United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-K/A
(Amendment No. 1)
[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.
On March 27, 2002, the Company filed an Annual Report on Form 10-K for the
fiscal year ended December 29, 2001. This amendment on Form 10-K/A is filed for
the sole purpose of adding the name and conformed signature of the independent
auditors to the Report in Item 8. The name and conformed signature were
inadvertently omitted in the March 27, 2002 electronic filing.
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.
/s/ Ernst & Young LLP
Ernst & Young LLP
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
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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.
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: April 2, 2002