UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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 30, 2000
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
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GARMIN LTD.
(Exact name of Company as specified in its charter)
CAYMAN ISLANDS 98-0229227
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(State or other jurisdiction (I.R.S. Employer identification no.)
of incorporation or organization)
QUEENSGATE HOUSE, P.O. BOX 30464SMB,
113 SOUTH CHURCH STREET
GEORGE TOWN, GRAND CAYMAN, CAYMAN ISLANDS N/A
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(Address of principal executive offices) (Zip Code)
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 26, 2001, based on the closing price
of the Registrant's common shares on the Nasdaq Stock Market for that date.
Common Shares, $.01 par value - $1,056,895,958
Number of shares outstanding of the Company's common shares as of
March 26, 2001:
Common Shares, $.01 par value - 108,242,111
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the following documents are incorporated herein by reference into
Part III of the Form 10-K as indicated:
PART OF FORM 10-K INTO
DOCUMENT WHICH INCORPORATED
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Company's Definitive Proxy Statement for the 2001 Annual Meeting of Shareholders Part III
which will be filed no later than 120 days after December 30, 2000
*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.
2000 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....................................................10
Item 4. Submission of Matters to a Vote of Security Holders..................10
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.......................................14
Item 7A. Quantitative and Qualitative Disclosures About Market Risk...........30
Item 8. Financial Statements and Supplementary Data..........................31
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure........................................54
PART III
Item 10. Directors and Executive Officers of the Company......................54
Item 11. Executive Compensation...............................................54
Item 12. Security Ownership of Certain Beneficial Owners and Management.......54
Item 13. Certain Relationships and Related Transactions.......................54
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K........................................................55
Signatures...........................................................58
GARMIN, the GARMIN logo, the GARMIN globe design, the GARMIN "swoosh"' design,
STREETPILOT, ETREX, TRACBACK, DCG, GPSMAP, GPS II, GPS III, GPSCOM, PHASETRAC
12, TRACPAK, G CHART, GPS 40, PERSONAL NAVIGATOR, GUIDANCE BY GARMIN, MULTITRAC
8, AUTOLOCATE, NAVTALK and SEE-THRU are registered trademarks of Garmin
Corporation, and EMAP, ETREX SUMMIT, ETREX CAMO, ETREX LEGEND, ETREX VENTURE,
ETREX VISTA, METROGUIDE and MAPSOURCE are trademarks of Garmin Corporation. All
other registered trademarks and tradenames 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 are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of their date.
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 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 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. In addition, pursuant to
Rule 12b-23 under the Securities Exchange Act of 1934, as amended, the segment
information included in Item 8, Note 10 is incorporated herein by reference in
partial response to this Item 1.
RECENT DEVELOPMENTS IN THE COMPANY'S BUSINESS
REORGANIZATION
The Company was incorporated in the Cayman Islands on July 24, 2000 as a
holding company for Garmin Corporation in order to facilitate a public offering
of Garmin shares in the United States.
As a result of a corporate reorganization completed in 2000, 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 Taiwan
requirement 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.
INITIAL PUBLIC OFFERING
The Company completed an initial public offering of its common shares on
December 8, 2000 (the "IPO"). Of the 12,075,000 common shares sold in the IPO
(including shares sold pursuant to the underwriters' over-allotment option),
8,242,111 shares were sold by the Company and 3,832,889 shares were sold by
certain selling shareholders. The Company raised net proceeds of $104.4 million
in the IPO.
COMPANY OVERVIEW
Garmin is a leading, worldwide provider of navigation, communications and
information devices, most of which are enabled by Global Positioning System
("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. 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 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 will also 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 in 2002.
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 and recreational products, and the aviation segment,
which consists of panel mount and portable products for use in aircraft.
While the marine/recreational 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 automotive navigation systems and wireless consumer and
mobile information devices (such as 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 many of these potentially high-growth
GPS markets.
CONSUMER
Garmin currently offers a wide range of consumer products, including
handheld GPS receivers, our StreetPilot(R) portable automotive navigation
devices 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 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, 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.
The table below includes a sampling of the innovative 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. eMap introduces benefits of
GPS to a new class of consumers.
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.
StreetPilot GPS
(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
(4 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.
GPS 48 Handheld GPS with a built-in database of marine
navigation aids.
GPS III+ Portable GPS, with unique selectable vertical or
horizontal displays. Capabilities and features
include built-in basemap and MapSource compatibility.
GPSMAP 175 Portable GPS/Plotter suitable for avid boaters,
providing fuel and planning functions, distance and
bearing calculations and inland and offshore digital
marine charts. The unit offers a large display and
the capability to access detailed marine charts from
G-Chart(R)cartridges.
MARINE FIXED-MOUNT UNITS:
GPS126 & 128 Low cost fixed-mount GPS's for boating with either a
built-in antenna or an external antenna for exposed
installations.
GPSMAP(R)
(5 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 4.2" to 7.1"),
high-contrast LCD graphics, monochrome or 16-color
active matrix displays and the capability of
uploading current mapping data from a personal
computer with MapSource CD-ROM's.
GBR 21 & 23 These differential beacon receivers complement all
of Garmin's GPS receivers by providing boaters and
fisherman additional positioning accuracy to within
approximately 5 meters.
SOUNDER PRODUCTS:
FishFinders
(3 models) Fishfinders feature exclusive DCG(R)and See-Thru(R)
technology, which aid fishermen in defining the
ocean/lake bottom and spotting fish in hidden or
obscured areas.
GPSMAP/Sounder
(3 models) The "all-in-one" product lines with GPS, chart-
plotter and sonar functionality. These units come
with different display sizes (ranging in size from
4.2" to 7.1") and the capability of uploading current
mapping data.
CONSUMER COMMUNICATIONS PRODUCTS:
NavTalk A waterproof handheld unit that combines an analogue
cellular telephone and a full-featured GPS receiver
with mapping display. 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 an unprecedented set of features and capabilities
integrated into a single product. This high level of integration has
revolutionized the aviation electronics industry by minimizing the use of
precious space in the cockpit, enhancing the quality and safety of flight
through the use of modern designs and components and reducing 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.
Large portions of Garmin's sales of panel mounted aviation products come
from 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 and Cirrus
Design Corporation. 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 the innovative 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 down-
load 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.
GNS 530 This unit combines all of the features of the GNS 430
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 320 & 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.
GPSCOM 190 A GPS-enabled handheld with a VHF radio. This unit
combines a portable GPS receiver with an aviation band
communication transmitter/receiver for communication
with airports and air traffic controllers.
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.
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:
o BASS PRO SHOPS--a freshwater sports specialist with a sophisticated
catalog sales effort and "super store" locations;
o BOAT AMERICA/BOAT U.S.--A major marine dealer featuring memberships
for special buying privileges;
o BOATERS WORLD--a leading off-shore marine retailer with multiple
locations;
o CABELA'S--a major catalogue retailer for the outdoor marine market;
o WAL-MART--one of the world's largest mass retailers;
o WEST MARINE--one of the largest U.S. marine retailers specializing in
offshore boating equipment; and
o 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 Magellan Corporation ("Magellan"), a subsidiary of Orbital
Sciences, Inc., Lowrance Electronics Inc. ("Lowrance"), Raytheon Marine Company
("Raytheon"), Furuno Electronic Company, MLR, Simrad AS ("Simrad"), the Cetrek
division of Teleflex, Inc., Japan Radio Company and Koden Electronics Co., Ltd.
For Garmin's fishfinder/depth sounder product lines, Garmin believes that its
principal competitors are Lowrance, Furuno, Raytheon, Simrad and the Humminbird
division of Techsonic Industries, Inc. ("Humminbird"). Garmin believes that its
principal competitors for marine VHF transceiver product lines are Standard
Communications, Shakespeare Corporation, Humminbird, Raytheon, Uniden
Corporation, Simrad and Icom, Inc. For Garmin's general aviation product lines,
Garmin considers its principal competitors to be Lowrance and Magellan, for
portable GPS units, and UPS Aviation Technologies, a subsidiary of United Parcel
Service, Inc., Honeywell, Inc., Northstar Technologies and Avidyne Corporation
for panel-mount GPS and display units. For Garmin's wireless product lines,
Garmin believes that its principal competitors are Nokia Oy, Telefon AB LM
Ericsson, Motorola, Inc. ("Motorola"), Benefon Oy, Siemens AG, Sony Corporation
and Samsung. For Garmin's GPS sensor board product lines, Garmin believes its
principal competitors are Trimble Navigation, Ltd., Conexant, Inc., Magellan,
Motorola, Phillips N.V. ("Phillips") and SiRF Technology, Inc. For Garmin's
automotive product lines, Garmin considers its principal competitors to be
Magellan, Alpine Electronics, Inc., Denso KK, Visteon, On-Star Division of
General Motors Corporation and Phillips.
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 200 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 30, December 25, December 26,
2000 1999 1998
------------------------- ------------------------- -------------------------
(In thousands)
Research and development $ 21,764 $17,339 $14,876
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. 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 26, 2001, Garmin held
44 U.S. patents and had 38 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; TRACBACK; DCG; PERSONAL NAVIGATOR;
GPSMAP; GPS II; GPS III; GUIDANCE BY GARMIN; GPSCOM; PHASETRAC 12; TRACPAK; G
CHART; GPS 40; MULTITRAC 8; AUTOLOCATE; NAVTALK and SEE-THRU. Our mark GARMIN
and certain other trademarks have also been registered in selected foreign
countries. Garmin's trademarks include EMAP; ETREX SUMMIT; ETREX CAMO; ETREX
LEGEND; ETREX VENTURE; ETREX VISTA; METROGUIDE and MAPSOURCE. 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 Federal Aviation
Administration 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 30, 2000, Garmin had 1,291 full-time employees worldwide, of
whom 572 were in the United States, 689 were in Taiwan and 30 were in England.
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. subsidiary, Garmin International, Inc., occupies a 240,000
square foot facility on 41 acres in Olathe, Kansas, where it produces all
aviation panel-mount products and warehouses, distributes, sells and supports
Garmin products 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. 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.
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 186,367
square feet at this facility and leases the remainder to third parties.
Garmin's subsidiary, Garmin (Europe) Ltd., leases approximately 28,358
square feet 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. 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 26, 2001, Garmin was not a party to
any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Prior to the December 8, 2000 initial public offering of Garmin's shares, a
special meeting of Garmin's shareholders was held on October 24, 2000 to approve
(a) Garmin's 2000 Equity Incentive Plan, Garmin's Employee Stock Purchase Plan,
Garmin's Non-Employee Directors' Option Plan and Garmin's Shareholder Rights
Plan, and (b) amendments to Garmin's Articles of Association (i) to add a
provision permitting the Board of Directors to set a record date for
shareholders entitled to notice of and to vote at meetings or to receive
dividends, and (ii) to correct certain typographical and clerical errors in the
Articles of Association. All of such plans and such amendments were approved at
this meeting with the following votes being cast.
FOR AGAINST ABSTAIN
--- ------- -------
Garmin Ltd. 2000 Equity Incentive Plan 73,244,205 3,337,065 0
Garmin Ltd. Employee Stock Purchase Plan 76,581,270 0 0
Garmin Ltd. 2000 Non-Employee Director's
Option Plan 76,581,270 0 0
Garmin Ltd. Shareholders Rights Plan 73,244,205 3,337,065 0
Amendments to the Articles of Association 76,581,270 0 0
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 8, 2001.
GARY L. BURRELL, age 63, 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 President and a
director of Garmin International, Inc. since August 1990, a director and
Chairman of Garmin (Europe) Ltd. since 1992 and a director of Garmin Foreign
Sales Corporation since May 1998 and President since July 1998. Mr. Burrell
holds a BS degree in Electrical Engineering from Wichita State University and a
MS degree in Electrical Engineering from Rennsselaer Polytechnic Institute.
DR. MIN H. KAO, age 52, 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 been Chairman and a director of Garmin
Corporation since January 1990. Dr. Kao has also been a director of Garmin
International, Inc. since August 1990 and a Vice President since April 1991, a
director of Garmin (Europe) Ltd. since 1992 and a director of Garmin Foreign
Sales Corporation since May 1998 and Vice President since July 1998. 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 38, 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 has been a
director and Treasurer of Garmin Foreign Sales Corporation since January 1999.
Previously, Mr. Rauckman served as Director of Finance and in other finance
capacities for one of AlliedSignal'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 45, 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.
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. (now known as IMR Global, 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 54, 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. 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.
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 26, 2001 there were approximately 146 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 high and low closing sales prices of the Company's common shares as
reported on the Nasdaq stock market from December 8, 2000, the date of the
Company's initial public offering, through December 31, 2000, were $21.188 and
$18.188 respectively.
As part of the corporate restructuring of the Company, on September 22,
2000, substantially all of the shareholders of Garmin Corporation exchanged
88,984,394 common shares of stock of Garmin Corporation for 100,000,000 common
shares (post split) of Garmin with a per share par value of $0.01. The Garmin
shares were not registered under the Securities Act of 1933, as amended (the
"Securities Act"). Certain of the Garmin shares were issued to U.S. shareholders
pursuant to an exemption from the registration requirements of the Securities
Act pursuant to Section 4(2) of, and Rule 506 of Regulation D under, the
Securities Act. The remainder of the shares were offered and issued outside the
United States to individuals who are not citizens or residents of the United
States pursuant to Regulation S under the Securities Act.
Garmin's registration statement on Form S-1 (Commission file no. 333-45514)
was declared effective on December 8, 2000. On that date Garmin completed an
initial public offering of its common shares, $0.01 par value per share, in
which 10,500,000 shares were sold at an offering price of $14.00 per share. Of
the total shares sold, 7,875,000 common shares were sold by the Company and
2,625,000 were sold by selling shareholders. Of the 10,500,000 shares sold in
the initial public offering, 8,925,000 were sold to the U.S. underwriters,
represented by Credit Suisse First Boston Corporation and Merrill Lynch, Pierce,
Fenner & Smith Incorporated as joint book-running managers, and 1,575,000 shares
were sold to the international managers, represented by Credit Suisse First
Boston (Europe) Limited and Merrill Lynch International as joint book-running
managers. In connection with this offering, the U.S. underwriters had the option
to purchase an additional 312,044 shares from Garmin and an additional 1,026,706
shares from the selling shareholders and, the international managers had the
option to purchase an additional 55,067 shares from Garmin and an additional
181,183 shares from the selling shareholders. The underwriters exercised these
options on December 11, 2000. Net proceeds to Garmin were $104.4 million after
underwriting discounts of $0.98 per share and other costs of issuance of $3.0
million. Payments of these expenses were not made to any directors or officers
of Garmin or their associates, shareholders of 10% or more of the outstanding
shares of Garmin or any affiliates of Garmin.
Garmin plans to use the proceeds from the IPO for working capital and other
general corporate purposes, including possible 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 30, 2000
and December 25, 1999 and the selected consolidated statement of income data for
the years ended December 30, 2000, December 25, 1999 and December 26, 1998 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 26, 1998,
December 31, 1997 and December 31, 1996 and the selected consolidated statement
of income data for the years ended December 31, 1997 and 1996 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. 30, DEC. 25, DEC. 26, DEC. 31, DEC. 31,
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(in thousands, except per share data)
CONSOLIDATED STATEMENTS OF INCOME
DATA:
Net sales........................ $345,741 $232,586 $169,030 $160,280 $135,874
Cost of goods sold............... 162,015 105,654 82,787 93,620 77,616
-------- -------- -------- -------- --------
Gross profit................. 183,726 126,932 86,243 66,660 58,258
Operating expenses:
Selling, general and
administrative............. 32,669 27,063 24,680 17,102 17,720
Research and
development................ 21,764 17,339 14,876 12,657 10,383
-------- -------- -------- -------- --------
Total operating expenses......... 54,433 44,402 39,556 29,759 28,103
-------- -------- -------- -------- --------
Operating income................. 129,293 82,530 46,687 36,901 30,155
Other income, net (2)............ 11,629(3) 1,602 833 11,971(3) 818
-------- -------- -------- -------- --------
Income before income
taxes........................ 140,922 84,132 47,520 48,872 30,973
Provision for income taxes....... 35,259 19,965 12,354 12,780 7,943
-------- -------- -------- -------- --------
Net income.............. $105,663 $ 64,167 $ 35,166 $ 36,092 $ 23,030
======== ======== ======== ======== ========
Net income per share:
Basic..................... $1.05 $0.64 $0.35 $0.37 $0.23
Diluted................... $1.05 $0.64 $0.35 $0.37 $0.23
Weighted average common shares
outstanding:
Basic...................... 100,489 100,000 99,624 98,876 98,876
Diluted.................... 100,506 100,000 99,624 98,876 98,876
Cash dividends per share(4) $0.29 $0.13 $0.12 $0.09 $0.03
BALANCE SHEET DATA (AT END OF
PERIOD):
Cash and cash equivalents....... $251,731 $104,079 $ 80,360 $ 64,243 $ 37,073
Total assets.................... 463,347 250,090 174,532 143,482 118,775
Total debt (5)................. 46,946 27,720 9,708 15,823 14,275
Total stockholders' equity..... 365,239 194,599 135,940 104,204 86,047
--------------------------------------------------------------------------------------------------------------
(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 a $10 million foreign currency gain during 1997 and a $7 million
foreign currency gain during 2000.
(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.
(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 of the Company's financial condition and results
of operations should be read together with the Company's consolidated financial
statements and notes to those statements included in Item 8 of Part II of 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 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 use 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 26% since 1996
and our net income has increased at a compounded annual growth rate of 46% since
1996. 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 British Pound Sterling
and the functional currency of our Asian operations is the New Taiwan Dollar.
Other than in 1997, when we experienced a $10.0 million foreign currency gain,
and 2000, when we experienced a $7.0 million foreign currency gain, both due to
a strong U.S. Dollar, we generally have not been significantly affected by
foreign currency fluctuations. To date, we have not entered into hedging
transactions with either the British Pound Sterling or the New Taiwan Dollar,
although we may utilize hedging transactions in the future.
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 have offset these with efficiencies in our manufacturing
processes. 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. However, a majority of these expenses are relatively fixed
and would not be expected to increase as significantly as sales. We also intend
to increase advertising and marketing expenses in order to build increased brand
awareness in the consumer marketplace. We do not anticipate that these increased
expenses will significantly impact our financial results in 2001 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 and are experiencing accelerating returns on our research and development
investment as net sales increase.
CUSTOMERS
No customer accounted for greater than 10% of our sales in the year ended
December 30, 2000. Our top ten customers accounted for approximately 29% of net
sales. We have experienced average sales days in our customer accounts
receivable between 35 and 40 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 2000. 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. Additional incentives may be applied for under
current tax laws after 2004 under the current Taiwan tax incentive policies.
However, there can be no assurance that such tax incentives will not be repealed
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. 30, DEC. 25, DEC. 26,
2000 1999 1998
---- ---- ----
Net sales ............................. 100.0% 100.0% 100.0%
Cost of goods sold..................... 46.9% 45.4% 49.0%
----- ----- -----
Gross profit .......................... 53.1% 54.6% 51.0%
Operating expenses:
Selling, general and administrative.... 9.4% 11.6% 14.6%
Research and development............... 6.3% 7.5% 8.8%
---- ---- ----
Total operating expenses............... 15.7% 19.1% 23.4%
----- ----- -----
Operating income....................... 37.4% 35.5% 27.6%
Other income, net...................... 3.4% 0.7% 0.5%
---- ---- ----
Income before income taxes............ 40.8% 36.2% 28.1%
Provision for income taxes............. 10.2% 8.6% 7.3%
----- ---- ----
Net income............................. 30.6% 27.6% 20.8%
===== ===== =====
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. 30, 2000 DEC. 25, 1999 DEC. 26, 1998
CONSUMER AVIATION CONSUMER AVIATION CONSUMER AVIATION
-------- -------- -------- -------- -------- --------
(IN THOUSANDS)
Net sales............... $230,183 $115,558 $169,164 $63,422 $135,446 $33,584
Cost of goods sold... 114,656 47,359 78,088 27,566 68,787 14,000
-------- -------- -------- ------- -------- -------
Gross profit........... 115,527 68,199 91,076 35,856 66,659 19,584
Operating expenses:
Selling, general and
administrative... 23,756 8,913 20,486 6,577 20,047 4,633
Research and development.... 14,210 7,554 11,431 5,908 9,177 5,699
-------- -------- -------- ------- -------- -------
Total operating
expenses......... 37,966 16,467 31,917 12,485 29,224 10,332
-------- -------- -------- ------- -------- -------
Operating income... 77,561 51,732 59,159 23,371 37,435 9,252
Other income, net 10,542 1,087 1,290 312 501 332
-------- -------- -------- ------- -------- -------
Income before
Income taxes..... $ 88,103 $ 52,819 $ 60,449 $23,683 $ 37,936 $ 9,584
======== ======== ======== ======= ======== =======
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. The selling, general and
administrative expenses are expected to increase at a lower rate than sales in
both segments due to the effects of increased volume on these relatively fixed
costs.
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 New
Taiwan Dollar during the fourth quarter of fiscal 2000, when the exchange rate
increased from 31.30 NTD/USD at the beginning of the fourth quarter to 33.01
NTD/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 2002. 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.
COMPARISON OF FISCAL YEARS ENDED DECEMBER 25, 1999 AND DECEMBER 26, 1998
NET SALES
Our net sales were $232.6 million in fiscal 1999, a 38% increase over net
sales of $169.0 million in fiscal 1998. Net sales from our consumer products
accounted for 72.7% of net sales in fiscal 1999 compared to 80.1% of net sales
in fiscal 1998. Net sales from our aviation products accounted for 27.3% of net
sales in fiscal 1999 compared to 19.9% of net sales in fiscal 1998. Net sales
increased $33.7 million, or 25%, in the consumer segment and $29.8 million, or
89%, in the aviation segment. The aviation sales growth was driven by continued
strong demand for new products introduced in early 1998 and significant demand
for our panel mount aviation products that were introduced in early 1999. The
consumer products sales growth was driven by new handheld products introduced in
1999.
GROSS PROFIT
Gross profit was $126.9 million in fiscal 1999, a 47% increase over gross
profit of $86.2 million in fiscal 1998. Gross profit as a percent of net sales
increased to 54.6% in fiscal 1999, from 51.0% in fiscal 1998, due primarily to
the effects of increased manufacturing efficiencies due to higher volume and
favorable product mix associated with the incremental sales of aviation
products. Gross profit increased $24.4 million, or 37%, in the consumer segment
and $16.3 million, or 83%, in the aviation segment. Gross profit as a percentage
of consumer net sales increased to 53.8% in fiscal 1999 from 49.2% in fiscal
1998 due to increased sales of higher margin recreational products introduced in
1999. Gross profit as a percentage of aviation net sales decreased to 56.5% in
fiscal 1999 from 58.3% in fiscal 1998 due to a slight shift in the aviation
sales mix in 1999 to panel mount products, which sell at slightly lower margins
than portable aviation products.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Despite a 38% increase in net sales, selling, general and administrative
expenses increased only 10%, to $27.1 million (11.6% of net sales), in fiscal
1999, from $24.7 million (14.6% of net sales) in fiscal 1998. Selling, general
and administrative expenses increased $0.4 million, or 2%, in the consumer
segment and $1.9 million, or 42%, in the aviation segment. The increase in
expense was driven primarily by increased advertising costs and additional
marketing and administrative staff needed to support the increased sales during
1999, particularly in the aviation segment. The percentage increase was much
higher in the aviation segment than in the consumer segment due to the
significant increase in aviation net sales. Again, the selling, general and
administrative expenses increased at a lower rate than sales in both segments,
as expected, due to the effects of increased volume on relatively fixed costs.
RESEARCH AND DEVELOPMENT EXPENSE
Research and development expense increased approximately 17%, to $17.3
million (7.5% of net sales), in fiscal 1999, from $14.9 million (8.8% of net
sales) in fiscal 1998. Research and development expense increased $2.3 million,
or 25%, in the consumer segment and $0.2 million, or 4%, in the aviation
segment. The increase in expense was due primarily to additional product
development costs in the consumer segment related to increases in the
engineering staff dedicated to new product development initiatives in this
segment. Research and development expense in the aviation development segment
experienced little change in 1999 as development of the new family of panel
mount aviation products was completed in late 1998 and required less continuing
development effort in 1999.
OTHER INCOME (EXPENSE)
Other income (expense) for fiscal 1999 amounted to $1.6 million, compared
to $0.8 million in fiscal 1998. Interest income for 1999 amounted to $4.3
million, compared to $3.5 million in fiscal 1998. Interest expense increased to
$0.6 million in fiscal 1999 from $0.5 million in fiscal 1998. No additional debt
was undertaken during fiscal 1998 and 1999, with the exception of a new facility
purchased in Taiwan late in fiscal 1999. We recognized a foreign currency
exchange loss of $1.5 million in fiscal 1999, compared to $2.2 million loss in
fiscal 1998, due to weakness of the U.S. Dollar compared to the New Taiwan
Dollar in both years.
INCOME TAX PROVISION
Income tax expense increased by $7.6 million, to $20.0 million, in fiscal
1999, from $12.4 million in fiscal 1998, due to our higher taxable income. The
effective tax rate was 23.7% in fiscal 1999 versus 26.0% in fiscal 1998. This
decrease was driven primarily by added tax incentives made available by the
Taiwanese government in 1999.
NET INCOME
As a result of the above, net income in fiscal 1999 was $64.2 million
compared to $35.2 million in fiscal 1998.
LIQUIDITY AND CAPITAL RESOURCES
Net cash generated by operating activities was $88.3 million, $44.3 million
and $36.5 million in fiscal 2000, 1999 and 1998, 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. However, in the fourth quarter of fiscal 2000,
we did provide for anticipated excess inventory and the effects of technological
obsolescence on older model inventories related to new product introductions
expected in early fiscal 2001.
During fiscal 2000, our capital expenditures totaled $24.8 million, which
was $7.4 million less than during 1999. In fiscal 1999 and 1998, our capital
expenditures totaled approximately $32.2 million and $8.3 million, respectively.
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. We also made use of capital leases to finance part of
our capital expenditures programs during 1998.
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
2001 to be less than in 2000 since the current expansions are nearly 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 recently acquired
facility in Shijr, Taiwan. We may use a portion of the net proceeds from our
recent IPO to acquire targeted strategic businesses.
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 2001.
Cash dividends paid to stockholders were $29.0 million, $7.5 million and
$6.0 million in fiscal 2000, 1999 and 1998, 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.
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.
RECENT ACCOUNTING PRONOUNCEMENTS
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 133 will be effective for our
fiscal year ending December 29, 2001. The adoption of Statement No. 133 will not
have a material impact on our financial condition or results of operations.
In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44 ("FIN 44") ACCOUNTING FOR CERTAIN TRANSACTIONS INVOLVING
STOCK COMPENSATION, AND INTERPRETATION OF APB OPINION NO. 25. FIN 44 clarifies
the application of Opinion No. 25 for (a) the definition of employee for
purposes of applying Opinion No. 25, (b) the criteria for determining whether a
plan qualifies as a noncompensatory plan, (c) the accounting consequence of
various modifications to the terms of a previously fixed stock award, and (d)
the accounting for an exchange of stock compensation awards in a business
combination. FIN 44 is effective July 1, 2000, but certain conclusions cover
specific events that occur after either December 15, 1998 or January 12, 2000.
While we issued certain stock compensation awards in the fourth quarter of 2000,
the adoption of FIN 44 has not had a material impact on our financial
statements.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, or "SAB 101", REVENUE RECOGNITION, which provides
guidance on the recognition, presentation, and disclosure of revenue in
financial statements filed with the SEC. SAB 101 outlines the basic criteria
that must be met to recognize revenue and provides guidance for disclosures
related to revenue recognition policies. Because our current revenue recognition
policies are basically consistent with SAB 101, implementation of SAB 101 does
not have a material impact on our financial condition or results of operations.
COMPANY-SPECIFIC TRENDS AND RISKS
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, 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. 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.
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. THIS INTEREFERENCE COULD HARM OUR BUSINESS.
On May 11, 2000, the FCC issued a Notice of Proposed Rulemaking that
proposes rules for the operation of Ultra-Wideband ("UWB") radio devices on an
unlicensed basis in the frequency bands allocated to the Global Positioning
System. If the FCC issues final rules authorizing such operation, UWB 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 and 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:
o 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.
o 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.
o 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, 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. 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. In 2000, we have experienced upward pricing pressures on our high
technology components. We continue to search for alternate sources or redesign
components for less expensive parts. However, if we are unable to find alternate
sources or are not able to effectively redesign components, our business,
financial condition and results of operations could be materially adversely
affected.
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. In
addition, we plan to continue to hire a significant number of employees in 2001.
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. In particular, we rely on Min H. Kao and Gary Burrell, our
Co-Chairmen, Co-Chief Executive Officers and founders. 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, there is a nationwide shortage of qualified
electrical engineers and software engineers that are necessary for us to design
and develop new products and therefore, it may be 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.
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.
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 bass 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 CURRENCIES
OF TWO OF OUR OPERATING SUBSIDIARIES ARE IN NEW TAIWAN DOLLARS AND THE BRITISH
POUND STERLING, RESPECTIVELY, EXCHANGE RATE FLUCTUATIONS IMPACT THE FINANCIAL
STATEMENTS OF OUR OPERATING SUBSIDIARIES 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
currencies of Garmin Corporation and Garmin (Europe) Ltd., two of our operating
subsidiaries, are in New Taiwan Dollars and the British Pound Sterling,
respectively. 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 New Taiwan
Dollar, and between the U.S. Dollar and the British Pound Sterling, may have an
adverse impact on the financial statements of Garmin Corporation and Garmin
(Europe) Ltd., respectively, 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 wireless 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 27.2% of our net sales in the
fiscal year ended December 30, 2000 represented products shipped to
international destinations. Accordingly, our future results could be harmed by a
variety of international factors, including:
o changes in foreign currency exchange rates;
o changes in a specific country's or region's political or economic
conditions, particularly in emerging markets;
o trade protection measures and import or export licensing
requirements;
o potentially negative consequences from changes in tax laws;
o difficulty in managing widespread sales and manufacturing
operations; and
o 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 (2000 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 56.2% 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 intend to adopt 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.
FOREIGN CURRENCY EXCHANGE RATE RISK
The operation of the Company's subsidiaries in international markets
results in exposure to movements in currency exchange rates. The principal
currencies involved are the New Taiwan Dollar and the British Pound Sterling.
Although some fluctuations have occurred, particularly in 1997 and the fourth
quarter of 2000, we generally have not been significantly affected by foreign
exchange fluctuations because, until recently, the New Taiwan Dollar has proven
to be relatively stable. However, more volatile foreign exchange rate
fluctuations in the future could have a significant effect on our results of
operations. The Company's international subsidiaries use 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.
The operation of the Company's subsidiaries in international markets
results in exposure to movements in currency exchange rates. The principal
currencies involved are the New Taiwan Dollar and the British Pound Sterling.
The Company's international subsidiaries use 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. Although some fluctuations have occurred, particularly in 1997 and the
fourth quarter of 2000, we generally have not been significantly affected by
foreign exchange fluctuations because the New Taiwan Dollar has proven to be
relatively stable. All of the Company's sales are in U.S. dollars. 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 such, even when a significant gain or loss occurs as a result of
more volatile foreign exchange rate fluctuations, the actual impact on our
operations are of a lesser extent.
INTEREST RATE RISK
As of December 30, 2000, we have interest rate risk in connection with our
industrial revenue bonds that bear interest at a floating rate. Garmin
International, Inc. entered into an interest rate swap agreement to modify the
characteristics of $15 million of its outstanding long-term debt from a floating
rate to a fixed rate basis. This agreement involves the receipt of floating rate
amounts in exchange for fixed rate interest payments over the life of the
agreement without an exchange of the underlying principal amount. The gain or
loss on interest rate swap agreements is immaterial.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
GARMIN LTD. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Auditors...............................................32
Consolidated Balance Sheets at December 30, 2000 and
December 25, 1999.....................................................33
Consolidated Statements of Income for the years ended
December 30, 2000, December 25, 1999 and December 26, 1998............34
Consolidated Statements of Stockholders' Equity for the
years ended December 30, 2000, December 25, 1999 and
December 26, 1998.....................................................35
Consolidated Statements of Cash Flows for the years ended
December 30, 2000, December 25, 1999 and December 26, 1998............36
Notes to Consolidated Financial Statements...................................38
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 30, 2000 and December 25, 1999,
and the related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended December 30, 2000. Our
audits also included the financial statement schedule listed in 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 30, 2000 and December 25, 1999, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 30, 2000, 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
Kansas City, Missouri
February 7, 2001
GARMIN LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE INFORMATION)
DECEMBER 30, DECEMBER 25,
2000 1999
---------------------------------
ASSETS
Current assets:
Cash and cash equivalents $251,731 $104,079
Accounts receivable, less allowance for doubtful accounts
of $1,866 in 2000 and $1,116 in 1999 32,719 31,353
Inventories 89,855 51,248
Deferred income taxes (NOTE 7) 12,293 5,883
Prepaid expenses and other current assets 1,423 864
---------------------------------
Total current assets 388,021 193,427
Property and equipment (NOTE 4):
Land and improvements 21,135 22,548
Building and improvements 29,493 19,324
Office furniture and equipment 9,151 7,575
Manufacturing equipment 16,543 15,313
Engineering equipment 8,237 5,116
Vehicles 245 230
---------------------------------
84,804 70,106
Accumulated depreciation and amortization 20,100 14,255
---------------------------------
64,704 55,851
Deferred income taxes (NOTE 7) - 75
Restricted cash (NOTE 4) 5,848 -
Intangible assets 4,774 737
---------------------------------
Total assets $463,347 $250,090
=================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 22,496 $ 15,402
Salaries and benefits payable 3,441 2,928
Accrued warranty costs 5,228 4,429
Accrued sales program costs 3,403 2,330
Other accrued expenses 1,091 2,567
Income taxes payable 5,795 25
Current portion of long-term debt (NOTE 4) 587 -
Notes payable - 5
---------------------------------
Total current liabilities 42,041 27,686
Long-term debt (NOTE 4) 46,359 27,715
Deferred income taxes (NOTE 7) 9,616 -
Other liabilities 92 90
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:
Shares issued and outstanding - 108,242,111 in 2000 and 1,082 1,000
100,000,000 in 1999
Additional paid-in capital 133,925 29,593
Retained earnings (NOTES 4 AND 5) 253,140 176,431
Accumulated other comprehensive loss (22,908) (12,425)
---------------------------------
Total stockholders' equity 365,239 194,599
---------------------------------
Total liabilities and stockholders' equity $463,347 $250,090
=================================
SEE ACCOMPANYING NOTES.
GARMIN LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE INFORMATION)
YEAR ENDED
----------------------------------------------
DECEMBER 30, DECEMBER 25, DECEMBER 26,
2000 1999 1998
----------------------------------------------
Net sales $345,741 $232,586 $169,030
Cost of goods sold 162,015 105,654 82,787
----------------------------------------------
Gross profit 183,726 126,932 86,243
Selling, general and administrative expenses 32,669 27,063 24,680
Research and development expense 21,764 17,339 14,876
----------------------------------------------
54,433 44,402 39,556
----------------------------------------------
Operating income 129,293 82,530 46,687
Other income (expense):
Interest income 6,925 4,327 3,512
Interest expense (2,287) (577) (545)
Foreign currency 6,962 (1,469) (2,171)
Other 29 (679) 37
----------------------------------------------
11,629 1,602 833
----------------------------------------------
Income before income taxes 140,922 84,132 47,520
Income tax provision (benefit):
Current 31,978 19,130 16,608
Deferred 3,281 835 (4,254)
----------------------------------------------
35,259 19,965 12,354
----------------------------------------------
Net income $105,663 $ 64,167 $ 35,166
==============================================
Basic and diluted net income per share (NOTE 14) $ 1.05 $ 0.64 $ 0.35
==============================================
SEE ACCOMPANYING NOTES.
GARMIN LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE INFORMATION)
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER
----------------------- PAID-IN RETAINED COMPREHENSIVE
SHARES DOLLARS CAPITAL EARNINGS LOSS TOTAL
-----------------------------------------------------------------------------
Balance at December 31, 47,331 $ 473 $ 15,443 $104,996 $(16,708) $104,204
1997
Net income - - - 35,166 - 35,166
Translation adjustment - - - - 2,261 2,261
--------------
Comprehensive income 37,427
Cash dividend ($0.12 - - - (6,000) - (6,000)
per share)
15% stock dividend 7,100 71 1,844 (1,915) - -
Issuance of common stock 1,124 11 298 - - 309
-----------------------------------------------------------------------------
Balance at December 26, 55,555 555 17,585 132,247 (14,447) 135,940
1998
Net income - - - 64,167 - 64,167
Translation adjustment - - - - 2,022 2,022
--------------
Comprehensive income 66,189
Cash dividend ($0.13 - - - (7,530) - (7,530)
per share)
80% stock dividend 44,445 445 12,008 (12,453) - -
-----------------------------------------------------------------------------
Balance at December 25, 100,000 1,000 29,593 176,431 (12,425) 194,599
1999
Net income - - - 105,663 - 105,663
Translation adjustment - - - - (10,483) (10,483)
--------------
Comprehensive income 95,180
Cash dividend ($0.29 - - - (28,954) - (28,954)
per share)
Issuance of common
stock in initial
public offering, net 8,242 82 104,332 - - 104,414
of offering costs
-----------------------------------------------------------------------------
Balance at December 30, 108,242 $1,082 $133,925 $253,140 $(22,908) $365,239
2000
=============================================================================
SEE ACCOMPANYING NOTES.
GARMIN LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED
------------------------------------------------
DECEMBER 30, DECEMBER 25, DECEMBER 26,
2000 1999 1998
------------------------------------------------
OPERATING ACTIVITIES
Net income $105,663 $ 64,167 $35,166
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 7,104 5,554 4,308
Amortization 465 18 30
Loss on disposal of property and equipment 1,605 136 80
Provision for doubtful accounts 911 825 414
Provision for obsolete and slow-moving inventories 5,915 1,202 2,165
Deferred income taxes 3,281 835 (4,254)
Net sale (purchase) of trading securities - 2,173 (1,236)
Changes in operating assets and liabilities:
Accounts receivable (3,250) (14,657) 1,054
Inventories (48,024) (14,119) (5,070)
Prepaid expenses and other current assets (373) (508) 1,481
Accounts payable 7,961 5,888 (611)
Accrued expenses 999 1,278 1,057
Income taxes payable 6,067 (8,450) 1,964
------------------------------------------------
Net cash provided by operating activities 88,324 44,342 36,548
INVESTING ACTIVITIES
Purchases of property and equipment (24,821) (32,195) (8,280)
Proceeds from sale of property and equipment 5,919 69 44
Payment of lease termination fee - - (1,179)
Increase in restricted cash (5,856) - -
Other (4,156) (176) 76
------------------------------------------------
Net cash used in investing activities (28,914) (32,302) (9,339)
FINANCING ACTIVITIES
Dividends (28,954) (7,530) (6,000)
Proceeds from issuance of common stock, net of offering 104,414 - 309
costs
Proceeds from issuance of notes payable and - 18,040 -
long-term debt
Principal payments on notes payable (5) (357) (1,269)
Proceeds from issuance of Industrial Revenue Bonds 20,000 - -
Principal payments on capital lease obligations - - (5,166)
------------------------------------------------
Net cash provided by (used in) financing activities 95,455 10,153 (12,126)
Effect of exchange rate changes on cash (7,213) 1,526 1,034
------------------------------------------------
Net increase in cash and cash equivalents 147,652 23,719 16,117
Cash and cash equivalents at beginning of year 104,079 80,360 64,243
------------------------------------------------
Cash and cash equivalents at end of year $251,731 $104,079 $80,360
================================================
GARMIN LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
YEAR ENDED
-------------------------------------------------
DECEMBER 30, DECEMBER 25, DECEMBER 26,
2000 1999 1998
-------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for income taxes $ 28,788 $ 28,733 $15,048
=================================================
Cash received during the year from income tax refunds $ 12 $ 1,517 $ 399
=================================================
Cash paid during the year for interest, net of
$405 of capitalized interest in 2000 $ 2,223 $ 558 $ 565
=================================================
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING
AND FINANCING ACTIVITIES
Additions to property and equipment through the
issuance of capital lease obligations $ - $ - $ 305
=================================================
Issuance of stock dividends $ - $ 12,453 $ 1,915
=================================================
SEE ACCOMPANYING NOTES.
GARMIN LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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 as nominees to satisfy 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 reflect the
accounts of Garmin Ltd. and its wholly-owned subsidiaries as if the
reorganization described in NOTE 1 was effective prior to January 1, 1998. All
significant intercompany balances and transactions have been eliminated.
NATURE OF BUSINESS
Garmin Ltd. and its 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 and distribution of
the Company's products to Garmin International, Inc. and Garmin (Europe) Limited
and, to a lesser extent, new product development and sales and marketing of the
Company's products in Asia and the Far East. 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. 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.
GARMIN LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FISCAL YEAR
Prior to 1998, GARMIN's fiscal year end was based on a calendar year. However,
both GII and GEL reported on a 52-53-week period ending on the last Saturday of
the calendar year. In 1998, GARMIN elected to change its fiscal year to a
52-53-week period consistent with GII and GEL. As a result, fiscal 1998 includes
the operations of GARMIN from January 1, 1998 through December 26, 1998 and the
operations of GII and GEL from December 28, 1997 through December 26, 1998.
Also, 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 2000 includes 53 weeks
while fiscal 1999 and 1998 were comprised of 52 weeks.
FOREIGN CURRENCY TRANSLATION
GARMIN utilizes the New Taiwan Dollar as its functional currency. GEL utilizes
the British pound sterling as its functional currency. In accordance with
Statement of Financial Accounting Standards (SFAS) No. 52, "Foreign Currency
Translation," the financial statements of GARMIN and GEL 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.
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 $6,962, $(1,469) and $(2,171) for
the years ended December 30, 2000, December 25, 1999 and December 26, 1998,
respectively. These gains (losses) are included in other income (expense) in the
accompanying consolidated statements of income. 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.
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.
GARMIN LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 10 New Taiwan Dollars. In addition, the common stock issuance in
1998 was made on a pro rata basis to each stockholder of GARMIN based on the
number of shares held at the time. As such, this issuance of shares, to qualify
the Company for certain Taiwan tax incentives, was recorded at the amount of
cash received, which was equal to par value.
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:
DECEMBER 30, DECEMBER 25,
2000 1999
------------------------------------
Raw materials $46,418 $30,492
Work-in-process 8,116 3,710
Finished goods 41,825 18,773
Inventory reserves (6,504) (1,727)
------------------------------------
$89,855 $51,248
====================================
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
GARMIN LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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, which are being amortized over the lives of the related license
agreements, which are generally three years. Accumulated amortization is $664
and $199 at December 31, 2000 and December 25, 1999, respectively.
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. The fair value of the swap agreements is not recognized
in the consolidated financial statements. See NOTE 8.
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 $77,544 and $46,502 at December 30, 2000 and December
25, 1999, 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.
GARMIN LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CONCENTRATION OF CREDIT RISK
The Company grants credit to certain customers who meet the Company's
preestablished 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.
Shipping and handling costs amounted to $4,418, $4,337 and $3,993 for the years
ended December 30, 2000, December 25, 1999 and December 26, 1998, respectively.
Shipping and handling costs are included in cost of sales in the accompanying
financial statements.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101 (SAB 101). SAB 101 summarizes certain areas of the staff's
views in applying generally accepted accounting principles to revenue
recognition in the consolidated financial statements. The Company adopted SAB
101 during fiscal 2000. There was not a material impact on the Company's
consolidated financial position or results of operations as a result of the
adoption.
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 $11,529, $8,574 and $7,245 for the years
ended December 30, 2000, December 25, 1999 and December 26, 1998, respectively.
GARMIN LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 $21,764, $17,339 and $14,876 for the years ended December 30,
2000, December 25, 1999 and December 26, 1998.
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.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board 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
expects to adopt the new statement effective December 31, 2000, the beginning of
fiscal 2001. The statement will require 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.
The adoption of SFAS No. 133 will not have a significant effect on the Company's
results of operations or financial position.
RECLASSIFICATIONS
Certain 1999 and 1998 amounts have been reclassified to conform with the 2000
presentation.
NOTE 3. 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%, expires June 28, 2001 and is
unsecured.
GARMIN LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 4. 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 30, 2000 and December 25, 1999, outstanding principal
under the Bonds totaled $9,345. Interest on the Bonds is payable monthly at a
variable interest rate (5.15% and 4.80% at December 30, 2000 and December 25,
1999, 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 8.
The Bonds are secured by an irrevocable letter of credit totaling $9,650, with
facility fees of 1.05% annually, through February 2001, 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 30, 2000. 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. In addition, under the agreement entered into with the City of Olathe,
Kansas, GII was restricted from making capital expenditures, as defined by the
agreement, for facilities located in Olathe, Kansas in excess of $10,000 for the
period from February 28, 1992 to February 28, 1998.
During 1999, GARMIN borrowed $18,040 to finance the purchase of land and a new
manufacturing facility in Taiwan. The outstanding balance ($17,601 at December
30, 2000 and $18,370 at December 25, 1999, based on period end exchange rates)
is due in 60 equal payments of principal plus interest beginning November 2001.
In addition, GARMIN has pledged, as additional security, land and buildings with
book values totaling approximately $21,871 as of December 30, 2000. Interest
only on the note is payable monthly through November 2001 at a fixed rate of
6.155%. Subsequent to November 2001, interest is adjustable based on the
Republic of China's government's preferential rate on term deposits plus 0.18%.
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 $14,152 during
the year. Unexpended bond proceeds in this restricted cash account amounted to
$5,848 at December 30, 2000.
At December 30, 2000, outstanding principal under the 2000 Bonds totaled
$20,000. Interest on the 2000 Bonds is payable monthly at a variable interest
rate (6.70% at December 30, 2000), 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 8.
The 2000 Bonds are secured by an irrevocable letter of credit totaling $20,288
with facility fees of 1.43%. 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.
GARMIN LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 4. LONG-TERM DEBT (CONTINUED)
The aggregate amounts of principal to be paid on long-term debt outstanding at
December 30, 2000 during each of the next five years and thereafter are as
follows:
2001 $ 587
2002 4,854
2003 4,854
2004 4,854
2005 4,854
Thereafter 26,943
-------------------
$46,946
===================
NOTE 5. LEASES AND OTHER COMMITMENTS
In December 1995, GII entered into several sale-leaseback transactions with a
bank pursuant to a master lease agreement. The master lease was accounted for as
a capital lease and provided GII an option to purchase the leased property and
equipment at the expiration of the lease term, or earlier upon remittance of
satisfactory termination payments, for its then fair market value. Additionally,
the bank agreed to purchase and concurrently lease to GII up to $7,000 of
property and equipment under the master lease agreement through March 31, 1998.
All leases under the master lease agreement were accounted for as capital
leases.
In March 1998, GII exercised its option and purchased the property and equipment
by paying the outstanding balance of its capital lease obligation and a
termination payment of $1,179. In accordance with SFAS No. 13, "Accounting for
Leases," GII capitalized the termination payment as property and equipment.
Rental expense related to office and warehouse space for GEL amounted to $139,
$140 and $94 for the years ended December 30, 2000, December 25, 1999 and
December 26, 1998, respectively.
At December 30, 2000, standby letters of credit amounting to $369 were issued by
banks on behalf of GARMIN. Additionally, approximately $35,000 and $21,000 of
GARMIN's retained earnings are indefinitely restricted from distribution to
stockholders pursuant to the law of Taiwan at December 30, 2000 and December 25,
1999, 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 6. 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 GII Board of
Directors. During the years ended December 30, 2000, December 25, 1999 and
December 26, 1998, expense related to these plans of $1,144, $930 and $762,
respectively, was charged to operations.
GARMIN LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 6. EMPLOYEE BENEFIT PLANS (CONTINUED)
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 30, 2000, December 25, 1999 and
December 26, 1998, GII recorded expense related to the Plan of $849, $721 and
$659, respectively.
NOTE 7. INCOME TAXES
The Company's income tax provision consists of the following:
YEAR ENDED
------------------------------------------------------
DECEMBER 30, DECEMBER 25, DECEMBER 26,
2000 1999 1998
------------------------------------------------------
Federal:
Current $14,847 $ 8,883 $ 2,635
Deferred (2,037) (710) (555)
------------------------------------------------------
12,810 8,173 2,080
State:
Current 3,251 1,332 304
Deferred (445) (85) (63)
------------------------------------------------------
2,806 1,247 241
Foreign:
Current 13,880 8,915 13,669
Deferred 5,763 1,630 (3,636)
------------------------------------------------------
19,643 10,545 10,033
------------------------------------------------------
Total $35,259 $19,965 $12,354
======================================================
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 30, DECEMBER 25, DECEMBER 26,
2000 1999 1998
---------------------------------------------
Federal income tax expense at U.S.
statutory rate $49,323 $29,446 $16,632
State income tax expense, net of
federal tax effect 1,824 810 157
Foreign tax rate differential (9,623) (5,604) (3,853)
Taiwan tax incentives and credits (5,181) (3,817) (1,405)
Other, net (1,084) (870) 823
---------------------------------------------
Income tax expense $35,259 $19,965 $12,354
=============================================
GARMIN LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 7. INCOME TAXES (CONTINUED)
The Company's income before income taxes attributable to foreign operations was
$99,171, $58,467 and $39,692 for the years ended December 30, 2000, December 25,
1999 and December 26, 1998, respectively. The tax incentives and credits
received from Taiwan included in the table above reflect $0.05, $0.04 and $0.01
per weighted-average common share outstanding for the years ended December 30,
2000, December 25, 1999 and December 26, 1998, 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 30, DECEMBER 25,
2000 1999
----------------------------------
Deferred tax assets:
Product warranty accruals $ 1,808 $1,464
Allowance for doubtful accounts 705 411
Inventory carrying value 7,678 3,606
Sales program allowances 1,668 -
Vacation accrual 324 335
Depreciation - 75
Unrealized foreign currency losses - 28
Other 452 57
----------------------------------
12,635 5,976
Deferred tax liabilities:
Unrealized foreign currency gains 1,098 18
Taiwan surtax on undistributed earnings 7,930 -
Depreciation 930 -
----------------------------------
9,958 18
----------------------------------
Net deferred tax assets $ 2,677 $5,958
==================================
The Taiwan surtax on undistributed earnings relates to a tax to be paid in 2002
on 2000 earnings of GARMIN not distributed to shareholders in 2001. The surtax
is included as an offset to Taiwan tax incentives and credits in the above rate
reconciliation.
NOTE 8. INTEREST RATE RISK MANAGEMENT
During June 1996, GII entered into an interest rate swap agreement to
effectively convert a portion of its floating rate long-term debt to a fixed
rate basis, thus, reducing the impact of interest rate changes on future income.
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 30, 2000 and December 25, 1999. 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 5.15% and 4.80% at December
30, 2000 and December 25, 1999, 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
GARMIN LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 8. INTEREST RATE RISK MANAGEMENT (CONTINUED)
credit losses from counterparty nonperformance but does not anticipate any
losses from its agreement, which is with a major financial institution.
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 30, 2000. GII's fixed interest rate under
the swap agreement is 7.26% at December 30, 2000 compared to the counterparty's
floating rate of 6.7% at the same date. The counterparty's floating rate is
based on the bank's Taxable Low Floater Rate.
The gain and loss on interest rate swap agreements was immaterial for all
periods presented.
NOTE 9. 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 30, 2000 DECEMBER 25, 1999
-----------------------------------------------------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-----------------------------------------------------------------------
Cash and cash equivalents $251,731 $251,731 $104,079 $104,079
Restricted cash 5,848 5,848 - -
Notes payable - - 5 5
Long-term debt:
Term loan 17,601 17,481 18,370 18,370
Series 1995 Bonds 9,345 9,345 9,345 9,555
Series 2000 Bonds 20,000 20,000 - -
The carrying value of cash and cash equivalents, restricted cash and notes
payable approximates their fair value. The fair values of the Company's
long-term 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 10. SEGMENT INFORMATION
The Company operates within its targeted markets through two reportable
segments, those being related to products sold into the consumer and aviation
GARMIN LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 10. SEGMENT INFORMATION (CONTINUED)
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 non-operating 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.
The identifiable assets associated with each reportable segment reviewed by the
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 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
YEAR ENDED DECEMBER 26, 1998
--------------------------------------------------
CONSUMER AVIATION TOTAL
--------------------------------------------------
Sales to external customers $135,446 $33,584 $169,030
Allocated interest income 2,814 698 3,512
Allocated interest expense 437 108 545
Income before income taxes 37,936 9,584 47,520
Assets:
Accounts receivable 14,071 3,489 17,560
Inventory 25,528 12,446 37,974
GARMIN LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 10. 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 30, 2000, December 25,
1999 and December 26, 1998:
NORTH
AMERICA ASIA EUROPE TOTAL
------------------------------------------------
DECEMBER 30, 2000
Sales to external customers $256,782 $16,569 $72,390 $345,741
Long-lived assets 32,737 31,453 515 64,704
NORTH
AMERICA ASIA EUROPE TOTAL
------------------------------------------------
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
NORTH
AMERICA ASIA EUROPE TOTAL
------------------------------------------------
DECEMBER 26, 1998
Sales to external customers $116,629 $ 9,609 $42,792 $169,030
Long-lived assets 15,445 13,138 168 28,751
Sales to one customer in the consumer segment represented approximately $26,400
of the Company's consolidated net sales in 1998. No single customer accounted
for 10% or more of the Company's consolidated net sales in 2000 or 1999.
NOTE 11. LITIGATION SETTLEMENT
In May 1998, a lawsuit was filed against the Company alleging patent
infringement in prior years for unspecified damages. The Company settled the
lawsuit through dispute resolution in May 1999 for $2,500. The related expense
was reflected in the December 26, 1998 consolidated statement of income.
NOTE 12. INITIAL PUBLIC OFFERING
On December 8, 2000, the Company completed an underwritten initial public
offering of 12,075,000 shares (including shares sold pursuant to the
underwriters' over-allotment option) of its common stock, of which 8,242,111
shares were offered by the Company and 3,832,889 were offered by selling
shareholders (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.
GARMIN LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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:
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 10 years from the date of grant, if not exercised. Option
activity under the Plan during 2000 is summarized below. There were no "other"
stock compensation awards granted during 2000 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 10
years. All awards vest evenly over a three-year period. No options associated
with the Directors Plan had been granted as of December 30, 2000.
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.
A summary of the Company's stock option activity and related information for the
year ended December 30, 2000 is provided below:
EXERCISE PRICE NUMBER (000)
------------------------------------
(IN THOUSANDS)
Outstanding at beginning of year $ - -
Granted 14.00 1,201
Exercised - -
Canceled - -
-------------------
Outstanding at end of year 14.00 1,201
===================
The weighted-average remaining contract life for options outstanding at December
30, 2000 is 9.9 years. All options granted during 2000 have an exercise price of
$14.00. None of the options are exercisable as of December 30, 2000.
GARMIN LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 13. STOCK COMPENSATION PLANS (CONTINUED)
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 2000 (no options were
granted prior to 2000): risk-free interest rate of 5.75%; no dividend yield;
volatility factor of the expected market price of the Company's common stock of
0.530; 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 year ended December 30, 2000 is as follows:
Pro forma net income $105,580
Pro forma net income per share:
Basic $ 1.05
Diluted $ 1.05
Weighted-average fair value of options granted
during the year $ 8.53
NOTE 14. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted net income
per share:
YEAR ENDED
------------------------------------------------------
DECEMBER 30, DECEMBER 25, DECEMBER 26,
2000 1999 1998
------------------------------------------------------
Numerator:
Numerator for basic and diluted net income
per share - net income $105,663 $ 64,167 $ 35,166
======================================================
Denominator (IN THOUSANDS):
===========
Denominator for basic net income per share -
weighted-average common shares 100,489 100,000 99,624
Effect of dilutive securities - employee
stock options (see NOTE 13) 17 - -
------------------------------------------------------
GARMIN LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 14. EARNINGS PER SHARE (CONTINUED)
Denominator for diluted net income per
share - adjusted weighted-average common
shares 100,506 100,000 99,624
======================================================
Basic net income per share $ 1.05 $ 0.64 $ 0.35
=======================================================
Diluted net income per share $ 1.05 $ 0.64 $ 0.35
======================================================
NOTE 15. SELECTED QUARTERLY INFORMATION (UNAUDITED)
YEAR ENDED DECEMBER 30, 2000
-------------------------------------------------------
QUARTER ENDING
-------------------------------------------------------
MARCH 25, JUNE 24, SEPT. 23 DEC. 30(1)
----------- ----------- ----------- -----------
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
--------------------
(1) As a result of the Company's 52-53 week fiscal year, the quarter ending
December 30, 2000 included 14 weeks of operations. All other quarters
include 13 weeks of operations.
YEAR ENDED DECEMBER 25, 1999
------------------------------------------------------
QUARTER ENDING
------------------------------------------------------
MARCH 27, JUNE 26, SEPT. 25 DEC. 25
------------ ------------ ------------ ----------
Net sales $50,949 $55,446 $58,141 $68,050
Gross profit $26,496 $29,456 $32,154 $38,826
Net income $15,193 $13,390 $14,992 $20,592
Net income per share $0.15 $0.13 $0.15 $0.21
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.
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 8, 2001 (the "Proxy
Statement"), will be filed with the Securities and Exchange Commission no later
than 120 days after December 30, 2000.
(A) DIRECTORS OF THE COMPANY
The information set forth in response to Item 401 of Regulation S-K under the
headings "Proposal-Election of Three 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 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.
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 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* Form of 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
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).
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Company during the fourth quarter
ended December 30, 2000.
GARMIN LTD. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENT SCHEDULE
Garmin Ltd. Financial Statement Schedule for the years ended December 30, 2000,
December 25, 1999, and December 26, 1998.
Schedule II - Valuation and qualifying accounts...........................56
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 26, 1998:
Deducted from asset accounts:
Allowance for doubtful accounts $634 $414 $- $(430) (1) $618
Inventory reserve 2,080 2,165 - (2,384) (2) 1,861
-------------------------------------------------------------------------------
Total $2,714 $2,579 $- $(2,814) $2,479
===============================================================================
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
===============================================================================
(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/ Gary L. Burrell
--------------------------------
Gary L. Burrell
Co-Chief Executive Officer
Dated: March 29, 2001
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 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 29, 2001:
/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.
2000 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
23.1 Consent of Ernst & Young LLP
* The above exhibits are not included in this Form 10-K, but are on file with
the Securities and Exchange Commission.