFAS
No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 supercedes APB
Opinion No. 16, Business Combinations, and FASB Statement No. 28, Accounting for
Preacquisition Contingencies of Purchased Enterprises. This statement requires
accounting for all business combination using the purchase method, and changes
the criteria for recognizing intangible assets apart from goodwill. This
statement is effective for all business combinations initiated after June 30,
2001. SFAS No. 142 supercedes APB Opinion No. 17, Intangible Assets, and
addresses how purchased intangibles should be accounted for upon acquisition.
The statement also addresses how goodwill and other intangible assets should be
accounted for after they have been initially recognized in the financial
statements. All intangibles will be subject to periodic impairment testing and
will be adjusted to fair value.
The Company will adopt SFAS No. 142 beginning in the first quarter of 2002.
Application of the nonamortization and impairment provisions of the statement is
not expected to be significant.
Reclassifications
Certain amounts in the fiscal 1999 and 2000 consolidated financial
statements have been reclassified to conform with the fiscal 2001 presentation.
Note 3. Investments
The following is a summary of the Company's marketable securities
classified as available-for-sale-securities at December 29, 2001:
GARMIN LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 3. Investments (continued)
Estimated Fair
Gross Unrealized Value (Net
Amortized Cost Gains/Losses Carrying Amount)
-----------------------------------------------------------
Mortgage-backed securities $ 31,320 $ - $ 31,320
Obligations of states and political
subdivisions 55,116 - 55,116
U.S. corporate bonds 39,575 - 39,575
Other 5,573 - 5,573
-----------------------------------------------------------
Total $131,584 $ - $131,584
===========================================================
The amortized cost and estimated fair value of debt securities at December
29, 2001, by contractual maturity, are shown below. Expected maturities
will differ from contractual maturities because the issuers of the
securities may have the right to prepay obligations without prepayment
penalties.
Estimated
Cost Fair Value
----------------------------------------
Due in one year or less $ 40,835 $ 40,835
Due after one year through five years 11,948 11,948
Due after five years through ten years 3,126 3,126
Due after ten years 75,675 75,675
----------------------------------------
$131,584 $131,584
========================================
Note 4. Line of Credit
During December 2000, the Company renewed a line of credit agreement with a
bank providing for maximum borrowings of $5,000 less indirect borrowings
under certain standby letters of credit which totaled approximately $4,000
at December 30, 2000. There were no direct or indirect borrowings
outstanding under the line of credit as of December 30, 2000. The line of
credit, which bears interest at the bank's prime rate less 1% or LIBOR plus
1.5%, expired June 28, 2001 and was unsecured.
Note 5. Long-Term Debt
During 1995, GII entered into an agreement with the City of Olathe, Kansas
for the construction of a new corporate headquarters (the project) which
was financed through issuance of Series 1995 Industrial Revenue Bonds (the
Bonds) totaling $9,500. Upon completion of the project in 1996, GII retired
bonds totaling $155. At December 29, 2001 and December 30, 2000,
outstanding principal under the Bonds totaled $9,345. Interest on the Bonds
is payable monthly at a variable interest rate (1.75% and 5.15% at December
29, 2001 and December 30, 2000, respectively), which is adjusted weekly to
the current market rate as determined by the remarketing agent for the
Bonds with principal due upon maturity on January 1, 2025. See Note 9.
The Bonds are secured by an irrevocable letter of credit totaling $9,650,
with facility fees of 0.75% annually, through September 30, 2004, renewable
on an annual basis thereafter. The bank has the option of requiring GII to
establish a sinking fund related to the principal balance outstanding on
the Bonds, which it had not exercised through December 29, 2001. The letter
of credit is secured by a mortgage on all assets financed with the proceeds
of the Bonds and is guaranteed by GARMIN.
In connection with the letter of credit agreement entered into with the
bank, GII is required to comply with various covenants, including minimum
tangible net worth requirements of both GARMIN and GII and various
financial performance ratios.
GARMIN LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 5. Long-Term Debt (continued)
During 1999, GARMIN borrowed $18,040 to finance the purchase of land and a
new manufacturing facility in Taiwan. The balance was due in 60 equal
payments of principal plus interest beginning in November 2001. Through
November 2001, interest was payable at a fixed rate of 6.155%. Subsequent
to November 2001, interest in adjustable based on the Republic of China's
government preferential rate on term deposits plus 0.18%. The Company opted
to prepay a significant portion of the outstanding principal during 2001.
The outstanding balance of $2,843 at December 29, 2001 was paid in full in
January 2002.
During 2000, GII entered into another agreement with the City of Olathe,
Kansas to finance the Company's expansion of its manufacturing facilities
through the issuance of Series 2000 Industrial Revenue Bonds (the 2000
Bonds) totaling $20,000. The proceeds from the issuance of the 2000 Bonds
were placed in an interest-bearing restricted cash account controlled by a
trustee appointed by the issuer. Disbursements from the account are
restricted to purchases of equipment and construction related to the
project and amounted to $5,694 and $14,304 during the years ended December
29, 2001 and December 30, 2000, respectively. Unexpended bond proceeds in
this restricted cash account amounted to $2 at December 29, 2001.
At December 29, 2001, outstanding principal under the 2000 Bonds totaled
$20,000. Interest on the 2000 Bonds is payable monthly at a variable
interest rate (2.1% at December 29, 2001), which is adjusted weekly to the
current market rate as determined by the remarketing agent of the 2000
Bonds with principal due upon maturity at April 15, 2020. See Note 9.
The 2000 Bonds are secured by an irrevocable letter of credit totaling
$20,288 with facility fees of 0.75%. This renewable letter of credit
initially expires on September 20, 2004. The bank has required a sinking
fund be established with semiannual payments of $667 beginning April 2002.
Principal payments on long-term debt through 2006 and thereafter are:
Year Amount
---------------------------
2002 $4,177
2003 1,334
2004 1,334
2005 1,334
2006 1,334
Thereafter 22,675
-------------
$32,188
=============
Note 6. Leases and Other Commitments
Rental expense related to office and warehouse space for GEL amounted to
$232, $139 and $140 for the years ended December 29, 2001, December 30,
2000, and December 25, 1999, respectively. Future minimum lease payments on
the related lease are $236 per year through 2006. In the years 2007 through
lease expiration in 2015, total future minimum lease payments are $2,122.
GARMIN LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 6. Leases and Other Commitments (continued)
At December 29, 2001 and December 30, 2000, standby letters of credit
amounting to $871 and $869, respectively, were issued by banks on behalf of
the Company.
Approximately $39,000 and $35,000 of Garmin's retained earnings are
indefinitely restricted from distribution to stockholders pursuant to the
law of Taiwan at December 29, 2001 and December 30, 2000, respectively.
Substantially all of the assets of GEL are held as collateral by a bank
securing payment of the United Kingdom value-added tax requirements.
Note 7. Employee Benefit Plans
GII has an employee savings plan under which its employees may contribute
up to 15% of their annual compensation subject to Internal Revenue Code
maximum limitations. Additionally, GEL has a defined contribution plan
under which its employees may contribute up to 5% of their annual
compensation. Both GII and GEL contribute an amount determined annually at
the discretion of the Board of Directors. During the years ended December
29, 2001, December 30, 2000, and December 25, 1999, expense related to
these plans of $1,172, $1,144, and $930, respectively, was charged to
operations.
Additionally, GII has a defined contribution money purchase plan (the MPP
Plan) which covers substantially all employees. GII contributes a specified
percentage of each participant's annual compensation up to certain limits
as defined in the MPP Plan. During the years ended December 29, 2001,
December 30, 2000, and December 25, 1999, GII recorded expense related to
the Plan of $1,184, $849, and $721, respectively.
Note 8. Income Taxes
The Company's income tax provision consists of the following:
Year Ended
------------------------------------------------------
December 29, December 30, December 25,
2001 2000 1999
------------------------------------------------------
Federal:
Current $10,208 $14,638 $ 8,883
Deferred (338) (450) (710)
------------------------------------------------------
9,870 14,188 8,173
State:
Current 2,237 3,479 1,332
Deferred (74) (2,051) (85)
------------------------------------------------------
2,163 1,428 1,247
Foreign:
Current 21,336 21,606 8,915
Deferred 5,218 (1,963) 1,630
------------------------------------------------------
26,554 19,643 10,545
------------------------------------------------------
Total $38,587 $35,259 $19,965
======================================================
GARMIN LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 8. Income Taxes (continued)
The income tax provision differs from the amount computed by applying the
statutory federal income tax rate to income before taxes. The sources and
tax effects of the differences are as follows:
Year Ended
------------------------------------------------------
December 29, December 30, December 25,
2001 2000 1999
------------------------------------------------------
Federal income tax expense at
U.S. statutory rate $53,212 $49,323 $29,446
State income tax expense, net of federal
tax effect 1,406 928 810
Foreign tax rate differential (13,640) (9,623) (5,604)
Taiwan tax incentives and credits (3,260) (5,181) (3,817)
Other, net 869 (188) (870)
------------------------------------------------------
Income tax expense $38,587 $35,259 $19,965
======================================================
The Company's income before income taxes attributable to foreign operations
was $120,550, $99,171, and $58,467 for the years ended December 29, 2001,
December 30, 2000, and December 25, 1999, respectively. The tax incentives
and credits received from Taiwan included in the table above reflect $0.03,
$0.05, and $0.04 per weighted-average common share outstanding for the
years ended December 29, 2001, December 30, 2000, and December 25, 1999,
respectively. The Company currently expects to benefit from the incentives
and credits being offered by Taiwan through 2004, at which time these tax
benefits expire.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax assets and liabilities
are as follows:
December 29, December 30,
2001 2000
-------------------------------
Deferred tax assets:
Product warranty accruals $1,833 $1,808
Allowance for doubtful accounts 888 705
Inventory carrying value 2,241 7,678
Sales program allowances 1,696 1,668
Vacation accrual 438 324
Interest-rate swaps 579 -
Other 46 452
--------------------------------
7,721 12,635
Deferred tax liabilities:
Unrealized foreign currency gains 844 1,098
Depreciation 1,017 930
--------------------------------
1,861 2,028
--------------------------------
Net deferred tax assets $5,860 $10,607
================================
GARMIN LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 9. Interest Rate Risk Management
During 1996, GII entered into an interest rate swap agreement to
effectively convert a portion of its floating rate long-term debt
associated with the Bonds to a fixed rate basis, thus, reducing the impact
of interest rate changes on future income. The agreement was renewed in
2001. Pursuant to this 'pay-fixed' swap agreement, GII agreed to exchange,
at specified intervals, the difference between the fixed and the floating
interest amounts calculated on the notional amount of the swap agreement
totaling $5,000 at December 29, 2001 and December 30, 2000. GII's fixed
interest rate under the swap agreement is 5.1%. The counterparty's floating
rate is based on the nontaxable PSA Municipal Swap Index and amounted to
1.75% and 5.15% at December 29, 2001 and December 30, 2000, respectively.
Notional amounts do not quantify risk or represent assets and liabilities
of the Company, but are used in the determination of cash settlements under
the agreement. The Company is exposed to credit losses from counterparty
nonperformance but does not anticipate any losses from its agreement, which
is with a major financial institution. The agreement expires June 6, 2004.
During 2000, GII entered into an additional swap agreement to effectively
convert a portion of additional floating rate long-term debt associated
with the 2000 Bonds to a fixed rate basis. Pursuant to this pay-fixed swap
agreement, GII agreed to exchange, at specified intervals, the difference
between the fixed and the floating interest amounts calculated on the
notional amount of the swap agreement totaling $10,000 at December 29, 2001
and December 30, 2000. GII's fixed interest rate under the swap agreement
is 7.26% compared to the counterparty's floating rate of 2.1% and 6.7% at
December 29, 2001 and December 30, 2000, respectively. The counterparty's
floating rate is based on the bank's Taxable Low Floater Rate. The
agreement expires June 1, 2004.
The fair value of the interest rate swap agreements is a liability of
$1,479 at December 29, 2001. The fair value of the agreement was not
significant at December 30, 2000. The liability has been included in other
accrued expenses in the consolidated balance sheets. None of the Company's
cash flow hedges were deemed ineffective.
At December 29, 2001, the Company expects to reclassify $621 of loss on the
interest rate swaps from accumulated other comprehensive loss to earnings
during the next 12 months related to the payment of variable interest on
floating rate debt, assuming market interest rates remain consistent with
rates at that date.
GARMIN LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 10. Fair Value of Financial Instruments
In accordance with SFAS No. 107, Disclosures about Fair Value of Financial
Instruments, the following summarizes required information about the fair
value of certain financial instruments for which it is currently
practicable to estimate such value. None of the financial instruments are
held or issued for trading purposes. The carrying amounts and fair values
of the Company's financial instruments are as follows:
December 29, 2001 December 30, 2000
-----------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-----------------------------------------------------------------
Cash and cash equivalents $192,842 $192,842 $251,731 $251,731
Restricted cash 1,600 1,600 5,848 5,848
Marketable securities 131,584 131,584 - -
Interest rate swap agreements
(liability) 1,479 1,479 - -
Long-term debt:
Term loan 2,843 2,843 17,601 17,481
Series 1995 Bonds 9,345 9,345 9,345 9,345
Series 2000 Bonds 20,000 20,000 20,000 20,000
The carrying value of cash and cash equivalents, restricted cash,
marketable securities, and interest rate swap agreements approximates their
fair value. The fair values of the Company's long-term floating-rate debt
have been estimated using discounted cash flow analyses, based on an
estimate of the interest rate the Company would have to pay on the issuance
of debt with a similar maturity and terms. The fair values of long-term
debt as reported are not necessarily the amounts the Company would
currently have to pay to extinguish any of this debt.
Note 11. Segment Information
The Company operates within its targeted markets through two reportable
segments, those being related to products sold into the consumer and
aviation markets. Both of the Company's reportable segments offer products
through the Company's network of independent dealers and distributors.
However, the nature of products and types of customers for the two segments
vary significantly. As such, the segments are managed separately. The
Company's consumer segment includes portable global positioning system
(GPS) receivers and accessories for marine, recreation, land, and
automotive use sold primarily to retail outlets. The Company's aviation
products are portable and panel mount avionics for Visual Flight Rules and
Instrument Flight Rules navigation and are sold primarily to retail outlets
and certain aircraft manufacturers.
The Company's Co-Chief Executive Officers have been identified as the Chief
Operating Decision Makers (CODM). The CODM evaluates performance and
allocates resources based on income before income taxes of each segment.
Income before income taxes represents net sales less operating expenses
including certain allocated general and administrative costs, interest
income and expense, foreign currency adjustments, and other nonoperating
corporate expenses. The accounting policies of the reportable segments are
the same as those described in the summary of significant accounting
policies. There are no intersegment sales or transfers.
GARMIN LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 11. Segment Information (continued)
The identifiable assets associated with each reportable segment reviewed by
CODM include accounts receivable and inventories. The Company does not
report property and equipment, depreciation and amortization, or capital
expenditures by segment to the CODM.
Revenues, interest income and interest expense, income before income taxes,
and identifiable assets for each of the Company's reportable segments are
presented below:
Year Ended December 29, 2001
----------------------------------------
Consumer Aviation Total
----------------------------------------
Sales to external customers $263,358 $105,761 $369,119
Allocated interest income 7,960 3,204 11,164
Allocated interest expense 1,550 624 2,174
Income before income taxes 102,511 49,524 152,035
Assets:
Accounts receivable 34,222 13,776 47,998
Inventory 43,587 17,545 61,132
Year Ended December 30, 2000
-----------------------------------------
Consumer Aviation Total
-----------------------------------------
Sales to external customers $230,183 $115,558 $345,741
Allocated interest income 4,610 2,315 6,925
Allocated interest expense 1,522 765 2,287
Income before income taxes 88,103 52,819 140,922
Assets:
Accounts receivable 21,791 10,928 32,719
Inventory 59,843 30,012 89,855
Year Ended December 25, 1999
-----------------------------------------
Consumer Aviation Total
-----------------------------------------
Sales to external customers $169,164 $63,422 $232,586
Allocated interest income 3,147 1,180 4,327
Allocated interest expense 420 157 577
Income before income taxes 60,449 23,683 84,132
Assets:
Accounts receivable 22,804 8,549 31,353
Inventory 31,093 20,155 51,248
GARMIN LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 11. Segment Information (continued)
Net sales and long-lived assets (property and equipment) by geographic area
are as follows as of and for the years ended December 29, 2001, December
30, 2000, and December 25, 1999:
North America Asia Europe Total
--------------------------------------------------------------------
December 29, 2001
Sales to external customers $275,630 $15,039 $78,450 $369,119
Long-lived assets 40,183 29,321 582 70,086
December 30, 2000
Sales to external customers $256,782 $16,569 $72,390 $345,741
Long-lived assets 32,737 31,453 514 64,704
December 25, 1999
Sales to external customers $172,742 $11,146 $48,698 $232,586
Long-lived assets 17,433 38,228 190 55,851
No single customer accounted for 10% or more of the Company's consolidated
net sales in any period.
Note 12. Initial Public Offering
On December 8, 2000, the Company completed an underwritten initial public
offering of 12,075,000 (including shares sold pursuant to the underwriters'
over-allotment option) shares of its common stock, 8,242,111 shares of
which were offered by the Company (the Offering) at an offering price of
$14.00 per share. Prior to but in connection with the offering, the Board
of Directors approved a 1.12379256-for-1 stock split of the Company's
common shares, effected through a stock dividend on November 6, 2000. All
share and per share information included in the accompanying consolidated
financial statements has been adjusted to give retroactive effect to the
common stock split.
Note 13. Stock Compensation Plans
During 2000, the Company adopted several stock compensation plans. The
Company accounts for all of these plans under APB Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations.
Accordingly, as all awards are granted at the fair market value on the date
of grant, no compensation expense is recognized.
The various plans are summarized below:
GARMIN LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 13. Stock Compensation Plans (continued)
2000 Equity Incentive Plan
In October 2000, the stockholders adopted an equity incentive plan (the
Plan) providing for grants of incentive and nonqualified stock options and
'other' stock compensation awards to employees of the Company and its
subsidiaries, pursuant to which up to 3,500,000 shares of common stock are
available for issuance. The stock options generally vest over a period of
five years or as otherwise determined by the Board of Directors or the
Compensation Committee and generally expire ten years from the date of
grant, if not exercised. Option activity under the Plan during 2000 and
2001 is summarized below. There have been no 'other' stock compensation
awards granted under the Plan.
2000 Nonemployee Directors' Option Plan
Also in October 2000, the stockholders adopted a stock option plan for
nonemployee directors (the Directors Plan) providing for grants of options
for up to 50,000 common shares of the Company's stock. The term of each
award is ten years. All awards vest evenly over a three-year period. During
2001, options to purchase 5,325 shares were granted under this plan. No
options associated with the Directors Plan had been granted as of December
30, 2000.
A summary of the Company's stock option activity and related information
under the Equity Incentive Plan and 2000 Nonemployee Directors' Plan for
the years ended December 29, 2001 and December 30, 2000 is provided below:
Weighted-
Average
Exercise Price Number of Shares
------------------------------------
(In Thousands)
Outstanding at December 25, 1999 $ - -
Granted 14.00 1,201
Exercised - -
Canceled - -
---------------
Outstanding at December 30, 2000 14.00 1,201
Granted 19.96 369
Exercised 14.00 (5)
Canceled - -
---------------
Outstanding at December 29, 2001 15.59 1,565
===============
December 29, December 30,
2001 2000
-------------------------------------
Weighted-average fair value of
options granted during the year $12.28 $8.53
GARMIN LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 13. Stock Compensation Plans (continued)
The weighted-average remaining contract life for options outstanding at
December 29, 2001 is approximately nine years. Options outstanding at
December 29, 2001 have exercise prices ranging from $14.00 to $22.54. At
December 29, 2001, options to purchase 234,150 shares are exercisable. No
options were exercisable at December 30, 2000.
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123. SFAS No. 123 requires the pro forma information
be determined as if the Company has accounted for its employee stock
options under the fair value method of that statement. As described below,
the fair value accounting provided under SFAS No. 123 requires the use of
option valuation models that were not developed for use in valuing employee
stock options. The fair value for these options was estimated at the date
of grant using a Black-Scholes option pricing model with the following
weighted-average assumptions for 2001 and 2000 (no options were granted
prior to 2000): risk-free interest rate of 5.11% and 5.75%, respectively;
no dividend yield; volatility factor of the expected market price of the
Company's common stock of 0.591 and 0.530, respectively; and a
weighted-average expected life of the option of seven years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions, including the
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the
fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the option's vesting period. The
Company's pro forma information for the years ended December 29, 2001 and
December 30, 2000 is as follows:
December 29, December 30,
2001 2000
--------------------------------------
--------------------------------------
Pro forma net income $112,150 $105,580
Pro forma net income per share:
Basic $ 1.04 $ 1.05
Diluted $ 1.03 $ 1.05
Employee Stock Purchase Plan
The stockholders also adopted an employee stock purchase plan (ESPP). Up to
1,000,000 shares of common stock have been reserved for the ESPP. Shares
will be offered to employees at a price equal to the lesser of 85% of the
fair market value of the stock on the date of purchase or 85% of the fair
market value on the enrollment date. The ESPP is intended to qualify as an
'employee stock purchase plan' under Section 423 of the Internal Revenue
Code. During 2001, 123,007 shares were purchased under the plan for a total
purchase price of $1,464. No shares were purchased during 2000.
GARMIN LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 14. Earnings Per Share
The following table sets forth the computation of basic and diluted net
income per share:
Year Ended
--------------------------------------------------
December 29, December 30, December 25,
2001 2000 1999
--------------------------------------------------
Numerator:
Numerator for basic and diluted net income per
share - net income $113,448 $105,663 $ 64,167
==================================================
Denominator (in thousands):
Denominator for basic net income per share -
weighted-average common shares 108,097 100,489 100,000
Effect of dilutive securities - employee stock
options (Note 13) 350 17 -
--------------------------------------------------
Denominator for diluted net income per share - 108,447 100,506 100,000
adjusted weighted-average common shares
==================================================
Basic net income per share $ 1.05 $ 1.05 $ 0.64
==================================================
Diluted net income per share $ 1.05 $ 1.05 $ 0.64
==================================================
Options to purchase 361,875 shares of common stock at prices ranging from
$20.25 to $22.54 per share were outstanding during 2001 but were not
included in the computation of diluted earnings per share because the
options' exercise price was greater than the average market price of the
common shares and, therefore, the effect would be antidilutive.
Note 15. Share Repurchase Program
On September 24, 2001, the Board of Directors authorized the Company to
repurchase up to 5,000,000 shares of the Company's common stock through
December 31, 2002. At December 29, 2001, the Company had purchased 595,200
shares at $9,834.
Note 16. Shareholder Rights Plan
On October 24, 2001, Garmin's Board of Directors adopted a shareholder
rights plan (the 'Rights Plan'). Pursuant to the Rights Plan, the Board
declared a dividend of one preferred share purchase right on each
outstanding common share of Garmin to shareholders of record as of November
1, 2001. The rights trade together with Garmin's common shares. The rights
generally will become exercisable if a person or group acquires or
announces an intention to acquire 15 percent or more of Garmin's
outstanding common shares. Each right (other than those held by the new 15
percent shareholder) will then be exercisable to purchase preferred shares
of Garmin (or in certain instances other securities of Garmin) having at
that time a market value equal to two times the then current exercise
price. Garmin's Board of Directors may redeem the rights at $0.002 per
right at any time before the rights become exercisable. The rights expire
October 31, 2011.
GARMIN LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 17. Selected Quarterly Information (Unaudited)
Year Ended December 29, 2001
---------------------------------------------------------------------
Quarter Ended
---------------------------------------------------------------------
March 31 June 30 September 29 December 29
---------------------------------------------------------------------
Net sales $85,534 $103,634 $86,930 $93,021
Gross profit 45,918 55,050 47,729 49,462
Net income 23,799 36,603 25,001 28,045
Net income per share $ 0.22 $ 0.34 $ 0.23 $ 0.26
Year Ended December 30, 2000
---------------------------------------------------------------------
Quarter Ended
---------------------------------------------------------------------
March 25 June 24 September 23 December 30
---------------------------------------------------------------------
Net sales $76,576 $ 93,964 $89,539 $85,662
Gross profit 41,913 50,025 49,031 42,757
Net income 20,599 29,161 28,292 27,611
Net income per share $ 0.21 $ 0.29 $ 0.28 $ 0.27
The above quarterly financial data is unaudited, but in the opinion of
management, all adjustments necessary for a fair presentation of the
selected data for these interim periods presented have been included.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Company
The Company has incorporated by reference certain information in response
or partial response to the Items under this Part III of this Annual Report
on Form 10-K pursuant to General Instruction G(3) of this Form 10-K and
Rule 12b-23 under the Exchange Act. The Company's definitive proxy
statement in connection with its annual meeting of stockholders scheduled
for June 7, 2002 (the 'Proxy Statement'), will be filed with the Securities
and Exchange Commission no later than 120 days after December 29, 2001.
(a) Directors of the Company
The information set forth in response to Item 401 of Regulation S-K under
the headings 'Proposal-Election of Two Directors' and 'The Board of
Directors' in the Company's Proxy Statement is hereby incorporated herein
by reference in partial response to this Item 10.
(b) Executive Officers of the Company
The information set forth in response to Item 401 of Regulation S-K under
the heading 'Executive Officers and Significant Employees of the Company'
in Part I of this Form 10-K is incorporated herein by reference in partial
response to this Item 10.
(c) Compliance with Section 16(a) of the Exchange Act
The information set forth in response to Item 405 of Regulation S-K under
the heading 'Other Matters-Section 16(a) Beneficial Ownership Reporting
Compliance' in the Company's Proxy Statement is hereby incorporated herein
by reference in partial response to this Item 10.
Item 11. Executive Compensation
The information set forth in response to Item 402 of Regulation S-K under
'The Board of Directors - Compensation of Directors' and under 'Executive
Compensation' in the Company's Proxy Statement (other than the
'Compensation Committee Report on Executive Compensation' and the 'Stock
Performance Graph') is hereby incorporated herein by reference in response
to this Item 11.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information set forth in response to Item 403 of Regulation S-K under
the heading 'Security Ownership of Certain Beneficial Owners and
Management' in the Company's Proxy Statement is hereby incorporated herein
by reference in response to this Item 12.
The Company has no knowledge of any arrangement, the operation of which may
at a subsequent date result in a change in control of the Company.
Item 13. Certain Relationships and Related Transactions
The information set forth in response to Item 404 of Regulation S-K under
the heading 'Compensation Committee Interlocks and Insider Participation'
and 'Certain Relationships and Related Transactions' in the Company's Proxy
Statement is incorporated herein by reference in response to this Item 13.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) List of Documents filed as part of this Report
(1) Consolidated Financial Statements
The consolidated financial statements and related notes, together with
the report of Ernst & Young LLP, appear in Part II, Item 8
'Financial Statements and Supplementary Data' of this Form 10-K.
(2) Schedule II Valuation and Qualifying Accounts
All other schedules have been omitted because they are not applicable,
are insignificant or the required information is shown in the
consolidated financial statements or notes thereto.
(3) Exhibits--The following exhibits are filed as part of, or
incorporated by reference into, this Annual Report on Form 10-K:
EXHIBIT DESCRIPTION
NUMBER
________ _____________
3.1* Memorandum of Association
3.2* Articles of Association
4.1* Specimen share certificate
4.2** Shareholder Rights Agreement
10.1* Garmin Ltd. 2000 Equity Incentive Plan
10.2* Garmin Ltd. 2000 Non-Employee Directors' Option Plan
10.3* Garmin Ltd. Employee Stock Purchase Plan
10.4 First Amendment to Garmin Ltd.Employee Stock Purchase
Plan
21.1 List of subsidiaries
23.1 Consent of Ernst & Young LLP
24.1 Power of Attorney (included in signature page)
-------------------------------------------------------------------------------
* Incorporated by reference from the Registrant's Registration Statement on
Form S-1 filed December 6, 2000 and declared effective on December 8, 2000
(Commission File No. 333-45514).
** Incorporated by reference from the Registrant's Current Report on Form 8-K
filed on October 26, 2001.
(b) Reports on Form 8-K
On October 26, 2001 the Company filed a Form 8-K dated October 25, 2001
reporting the adoption by the Company of a shareholder rights plan.
GARMIN LTD. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENT SCHEDULE
Garmin Ltd. Financial Statement Schedule for the years ended December 29, 2001,
December 30, 2000, and December 25, 1999.
Schedule II - Valuation and qualifying accounts...........................65
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Garmin Ltd. and Subsidiaries
Additions
-----------------------------
Description Balance at Charged to Charged to Deductions Balance at
Beginning of Costs and Other End of
Period Expenses Accounts Period
----------------------------------------------------------------------------------------------------------------------------
Year Ended December 25, 1999:
Deducted from asset accounts:
Allowance for doubtful accounts $ 618 $ 825 $ - $ (327)(1) $ 1,116
Inventory reserve
1,861 1,202 - (1,336)(2) 1,727
-----------------------------------------------------------------------
Total $ 2,479 $ 2,027 $ - $(1,663) $ 2,843
=======================================================================
Year Ended December 30, 2000:
Deducted from asset accounts:
Allowance for doubtful accounts $ 1,116 $ 911 $ - $ (161)(1) $ 1,866
Inventory reserve
1,727 5,915 - (1,138)(2) 6,504
-----------------------------------------------------------------------
Total $ 2,843 $ 6,826 $ - $(1,299) $ 8,370
=======================================================================
Year Ended December 29, 2001:
Deducted from asset accounts:
Allowance for doubtful accounts $ 1,866 $ 1,137 $ - $ (376)(1) $ 2,627
Inventory reserve
6,504 4,000 - (950)(2) 9,554
-----------------------------------------------------------------------
Total $ 8,370 $ 5,137 $ - $(1,326) $ 12,181
=======================================================================
(1) Uncollectible accounts written off, net of recoveries.
(2) Obsolete inventory dispositions and shrinkage.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
GARMIN LTD.
By /s/ Min H. Kao
Min H. Kao
Co-Chief Executive Officer
Dated: March 27, 2002
POWER OF ATTORNEY
Know all persons by these presents, that each person whose signature
appears below constitutes and appoints Gary L. Burrell and Min H. Kao and
Andrew R. Etkind, and each of them, as his or her attorney-in-fact, with
the power of substitution, for him or her in any and all capacities, to
sign any amendments to this Annual Report on Form 10-K, and to file the
same, with exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, hereby ratifying and
confirming all that said attorney-in-fact, or his substitute or
substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Annual Report on Form 10-K has been signed below by the following
persons on behalf of the Registrant and in the capacities indicated on
March 27, 2002:
/s/ Gary L. Burrell /s/ Min H. Kao
Gary L. Burrell Min H. Kao
Co-Chairman, Co-Chief Co-Chairman, Co-Chief
Executive Officer and Director Executive Officer and Director
(Co-Principal Executive Officer) (Co-Principal Executive Officer)
/s/ Kevin Rauckman /s/ Ruey-Jeng Kao
Kevin Rauckman Ruey-Jeng Kao
(Principal Financial Officer and Director
Principal Accounting Officer)
Chief Financial Officer and Treasurer
/s/ Thomas A. McDonnell /s/ Donald H. Eller
Thomas A. McDonnell Donald H. Eller
Director Director
/s/ Gene M. Betts
Gene M. Betts
Director
Garmin Ltd.
2001 Form 10-K Annual Report
Exhibit Index
The following exhibits are attached hereto. See Part IV of this Annual
Report on Form 10-K for a complete list of exhibits.
Exhibit
Number Document
10.4 First Amendment to Garmin Ltd. Employee Stock Purchase Plan
21.1 List of Subsidiaries
23.1 Consent of Ernst & Young LLP
EXHIBIT 10.4
FIRST AMENDMENT TO THE
GARMIN LTD. EMPLOYEE STOCK PURCHASE PLAN
The Garmin Ltd. Employee Stock Purchase Plan is amended, effective
December 1, 2001, as follows:
I.
Section 2.11 is amended to read as follows:
2.11 'Eligible Employee' means an Employee, including an
employee on Qualified Military Leave, eligible to participate
in the Plan in accordance with Article V.
II.
Section 2.12 is amended to read as follows:
2.12 'Employee' means an individual who performs services
for the Company or a Participating Subsidiary pursuant to an
employment relationship described in Treasury Regulations
Section 31.3401(c)-1 or any successor provision, or an in
individual who would be performing such services but for such
individual's Qualified Military Leave.
III.
Sections 2.22 through 2.26 are renumbered as Sections 2.23 through
2.27, respectively, and a new Section 2.22 is added to read as follows:
2.22 'Qualified Military Leave' means an absence due to
service in the uniformed services of the United States (as
defined in Chapter 43 of Title 38 of the United States Code)
by an individual employee of the Company or a Participating
Subsidiary, provided the individual's rights to reemployment
under the Uniformed Services Employment and Reemployment
Rights Act of 1994 have not expired or terminated.
IV.
Sub-sections 5.2(b) and (c) are amended to read as follows:
(b) Employees (other than individuals on Qualified Military
Leave) who are customarily employed by the Company or a
Participating Subsidiary for not more than 20 hours per week;
or
(c) Employees (other than individuals on Qualified Military
Leave) who are customarily employed by the Company or a
Participating Subsidiary for not more than five (5) months
in any calendar year.
V.
Section 10.3 is amended to read as follows:
10.3 Leave of Absence. If a Participant takes a leave of
absence (other than a Qualified Military Leave) without
terminating employment, such Participant will be deemed to
have discontinued contributions to the Plan in accordance with
Section 8.3, but will remain a Participant in the Plan through
the balance of the Accumulation Period in which his or her
leave of absence begins, so long as such leave of absence does
not exceed 90 days. If a Participant takes a leave of absence
(other than a Qualified Military Leave) without terminating
employment, such Participant will be deemed to have withdrawn
from the Plan in accordance with Section 10.1 on
the 91st day of such leave of absence.
VI.
Except as amended herein, the Plan shall remain in full force and
effect.
Executed this 8th day of January, 2002.
..........................GARMIN LTD.
..........................By: /s/ Min H. Kao
..........................Name: Min H. Kao
..........................Title: Co-Chairman and Co-CEO
EXHIBIT 21.1
GARMIN LTD.
List of Subsidiaries of Registrant
Name of Subsidiary Jurisdiction of Incorporation
Garmin Corporation Taiwan
Garmin International, Inc. Kansas
Garmin USA, Inc. Kansas
Garmin Realty, LLC Kansas
Garmin (Europe) Ltd. England
EXHIBIT 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statements
(Form S-8 Nos. 333-51470 and 333-52766) pertaining to the Garmin Ltd.
Employee Stock Purchase Plan, Garmin Ltd. 2000 Equity Incentive Plan,
Garmin Ltd. Non-Employee Director Option Plan, and the Garmin
International, Inc. Savings and Profit Sharing Plan of our report dated
February 1, 2002, with respect to the consolidated financial statements and
schedule of Garmin Ltd. included in the Annual Report (Form 10-K) for the
year ended December 29, 2001.
/s/ Ernst & Young LLP
Ernst & Young LLP
Kansas City, Missouri
March 25, 2002