UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
x
|
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For
the fiscal year ended December 29,
2007
|
or
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For
the transition period from
__________
to
_______________
|
Commission
file number 0-31983
GARMIN
LTD
.
(Exact
name of registrant as specified in its charter)
Cayman
Islands
(State
or other jurisdiction
of
incorporation or organization)
|
98-0229227
(I.R.S.
Employer Identification No.)
|
P.O.
Box 10670, Grand Cayman KY1-1006
Suite
3206B, 45 Market Street, Gardenia Court
Camana
Bay, Cayman Islands
(Address
of principal executive offices)
|
N/A
(Zip
Code)
|
Registrant’s
telephone number, including area code:
(345)
640-9050
Securities
registered pursuant to Section 12(b) of the Act:
Common
Shares, $0.005 Per Share Par
Value
|
|
NASDAQ
Global Select Market
|
(Title
of each class)
|
|
(Name
of each exchange on which
registered)
|
Securities
registered pursuant to Section 12(g) of the Act:
None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined
in
Rule 405 of the Securities Act. YES
þ
NO
o
I
ndicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. YES
o
NO
þ
Indicate
by check mark whether the registrant (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
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES
þ
NO
o
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 registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
þ
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company.
See
the definitions of “large accelerated filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large
Accelerated Filer
þ
Accelerated
Filer
o
Non-accelerated
Filer
o
Smaller
reporting company
o
(Do
not
check if a smaller reporting company)
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
YES
o
NO
þ
Aggregate
market value of the common shares held by non-affiliates of the registrant
as of
June 30, 2007 (based on the closing price of the registrant's common shares
on
the Nasdaq Stock Market for that date) was approximately
$10,378,819,020.
Number
of
shares outstanding of the registrant’s common shares as of February 22,
2008:
Common
Shares, $.005 par value - 217,034,785
Documents
incorporated by reference:
Portions
of the following document are incorporated herein by reference into Part III
of
the Form 10-K as indicated:
Document
|
|
Part
of Form 10-K into
which
Incorporated
|
Company's
Definitive Proxy Statement for the 2008 Annual Meeting of Shareholders
which will be filed no later than 120 days after December 29,
2007
|
|
Part
III
|
Garmin
Ltd.
2007
Form 10-K Annual Report
Table
of Contents
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Cautionary
Statement
With Respect To Forward-Looking Comments
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4
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Part
I
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Item
1.
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Business
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4
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Item
1A.
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Risk
Factors
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20
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Item
1B.
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Unresolved
Staff Comments
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30
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Item
2.
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Properties
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30
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Item
3.
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Legal
Proceedings
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31
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Item
4.
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Submission
of Matters to a Vote of Security Holders
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32
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Executive
Officers of the Registrant
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32
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Part
II
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Item
5.
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Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of
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Equity
Securities
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Item
6.
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Selected
Financial Data
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35
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Item
7.
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Management's
Discussion and Analysis of Financial Condition and Results of
Operation
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Item
7A.
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Quantitative
and Qualitative Disclosures About Market Risk
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51
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Item
8.
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Financial
Statements and Supplementary Data
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53
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Item
9.
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Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
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Item
9A.
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Controls
and Procedures
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78
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Item
9B.
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Other
Information
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80
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Part
III
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Item
10.
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Directors,
Executive Officers and Corporate Governance
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81
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Item
11.
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Executive
Compensation
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81
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Item
12.
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Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder
Matters
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Item
13.
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Certain
Relationships and Related Transactions, and Director
Independence
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82
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Item
14.
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Principal
Accounting Fees and Services
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83
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Part
IV
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Item
15.
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Exhibits
and Financial Statement Schedules
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84
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Signatures
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88
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CAUTIONARY
STATEMENT WITH RESPECT TO FORWARD-LOOKING COMMENTS
The
discussions set forth in this Annual Report on Form 10-K contain statements
concerning potential future events. Such forward-looking statements are based
upon assumptions by the Company's management, as of the date of this Annual
Report, including assumptions about risks and uncertainties faced by the
Company. In addition, management may make forward-looking statements orally
or
in other writings, including, but not limited to, in press releases, in the
annual report to shareholders and in the Company’s other filings with the
Securities and Exchange Commission. Readers can identify these forward-looking
statements by their use of such verbs as “expects,” “anticipates,” “believes” or
similar verbs or conjugations of such verbs. Forward-looking statements include
any discussion of the trends and other factors that drive our business and
future results in “Item 7. Management’s Discussion and Analysis of Financial
Conditions and Results of Operation.” Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of their
date.
If any of management's assumptions prove incorrect or should unanticipated
circumstances arise, the Company's actual results could materially differ from
those anticipated by such forward-looking statements. The differences could
be
caused by a number of factors or combination of factors including, but not
limited to, those factors identified under Item 1A “Risk Factors.” Readers are
strongly encouraged to consider those factors when evaluating any
forward-looking statements concerning the Company. The Company does not
undertake to 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 Financial Condition and Results of Operations” under
Item 7 herein and the information set forth in response to Item 101 of
Regulation S-K in such Item 7 is incorporated herein by reference in partial
response to this Item 1. Garmin has four business segments: Marine,
Automotive/Mobile, Outdoor/Fitness, and Aviation. The segment and geographic
information included in Item 8, “Financial Statements and Supplementary Data,”
under Note 9 is incorporated herein by reference in partial response to this
Item 1.
Garmin
was incorporated in the Cayman Islands on July 24, 2000 as a holding company
for
Garmin Corporation, a Taiwan corporation, in order to facilitate a public
offering of Garmin shares in the United States. Garmin owns, directly or
indirectly, all of the operating companies in the Garmin group.
Garmin’s
annual report on Form 10-K, quarterly reports on Form 10-Q, current reports
on
Form 8-K, proxy statement and Forms 3, 4 and 5 filed by Garmin’s directors and
executive officers and all amendments to those reports will be made available
free of charge through the Investor Relations section of Garmin’s Internet
website (http://www.garmin.com) as soon as reasonably practicable after such
material is electronically filed with, or furnished to, the Securities and
Exchange Commission.
The
reference to Garmin’s website address does not constitute incorporation by
reference of the information contained on this website, and such information
should not be considered part of this report on Form 10-K.
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 a diverse family
of hand-held, portable and fixed-mount GPS-enabled products and other
navigation, communications and information products for the automotive/mobile,
outdoor/fitness, marine, and general aviation markets.
Overview
of the Global Positioning System
The
Global Positioning System 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.
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. In a presidential policy statement issued in December 2004,
the
Bush administration indicated that the U.S. does not intend to implement SA
again and is committed to preventing hostile use of GPS through regional denial
of service, minimizing the impact to peaceful users. With SA removed, a GPS
receiver can calculate its position to an accuracy of approximately 10 meters
or
less, enhancing the utility of GPS for most applications.
The
accuracy and utility of GPS can be enhanced through augmentation techniques
which compute any remaining errors in the signal and broadcast these corrections
to a GPS device. The Federal Aviation Administration (“FAA”) has developed a
Wide Area Augmentation System (‘‘WAAS’’) comprising ground reference stations
and additional satellites that improve the accuracy of GPS positioning available
in the United States and portions of Canada and Mexico to approximately 3
meters. WAAS supports 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 also enhances the utility of WAAS-enabled GPS receivers
for consumer applications. The FAA announced on July 11, 2003 that the WAAS
system had achieved initial operating capability and that the system was
available for instrument flight use with appropriately certified avionics
equipment. Since that time, the FAA has installed additional ground reference
stations and has launched additional WAAS satellites.
Recent
Developments in the Company’s Business
Since
the
inception of its business, Garmin has delivered over 31 million products, which
includes the delivery of over 12.3 million products during 2007.
Automotive/Mobile
Product Introductions
Garmin
launched many new automotive products in 2007. Among these were many new
versions of Garmin’s popular
nüvi
®
personal
navigation device (PND) product line. The nüvi family was expanded in early 2007
to include the nüvi 370 and the nüvi 670, which added built-in European maps to
the many features of the nüvi 360 and 660 models. The nüvi 680 was also
introduced (along with the StreetPilot® c580) as the first PNDs to incorporate
real-time traffic reports, gas prices, weather conditions, and movie times
from
Microsoft’s MSN Direct network. Garmin later released the nüvi 2XX family of
PNDs (nüvi 200, 250, 260, and 270, as well as 200W and 250W widescreen models),
which represented an entry-level category of the popular nüvi family with a
sleek new design, including a built-in internal GPS antenna. In September 2007,
Garmin released the high-end, full-feature nüvi 700 series (nüvi 750, nüvi 760,
and nüvi 770 models). The nüvi 700 series combines the sleek form factor of the
nüvi 200 widescreen models with full-feature functionality, including a built-in
FM transmitter, MP3 player,
Bluetooth®
hands-free technology (in the nüvi 750, 760 and 780), a built-in FM traffic
receiver, and the ability to add custom points of interest (POIs).
Garmin
continued its expansion in the rental car market in 2007 by announcing
agreements to supply GPS navigation devices to National Car Rental and Alamo
Rent A Car. Garmin also continued to expand its presence with automotive
manufacturers and dealers in 2007. Ford Component Sales, LLC, a subsidiary
of
Ford Motor Company, began offering the nüvi 680 and nüvi 360 for sale in certain
Ford, Lincoln and Mercury dealerships in the United States. Honda Access Europe
N.V. announced that a customized version of the nüvi 360 will be offered in
certain Honda dealerships in Europe for six different Honda models of vehicles.
In November 2007, Volvo Cars Corporation selected Garmin’s nüvi 760 as a
customized navigation solution for select Volvo vehicles, including the new
Volvo C30 and Volvo XC70. The Volvo solution is a dealer-fitted accessory kit
-
which includes a custom dashboard bracket - that will be sold through certain
Volvo dealerships in Europe and North America.
Garmin
also expanded its Garmin Mobile™ service and family of products in 2007. In
October, Garmin announced Garmin Mobile XT, a pre-loaded (microSD card) software
application for certain smartphones that provides preloaded maps and dynamic
content (such as real-time traffic alerts and fuel prices) but does not require
monthly fees or subscriptions. Garmin also announced that Handmark, a global
leader in the distribution of mobile media, will distribute Garmin Mobile for
BlackBerry devices enabled with GPS through Handmark’s distribution channels.
Outdoor/
Fitness Product Introductions
In
the
category of fitness products, Garmin expanded its Forerunner® line with the
Forerunner 50, an advanced fitness watch that allows runners and walkers to
track their workouts and automatically upload their data (via a wireless USB
ANT™ Stick) to a personal computer. Garmin also introduced its next generation
GPS-enabled personal training devices for cyclists, the Edge® 605 and 705. To
help promote the release of the new Forerunner 50 product and its full line
of
fitness products, Garmin helped sponsor more than a dozen marathons and cycling
events in 2007, including the Boston, Chicago, and New York marathons and the
Amgen Tour of California cycling race.
Garmin
also introduced several new product offerings in the Outdoor category, including
the Astro™ GPS Dog Tracking System designed for hunting dogs and two new models
of the Rino® GPS two-way radio family, the Rino 520HCx and 530HCx, which added a
high-sensitivity GPS receiver and a microSD card slot for detailed mapping
data.
Marine
Product Introductions
Garmin
introduced the new GPSMAP 5000 series of multifunction chartplotters in 2007,
which improved upon prior multifunction displays by offering a touchscreen
interface and other advancements. In November 2007, Garmin announced a new
line
of marine products for the 2008 boating season, including a line of big-screen
multi-function displays, a new fuel sensor, instruments, and a new marine
autopilot system (the GHP™ 10).
Aviation
Product Introductions and Certifications
Garmin’s
G1000 integrated avionics suite received FAA supplemental type certification
(STC) in November 2007 for incorporation into the King Air C90A/GT aircraft.
Garmin is also working on Supplemental Type Certificate (STC) programs for
the
King Air 200 and B200 in an effort to enable the G1000 to be available as a
retrofit option for those models. In addition, announcements were made in 2007
that the G1000 integrated avionics suite was selected as the avionics platform
for the EADS SOCATA TBM 850 turboprop, the Cessna Aircraft Company’s Caravan
aircraft models, and as an option on the Piper Aircraft Saratoga II TC and
Piper
6X planes. Piper also announced that Garmin’s all-glass avionics suite was
selected for the avionics platform on the forthcoming PiperJet (scheduled
delivery 2010).
Garmin
also introduced the GTX 328 Mode S transponder to meet the European regulation
for Mode S implementation for VFR (visual flight rules) aircraft.
Expansion
of Facilities
In
April
2007, Garmin’s United Kingdom subsidiary, Garmin (Europe) Ltd., completed its
move into its new European headquarters facility in Totton, Southampton,
England. This facility contains building space of approximately 155,000 sq.
ft,
including more than 129,000 sq. ft of warehouse space, which serves as Garmin’s
European headquarters for distribution, marketing, and product support.
In
June
2007, Garmin’s Taiwan subsidiary acquired an approximate 580,000 sq. ft.
facility in LinKou, Taiwan, which now serves as our third manufacturing facility
for consumer products. The new LinKou facility brings the combined square
footage of all Taiwan manufacturing facilities to approximately 1,090,000 sq.
ft., and brings our current number of surface mount technology (SMT)
manufacturing lines in Taiwan for consumer products to 36.
In
October, 2007, Garmin International, Inc. broke ground on its 231,000 sq. ft.
warehouse expansion at its headquarters facility in Olathe, Kansas, which is
expected to be completed in March 2008. Garmin AT, Inc. is also in the midst
of
completing a large expansion to its manufacturing and aviation engineering
facilities in Salem, Oregon, which will increase manufacturing and engineering
spaces by 21,000 and 25,000 square feet (respectively). The Garmin AT, Inc.
expansion is expected to be completed in July 2008.
Garmin
also signed several new leases in 2007 to provide space for its call center
operations and other satellite Garmin offices, the details of which are set
forth in Part I, Item 2 below.
Acquisitions
In
January 2007, Garmin acquired location-based services provider Digital Cyclone
Inc. (DCI), located in Minnetonka, Minnesota, for $45 million in cash. DCI,
which is operated as a subsidiary of Garmin Ltd., markets location-based
services, including weather solutions for consumers, outdoor enthusiasts, and
pilots on a subscription- based model in partnership with national wireless
carriers and regional carriers.
In
March
2007, Garmin acquired substantially all of the assets of Nautamatic Marine
Systems, Inc., a manufacturer of marine autopilot systems based in Newport,
Oregon and Dania Beach, Florida.
Garmin
acquired several of its European distributors in 2007 to strengthen its presence
and capabilities in the European market. In January 2007, Garmin acquired EME
Tec Sat SAS, the exclusive distributor of Garmin’s consumer products in France,
which was renamed Garmin France SAS. In July 2007, Garmin acquired GPS
Gesellschaft für Professionelle Satellitennavigation mbH, the exclusive
distributor of Garmin’s consumer products in Germany, which was renamed Garmin
Deutschland GmbH. In November 2007, Garmin completed the acquisitions of the
exclusive distributors of Garmin’s consumer products in Italy (Synergy S.p.A.,
which was renamed Garmin Italia S.p.A.) and Spain (Electrónica Trepat S.A.,
which was renamed Garmin Iberia S.A.) In addition, Garmin signed a letter of
intent in October 2007 for the proposed acquisition of Fairpoint Navigation
A/S,
the exclusive distributor of Garmin’s consumer products in Denmark. This
acquisition was completed in January 2008 and the company has been renamed
Garmin Danmark A/S.
NAVTEQ®
License Agreement
On
November 16, 2007, Garmin’s subsidiaries Garmin International, Inc. and Garmin
Corporation signed a six-year extension to our map data license agreement with
NAVTEQ North America, LLC (“NAVTEQ”), the company from whom we license the
majority of our automotive map data for our automotive products and
applications. NAVTEQ is a leading global provider of digital map data for
vehicle navigation and location-based solutions. The agreement allows Garmin
to
continue using NAVTEQ data through 2015, with an option to renew for an
additional four-year period through 2019.
In
conjunction with Garmin’s signing of its long term extension with NAVTEQ, Garmin
simultaneously abandoned its previously announced intent to make a cash offer
for all outstanding shares of Tele Atlas N.V., the other major worldwide
provider of digital map data.
Products
Garmin
has achieved a leading market position and a history of consistent 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 are currently broken down into four main
segments - automotive/mobile, outdoor/fitness, marine and aviation.
Automotive/Mobile
Garmin
currently offers a broad range of automotive navigation products, as well as
a
variety of products and applications designed for the mobile GPS market. Garmin
believes that its consumer products are known for their value, high performance,
ease of use, innovation, and ergonomics. The table below includes a sampling
of
the automotive and mobile products that Garmin currently offers to consumers
around the world
.
nüvi®
|
|
|
(26
models)
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|
The
nüvi is Garmin’s popular thin-profile personal navigation device (PND).
All nüvi models combine a full-featured GPS navigator (with built-in
maps)
with a currency and measurement converter, world clock and digital
photo
organizer. Different nüvi models and optional add-ons offer different
feature sets, including a wide screen display, integrated traffic
receiver
for traffic data, MSN Direct content, Bluetooth® hands-free capability,
MP3 player, language translator, audio book player, FM transmitter,
built-in maps of Europe, and the ability to add custom points of
interest.
Users can also choose to purchase optional software enabling the
nüvi to
be used as a digital coupon book (Garmin SaversGuide) or as a travel
assistant that provides reviews and recommendations for restaurants,
hotels, shopping, night life, sporting events, tourist attractions,
and
more ( Garmin
Travel
Guide
™).
In January 2008, Garmin announced the newest nüvi model, the nüvi 880
(expected availability of second quarter 2008), which offers speech
recognition capabilities and enhanced MSN Direct content. With
speech
recognition, the user can manipulate the nüvi’s controls by speaking
commands, so that almost any common task can be performed without
ever
touching the unit. In fiscal years 2007, 2006, and 2005, the nüvi class of
products represented approximately 52%, 28%, and 2% respectively
of
Garmin’s total consolidated revenues.
|
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StreetPilot®
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|
(8
models)
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|
The
StreetPilot c-300 series (c310, c320, c330, c340,) features Garmin’s
touch-screen interface and turn-by-turn voice directions. The StreetPilot
c340 adds the ability to speak street names and also to utilize
real-time
traffic information in select major metro areas through Garmin’s separate
GTM 10 receiver. The StreetPilot c560 and c580 add Bluetooth Wireless
Technology, integrated traffic capabilities (separate subscription
required), a high bright display, and a high-sensitivity GPS receiver.
The
StreetPilot 2820 is a full-featured navigator in a different form
factor.
The StreetPilot 7000-Series (7200 and 7500) are high-end automotive
units
that display navigation, entertainment, traffic, and weather information
on a large, seven-inch touch-screen. In fiscal years 2007, 2006,
and 2005,
the StreetPilot class of products represented approximately 15%,
28%, and
30% respectively of Garmin’s total consolidated
revenues.
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Quest®
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Pocket-sized,
portable, GPS units with navigation features, including 256-color,
bright,
|
(2
models)
|
|
sunlight-readable
display, automatic routing with turn-by-turn directions and voice
guidance, and 115 MB of internal memory. The Quest 2 adds pre-loaded
maps
of the United States, Canada, and Puerto Rico.
|
|
|
|
zūmo®
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|
A
motorcycle-specific navigator with features including a glove-friendly
touch screen
|
(4
models)
|
|
with
left-handed
controls, high bright sunlight-readable display, motorcycle mount,
vibration-tested design, and Bluetooth wireless technology. An
SD (secure
digital) card slot allows riders to share their favorite places
and rides
with fellow zūmo riders. The zūmo 550 is also compatible with XM satellite
radio. The zūmo 450 offers a lower price point by subtracting such
features as Bluetooth wireless technology, text-to-speech and XM
compatibility.
|
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Garmin
Mobile™
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|
Garmin
Mobile is a subscription-based software application that lets compatible
cell phones function as versatile GPS navigators.
|
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Garmin
Mobile™ XT
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|
Garmin
Mobile XT is a data card that turns many smartphones into full-featured
navigators. Users can simply plug the microSD card into a compatible
phone
and begin navigating. No network coverage or subscription is
required.
|
Outdoor/Fitness
Garmin
offers GPS-enabled handheld products for outdoor activities and training
assistants for athletic pursuits.
The
table
below includes a sampling of the primary fitness and outdoor products that
Garmin currently offers to consumers
.
Forerunner®
|
|
|
(7
models)
|
|
Compact,
lightweight training assistants for athletes with integrated GPS
sensor
(except for Forerunner 50) that provide time, speed, distance,
pace and
other data. Some models also offer a heart rate monitoring function.
The
Forerunner 50 is an entry-level advanced fitness watch that allows
runners
and walkers to track their workouts and automatically upload their
data
(via a wireless USB ANT™ Stick) to a personal computer. In January 2008,
Garmin announced the Forerunner 405, which allows runners and joggers
to
track their speed, distance, heart rate, and location through the
use of a
new touch bezel on the face of the watch, which makes the device
even
easier to use.
|
|
|
|
|
|
|
Edge®
|
|
Integrated
personal training systems designed for cyclists. The Edge 205 measures
speed,
|
(24models)
|
|
distance,
time, calories burned, climb and descent, altitude and more. The
Edge 305
adds a heart rate monitor and/or wireless speed/pedaling cadence
sensor.
The Edge 605 and 705 provide mapping capabilities (including street
navigation) and a 2.2” color display in addition to tracking vertical
profiles, climb and descent, altitude, speed, distance, and
time.
|
|
|
|
Colorado™
|
|
|
(4
models)
|
|
In
January 2008, Garmin introduced the Colorado series of handheld
GPS
devices for outdoor, marine, and fitness users. The Colorado units
feature
Garmin’s new Rock ‘n Roller™ wheel, which allows the user to operate many
of the units’ features with the user’s thumb. The Colorado 300 features a
worldwide basemap with shaded relief. The Colorado 400c provides
marine
chart coverage for the coastal U.S. and Bahamas. The Colorado 400i
offers
shoreline details, depth contours and boat ramps for U.S. inland
lakes and
rivers. The Colorado 400t gives hikers 3D elevation perspective
and
preloaded U.S. topographic maps.
|
|
|
|
|
|
|
eTrex
®
|
|
Compact
handheld GPS units for outdoor enthusiasts. All models are waterproof
and
|
(7
models)
|
|
have
rugged designs.
|
|
|
|
GPS60
|
|
The
GPS 60 is a basic GPS without mapping while the GPSMAP 60 offers
a
|
(4
models)
|
|
monochrome
display and 24 MB of downloadable memory. The GPSMAP 60Cx and the
GPSMAP
60CSx feature a high sensitivity GPS receiver and a slot for a
removable
microSD memory, along with a 64mb microSD card.
|
|
|
|
|
|
|
GPS
72
|
|
Rugged,
handheld GPS for land or marine navigation. Features include 1
MB internal
memory for loading MapSource points of interest and high contrast
4-level
gray scale display.
|
|
|
|
|
|
|
GPS
76
|
|
Handheld
GPS with large display and a waterproof case which floats in water.
Preloaded
|
(5
models)
|
|
with
U.S. tidal data. The GPS 76 is a basic GPS without a basemap. The
GPSMAP
76 has an internal basemap and MapSource® compatibility for street level
mapping and detailed marine charts. The GPSMAP 76S additionally
features a
barometric altimeter and an electronic compass. The GPSMAP 76Cx
and the
GPSMAP 76CSx each feature a high sensitivity GPS receiver and a
slot for a
removable microSD memory, along with a 128mb microSD card, all
in the same
rugged and waterproof housing that floats in water.
|
|
|
|
Rino®
|
|
Handheld
two-way Family Radio Service (FRS) and General Mobile Radio
Service
|
(5
models)
|
|
(GMRS)
radios that integrate two-way voice communications with GPS navigation.
Features include patented “peer-to-peer position reporting” so you can
transmit your location to another Rino radio. The Rino 120 has
an internal
basemap and MapSource compatibility for street-level mapping. The
Rino 130
has 24 MB of internal memory, built-in electronic compass, barometric
sensor, and National Oceanic and Atmospheric Administration (NOAA)
weather
radio receiver. The Rino 520HCx has a high sensitivity GPS receiver,
5
watts of transmit power, color display, mini-USB interface, and
a turn-by
turn automatic route calculation for use in automobiles. The Rino
530HCx
has all of the features of the Rino 520HCx, plus a seven-channel
weather
receiver, electronic compass, and barometric
altimeter.
|
Marine
Garmin’s
marine lineup includes network products and multifunction displays, fixed-mount
GPS/chartplotter products, instruments, radar, autopilots, and sounder products.
The table below includes a sampling of some of the marine products that Garmin
currently offers to consumers.
Marine
Chartplotters and Networking Products
|
|
|
GPSMAP
®
5000
series
|
|
These
touch- screen multifunction displays for the Garmin Marine Network
(a
system
|
(6
models)
|
|
that
combines GPS, radar, XM WX Satellite Weather, sonar, and other
data) offer
ease of use and video-quality resolution and color. The 5212 and
5208 come
pre-loaded with detailed U.S. coastal charts, including Explorer
Charts,
and are compatible with Garmin’s BlueChart® g2 Vision™ charts which offer
high-resolution satellite imagery, 3D map perspective, aerial reference
photos, and auto guidance. The 5215 and 5015 (announced in November
2007
and expected to be available in March 2008) offer 15-inch diagonal
sunlight-readable touchcreen displays.
|
|
|
|
|
|
|
GPSMAP
®
4000 series/
|
|
These
multifunction displays for the Garmin Marine Network (a system
that
combines
|
4200
series (6 models)
|
|
GPS,
radar, XM WX Satellite Weather, sonar, and other data) offer ease
of use
and video-quality resolution and color. The 4212 and 4208 come
pre-loaded
with detailed U.S. coastal charts, including Explorer Charts, and
are
compatible with Garmin’s BlueChart® g2 Vision™ charts which offer
high-resolution satellite imagery, 3D map perspective, aerial reference
photos, and auto guidance. This series was expanded in November
2007
(expected availability of March 2008) with the addition of the
4210 and
4010, which feature 10.4-inch diagonal sunlight- readable displays
and
Garmin’s new marine user interface.
|
|
|
|
GPSMAP
®
3000 series/
|
|
These
configurable chartplotter/multifunction displays (MFDs) are all
network-enabled
|
3200
series (6 models)
|
|
and
come in either a 10”, 6” or 5” display. The GPSMAP 3200 series of
multifunction
|
|
|
displays
for the Garmin Marine Network feature pre-loaded Marine Detail
Charts of
the
|
|
|
U.S.
coastline, including Alaska and Hawaii.
|
|
|
|
GPSMAP
®
4x0 and 5x0
|
|
The
4x0 and 5x0 chartplotters and chartplotter/sonar units feature
new,
highly-detailed
|
(24
models)
|
|
pre-loaded
marine cartography and offer a wide variety of display sizes and
networking options. All units are compatible with Garmin’s BlueChart® g2™
data cards.
|
|
|
|
GDL
30 & 30A
|
|
These
weather data receivers deliver real-time XM WX Satellite Weather
data for
the continental United States to Garmin Marine Network compatible
display
units. In addition, the GDL 30A adds CD-quality audio capability
utilizing
the XM Satellite Radio service (separate subscription
required).
|
|
|
|
GSD
21 and 22
|
|
These
“black-box” sounders interface with Garmin display units and chartplotters
and enhance their utility by providing the depth sounder and fish
finder
functions in a remote mounted package.
|
|
|
|
|
|
|
GMS
10
|
|
The
GMS 10 Network Port Expander is the "nerve center" of the Garmin
Marine
Network. This 100-Mbit switch is designed to support the connection
of
multiple sensors to the
Garmin
Marine Network
.
|
Other
Marine Products
GMI
10
|
|
Announced
in November 2007, the GMI 10 is a NMEA 2000 and NMEA 0183 compliant
instrument that displays data from multiple remote sensors on one
screen.
Mariners can use the GMI 10 to display instrument data such as
depth,
speed through the water, water temperature, fuel flow rate, engine
data,
fuel level, wind direction and more, depending upon what sensors
are
connected.
|
|
|
|
GHP™
10 Marine
|
|
|
Autopilot
System
|
|
The
GHP 10 Marine Autopilot system is a new generation of the TR-1
Gladiator
autopilot. Garmin acquired the TR-1 technology when it acquired
the assets
of Nautamatic Marine Systems, developer of the TR-1, in March 2007.
The
GHP 10’s patented Shadow Drive™ technology automatically disengages the
autopilot if the helm is turned, allowing the helmsman to maneuver
the
boat. The autopilot automatically re-engages when a steady course
is held
by the helmsman.
|
|
|
|
Fishfinders
|
|
|
(6
models)
|
|
Garmin
offers six different fishfinder options spanning various price
points. All
models feature Garmin’s Ultrascroll™ technology, which allows boaters to
get a faster refresh rate on their sonar display, and dual-beam
transducer
operation. Four of the models offer color displays. The Fishfinder
400C
comes with dual beam or dual frequency transducers for easy adaptability
to either freshwater or saltwater fishing. It also offers a new,
easy-to-use interface and built in CANet connectivity to enable
sonar data
to be shared with compatible Garmin chartplotters.
|
Radar
|
|
Garmin
offers both radomes and open array radar products with compatibility
to
any
|
(8
models)
|
|
network-compatible
Garmin chartplotter so that the chartplotter can double as the
radar
screen. The GMR™ 18, 21 and 41 models are digital radome products in
various sizes and power specifications. The GMR 404 and 406 open
array
radar scanners provide even greater clarity and a 72 nautical mile
range.
In December 2007, Garmin announced the GMR 18 HD and GMR 24 HD
radomes
(expected availability of spring 2008). These new radomes build
upon prior
models by adding the capability to process signals via a digital
signal
processor, which provides for better target separation and clearer
definition in the finished
display.
|
Aviation
Garmin’s
panel-mounted product line includes GPS-enabled navigation, VHF communications
transmitters/receivers, multi-function displays, receivers, instrument landing
system (ILS) receivers, digital transponders (which transmit an aircraft’s
altitude and its flight identification number in response to requests
transmitted by ground-based air traffic control radar systems or collision
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. The GNS 430/530 offers multiple features
and capabilities integrated into a single product. This high level of
integration minimizes the use of precious space in the cockpit, enhances the
quality and safety of flight through the use of modern designs and components
and reduces the cost of equipping an aircraft with modern electronics. The
GNS
430 was recognized by
Flying
Magazine
as the Editor’s Choice Product of the Year for 1998. In 1994, and again in 2000,
Garmin earned recognition from the Aircraft Electronics Association for
outstanding contribution to the general aviation electronics industry. The
GPSMAP 295 won
Aviation
Consumer
Magazine’s
Gear of the Year award for best aviation portable product in 2000 and again
in
2001.
Flying
Magazine’s editors awarded the GPSMAP 396 with a 2005 Editors’ Choice Award for
outstanding achievements. The GPSMAP 496, introduced in 2006, won the “2006 Gear
of the Year” award from
Aviation
Consumer
magazine. Garmin was ranked No. 1 among aviation electronics manufacturers
for
operation, presentation, technical advancement, information, construction and
satisfaction in
Professional
Pilot
magazine’s
survey of its readers in 2003, 2004 and 2005 and was ranked No. 2 in 2006.
Also,
Garmin was ranked No. 1 among avionics manufacturers for avionics product
support in
Professional
Pilot
magazine’s survey of its readers in each of the last four survey years ( 2002,
2005, 2006, and 2008).
Aviation
International News
also
ranked Garmin No. 1 in avionics product support in 2007, making it the fourth
consecutive year that Garmin has earned that No. 1 ranking. Garmin received
the
Airline Technology Achievement Award from
Air
Transport World Magazine
in
January 2005 for championing the development of Automatic Dependent
Surveillance-Broadcast (ADS-B) technology, an enabling technology for air
traffic management.
Garmin’s
panel-mounted aviation products are sold in both new aircraft and the retrofit
market where existing aircraft are fitted with the latest electronics from
Garmin’s broad product line.
Garmin
has also expanded its range of avionics offerings to leading General Aviation
aircraft manufacturers such as the Cessna Aircraft Company, Raytheon Aircraft
Company, Diamond Aircraft Industries, Mooney Aircraft Corporation, Piper
Aircraft Company, EADS SOCATA and Columbia Aircraft Manufacturing Corporation
through the installation of the G1000 integrated flight deck as original
equipment aboard new aircraft. This system integrates attitude, heading, air
data, navigation, communication, engine monitoring, and other aircraft functions
into a single cohesive system which interfaces with the flight crew using a
set
of large, bright TFT displays. The G1000 also comes with an optional integrated
autopilot - the GFC70. Garmin also has expanded its G1000 sales to the business
jet segment, such as Cessna with its Citation Mustang jet and Embraer which
has
selected Garmin’s G1000 integrated flight deck for Embraer’s new Phenom 100
(very light jet) and Phenom 300 (light jet) programs.
The
table
below includes a sampling of some of the aviation products currently offered
by
Garmin:
Handheld
and portable aviation products:
GPSMAP®
96 & 96C
|
|
Portable
units integrating GPS navigation with Jeppesen database and comprehensive
towers-and-obstacles database. GPSMAP 96C offers a color display
and 119
MB of memory for downloadable maps.
|
|
|
|
GPSMAP
296
|
|
In
addition to a 3.8” diagonal color display, this portable GPS receiver
offers features like terrain cautions and alerts, sectional chart-like
topographic data, a built-in obstacle database, and a transparent
navigation arc view for course, speed and distance information.
|
|
|
|
GPSMAP
396
|
|
A
portable navigation device that offers users GPS navigation, XM
WX
Satellite Weather™ capability, featuring Next Generation Radar (NEXRAD), a
terrain awareness and warning system (TAWS), and XM entertainment
programming, among other features.
|
|
|
|
GPSMAP
496
|
|
The
GPSMAP 496 expands on the GPSMAP 396 by adding such additional
features as
Garmin’s SafeTaxi™ airport diagrams, Aircraft Owners and Pilots
Association (AOPA) Airport directory data, enhanced high-resolution
terrain database, accelerated GPS update rate, and pre-loaded automotive
maps of North America.
|
Panel-mount
aviation products:
G1000®
|
|
The
G1000 integrates navigation, communication, attitude, weather,
terrain,
traffic, surveillance and engine information on large high-resolution
color displays. The G1000 offers general aviation airplane manufacturers
an easy-to-install solution for flight displays and provides the
aircraft
owner the benefits of a state-of-the-art avionics system which
relies on
modern technologies such as solid state components and bright,
sunlight-readable TFT displays.
|
|
|
|
G600™
|
|
The
G600 (expected availability of late 2008) will bring the style
and
function of an all-glass integrated avionics suite to the retrofit
market.
The G600 incorporates two individual displays - a PFD and MFD -
in a
customized package specifically designed for easy retrofit installation.
The G600 is designed to communicate and integrate with Garmin’s WAAS
enabled panel mount products, and provides essential information
such as
attitude, air data, weather, terrain and traffic. Garmin anticipates
that
the G600 will receive the FAA’s Approved Model List Supplemental Type
Certification (AML STC), which will simplify certification for
approximately 400 different aircraft models.
|
|
|
|
G900X™
|
|
An
all-glass integrated avionics system specifically designed for
kitplane
builders of the Lancair and Van’s RV-series aircraft.
|
|
|
|
400
Series
|
|
The
GNS 430 was the world’s first ‘‘all-in-one’’ IFR certified GPS
navigation
|
(3
models)
|
|
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. The 430 Series units may now be ordered
with or
upgraded to Wide Area Augmentation System (WAAS)
capability.
|
500
Series
|
|
These
units combine the features of the 400 series along with a larger
5” color
display.
|
(2
models)
|
|
The
530 Series units may now be ordered with or upgraded to Class B
Terrain
Awareness and Warning System (TAWS-B) and Wide Area Augmentation
System
(WAAS) capability.
|
|
|
|
GI-102A
& 106A
|
|
Course
deviation indicators (CDIs). The GI-106A features an instrument
landing
system receiver to aid in landing.
|
|
|
|
GMA
340 & 347
|
|
The
GMA 340 is a feature-rich audio panel with six-place stereo intercom
and
independent pilot/co-pilot communications capabilities. The GMA
347 has
automatic squelch, digital clearance recorder, and a full-duplex
telephone
interface.
|
|
|
|
GTX™
330 & 330D
|
|
FAA-certified
Mode S transponders with data link capability, including local
air traffic
information at FAA radar sites equipped with Traffic Information
Service
(TIS). These transponders may also be optionally upgraded to provide
1090
MHz Extended Squitter (ES) transmission capabilities, which will
increase
situational awareness once the Automatic Dependent Surveillance-Broadcast
(ADS-B) system is fully implemented.
|
|
|
|
GTX
320A,327 & 328
|
|
FAA-certified
transponders which transmit altitude or flight identification 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 timing functions. The 328 is designed
exclusively for Europe and satisfies the European requirement for
a Mode S
solution that meets the reduced certification requirements for
the VFR
Mode S mandate.
|
|
|
|
GTX
32
|
|
Remote
mounted solid-state Mode C digital transponder. Its solid-state
transmitter provides 200 watts of nominal power output. Compatible
with
GNS 480 and G1000 systems.
|
|
|
|
GTX
33 & 33D
|
|
Remote
mounted Mode S, IFR-certified transponders with datalink capability,
including local traffic updates. Receive FAA Traffic Information
Services
(TIS), including location, direction, altitude, and climb/descent
information of nearby aircraft. Compatible with GNS 480 and G1000
systems.
|
|
|
|
GDL
90
|
|
The
GDL 90 is the first airborne Automatic Dependent Surveillance-Broadcast
(ADS-B) product certified by the FAA to TSO C145A standards. The
GDL 90
allows pilots in the cockpit and air traffic controllers on the
ground to
“see” aircraft traffic with much more precision than has ever been
possible before without the costly infrastructure of ground based
tracking
radar. The GDL 90 relies on the infrastructure that is part of
the FAA’s
Safe Flight 21 program. This program is currently under development
with
implementation of the ground-based portion of the ADS-B network
taking
place along the East Coast and other selected areas of the U.S.A.
Additional installations of the ADS-B ground stations are planned.
The
ground stations can track aircraft movement and eventually are
expected be
used to broadcast traffic and weather services. Pilots equipped
with the
GDL 90 and operating within the ground station coverage area will
receive
aircraft traffic and real-time weather information free of
charge.
|
|
|
|
GDL
69 and 69A
|
|
The
GDL 69 offers the ability to provide real-time weather information
to the
aircraft which can be displayed on one of several panel-mounted
devices,
such as the GNS 430, GNS 530, MX20, and G1000 systems. The GDL
69 and GDL
69A receive real-time weather information broadcast by the XM WX
Satellite
radio system. In addition, the GDL 69A expands the utility of the
system
by providing CD quality audio provided by XM Satellite Radio (separate
subscriptions for weather data and audio required).
|
|
|
|
GMX
200™
|
|
A
large (6.5 inch) sunlight-readable, high-resolution, multi-function
display.
|
|
|
|
SL
30 and SL 40
|
|
The
SL30 is a compact VHF navigation and communications unit that combines
a
760-channel VHF communications radio with 200-channel glideslope
and
localizer receivers. The SL40 is a 760-channel VHF communications
radio
only. Both the SL30 and SL40 feature 10 watt communications
transmitters.
|
|
|
|
GWX™
68
|
|
The
GWX 68 is an all-in-one antenna/receiver/transmitter that brings
real-time
weather to Garmin’s newest multi-function
displays.
|
Sales
and Marketing
Garmin’s
consumer products are sold through a worldwide network of approximately 3,000
independent dealers and distributors in approximately 100 countries who meet
our
sales and customer service qualifications. No single customer represented 10%
or
more of Garmin’s consolidated revenues in the fiscal year ended December 29,
2007. Marketing support is provided geographically from Garmin’s offices in
Olathe, Kansas (North, South and Central
America),
Southampton,
U.K. (Europe, Middle East and Africa) and Shijr, Taiwan (Asia, Australia and
New
Zealand). 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 product marketing is handled through its dealers and distributors
who are serviced by a staff of regional sales managers and in-house sales
associates. Some of Garmin’s larger consumer products dealers and distributors
include:
·
|
Best
Buy
—one
of the largest U.S. electronics
retailers;
|
·
|
BDI/Laguna
—a
large distributor who sells to such dealers as
Amazon.com;
|
·
|
Cabela’s
—a
major hunting and fishing catalog retailer for the outdoor marine
market
with “super store” and “destination store” locations;
|
·
|
Circuit
City
—a
leading U.S. electronics retailer;
|
|
·
|
Petra
—a
large distributor who sells to such dealers as
Costco;
|
·
|
REI
(Recreational Equipment Inc.)
—a
specialty outdoor gear consumer cooperative;
|
·
|
Wal-Mart
—the
world’s largest mass retailer;
|
·
|
West
Marine
—the
largest U.S. marine retailer specializing in offshore boating equipment;
and
|
·
|
Wynit
—a
large distributor who sells to such dealers as Costco and Comp
USA.
|
Garmin’s
Europe, Middle East and Africa consumer product marketing is handled through
our
in-country subsidiaries or local distributors who resell to dealers. Working
closely with Garmin’s in-house sales and marketing staff in the U.K., these
in-country subsidiaries or independent 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.
Garmin’s
panel-mount aviation products are sold through distributors around the world.
Garmin’s largest aviation distributors include Sportsman’s Market, Gulf Coast
Avionics, Aircraft Spruce and Specialty Co., Pacific Coast Avionics, JA Air
Center and Sarasota Avionics. These distributors have the training, equipment
and certified staff required for at-airport installation of Garmin’s avionics
equipment. Garmin’s portable aviation products are sold through distributors and
through catalogs.
In
addition to the traditional distribution channels mentioned, Garmin has many
relationships with original equipment manufacturers (OEM). In the consumer
market, Garmin’s products are sold to certain automotive and motorcycle OEMs
such as Chrysler/Mopar, Toyota, Harley-Davidson, BMW and BMW Motorrad, Honda
Access, Hyundai, Mazda, Nissan, Volvo, Bombardier, and Polaris, for
dealer-installed aftermarket accessory programs. Garmin also has a
factory-installed program with Honda Motorcycles. Garmin also has relationships
with certain rental car companies including Dollar/Thrifty, Enterprise, Avis,
Budget, National, and Alamo. Garmin has also developed promotional relationships
with certain automotive dealerships in certain countries including BMW, Mazda,
Saab and Ford. Garmin’s products are also standard equipment on various models
of boats manufactured by Allison Boats, Bennington Marine, Cigarette Racing
Team, Inc., Cobalt Boats, G3 Boats, and are optional equipment on boats
manufactured by Chaparral Boats, Inc., Formula Boats, Fountain Powerboats,
Glacier Bay Catamarans, Inc., and Pro-Line Boats. In the aviation market,
Garmin’s avionics are standard equipment on various models of aircraft built by
Cessna Aircraft Company, Cirrus Design Corporation, Diamond Aircraft Industries,
EADS SOCATA, Eurocopter, Mooney Aircraft Corporation, Raytheon Aircraft Company,
Robinson Helicopter, and the Piper Aircraft Company. Other aircraft
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 design, functionality, quality and reliability,
customer service, brand, price, time-to-market and availability. Garmin believes
that it generally competes favorably in each of these areas.
Garmin
believes that its principal competitors for portable automotive products are
TomTom NV, Magellan Navigation, Inc. (“Magellan”), Mio Technology Ltd. and
Navigon AG. Garmin believes that its principal competitors for handheld
recreational product lines are Magellan and Lowrance Electronics, Inc.
(“Lowrance”) For marine chartplotter products, Garmin believes that its
principal competitors are Raymarine Ltd. (“Raymarine”), Furuno Electronic
Company (“Furuno”), Lowrance and Simrad Yachting AS. For Garmin’s
fishfinder/depth sounder product lines, Garmin believes that its principal
competitors are Lowrance, Raymarine, the Humminbird division of Johnson
Outdoors, Inc., Navman, Simrad and Furuno. For Garmin’s general aviation product
lines, Garmin considers its principal competitors to be Lowrance (for portable
GPS units), and Honeywell, Inc., Avidyne Corporation, L-3 Avionics Systems,
Meggitt PLC, Rockwell Collins, Inc., Universal Avionics Systems Corporation,
Chelton Flight Systems, Aspen Avionics, and Free Flight Systems for panel-mount
GPS and display units. For Garmin’s Family Radio Service and General Mobile
Radio Service product line, Garmin believes that its principal competitors
are
Motorola, Inc. (“Motorola”), Cobra Electronics Corporation and Audiovox
Corporation.
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
development staff, which numbered
1,
389
people
worldwide as of December 29, 2007. 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 development staff includes industrial designers, as well as software
engineers, electrical engineers, mechanical engineers and cartographic
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.
|
|
December
29,
|
|
December
30,
|
|
December
31,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
($'s
in thousands)
|
|
|
|
|
|
|
|
Research
and development
|
|
$
|
159,406
|
|
$
|
113,314
|
|
$
|
74,879
|
|
Percent
of net sales
|
|
|
5.0
|
%
|
|
6.4
|
%
|
|
7.3
|
%
|
Manufacturing
and Operations
Garmin
believes that one of its core competencies is its manufacturing capability
at
its Shijr, Jhongli and LinKou, Taiwan facilities, its Olathe, Kansas facility,
and its Salem, Oregon facility. Garmin believes that its vertically integrated
approach has provided it the following benefits:
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 attempts to reduce the time required to move a product
from
its design phase to mass production deliveries, with improved quality and
yields.
Design
and process optimization.
Garmin
uses its manufacturing resources to rapidly prototype design concepts, products
and processes in order to achieve higher efficiency, lower cost and better
value
for customers. 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 GPS devices that are functional, waterproof, and
rugged.
Logistical
agility.
Operating
its own manufacturing facilities helps Garmin minimize problems, such as
component shortages and long component lead times which are common in the
electronics industry. Many products can be re-engineered to bypass component
shortages or reduce cost and the new designs can be delivered to market quickly.
Garmin reacts rapidly to changes in market demand by striving to maintain a
safety stock of long-lead components and by rescheduling components from one
product line to another.
Garmin’s
design, manufacturing, distribution, and servicing processes in our US, Taiwan,
and UK facilities are certified to ISO 9001-2000, an international quality
standard developed by the International Organization for Standardization.
Garmin’s Taiwan manufacturing facilities have also achieved TS 16949:2002
certification, a quality standard for automotive suppliers. In addition,
Garmin’s aviation operations have achieved certification to AS9100, the quality
standard for the aviation industry.
In
January 2007, Garmin’s Taiwan facilities also achieved certification of their
environmental management systems to the ISO14001:1994 standard. This
certification recognizes that Garmin’s Taiwan subsidiary has systems and
processes in place to minimize or prevent harmful effects on the environment
and
to strive continually to improve its environmental performance. Garmin Europe
and Garmin International, Inc. are currently pursuing compliance to the ISO
14000 standard.
Materials
Garmin
purchases components for its products from a number of suppliers around the
world. For certain components, Garmin relies on sole source suppliers. The
failure of our suppliers to deliver components in sufficient quantities and
in a
timely manner could adversely affect our business.
Seasonality
Our
sales
are subject to significant seasonal fluctuation. Sales of our consumer products
are generally significantly higher in the fourth quarter, due to increased
demand for automotive/mobile products during the holiday buying season, and,
to
a lesser extent, the second quarter, due to increased demand during the spring
and summer marine season and the Father’s Day/graduation buying season. Sales of
consumer products are also influenced by the timing of the release of new
products. 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.
Backlog
Our
sales
are generally of a consumer nature and there is a relatively short cycle between
order and shipment. Therefore, we believe that backlog information is not
material to the understanding of our business. We typically ship most orders
within 72 hours of receipt.
Intellectual
Property
Our
success and ability to compete is dependent in part on our proprietary
technology. We rely 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 January 11, 2008, we held 331 U.S. patents and 42
foreign patents. As of January 11, 2008, we had 190 U.S. patent applications
and
32 foreign patent applications pending. 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. As of January 11, 2008, we held 81 U.S. trademark registrations
and 162 foreign trademark registrations. As of January 11, 2008, we had 28
U.S.
trademark applications and 73 foreign trademark applications
pending.
We
believe that our continued success depends on the intellectual skills of our
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.
Garmin
was selected as a constituent of the Ocean Tomo® 300 Patent Index and The Ocean
Tomo® 300 Patent Growth Index, which are indices that recognize companies with
high intellectual property value.
There
is
no assurance that our current patents, or patents which we may later acquire,
may successfully withstand any challenge, in whole or in part. It is also
possible that any patent issued to us may not provide us with any competitive
advantages, or that the patents of others will preclude us from manufacturing
and marketing certain products. Despite our efforts to protect our proprietary
rights, unauthorized parties may attempt to copy aspects of our products or
to
obtain and use information that we regard as proprietary. Litigation may be
necessary in the future to enforce our 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.
Regulations
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 our business. In addition, aviation products
that are intended for installation in “type certificated aircraft” are required
to be certified by the FAA, its European counterpart, the European Aviation
Safety Agency, and other comparable organizations before they can be used in
an
aircraft.
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 New Taiwan 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.
Environmental
Matters
The
European Union (“EU”) has enacted the Restriction of the Use of Certain
Hazardous Substances in Electrical and Electronic Equipment Directive ("RoHS
Directive") and the Waste Electrical and Electronic Equipment Directive (“WEEE
Directive”). The RoHS Directive requires EU member states to enact laws
prohibiting the use of certain substances, including lead, mercury, cadmium
and
hexavalent chromium, in certain electronic products put on the market after
July
1, 2006. The WEEE Directive requires EU member states to enact laws that were
to
go into effect by August 13, 2005 regulating the collection, recovery and
recycling of waste from certain electronic products. We have established a
program in order to comply with such laws and regulations as they are enacted
by
the EU member states. We have modified the design of our products and our
manufacturing processes in order to comply with such laws and regulations.
The
EU
has also enacted the Registration, Evaluation, and Authorization of Chemicals
(“REACH”) regulation. REACH requires manufacturers and importers of
articles to register the substances contained in the articles if the substances
are intended to be released under normal or reasonably foreseeable conditions
of
use. Because the substances contained in our products are not intended to
be released under normal or reasonably foreseeable conditions of use, we do
not
believe we or the importers of our products have an obligation under REACH
to
register those substances. It is possible, however, that Garmin could
participate in the REACH regulations as necessary to support possible REACH
registration requirements of the recyclers of our products. REACH also
imposes notification requirements on manufacturers and importers of articles
if
the articles contain “substances of very high concern.” Although these
notification requirements do not become effective until after June 1, 2011,
we
have established a program in order to comply with them when and to the extent
necessary.
The
People’s Republic of China has enacted legislation which is widely known as
“China RoHS”. The first phase of China RoHS took effect on March 1, 2007 and
requires the disclosure and marking of certain substances, including lead,
mercury, cadmium and hexavalent chromium in certain electronic products. We
have
established a program in order to comply with the first phase of China
RoHS.
The
State
of California has enacted legislation similar to the RoHS Directive and other
states and countries have promulgated or proposed legislation similar to the
RoHS Directive and/or the WEEE Directive. The need for and cost of our
compliance with such legislation cannot yet be determined but the cost could
be
substantial.
Several
states have enacted laws pertaining to the reduction of mercury in products
and
the labeling of mercury-containing products, including the member states of
the
Interstate Mercury Education and Reduction Clearinghouse (IMERC). Some of these
laws, including those in Connecticut, New York, Vermont and Louisiana, are
applicable to certain of Garmin’s GPS products. We have established an ongoing
compliance program to ensure that we are fulfilling the notice and labeling
requirements set forth in the relevant mercury legislation.
Portable
Garmin products which use AC/DC adapters as an option for battery charging
would
require submissions of energy-use profiles if and when the future implementing
measures resulting from the EU EuP (Energy Using Products) Directive define
such
products as being within their scope.
Employees
As
of
December 31, 2007, Garmin had 8,434
full-time
employees worldwide, of whom 2,443 were in the United States, 67 were in Canada,
5,444 were in Taiwan, 475 were in Europe, and 5 were in other global locations.
None of Garmin’s employees are represented by a labor union (except for
Garmin’s four employees in Brazil) and none of Garmin's North American or Taiwan
employees are covered by a collective bargaining agreement. Garmin considers
its
employee relations to be good.
Item
1A. Risk Factors
The
risks described below are not the only ones facing our company. Additional
risks
and uncertainties not presently known to us or that we currently believe to
be
immaterial may also impair our business operations. If any of the following
risks occur, our business, financial condition or operating results could be
materially adversely affected.
Risks
Related to the Company
Many
of our Products Rely on the Global Positioning System
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, some have been operating for more than 13 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 would have a material negative effect on our business.
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. However, in a presidential policy statement issued
in December 2004, the Bush administration indicated that the U.S. is committed
to supporting and improving the Global Positioning System and will continue
providing it free from direct user fees.
Some
of
our products also use signals from systems that augment GPS, such as the Wide
Area Augmentation System (WAAS). WAAS is operated by the FAA. Any curtailment
of
the operating capability of WAAS could result in decreased user capability
for
many of our aviation products, thereby impacting our markets.
Any
of
the foregoing factors could affect the willingness of buyers of our products
to
select Global Positioning System-based products instead of products based on
competing technologies.
A
shut down of U.S. airspace or imposition of restrictions on general aviation
would harm our business.
Following
the
September
11, 2001
terrorist attacks, the FAA ordered all aircraft operating in the U.S. to be
grounded for several days. In addition to this shut down of U.S. airspace,
the
general aviation industry was further impacted by the additional restrictions
implemented by the FAA on those flights that fly utilizing Visual Flight Rules
(VFR). The FAA restricted VFR flight inside 30 enhanced Class B (a 20-25 mile
radius around the 30 largest metropolitan areas in the USA) airspace areas.
The
Aircraft Owners and Pilots Association (AOPA) estimated that these restrictions
affected approximately 41,800 general aviation aircraft based at 282 airports
inside the 30 enhanced Class B airspace areas. The AOPA estimates that
approximately 90% of all general aviation flights are conducted VFR, and that
only 15% of general aviation pilots are current to fly utilizing Instrument
Flight Rules (IFR).
The
shut
down of U.S. airspace following September 11, 2001 caused reduced sales of
our
general aviation products and delays in the shipment of our products
manufactured in our Taiwan manufacturing facility to our distribution facility
in Olathe, Kansas, thereby adversely affecting our ability to supply new and
existing products to our dealers and distributors.
Any
future shut down of U.S. airspace or imposition of restrictions on general
aviation could have a material adverse effect on our business and financial
results.
Any
reallocation of radio frequency spectrum could cause interference with the
reception of Global Positioning System signals. This interference could harm
our
business.
Our
Global Positioning System technology is dependent on the use of the Standard
Positioning Service (SPS) provided by the U.S. Government’s Global Positioning
System satellites. The Global Positioning System operates in radio frequency
bands that are globally allocated for radio navigation satellite services.
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, have 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. The FCC continually receives proposals for new technologies and
services, such as ultra-wideband technologies, which may seek to operate in,
or
across, the radio frequency bands currently used by the GPS SPS. Adverse
decisions by the FCC that result in harmful interference to the delivery of
the
GPS SPS may materially and adversely affect the utility and reliability of
our
products, which could result in a material adverse effect on our business and
financial condition.
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 introduce new products, or to modify
or
improve our existing 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 or may materially change the gross profits that we are able to obtain
on our products. 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. From time to time we have experienced delays in shipping certain
of our new products and any future delays, whether due to product development
delays, manufacturing delays, lack of market acceptance, delays in regulatory
approval, or otherwise, could have a material adverse effect on our results
of
operations.
If
we do not correctly anticipate demand for our products, we may not be able
to
secure sufficient quantities or cost-effective production of our products or
we
could have costly excess production or inventories.
Historically,
we have experienced steady increases in demand for our products although we
did
experience a decline in demand for our aviation products in 2001 due to
declining economic conditions and the shut down of U.S. airspace as a result
of
the terrorist attacks that occurred on September 11, 2001. We have generally
been able to increase production to meet this increasing 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, as competition in the market for our
products intensifies and as the markets for some of our products mature to
the
mass market category. Significant unanticipated fluctuations in demand could
cause the following problems in our operations:
·
|
If
demand increases beyond what we forecast, we would have to rapidly
increase production. We would depend on suppliers to provide additional
volumes of components and those suppliers might not be able to increase
production rapidly enough to meet unexpected demand.
|
·
|
Rapid
increases in production levels to meet unanticipated demand could
result
in higher costs for manufacturing and supply of components and other
expenses. These higher costs could lower our profit margins. Further,
if
production is increased rapidly, manufacturing quality could decline,
which may also lower our margins and reduce customer
satisfaction.
|
·
|
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 or reduced manufacturing efficiencies 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
our automotive or marine products contain defects or errors in the mapping
supplied by third-party map providers or if our users do not heed our warnings
about the proper use of these products, collisions or accidents could occur
resulting in property damage, personal injury or death. If any of these events
occurs, we could be subject to significant liability for personal injury and
property damage and under certain circumstances could be subject to a judgment
for punitive damages. 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. In
addition, insurance coverage generally will not cover awards of punitive damages
and may not cover the cost of associated legal fees and defense costs, which
could result in lower margins. If we are unable to maintain sufficient insurance
to cover product liability costs or if our insurance coverage does not cover
the
award, this could have a materially adverse impact on our business, financial
condition and results of operations.
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, batteries and microprocessors. The cost, quality and availability
of components are essential to the successful production and sale of our
products. Some components we use are from sole source suppliers. Certain
application-specific integrated circuits incorporating our proprietary designs
are manufactured for us by sole source suppliers. Alternative sources may not
be
currently available for these sole source components.
In
the
past we have experienced shortages of liquid crystal displays and other
components. In addition, if there are shortages in supply of components, the
costs of such components may rise. If suppliers are unable to meet our demand
for components on a timely basis and if we are unable to obtain an alternative
source or if the price of the alternative source is prohibitive, or if the
costs
of components rise, our ability to maintain timely and cost-effective production
of our products would be seriously harmed.
We
depend on third party licensors for the digital map data contained in our
automotive/mobile products, and our business and/or gross margins could be
harmed if we become unable to continue licensing such mapping data or if the
royalty costs for such data rise.
We
license digital 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. The two largest digital map suppliers are NAVTEQ Corporation and Tele
Atlas N.V. Nokia has signed a Merger Agreement with NAVTEQ, and such Merger
Agreement has been approved by NAVTEQ’s shareholders. As of February 21, 2008,
the proposed merger between Nokia and NAVTEQ is currently pending regulatory
review by the European Commission and other closing conditions. In addition,
Tom
Tom, one of our main competitors in the PND market, is in the process of
attempting to acquire Tele Atlas through an offer to purchase all of the issued
ordinary shares of Tele Atlas. As of February 22, 2008, Tom Tom’s proposed offer
to purchase the Tele Atlas shares was under regulatory review by the European
Commission.
If
both
of these transactions close, the two largest digital map suppliers will become
wholly-owned subsidiaries of Garmin competitors. Although we do not foresee
difficulty in continuing to license data at favorable pricing due to the long
term extension signed between Garmin and NAVTEQ in November 2007 (extending
our
NAVTEQ agreement through 2015 with an option to extend through 2019), if we
are
unable to continue licensing such mapping data and are unable to obtain an
alternative source, or if the nature of our relationships with NAVTEQ or Tele
Atlas change detrimentally, 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.
Many
of
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.
Failure
to manage our growth and expansion effectively could adversely impact our
business.
Our
ability to successfully offer our products and implement our business plan
in a
rapidly evolving market requires an effective planning and management process.
We continue to increase the scope of our operations domestically and
internationally and have grown our shipments and headcount substantially. This
growth has placed, and our anticipated growth in future operations will continue
to place, a significant strain on our management systems and resources.
Our
business may suffer if we are not able to hire and retain sufficient qualified
personnel or if we lose our key personnel.
Our
future success depends partly on the continued contribution of our key
executive, engineering, sales, marketing, manufacturing and administrative
personnel. We currently do not have employment agreements with any of our key
executive officers. We do not have key man life insurance on any of our key
executive officers and do not currently intend to obtain such insurance. The
loss of the services of any of our senior level management, or other key
employees, could harm our business. Recruiting and retaining the skilled
personnel we require to maintain and grow our market position may be difficult.
For example, in some recent years there has been a nationwide shortage of
qualified electrical engineers and software engineers who are necessary for
us
to design and develop new products, and therefore, it has sometimes been
challenging to recruit such personnel. If we fail to hire and retain qualified
employees, we may not be able to maintain and expand our business.
Gross
margins for our products may fluctuate or erode.
Gross
margins on our automotive/mobile products have been declining due to price
reductions in the increasingly competitive market for personal navigation
devices (PNDs). We expect that gross margins on automotive/mobile products
will
continue to erode. In addition, our overall gross margin 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 component cost reduction, 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 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 and
may
be negatively affected by weakness in the economy.
Our
operating results are difficult to predict. Our future quarterly operating
results may fluctuate significantly. If such operating results decline, the
price of our stock would likely decline. As we expand our operations, our
operating expenses, particularly our advertising and research and development
costs, may increase as a percentage of our sales. 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 marine and
automotive
products
tend to be higher in our second fiscal quarter due to increased consumer
spending for such products during the recreational marine, fishing, and travel
season. Sales of our automotive/mobile products also have been 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.
Since
our
products are highly consumer-oriented, a significant slowdown in discretionary
spending or consumer confidence due to an economic recession or slowdown in
the
United States or worldwide economies could negatively impact our
revenues.
Adverse
economic conditions may harm our investments.
Inflation
or other changes in general economic conditions could adversely affect our
investment portfolio.
Our
quarterly financial statements will reflect fluctuations in foreign currency
translation.
Our
Taiwan subsidiary holds, and is expected to continue to hold significant cash,
cash equivalents, and marketable securities and receivables denominated in
U.S.
Dollars. Because the U.S. Dollar is the primary currency for our business and
in
order to substantially reduce the economic consequence of any variation in
the
exchange rate for the U.S. Dollar and the New Taiwan Dollar on these assets,
management expects that the Taiwan subsidiary will continue to hold the majority
of these assets in U.S. Dollar or U.S. Dollar denominated instruments.
Nonetheless, U.S. GAAP requires the Company at the end of each accounting period
to translate into New Taiwan dollars all such U.S. Dollar denominated assets
held by our Taiwan subsidiary. This translation is required because the New
Taiwan Dollar is the functional currency of the subsidiary. This U.S.
GAAP-mandated translation will cause us to recognize gain or loss on our
financial statements as the New Taiwan Dollar/U.S. Dollar exchange rate varies.
Such gain or loss will create variations in our earnings per share. Because
there is minimal cash impact caused by such exchange rate variations, management
will continue to focus on the Company’s operating performance before the impact
of the foreign currency translation.
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. Some of our competitors 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. 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 material adverse effect on our business and financial
condition. From time to time we receive letters alleging infringement of
patents, trademarks or other intellectual property rights. Litigation concerning
patents or other intellectual property is 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,
FAA certification is required for all of our aviation products that are intended
for installation in type certificated aircraft. To the extent 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, for certain aviation OEM products, our customers’
ability to sell airplanes. Therefore, such inabilities or delays could adversely
affect 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 39% of our net sales in the fiscal year ended
December 29, 2007 represented products shipped to international destinations.
Accordingly, our business, financial condition and results of operations could
be harmed by a variety of international factors, including:
·
|
changes
in foreign currency exchange rates;
|
·
|
changes
in a specific country’s or region’s political or economic conditions,
particularly in emerging markets;
|
·
|
trade
protection measures and import or export licensing requirements;
|
·
|
potentially
negative consequences from changes in tax laws;
|
·
|
difficulty
in managing widespread sales and manufacturing operations;
|
·
|
acts
of war, terrorism, or political unrest; and
|
·
|
less
effective protection of intellectual property.
|
We
may experience unique economic and political risks associated with companies
that operate in Taiwan.
Relations
between Taiwan and the People’s Republic of China, also referred to as the PRC,
and other factors affecting the political or economic conditions of Taiwan
in
the future could materially adversely affect our business, financial condition
and results of operations 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 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
or
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,
as
amended, and by the Companies Law (2007 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, you may have more difficulty
in
protecting your 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.
Unlike
many jurisdictions in the United States, Cayman Islands law does not
specifically provide for shareholder appraisal rights on a merger or
consolidation of a company. This may make it more difficult for you to assess
the value of any consideration you may receive in a merger or consolidation
or
to require that the offeror give you additional consideration if you believe
the
consideration offered is insufficient.
Shareholders
of Cayman Islands exempted companies such as Garmin have no general rights
under
Cayman Islands law to inspect corporate records and accounts or to obtain copies
of lists of shareholders of the company. This may make it more difficult for
you
to obtain the information needed to establish any facts necessary for a
shareholder motion or to solicit proxies from other shareholders in connection
with a proxy contest.
Subject
to limited exceptions, under Cayman Islands law, a minority shareholder may
not
bring a derivative action against the board of directors. Our Cayman Islands
counsel has advised that they are not aware of any reported class action or
derivative action having been brought in a Cayman Islands court.
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
strategic partnerships with parties who can provide access to those assets,
additional product or services offerings, additional distribution or marketing
synergies or additional industry expertise. In 2007, we acquired Digital
Cyclone, Inc., EME TecSat SAS, Gesellschaft für Professionelle
Satellitennavigation mbH, Synergy S.p.A, Electrónica Trepat S.A. and the assets
of Nautamatic Marine Systems, Inc., We may not be able to identify suitable
acquisition, investment or strategic partnership candidates, or if we do
identify suitable candidates in the future, we may not be able to complete
those
transactions on commercially favorable terms, or at all.
Any
past
or future acquisitions could also result in difficulties assimilating acquired
employees (including cultural differences with foreign acquisitions),
operations, and products and diversion of capital and management’s attention
away from other business issues and opportunities. 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 had limited experience
in assimilating acquired organizations and products into our operations. We
may
not successfully integrate internal controls, compliance under the
Sarbanes-Oxley Act of 2002 and other corporate governance matters, operations,
personnel or products related to acquisitions we made in 2007 or may make 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 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
‘‘passive foreign investment company’’ for United States federal income tax
purposes. 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 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.
We
may have additional tax liabilities.
We
are
subject to income taxes in both the United States and numerous foreign
jurisdictions. Significant judgment is required in determining our worldwide
provision for income taxes. In the ordinary course of our business, there are
many transactions and calculations where the ultimate tax determination is
uncertain. We are regularly under audit by tax authorities. Although we believe
our tax estimates are reasonable, the final determination of tax audits and
any
related litigation could be materially different from our historical income
tax
provisions and accruals. The results of an audit or litigation could have a
material effect on our income tax provision, net income or cash flows in the
period or periods for which that determination is made.
Risks
Relating to Our Shares
The
volatility of our stock price could adversely affect investment in our common
shares.
The
market price of our common shares has been, and may continue to be, highly
volatile. During 2007, the price of our common shares ranged from a low of
$48.46 to a high of $125.68. A variety of factors could cause the price of
our
common shares to fluctuate, perhaps substantially, including:
·
|
announcements
and rumors of developments related to our business, our competitors,
our
suppliers or the markets in which we
compete;
|
·
|
quarterly
fluctuations in our actual or anticipated operating
results;
|
·
|
the
availability, pricing and timeliness of delivery of components, such
as
flash memory and liquid crystal displays, used in our
products;
|
·
|
general
conditions in the worldwide economy, including fluctuations in interest
rates;
|
·
|
announcements
of technological innovations;
|
·
|
new
products or product enhancements by us or our
competitors;
|
·
|
product
obsolescence and our ability to manage product
transitions;
|
·
|
developments
in patents or other intellectual property rights and
litigation;
|
·
|
developments
in our relationships with our customers and suppliers;
|
·
|
research
reports or opinions issued by securities analysts or brokerage houses
related to Garmin, our competitors, our suppliers or our customers;
and
|
·
|
any
significant acts of terrorism against the United States, Taiwan or
significant markets where we sell our
products.
|
In
addition, in recent years the stock market in general and the markets for shares
of technology companies in particular, have experienced extreme price
fluctuations which have often been unrelated to the operating performance of
affected companies. Any such fluctuations in the future could adversely affect
the market price of our common shares, and the market price of our common shares
may decline.
Our
officers and directors exert substantial influence over us.
As
of
February 15, 2008 members and former 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
owned approximately 40% of our outstanding common shares
.
Accordingly, these shareholders may be able to 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.
Provisions
in our shareholder rights plan and our charter documents might deter, delay
or
prevent a third party from acquiring us and Cayman Islands corporate law may
impede a takeover, which could decrease the value of our shares.
Our
Board
of Directors has the authority to issue up to 1,000,000 preferred shares and
to
determine the price, rights, preferences, privileges and restrictions, including
voting rights, of those shares without any further vote or action by the
shareholders. This could have an adverse impact on the market price of our
common shares. We have no present plans to issue any preferred shares, but
we
may do so. The rights of the holders of common shares may be subject to, and
adversely affected by, the rights of the holders of any preferred shares that
may be issued in the future. In addition, we have adopted a classified board
of
directors. Our shareholders are unable to remove any director or the entire
board of directors without a super majority vote. In addition, a super majority
vote is required to approve transactions with interested shareholders.
Shareholders do not have the right to call a shareholders meeting. We have
adopted a shareholders’ rights plan which under certain circumstances would
significantly impair the ability of third parties to acquire control of us
without prior approval of our Board of Directors. This shareholders’ rights plan
and the provisions in our charter documents could make it more difficult for
a
third party to acquire us, even if doing so would benefit our shareholders.
Unlike
many jurisdictions in the United States, Cayman Islands law does not currently
provide for mergers as that expression is understood under corporate law in
the
United States. While Cayman Islands law does have statutory provisions that
provide for the reconstruction and amalgamation of companies, which are commonly
referred to in the Cayman Islands as a “scheme of arrangement,” the procedural
and legal requirements necessary to consummate these transactions are more
rigorous and take longer to complete than the procedures typically required
to
consummate a merger in the United States. Under Cayman Islands law and practice,
a scheme of arrangement in relation to a solvent Cayman Islands exempted company
must be approved at a shareholders’ meeting by a majority of the company’s
shareholders who are present and voting (either in person or by proxy) at such
meeting. The shares voted in favor of the scheme of arrangement must also
represent at least 75% of the value of each class of the company’s shareholders
(excluding the shares owned by the parties to the scheme of arrangement) present
and voting at the meeting. The Grand Court of the Cayman Islands must also
sanction the convening of these meetings and the terms of the amalgamation.
Although there is no requirement to seek the consent of the creditors of the
parties involved in the scheme of arrangement, the Grand Court typically seeks
to ensure that the creditors have consented to the transfer of their liabilities
to the surviving entity or that the scheme of arrangement does not otherwise
materially adversely affect the creditors’ interests. Furthermore, the Grand
Court will only approve a scheme of arrangement if it is satisfied that:
·
|
the
statutory provisions as to majority vote have been complied with;
|
·
|
the
shareholders have been fairly represented at the meeting in question;
|
·
|
the
scheme of arrangement is such as a businessman would reasonably approve;
and
|
·
|
the
scheme of arrangement is not one that would more properly be sanctioned
under some other
provision
of the Companies Law.
|
Item
1B. Unresolved Staff Comments
None.
Item
2. Properties
Garmin
International, Inc. and Garmin USA, Inc. occupy a facility of approximately
750,000 square feet (which will be expanded to 981,000 square feet once the
pending warehouse expansion is completed) on 42 acres in Olathe, Kansas, where
the majority of product design and development work is conducted, the majority
of aviation panel-mount products are manufactured and products are warehoused,
distributed, and supported for North, Central and South America. Garmin’s
subsidiary, Garmin Realty, LLC also owns an additional 46 acres of land on
the
Olathe site 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 the Olathe facility which is leased to Garmin’s subsidiaries
by the City. Upon the payment in full of the outstanding bonds, the City of
Olathe is obligated to transfer title to Garmin’s subsidiaries for the aggregate
sum of $200. Garmin International, Inc. has purchased all the outstanding bonds
and continues to hold the bonds until maturity in order to benefit from property
tax abatement.
Garmin
Corporation owns and occupies a 249,326 square foot facility in Shijr, Taipei
County, Taiwan, a 223,469 square foot facility in Jhongli, Tao-Yang County,
Taiwan, and an approximately 580,000 square foot facility in LinKou, Tao-Yang
County, Taiwan. In these three facilities Garmin Corporation manufactures all
of
Garmin’s consumer and portable aviation products and warehouses, markets and
supports products for the Pacific Rim countries.
Garmin
AT, Inc. leases approximately 15 acres of land in Salem, Oregon under a ground
lease. This ground lease expires in 2030 but Garmin AT has the option to extend
the ground lease until 2050. Garmin AT, Inc. owns and occupies a 52,000 square
foot facility (which will be expanded to 115,000 square feet upon completion
of
its ongoing manufacturing and engineering space expansion, which is scheduled
to
be completed in July 2008) and a 33,000 square foot aircraft hangar, flight
test
and certification facility on this land.
Garmin
International, Inc. leases 148,320 square feet of land at New Century Airport
in
Gardner, Kansas under a ground lease which expires in 2026. Garmin
International, Inc. owns and occupies a 47,254 square foot aircraft hangar,
flight test and certification facility on this land which is used in development
and certification of aviation products.
Garmin
International, Inc. leases approximately 15,000 square feet of space at 669
North Michigan Avenue in Chicago, Illinois which is used as a retail store
and
showroom for Garmin products. This lease expires in November 2016.
Garmin
International, Inc. also leases an additional: (i) 18,392 square feet of office
space in Kansas City, Missouri for a call center operation; (ii) 48,625 square
feet of office space in Olathe, Kansas for a call center operation; (iii) 7,425
square feet of office space in Tempe, Arizona for software development; (iv)
5,509 square feet of office space in San Francisco, CA (expected occupancy
in
February 2008) for its former MotionBased division (now Garmin Connect); and
(v)
11,857 aggregate square feet in two buildings in South Beach, Oregon for the
former Nautamatic (now TR-1) marine autopilot operations.
Garmin
Ltd. leases approximately 902 square feet of office space in Grand Cayman,
Cayman Islands.
Garmin
(Europe) Ltd. owns and occupies a 155,000 square foot building located in
Totton, Southampton, England.
Dynastream
Innovations, Inc. leases an aggregate of 19,765 square feet in three buildings
in Cochrane, Alberta, Canada.
Digital
Cyclone Inc. leases an aggregate of 7,054 square feet of office space in
Minnetonka, Minnesota.
Garmin
Italia S.p.A. is in the process of moving to a new leased space occupying
approximately 24,756 square feet of space in one building in Milan,
Italy.
Garmin
Iberia S.A. leases an aggregate of approximately 21,000 square feet of office
space in two buildings in Barcelona, Spain.
Garmin
France SAS leases approximately 21,527 square feet of office space in a building
in Nanterre, France and approximately 538 square feet as a separate product
showroom in Paris, France.
Garmin
Deutschland GmbH leases approximately 20,667 square feet of
office
space in a building in Gr’felfing, Germany (near Munich) and approximately
19,214 square feet of warehouse space in Puchheim, Germany (near Munich).
Garmin
Danmark A/S occupies an approximately 21,700 square foot building in Allerød,
Denmark (near Copenhagen) which is owned by another Garmin
subsidiary.
Item
3. Legal Proceedings
Encyclopaedia
Britannica, Inc. v. Alpine Electronics of America, Inc., Alpine Electronics,
Inc., Denso Corporation, Toyota Motor Sales, U.S.A., Inc., American Honda Motor
Co., Inc., and Garmin International, Inc.
On
May
16, 2005, Encyclopaedia Britannica, Inc. (“Encyclopaedia Britannica”) filed suit
in the United States District Court for the Western District of Texas, Austin
Division, against Garmin’s wholly owned subsidiary Garmin International, Inc.
(“Garmin International”) and five other unrelated companies, alleging
infringement of U.S. Patent No. 5,241,671 (“the ‘671 patent”). Garmin
International believes that it should not be found liable for infringement
of
the ‘671 patent and additionally that the ‘671 patent is invalid. On December
30, 2005, Garmin International filed a Motion for Summary Judgment for Claim
Invalidity Based on Indefiniteness. On March 1, 2006 the court held a hearing
on
construction of the claims of the ‘671 patent. The parties await the court’s
ruling on Garmin’s summary judgment motion and the court’s claim construction
order. On May 23, 2006, Encyclopaedia Britannica filed an amended complaint
claiming that Garmin International and the other defendants also infringe U.S.
Patent No. 7,051,018 (“the ‘018 patent”), a continuation patent of the ‘671
patent, which issued on May 23, 2006. Garmin International believes that it
should not be found liable for infringement of the ‘018 patent and additionally
that the ‘018 patent is invalid. On July 25, 2006, Encyclopaedia Britannica
filed a new complaint claiming that Garmin International and the other
defendants also infringe U.S. Patent No. 7,082,437 (“the ‘437 patent”), a
continuation patent of the ‘671 patent, which issued on July 25, 2006. Garmin
International believes that it should not be found liable for infringement
of
the ‘437 patent and additionally that the ‘437 patent is invalid. Encyclopaedia
Britannica has asserted the ’018 and ’437 patents against other parties in
Encyclopaedia Britannica v. Magellan Navigation, Inc., et al., Case No.
07-CA-787 (LY)(W.D. Tex). On October 5, 2007, the defendants in that case filed
a Motion for Summary Judgment of Invalidity of the ’018 and ’437 patents and the
parties await a hearing and/or the court’s ruling on that motion. Although there
can be no assurance that an unfavorable outcome of this litigation would not
have a material adverse effect on our operating results, liquidity or financial
position, Garmin International believes that the claims are without merit and
intends to vigorously defend these actions
.
Mobile
Traffic Systems Corporation and TrafficGauge, Inc. v. Cobra Electronics Corp.,
Garmin USA, Inc., Magellan Navigation, Inc., and TomTom, Inc.
On
April
11, 2007, Mobile Traffic Systems Corporation filed a lawsuit in the United
States District Court for the Northern District of Alabama claiming that certain
products of Garmin and the other defendants infringe U.S. Patents Nos. 7,069,143
and 6,728,628 (the “Asserted Patents”). TrafficGauge, Inc. was subsequently
added as a co-plaintiff. On August 20, 2007, along with its initial answer,
Garmin USA, Inc. filed counterclaims seeking judgments declaring the Asserted
Patents to be invalid and not infringed. On December 21, 2007, after the initial
discovery phase had progressed, Garmin USA, Inc. amended its answer and filed
an
additional counterclaim seeking a judgment declaring the Asserted Patents to
be
unenforceable based on the inventor’s inequitable conduct before the United
States Patent Office during prosecution of the Asserted Patents. In January
2008
Cobra Electronics Corp. announced that it had settled this lawsuit on
undisclosed terms. The court has scheduled trial against the remaining
defendants to begin on November 17, 2008. Although there can be no assurance
that an unfavorable outcome of this litigation would not have a material adverse
effect on our operating results, liquidity or financial position, Garmin USA,
Inc. believes that it should not be found liable for infringement of the
Asserted Patents and additionally that the Asserted Patents are invalid and
unenforceable.
From
time
to time Garmin is involved in other legal actions arising in the ordinary course
of our business. We believe that the ultimate outcome of these actions will
not
have a material adverse effect on our business, financial condition and results
of operations.
Item
4. Submission of Matters to a Vote of Security Holders
No
matters were submitted to a vote of shareholders of Garmin during the fourth
fiscal quarter of 2007.
Executive
Officers of the Registrant
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 6, 2008.
Dr.
Min H. Kao
,
age 59,
has served as Chairman of Garmin Ltd. since August 2004 and was previously
Co-Chairman of Garmin Ltd. from August 2000 to August 2004. He has served as
Chief Executive Officer of Garmin Ltd. since August 2002 and previously served
as Co-Chief Executive Officer from August 2000 to August 2002. He has been
President of Garmin Corporation since January 1999. He has also been Chairman
and a director of Garmin Corporation since January 1990. Dr. Kao has been Chief
Executive Officer of Garmin International, Inc. since October 2007, Chairman
of
Garmin International, Inc. since July 2004 and a director of Garmin
International, Inc. since August 1990. He served as Vice President of Garmin
International, Inc. from April 1991 to March 2002, and President of Garmin
International, Inc. from March 2002 to October 2007. Dr. Kao has been Chairman
and Chief Executive Officer of Garmin USA, Inc. since October 2007, and a
director of Garmin USA, Inc. since December 2001. He served as President of
Garmin USA, Inc. from March 2002 to October 2007, and as Vice President of
Garmin USA, Inc. from December 2001 to March 2002. Dr. Kao has been Chairman
and
Chief Executive Officer of Garmin AT, Inc. since October 2007, and a director
of
Garmin AT, Inc. since August 2003. He served as President of Garmin AT, Inc.
from August 2003 to October 2007. He served as Vice President of Garmin USA,
Inc. from December 2001 to March 2002. Dr Kao has been a director of Garmin
(Europe) Ltd. since 1992, a director of Garmin N.V. and Garmin B.V. since 2005,
a director of Garmin Singapore Pte. Ltd. since August 2006, and a director
of
Dynastream Innovations, Inc, since December 2006, a director of Digital Cyclone,
Inc. since January 2007, and a director of each of Garmin Spain S.L.U., Garmin
Iberia S.A. and Garmin Italia S.p.A. since November 2007. 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.
Clifton
A. Pemble
,
age 42,
has served as a director of Garmin Ltd. since August 2004, and as President
and
Chief Operating Officer of Garmin Ltd. since October 2007. He has been a
director of Garmin International, Inc. and Garmin USA, Inc. since July 2004.
He
has been a director of Garmin Corporation and Garmin (Europe) Ltd. since July
2004. Mr. Pemble has been a director of Garmin AT, Inc. since August 2003,
a
director of Dynastream Innovations, Inc. since December 2006, a director of
Digital Cyclone, Inc. since January 2007, and a director of each of Garmin
Spain
S.L.U., Garmin Iberia S.A. and Garmin Italia S.p.A. since November 2007. He
has
been President and Chief Operating Officer of each of Garmin International,
Inc., Garmin USA, Inc. and Garmin AT, Inc. since October 2007. Previously,
he
was Vice President, Engineering of Garmin International, Inc. from 2005 to
October 2007, Director of Engineering of Garmin International, Inc. from 2003
to
2005, and Software Engineering Manager of Garmin International, Inc. from 1995
to 2002 and a Software Engineer with Garmin International, Inc. from 1989 to
1995. Mr. Pemble holds BA degrees in Mathematics and Computer Science from
MidAmerica Nazarene University.
Kevin
S. Rauckman
,
age 45,
has served as Chief Financial Officer and Treasurer of Garmin Ltd. since August
2000. He has been Director of Finance and Treasurer of Garmin International,
Inc. since January 1999 and a director of Garmin International, Inc. since
April
2001. He has been Treasurer and a director of Garmin USA, Inc. since December
2001. Mr. Rauckman has been Chief Financial Officer and Treasurer and a director
of Garmin AT, Inc. since August 2003. Mr. Rauckman has been a director of Garmin
Corporation since July 2004. Mr. Rauckman has been a director of Garmin (Europe)
Ltd. since July 2004, a director of Dynastream Innovations, Inc. since December
2006, a director of Garmin Singapore Pte. Ltd. since August 2006, a director
of
Digital Cyclone, Inc. since January 2007, and a director of each of Garmin
Spain
S.L.U., Garmin Iberia S.A. and Garmin Italia S.p.A. since November 2007. Mr.
Rauckman holds BS and MBA degrees in Business from the University of
Kansas.
Andrew
R. Etkind
,
age 52,
has served as General Counsel and Secretary of Garmin Ltd. since August 2000.
He
has been Vice President and General Counsel of Garmin International, Inc. since
July 2007, General Counsel since February 1998, and Secretary since October
1998. He has been General Counsel and Secretary of Garmin USA, Inc. since
December 2001. Mr. Etkind has been General Counsel and Secretary of Garmin
AT,
Inc. since August 2003. He has been Secretary of Garmin (Europe) Ltd. since
March 2001. He has been General Counsel and Secretary of Digital Cyclone, Inc.
since January 2007. Mr. Etkind has been a director of Garmin N.V. since 2005,
and a director of each of Garmin Deutschland GmbH and Garmin Deutschland
Verwaltungs GmbH since July 2007. Mr. Etkind holds BA, MA and LLM degrees from
Cambridge University, England and a JD degree from the University of Michigan
Law School.
Brian
J. Pokorny,
age 44,
has been Vice President, Operations of Garmin International, Inc. since 2005.
Previously, he was Director of Operations of Garmin International, Inc. from
1997 to 2005 and Production Planning Manager of Garmin International, Inc.
from
1995 to 1997. Mr. Pokorny holds a BS degree in Business Management and a MBA
from the University of Nebraska - Lincoln and holds the professional
certification of CPIM (Certified in Production and Inventory Management).
Danny
J. Bartel
,
age 58,
has been Vice President, Worldwide Sales of Garmin International, Inc. since
2006. Previously, he was Technical/Survey Sales Manager of Garmin International,
Inc. from 1992 to 1993, Director, Europe, Middle East and Africa of Garmin
(Europe) Ltd. from 1994 to 1999, and Director of Consumer Electronic Sales
of
Garmin International, Inc. from 1999 to 2006. He has been a director of Garmin
(Europe) Ltd. since July 2004. Mr. Bartel holds a B.S. in Electrical Engineering
from South Dakota State University and a B.A. in Management from Central
Michigan University.
Gary
V. Kelley
,
age
61,
has
been
Vice President, Marketing of Garmin International, Inc. since 2005. Previously,
he was Director of Marketing of Garmin International, Inc. from 1992 to 2005.
He
has also been Director of Marketing of Garmin USA, Inc. since January 2002.
Mr.
Kelley was a director of Garmin (Europe) Ltd. from 1993 to 2004. 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 has an employment agreement
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. There is no family relationship among any of the
executive officers. Dr. Min H. Kao is the brother of Ruey-Jeng Kao, who is
a
supervisor of Garmin Corporation, Garmin’s Taiwan subsidiary, who serves as an
ex-officio member of Garmin Corporation’s Board of Directors.
PART
II
Item
5. Market for the Company’s Common Shares, Related Shareholder Matters and
Issuer Purchases of Equity Securities
Garmin’s
common shares have traded on the Nasdaq National Market under the symbol “GRMN”
since its initial public offering on December 8, 2000 (the “IPO”). As of
February 8, 2007, there were 280 shareholders of record.
On
August
15, 2006, a two-for-one stock split of Garmin’s common shares was
effected.
The
range
of high and low closing sales prices of Garmin’s common shares as reported on
the Nasdaq Stock Market for each fiscal quarter of fiscal years 2007 and 2006
was as follows:
|
|
Year
Ended
|
|
|
|
December
29, 2007
|
|
December
30, 2006
|
|
|
|
High
|
|
Low
|
|
High
|
|
Low
|
|
First
Quarter
|
|
$
|
57.66
|
|
$
|
49.19
|
|
$
|
42.39
|
|
$
|
29.75
|
|
Second
Quarter
|
|
$
|
75.03
|
|
$
|
52.69
|
|
$
|
54.75
|
|
$
|
39.97
|
|
Third
Quarter
|
|
$
|
121.14
|
|
$
|
75.18
|
|
$
|
54.10
|
|
$
|
41.20
|
|
Fourth
Quarter
|
|
$
|
123.80
|
|
$
|
82.32
|
|
$
|
56.89
|
|
$
|
44.53
|
|
The
Board
of Directors declared a cash dividend of $0.75 per common share to shareholders
of record on August 15, 2007 which was paid on September 14, 2007. The Board
of
Directors declared a cash dividend of $0.50 per common share to shareholders
of
record on December 1, 2006 which was paid on December 15, 2006. All dividend
amounts and share prices are after giving effect to the August 15, 2006
two-for-one stock split.
Garmin
currently expects to pay a cash dividend in December 2008.
The
Board
of Directors approved a share repurchase program on August 3, 2006, authorizing
the Company to purchase up to 3.0 million shares of Garmin’s common shares as
market and business conditions warrant. The share repurchase authorization
expired on December 31, 2007. 1,155,300 shares were purchased under this
authorization during the fiscal year ended December 30, 2006, and 57,235 shares
were purchased under this authorization during the fiscal year ended December
29, 2007.
|
|
|
|
|
|
Maximum
Number of
|
|
|
|
|
|
|
|
Shares
That May Yet
|
|
|
|
Total
# of
|
|
Average
Price
|
|
Be
Purchased Under
|
|
Period
|
|
Shares
Purchased
|
|
Paid
Per Share
|
|
the
Plans or Programs
|
|
October
2007
|
|
|
-
|
|
|
-
|
|
|
0
|
|
November
2007
|
|
|
57,235
|
|
$
|
89.94
|
|
|
0
|
|
December
2007
|
|
|
-
|
|
|
-
|
|
|
0
|
|
Total
|
|
|
57,235
|
|
$
|
89.94
|
|
|
0
|
|
We
refer
you to Item 12 of this report under the caption “Equity Compensation Plan
Information” for certain equity plan information required to be disclosed by
Item 201(d) of Regulation S-K.
Stock
Performance Graph
This
performance graph shall not be deemed ‘‘filed’’ with the SEC or subject to
Section 18 of the Securities Exchange Act of 1934, nor shall it be deemed
incorporated by reference in any of our filings under the Securities Act of
1933, as amended.
The
following graph illustrates the cumulative total shareholder return (rounded
to
the nearest whole dollar) of Garmin common shares during the period from
December 31, 2002 through December 31, 2007, and compares it to the cumulative
total return on the NASDAQ Composite Index and the NASDAQ 100 Index. Garmin
is
one of the constituent companies of the NASDAQ 100 Index. The comparison assumes
a $100 investment on December 31, 2002, in Garmin common shares and in each
of
the foregoing indexes and assumes reinvestment of dividends.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/02
|
|
12/03
|
|
12/04
|
|
12/05
|
|
12/06
|
|
12/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Garmin
Ltd.
|
|
|
100.00
|
|
|
187.60
|
|
|
211.30
|
|
|
232.50
|
|
|
393.96
|
|
|
691.71
|
|
NASDAQ
Composite
|
|
|
100.00
|
|
|
149.75
|
|
|
164.64
|
|
|
168.60
|
|
|
187.83
|
|
|
205.22
|
|
NASDAQ
100
|
|
|
100.00
|
|
|
147.04
|
|
|
161.38
|
|
|
165.97
|
|
|
182.19
|
|
|
214.88
|
|
The
stock price performance included in this graph is not necessarily indicative
of
future stock price performance.
Item
6. Selected Financial Data
The
following table sets forth selected consolidated financial data of the Company.
The selected consolidated balance sheet data as of December 29, 2007 and
December 30, 2006 and the selected consolidated statement of income data for
the
years ended December 29, 2007, December 30, 2006, and December 31, 2005 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 31, 2005,
December 25, 2004 and December 27, 2003 and the selected consolidated statement
of income data for the years ended December 25, 2004 and December 27, 2003
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 in
Part II of this Form 10-K.
|
|
Years
ended (1)
|
|
|
|
Dec.
29, 2007
|
|
Dec.
30, 2006
|
|
Dec.
31, 2005
|
|
Dec.
25, 2004
|
|
Dec.
27, 2003
|
|
|
|
(in
thousands, except per share data)
|
|
Consolidated
Statements of
|
|
|
|
|
|
|
|
|
|
|
|
Income
Data:
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
3,180,319
|
|
$
|
1,774,000
|
|
$
|
1,027,773
|
|
$
|
762,549
|
|
$
|
572,989
|
|
Cost
of goods sold
|
|
|
1,717,064
|
|
|
891,614
|
|
|
492,703
|
|
|
351,310
|
|
|
242,448
|
|
Gross
profit
|
|
|
1,463,255
|
|
|
882,386
|
|
|
535,070
|
|
|
411,239
|
|
|
330,541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
administrative
|
|
|
396,498
|
|
|
214,513
|
|
|
122,021
|
|
|
78,991
|
|
|
59,835
|
|
Research
and development
|
|
|
159,406
|
|
|
113,314
|
|
|
74,879
|
|
|
61,580
|
|
|
43,706
|
|
Total
operating expenses
|
|
|
555,904
|
|
|
327,827
|
|
|
196,900
|
|
|
140,571
|
|
|
103,541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
907,351
|
|
|
554,559
|
|
|
338,170
|
|
|
270,668
|
|
|
227,000
|
|
Other
income/(expense), net (2), (3)
|
|
|
70,922
|
|
|
39,995
|
|
|
34,430
|
|
|
(15,457
|
)
|
|
(1,057
|
)
|
Income
before income taxes
|
|
|
978,273
|
|
|
594,554
|
|
|
372,600
|
|
|
255,211
|
|
|
225,943
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax provision
|
|
|
123,262
|
|
|
80,431
|
|
|
61,381
|
|
|
49,511
|
|
|
47,309
|
|
Net
income
|
|
$
|
855,011
|
|
$
|
514,123
|
|
$
|
311,219
|
|
$
|
205,700
|
|
$
|
178,634
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income per share: (4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
3.95
|
|
$
|
2.38
|
|
$
|
1.44
|
|
$
|
0.95
|
|
$
|
0.83
|
|
Diluted
|
|
$
|
3.89
|
|
$
|
2.35
|
|
$
|
1.43
|
|
$
|
0.94
|
|
$
|
0.82
|
|
Weighted
average common
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
shares
outstanding: (4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
216,524
|
|
|
216,340
|
|
|
216,294
|
|
|
216,322
|
|
|
216,022
|
|
Diluted
|
|
|
219,875
|
|
|
218,845
|
|
|
218,236
|
|
|
218,060
|
|
|
217,804
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends per share (4)
|
|
$
|
0.75
|
|
$
|
0.50
|
|
$
|
0.25
|
|
$
|
0.25
|
|
$
|
0.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
Sheet Data (at end of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
707,689
|
|
$
|
337,321
|
|
$
|
334,352
|
|
$
|
249,909
|
|
$
|
274,329
|
|
Marketable
securities
|
|
|
424,505
|
|
|
480,876
|
|
|
376,723
|
|
|
322,215
|
|
|
221,447
|
|
Total
assets
|
|
|
3,291,460
|
|
|
1,897,020
|
|
|
1,362,235
|
|
|
1,117,391
|
|
|
856,945
|
|
Total
debt (5)
|
|
|
0
|
|
|
248
|
|
|
0
|
|
|
0
|
|
|
0
|
|
Total
stockholders' equity
|
|
|
2,350,614
|
|
|
1,557,899
|
|
|
1,157,264
|
|
|
935,857
|
|
|
749,690
|
|
(1)
Our
fiscal year-end is the last Saturday of the calendar year and does not
always
fall on December 31.
(2)
Other
income/(expense), net mainly consists of interest income, interest expense
and
foreign currency gain (loss).
(3)
Includes $23.0 million, $0.6 million and $15.3 million for foreign currency
gains in 2007, 2006 and 2005 respectively,
and
$24.8
million and $6.7 million for foreign currency losses in 2004 and 2003
respectively.
(4)
All
prior period common stock and applicable share and per share amounts
have been
retroactively adjusted
to
reflect a 2-for-1 split of the Company's common stock effective August
15,
2006.
(5)
Total
debt consists of notes payable and long-term debt.
Item
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations
The
following discussion and analysis of our financial condition and results of
operations focuses on and is intended to clarify the results of our operations,
certain changes in our financial position, liquidity, capital structure and
business developments for the periods covered by the consolidated financial
statements included in this Form 10-K. This discussion should be read in
conjunction with, and is qualified by reference to, the other related
information including, but not limited to, the audited consolidated financial
statements (including the notes thereto), the description of our business,
all
as set forth in this Form 10-K, as well as the risk factors discussed above
in
Item 1A.
As
previously noted, the discussion set forth below, as well as other portions
of
this Form 10-K, contain statements concerning potential future events. Readers
can identify these forward-looking statements by their use of such verbs as
“expects,” “anticipates,” “believes” or similar verbs or conjugations of such
verbs. If any of our assumptions on which the statements are based prove
incorrect or should unanticipated circumstances arise, our actual results could
materially differ from those anticipated by such forward-looking statements.
The
differences could be caused by a number of factors or combination of factors
including, but not limited to, those discussed above in Item 1A. Readers are
strongly encouraged to consider those factors when evaluating any such
forward-looking statement. We do not undertake to update any forward-looking
statements in this Form 10-K.
Garmin’s
fiscal year is a 52-53 week period ending on the last Saturday of the calendar
year. Fiscal year 2005 contained 53 weeks compared to 52 weeks for fiscal years
2007, 2006, 2004, and 2003. 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.
Unless
otherwise indicated, dollar amounts set forth in the tables are in thousands,
except per share data.
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 four business segments, which serve the marine,
outdoor/fitness, automotive/mobile, and aviation markets. Our segments offer
products through our network of independent dealers and distributors. However,
the nature of products and types of customers for the four segments can vary
significantly. As such, the segments are managed separately. Our portable GPS
receivers and accessories for marine, recreation/fitness and automotive/mobile
segments are 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 54% since 2003 and our
net
income has increased at a compounded annual growth rate of 48% since 2003.
The
vast majority of this growth has been organic; only a very small amount of
new
revenue occurred as a result of the acquisition of UPS Aviation Technologies,
Inc. in 2003, MotionBased Technologies LLC in 2005, Dynastream Innovations
Inc.
in 2006, Digital Cyclone, Inc. and the assets of Nautamatic Marine Systems,
Inc.
in 2007, and four European distributors in 2007 - Garmin France SAS, Garmin
Deutschland GmbH, Garmin Iberia S.A., and Garmin Italia S.p.A.; these
acquisitions had no significant impact on net income for those
years.
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 Euro (effective July 2007) and the
functional currency of our Asian operations is the New Taiwan Dollar.
Approximately 80 percent of transactions of our European operations are now
denominated in British Pounds Sterling or the Euro. We experienced $23.0
million, $0.6 million, $15.3 million, ($24.8) million, and ($6.7) million in
foreign currency gains (losses) during fiscal years 2007, 2006, 2005, 2004,
and
2003, respectively. To date, we have not entered into hedging transactions
with
the Euro, the British Pound Sterling, the Canadian dollar, or the New Taiwan
Dollar, although we may utilize hedging transactions in the future.
Critical
Accounting Policies and Estimates
General
Garmin’s
discussion and analysis of its financial condition and results of operations
are
based upon Garmin’s consolidated financial statements, which have been prepared
in accordance with accounting principles generally accepted in the United
States. The presentation of these financial statements requires Garmin to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and
liabilities. On an on-going basis, Garmin evaluates its estimates, including
those related to customer sales programs and incentives, product returns, bad
debts, inventories, investments, intangible assets, income taxes, warranty
obligations, and contingencies and litigation. Garmin bases its estimates on
historical experience and on various other assumptions that are believed to
be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying value of assets and liabilities that are
not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
Revenue
Recognition
Garmin
records estimated reductions to revenue for customer sales programs returns
and
incentive offerings including rebates, price protection (product discounts
offered to retailers to assist in clearing older products from their inventories
in advance of new product releases), promotions and other volume-based
incentives. The reductions to revenue are based on estimates and judgments
using
historical experience and expectation of future conditions. Changes in these
estimates could negatively affect Garmin’s operating results. These incentives
are reviewed periodically and, with the exceptions of price protection, are
accrued for on a percentage of sales basis. If market conditions were to
decline, Garmin may take actions to increase customer incentive offerings
possibly resulting in an incremental reduction of revenue at the time the
incentive is offered.
Warranties
Garmin’s
products sold are generally covered by a warranty for periods ranging from
one
to two years. Garmin accrues a warranty reserve for estimated costs to provide
warranty services. Garmin’s estimate of costs to service its warranty
obligations is based on historical experience and expectation of future
conditions. To the extent Garmin experiences increased warranty claim activity
or increased costs associated with servicing those claims, its warranty accrual
will increase, resulting in decreased gross profit.
Inventory
Garmin
writes down its inventory for estimated obsolescence or unmarketable inventory
equal to the difference between the cost of inventory and the estimated market
value based upon assumptions about future demand and market conditions. If
actual market conditions are less favorable than those projected by management,
additional inventory write-downs may be required.
Investments
Investments
are classified as available for sale and recorded at fair value, and unrealized
investment gains and losses are reflected in stockholders’ equity. Investment
income is recorded when earned, and capital gains and losses are recognized
when
investments are sold. Investments are reviewed periodically to determine if
they
have suffered an impairment of value that is considered other than temporary.
If
investments are determined to be impaired, a capital loss is recognized at
the
date of determination.
Testing
for impairment of investments also requires significant management judgment.
The
identification of potentially impaired investments, the determination of their
fair value and the assessment of whether any decline in value is other than
temporary are the key judgment elements. The discovery of new information and
the passage of time can significantly change these judgments. Revisions of
impairment judgments are made when new information becomes known, and any
resulting impairment adjustments are made at that time. The economic environment
and volatility of securities markets increase the difficulty of determining
fair
value and assessing investment impairment.
Income
Taxes
Garmin
provides deferred tax assets and liabilities based on the difference between
the
tax basis 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. While no valuation
allowance has been recorded, it is Garmin’s policy to record a valuation
allowance to reduce its deferred tax assets to an amount that it believes is
more likely than not to be realized. While Garmin has considered future taxable
income and ongoing prudent and feasible tax planning strategies in assessing
the
need for the valuation allowance, in the event Garmin were to determine that
it
would not be able to realize all or part of its net deferred tax assets in
the
future, an adjustment to the deferred tax assets would be charged to income
in
the period such determination was made. Likewise, should Garmin determine that
it would be able to realize its deferred tax assets in the future in excess
of
its net recorded amount, an adjustment to the deferred tax assets would increase
income in the period such determination was made.
In
addition, the calculation of our tax liabilities involves dealing with
uncertainties in the application of complex tax regulations. We recognize
liabilities for tax audit issues in the U.S. and other tax jurisdictions based
on our estimate of whether, and the extent to which, additional taxes will
be
due. If payment of these amounts ultimately proves to be unnecessary, the
reversal of the liabilities would result in tax benefits being recognized in
the
period when we determine the liabilities are no longer necessary. If our
estimate of tax liabilities proves to be less than the ultimate assessment,
a
further charge to expense would result.
Stock
Based Compensation
Garmin
distributes stock options or stock appreciation rights (“SARs”) each year as
part of Garmin’s compensation package for employees. Employees with certain
levels of responsibility within Garmin are eligible for stock option or SAR
grants, but the granting of options or SARs is at the discretion of the
Compensation Committee of the Board of Directors and is not a contractual
obligation. Stock compensation plans are discussed in detail in Note 10 of
the
Notes to Consolidated Financial Statements.
Accounting
Terms and Characteristics
Net
Sales
Our
net
sales are primarily generated through sales to our global dealer and distributor
network and to original equipment manufacturers. We recognize sales when title
of the products passes to the customer. 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
Raw
material costs are our most significant component of cost of goods sold. In
the
first half of 2007, we experienced favorable product mix and product pricing,
which allowed us to hold margins in our automotive/mobile segment steady; margin
declines in the second half of 2007 were primarily a result of average selling
price declines, coupled with raw materials price increases, most notably the
costs for flash memory, in late second quarter and through the third quarter
of
2007 when we were purchasing these components for our holiday production runs,
resulting in margin declines as these components were sold, primarily in the
fourth quarter of 2007. In the first half of 2006, we experienced meaningful
price declines on flash memory and color screens, which allowed us to hold
margins in our automotive/mobile segment steady in the face of price declines,
and allowed us to improve margins in other business segments as well. While
these price declines did not continue throughout all of 2006, we did have
additional component cost reductions as we neared year end. In 2005 we
experienced a shift in product mix to lower-margin product groups, which
continued in 2006, and price declines related to increased competition, both
in
relation to the rapidly growing automotive navigation product line.
Our
existing practice of performing the design and manufacture of our products
in-house has enabled us to utilize alternative lower cost components from
different suppliers and, where possible, to redesign our products to permit
us
to use these lower cost components. We believe that because of our practice
of
performing the design, manufacture and marketing of our products in-house,
our
Shijr, Taiwan, Jhongli, Taiwan, Lin-Kou, Taiwan, Olathe, Kansas, and Salem,
Oregon manufacturing plants have experienced relatively low costs of
manufacturing. 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 and Salem.
Sales
price variability has had and can be expected to have an effect on our gross
profit. In the past, prices of our devices sold into the automotive/mobile
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 product mix and the introduction of more advanced products
sold at higher prices. 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.
|
With
the
expected increase of total revenues in the future, we expect selling, general
and administrative expenses to continue to increase for the foreseeable future.
We intend to increase advertising and marketing expenses in order to focus
on
individual markets and build increased brand awareness in the consumer
marketplace, especially as we continue to develop new markets and expand
opportunities in rapidly growing markets like portable automobile navigation,
which is becoming a mass market. We also intend to increase our customer call
center support as our business continues to grow. We also anticipate increased
selling, general, and administrative costs associated with information
technology staffing and support activities.
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.
Approximately 87% of the research and development of our products is performed
in the United States. The remainder of our research and development activities
are performed by our Taiwan engineering group, which has increased in size
in
recent years.
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 in absolute terms.
Customers
No
customer accounted for 10% or more of our sales in the year ended December
29,
2007. Our top ten customers have contributed between 25% and 41% of net sales
since 2002. We have experienced average sales days in our customer accounts
receivable of between 38 and 62 days since 2002. We have experienced an increase
in the level of customer accounts receivable days due to changes in product
mix
and longer payment terms, and anticipate maintaining approximately the current
level of accounts receivable days going forward.
Income
Taxes
We
have
experienced a relatively low effective corporate tax rate due to the proportion
of our revenue generated by entities in tax jurisdictions with low statutory
rates. In particular, lower marginal tax rates and substantial tax incentives
offered by the Taiwanese government on certain high-technology capital
investments, and other Taiwan tax credits due to repatriation of 2007 earnings
have continued to reduce our tax rate there. 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 12.6% during
2007.
We have taken advantage of the tax benefit in Taiwan since our inception and
we
expect to continue to benefit from lower effective tax rates at least through
2012. The current Taiwan tax incentives for which Garmin has received approval
will end in 2012. We plan on applying for additional incentives for years beyond
2012 based on capital investments we expect to make in the future. However,
there can be no assurance that such tax incentives will be available
indefinitely or that we will receive the incentives for which we apply.
Management also believes that the revenue shift to our lower-tax rate corporate
entities will continue, however certain tax credits will not be available in
2008, so the effective tax rate for fiscal 2008 is expected to be slightly
higher than fiscal 2007. The actual effective tax rate will be dependent upon
the production volume, additional capital investments made during fiscal 2008,
and the composition of our earnings.
Results
of Operations
The
following table sets forth our results of operations as a percentage of net
sales during the periods shown:
|
|
Fiscal
Years Ended
|
|
|
|
Dec.
29,
|
|
Dec.
30,
|
|
Dec.
31,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
Net
sales
|
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
Cost
of goods sold
|
|
|
54.0
|
%
|
|
50.3
|
%
|
|
47.9
|
%
|
Gross
profit
|
|
|
46.0
|
%
|
|
49.7
|
%
|
|
52.1
|
%
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative
|
|
|
12.5
|
%
|
|
12.1
|
%
|
|
11.9
|
%
|
Research
and development
|
|
|
5.0
|
%
|
|
6.4
|
%
|
|
7.3
|
%
|
Total
operating expenses
|
|
|
17.5
|
%
|
|
18.5
|
%
|
|
19.2
|
%
|
Operating
income
|
|
|
28.5
|
%
|
|
31.2
|
%
|
|
32.9
|
%
|
Other
income / (expense) , net
|
|
|
2.2
|
%
|
|
2.3
|
%
|
|
3.3
|
%
|
Income
before income taxes
|
|
|
30.7
|
%
|
|
33.5
|
%
|
|
36.2
|
%
|
Provision
for income taxes
|
|
|
3.9
|
%
|
|
4.5
|
%
|
|
6.0
|
%
|
Net
income
|
|
|
26.8
|
%
|
|
29.0
|
%
|
|
30.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
The
following table sets forth our results of operations through income before
income taxes for each of our four segments during the period shown. For each
line item in the table the total of the segments’ amounts equals the amount in
the consolidated statements of income data included in Item 6.
|
|
Outdoor/
|
|
|
|
Automotive/
|
|
|
|
Fiscal
year ended December 29, 2007
|
|
Fitness
|
|
Marine
|
|
Mobile
|
|
Aviation
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
339,741
|
|
$
|
203,399
|
|
$
|
2,342,184
|
|
$
|
294,995
|
|
Cost
of goods sold
|
|
|
155,086
|
|
|
93,230
|
|
|
1,368,979
|
|
|
99,769
|
|
Gross
profit
|
|
|
184,655
|
|
|
110,169
|
|
|
973,205
|
|
|
195,226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
|
|
41,119
|
|
|
25,914
|
|
|
305,065
|
|
|
24,400
|
|
Research
and development
|
|
|
23,302
|
|
|
16,879
|
|
|
59,390
|
|
|
59,835
|
|
Total
expenses
|
|
|
64,421
|
|
|
42,793
|
|
|
364,455
|
|
|
84,235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
120,234
|
|
|
67,376
|
|
|
608,750
|
|
|
110,991
|
|
Other
income / (expense), net
|
|
|
7,570
|
|
|
4,544
|
|
|
56,392
|
|
|
2,416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
$
|
127,804
|
|
$
|
71,920
|
|
$
|
665,142
|
|
$
|
113,407
|
|
|
|
Outdoor/
|
|
|
|
Automotive/
|
|
|
|
Fiscal
year ended December 30, 2006
|
|
Fitness
|
|
Marine
|
|
Mobile
|
|
Aviation
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
285,362
|
|
$
|
166,639
|
|
$
|
1,089,093
|
|
$
|
232,906
|
|
Cost
of goods sold
|
|
|
121,724
|
|
|
73,687
|
|
|
613,902
|
|
|
82,301
|
|
Gross
profit
|
|
|
163,638
|
|
|
92,952
|
|
|
475,191
|
|
|
150,605
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
|
|
30,176
|
|
|
19,307
|
|
|
145,113
|
|
|
19,917
|
|
Research
and development
|
|
|
16,697
|
|
|
13,121
|
|
|
37,125
|
|
|
46,371
|
|
Total
expenses
|
|
|
46,873
|
|
|
32,428
|
|
|
182,238
|
|
|
66,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
116,765
|
|
|
60,524
|
|
|
292,953
|
|
|
84,317
|
|
Other
income / (expense), net
|
|
|
4,140
|
|
|
4,563
|
|
|
29,468
|
|
|
1,824
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
$
|
120,905
|
|
$
|
65,087
|
|
$
|
322,421
|
|
$
|
86,141
|
|
|
|
Outdoor/
|
|
|
|
Automotive/
|
|
|
|
Fiscal
year ended December 31, 2005
|
|
Fitness
|
|
Marine
|
|
Mobile
|
|
Aviation
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
236,936
|
|
$
|
158,262
|
|
$
|
403,417
|
|
$
|
229,158
|
|
Cost
of goods sold
|
|
|
112,145
|
|
|
77,311
|
|
|
225,779
|
|
|
77,468
|
|
Gross
profit
|
|
|
124,791
|
|
|
80,951
|
|
|
177,638
|
|
|
151,690
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
|
|
25,675
|
|
|
19,382
|
|
|
55,125
|
|
|
21,839
|
|
Research
and development
|
|
|
14,873
|
|
|
8,137
|
|
|
17,466
|
|
|
34,403
|
|
Total
expenses
|
|
|
40,548
|
|
|
27,519
|
|
|
72,591
|
|
|
56,242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
84,243
|
|
|
53,432
|
|
|
105,047
|
|
|
95,448
|
|
Other
income / (expense), net
|
|
|
6,694
|
|
|
3,188
|
|
|
20,492
|
|
|
4,056
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
$
|
90,937
|
|
$
|
56,620
|
|
$
|
125,539
|
|
$
|
99,504
|
|
Comparison
of Fiscal Years Ended December 29, 2007 and December 30, 2006
Net
Sales
|
|
Fiscal
year ended December 29, 2007
|
|
Fiscal
year ended December 30, 2006
|
|
Year
over Year
|
|
|
|
Net
Sales
|
|
%
of Revenues
|
|
Net
Sales
|
|
%
of Revenues
|
|
$
Change
|
|
%
Change
|
|
Outdoor/Fitness
|
|
$
|
339,741
|
|
|
10.7
|
%
|
$
|
285,362
|
|
|
16.1
|
%
|
$
|
54,379
|
|
|
19.1
|
%
|
Marine
|
|
|
203,399
|
|
|
6.4
|
%
|
|
166,639
|
|
|
9.4
|
%
|
|
36,760
|
|
|
22.1
|
%
|
Automotive/Mobile
|
|
|
2,342,184
|
|
|
73.6
|
%
|
|
1,089,093
|
|
|
61.4
|
%
|
|
1,253,091
|
|
|
115.1
|
%
|
Aviation
|
|
|
294,995
|
|
|
9.3
|
%
|
|
232,906
|
|
|
13.1
|
%
|
|
62,089
|
|
|
26.7
|
%
|
Total
|
|
$
|
3,180,319
|
|
|
100.0
|
%
|
$
|
1,774,000
|
|
|
100.0
|
%
|
$
|
1,406,319
|
|
|
79.3
|
%
|
The
increase in total net sales during fiscal 2007 was primarily due to the
introduction of over 60 new products and overall demand for our automotive
products. The aviation, marine, and outdoor/fitness segments also experienced
solid growth in 2007. Total units sold increased 128% to 12,300,000 in 2007
from
5,400,000 in 2006. In general, management believes that continuous innovation
and the introduction of new products are essential for future revenue
growth.
The
increase in net sales to consumers was primarily due to the introduction of
many
new automotive, outdoor/fitness, and marine products, strong demand for our
automotive products, and solid demand for our aviation, marine, and
outdoor/fitness products. It is management’s belief that the continued demand
for the Company’s automotive products is due to overall increased consumer
awareness of the capabilities and applications of GPS, particularly as those
capabilities pertain to automobile navigation. Additionally, the expansion
of
the GPS market in general, as well as enhanced feature sets in our products
specifically, have added to our growth. Innovative new product offerings,
enhanced cartography, rich feature sets, and products featuring high sensitivity
GPS capabilities increased sales of our marine and outdoor fitness segments.
The
increase in aviation sales for fiscal 2007 was primarily due to increased sales
from panel mount products sold into the OEM (original equipment manufacturers)
and retrofit markets. Sales of the G1000 integrated glass cockpit were the
primary reason for increased OEM sales in 2006. While Temporary Flight
Restrictions (TFR's) continue to impact general aviation, the flying community
is adapting to these changes and returning to the skies in greater numbers.
Should the FAA impose more restrictions, or elect to shutdown U.S. airspace
in
the future, these factors could have a material adverse effect on our business.
Gross
Profit
|
|
Fiscal
year ended December 29, 2007
|
|
Fiscal
year ended December 30, 2006
|
|
Year
over Year
|
|
|
|
Gross
Profit
|
|
%
of Revenues
|
|
Gross
Profit
|
|
%
of Revenues
|
|
$
Change
|
|
%
Change
|
|
Outdoor/Fitness
|
|
$
|
184,655
|
|
|
54.4
|
%
|
$
|
163,638
|
|
|
57.3
|
%
|
$
|
21,017
|
|
|
12.8
|
%
|
Marine
|
|
|
110,169
|
|
|
54.2
|
%
|
|
92,952
|
|
|
55.8
|
%
|
|
17,217
|
|
|
18.5
|
%
|
Automotive/Mobile
|
|
|
973,205
|
|
|
41.6
|
%
|
|
475,191
|
|
|
43.6
|
%
|
|
498,014
|
|
|
104.8
|
%
|
Aviation
|
|
|
195,226
|
|
|
66.2
|
%
|
|
150,605
|
|
|
64.7
|
%
|
|
44,621
|
|
|
29.6
|
%
|
Total
|
|
$
|
1,463,255
|
|
|
46.0
|
%
|
$
|
882,386
|
|
|
49.7
|
%
|
$
|
580,869
|
|
|
65.8
|
%
|
The
increase in gross profit dollars was primarily attributable to the introduction
of over 60 new products and strong demand for our automotive and outdoor/fitness
products. The reduction in gross margin percentage was primarily due to the
strong growth experienced in our lower-margin automotive/mobile product line,
offset to some extent by strong gross margins in our other three segments.
Notably gross margin in our automotive/mobile segment did not fall as much
as
anticipated due to volume discounts on certain components, less price
competition than anticipated, and new “premium” feature-rich products with
higher selling prices and margins. Management believes that the trend to lower
gross margin percentages will continue in the future as net sales of automotive
products increase at a faster rate than the other business segments. The rise
in
aviation gross margin was primarily due to a shift in product mix within our
OEM
and retrofit products. The decline in gross margin in the outdoor/fitness and
marine segments was primarily due to a shift in product mix.
Selling,
General and Administrative Expenses
|
|
Fiscal
year ended December 29, 2007
|
|
Fiscal
year ended December 30, 2006
|
|
|
|
|
|
Selling,
General &
Admin. Expenses
|
|
%
of Revenues
|
|
Selling,
General &
Admin. Expenses
|
|
%
of Revenues
|
|
$
Change
|
|
%
Change
|
|
Outdoor/Fitness
|
|
$
|
41,119
|
|
|
12.1
|
%
|
$
|
30,176
|
|
|
10.6
|
%
|
$
|
10,943
|
|
|
36.3
|
%
|
Marine
|
|
|
25,914
|
|
|
12.7
|
%
|
|
19,307
|
|
|
11.6
|
%
|
|
6,607
|
|
|
34.2
|
%
|
Automotive/Mobile
|
|
|
305,065
|
|
|
13.0
|
%
|
|
145,113
|
|
|
13.3
|
%
|
|
159,952
|
|
|
110.2
|
%
|
Aviation
|
|
|
24,400
|
|
|
8.3
|
%
|
|
19,917
|
|
|
8.6
|
%
|
|
4,483
|
|
|
22.5
|
%
|
Total
|
|
$
|
396,498
|
|
|
12.5
|
%
|
$
|
214,513
|
|
|
12.1
|
%
|
$
|
181,985
|
|
|
84.8
|
%
|
The
increase in expense was primarily attributable to increases in employment
generally across the organization, significantly increased advertising costs
(up
80%) associated primarily with mass-market advertising to increase brand
awareness and promote our automotive products, increased information technology
staffing and support costs, increased staffing in our sales and marketing group
to increase focus on specific target markets, and additional staffing in our
customer call center. Management expects that because of strong demand for
our
products, selling, general and administrative expenses will rise in absolute
dollars but decline as a percentage of sales during fiscal 2008 as increased
advertising and marketing activities build awareness of the Garmin brand and
demand for Garmin products worldwide.
Research
and Development Expenses
|
|
Fiscal
year ended December 29, 2007
|
|
Fiscal
year ended December 30, 2006
|
|
Year
over Year
|
|
|
|
Research
& Development
|
|
%
of Revenues
|
|
Research
& Development
|
|
%
of Revenues
|
|
$
Change
|
|
%
Change
|
|
Outdoor/Fitness
|
|
$
|
23,302
|
|
|
6.9
|
%
|
$
|
16,697
|
|
|
5.9
|
%
|
$
|
6,605
|
|
|
39.6
|
%
|
Marine
|
|
|
16,879
|
|
|
8.3
|
%
|
|
13,121
|
|
|
7.9
|
%
|
|
3,758
|
|
|
28.6
|
%
|
Automotive/Mobile
|
|
|
59,390
|
|
|
2.5
|
%
|
|
37,125
|
|
|
3.4
|
%
|
|
22,265
|
|
|
60.0
|
%
|
Aviation
|
|
|
59,835
|
|
|
20.3
|
%
|
|
46,371
|
|
|
19.9
|
%
|
|
13,464
|
|
|
29.0
|
%
|
Total
|
|
$
|
159,406
|
|
|
5.0
|
%
|
$
|
113,314
|
|
|
6.4
|
%
|
$
|
46,092
|
|
|
40.7
|
%
|
The
increase in research and development expense was primarily attributable to
the
addition of over 400 associates to our research and development team during
fiscal 2007. Management believes that one of the key strategic initiatives
for
future growth and success of Garmin is continuous innovation, development,
and
introduction of new products. Management expects that its research and
development expenses will increase approximately 30%-35% during fiscal 2008
on
an absolute dollar basis due to the anticipated introduction of a strong
portfolio of new products slated for fiscal 2008. Management expects to continue
to invest in the research and development of new products and technology in
order to maintain Garmin’s competitive advantage in the markets in which it
competes.
Other
Income (Expense)
|
|
Fiscal
year ended
|
|
Fiscal
year ended
|
|
|
|
December
29, 2007
|
|
December
30, 2006
|
|
Interest
income
|
|
$
|
41,995
|
|
$
|
35,897
|
|
Interest
expense
|
|
|
(207
|
)
|
|
(41
|
)
|
Foreign
currency gain
|
|
|
22,964
|
|
|
596
|
|
Other
|
|
|
6,170
|
|
|
3,543
|
|
Total
|
|
$
|
70,922
|
|
$
|
39,995
|
|
Other
income (expense) principally consists of interest income, interest expense
and
foreign currency exchange gains and losses. Other income (expense) was higher
in
fiscal 2007 relative to fiscal 2006, with the majority of this difference caused
by increased interest income and a large foreign currency gain in 2007. Interest
income for fiscal 2007 increased due to higher interest rates and larger cash
and marketable securities balances during the year, increasing the returns
on
the Company’s cash and cash equivalents.
Foreign
currency gains and losses for the Company in 2007 were primarily tied to
movements by the Taiwan Dollar, the Euro, and the British Pound Sterling. The
U.S. Dollar remains the functional currency of Garmin (Europe) Ltd. The Euro
Dollar is the functional currency of Garmin France, Garmin Deutschland, Garmin
Iberia, and Garmin Italia. As these entities grow, Euro currency moves will
generate material gains and losses. Additionally, Euro-based inter-company
transactions between Garmin Ltd. and its subsidiaries can also generate currency
gains and losses. The Canadian dollar is the functional currency of Dynastream
Innovations, Inc.; due to this entity’s relative size, its currency moves do not
have a material impact on the Company’s financial statements.
The
majority of the $23.0 million currency gain in fiscal 2007 was due to the
weakening of the U.S. Dollar compared to the Euro and the British Pound
Sterling. During fiscal 2007, the Taiwan Dollar weakened relative to the U.S.
Dollar, resulting in a $2.5 million loss. The British Pound Sterling and the
Euro strengthened 2% and 11.4% respectively, relative to the U.S. Dollar during
fiscal 2007, which resulted in a $25.6 million gain. Other net currency gains
and the timing of transactions created the remaining loss of $0.1
million.
Foreign
currency gains and losses for the Company in 2006 were primarily tied to
movements by the Taiwan Dollar and the British Pound Sterling relative to the
U.S. Dollar. The U.S. dollar weakened when compared to the Taiwan Dollar during
fiscal 2006, creating a $3.0 million loss, which was offset almost entirely
by a
$4.5 million gain as a result of strengthening in the U.S. Dollar relative
to
the British Pound Sterling. Other net currency gains and the timing of
transactions created the remaining loss of $0.9 million.
Income
Tax Provision
Income
tax expense increased by $42.9 million, to $123.3 million, for fiscal year
2007
from $80.4 million for fiscal year 2006, due to our higher taxable income.
The
effective tax rate was 12.6% for fiscal 2007 versus 13.5% for fiscal 2006.
The
decrease in tax rate is due to additional tax benefits received from Taiwan
as a
result of our continued capital investment in our manufacturing facilities
in
Taiwan, tax credits resulting from our decision to repatriate certain of our
Taiwan earnings to our parent company, and the increased contribution to our
income from lower tax jurisdictions during 2007 relative to 2006. This lower
effective tax rate resulted in a decrease in the ratio of income tax as a
percentage of revenue of approximately 0.7% from fiscal 2006 to fiscal
2007.
Net
Income
As
a
result of the various factors noted above, net income increased 66% to $855.0
million for fiscal year 2007 compared to $514.1 million for fiscal year
2006.
Comparison
of Fiscal Years Ended December 30, 2006 and December 31, 2005
Net
Sales
|
|
Fiscal
year ended December 30, 2006
|
|
Fiscal
year ended December 31, 2005
|
|
Year
over Year
|
|
|
|
Net
Sales
|
|
%
of Revenues
|
|
Net
Sales
|
|
%
of Revenues
|
|
$
Change
|
|
%
Change
|
|
Outdoor/Fitness
|
|
$
|
285,362
|
|
|
16.1
|
%
|
$
|
236,936
|
|
|
23.1
|
%
|
$
|
48,426
|
|
|
20.4
|
%
|
Marine
|
|
|
166,639
|
|
|
9.4
|
%
|
|
158,262
|
|
|
15.4
|
%
|
|
8,377
|
|
|
5.3
|
%
|
Automotive/Mobile
|
|
|
1,089,093
|
|
|
61.4
|
%
|
|
403,417
|
|
|
39.2
|
%
|
|
685,676
|
|
|
170.0
|
%
|
Aviation
|
|
|
232,906
|
|
|
13.1
|
%
|
|
229,158
|
|
|
22.3
|
%
|
|
3,748
|
|
|
1.6
|
%
|
Total
|
|
$
|
1,774,000
|
|
|
100.0
|
%
|
$
|
1,027,773
|
|
|
100.0
|
%
|
$
|
746,227
|
|
|
72.6
|
%
|
The
increase in total net sales during fiscal 2006 was primarily due to the
introduction of over 70 new products and overall demand for our automotive
and
outdoor/fitness products. Total units sold increased 78% to 5,400,000 in 2006
from 3,028,000 in 2005.
Garmin’s
revenues are normally seasonal, with the fiscal second and fourth quarter
revenues being meaningfully higher than the first and third fiscal quarters.
In
2006 revenues followed this typical seasonal pattern, with increases each
quarter over the prior year’s quarter due to the impact of new product releases
across all product lines. The revenue increase in the second quarter was
primarily attributable to sell-in of popular new portable automobile navigation
and outdoor/fitness products and Father’s Day/graduation purchases. The revenue
increase in the fourth quarter was primarily attributable to late summer new
product releases and sales associated with the traditional holiday selling
season.
The
increase in net sales to consumers was primarily due to the introduction of
many
new automotive, outdoor/fitness, and marine products and overall demand for
our
automotive and outdoor/fitness products. It is management’s belief that the
continued demand for the Company’s automotive products is due to overall
increased consumer awareness of the capabilities and applications of GPS,
particularly as those capabilities pertain to automobile navigation.
Additionally, the expansion of the GPS market in general, as well as enhanced
feature sets in our products specifically, have added to our growth. The
increase in aviation sales for fiscal 2006 was primarily due to increased sales
from panel mount products sold into the OEM (original equipment manufacturers)
and retrofit markets. Sales of the G1000 integrated glass cockpit were the
primary reason for increased OEM sales in 2006.
Gross
Profit
|
|
Fiscal
year ended December 30, 2006
|
|
Fiscal
year ended December 31, 2005
|
|
Year
over Year
|
|
|
|
Gross
Profit
|
|
%
of Revenues
|
|
Gross
Profit
|
|
%
of Revenues
|
|
$
Change
|
|
%
Change
|
|
Outdoor/Fitness
|
|
$
|
163,638
|
|
|
57.3
|
%
|
$
|
124,791
|
|
|
52.7
|
%
|
$
|
38,847
|
|
|
31.1
|
%
|
Marine
|
|
|
92,952
|
|
|
55.8
|
%
|
|
80,951
|
|
|
51.2
|
%
|
|
12,001
|
|
|
14.8
|
%
|
Automotive/Mobile
|
|
|
475,191
|
|
|
43.6
|
%
|
|
177,638
|
|
|
44.0
|
%
|
|
297,553
|
|
|
167.5
|
%
|
Aviation
|
|
|
150,605
|
|
|
64.7
|
%
|
|
151,690
|
|
|
66.2
|
%
|
|
(1,085
|
)
|
|
-0.7
|
%
|
Total
|
|
$
|
882,386
|
|
|
49.7
|
%
|
$
|
535,070
|
|
|
52.1
|
%
|
$
|
347,316
|
|
|
64.9
|
%
|
The
increase
in gross profit dollars was primarily attributable to the introduction of over
70 new products and strong demand for our automotive and outdoor/fitness
products. The reduction in gross margin percentage was primarily due to the
strong growth experienced in our lower-margin automotive/mobile product line,
offset to some extent by strong gross margins in our other three segments.
Notably gross margin in our automotive/mobile segment did not fall as much
as
anticipated due to better than anticipated raw material cost reductions, volume
discounts on certain components, less price competition than anticipated, and
new “premium” feature-rich products with higher selling prices and margins.
Management believes that the trend to lower gross margin percentages will
continue in the future as net sales of automotive products increase at a faster
rate than the other business segments. The decline in aviation gross margin
was
primarily due to a shift in product mix within our OEM and retrofit products
and
the delay of some anticipated OEM and retrofit products.
Selling,
General and Administrative Expenses
|
|
Fiscal
year ended December 30, 2006
|
|
Fiscal
year ended December 31, 2005
|
|
|
|
|
|
Selling,
General &
Admin. Expenses
|
|
%
of Revenues
|
|
Selling,
General &
Admin. Expenses
|
|
%
of Revenues
|
|
$
Change
|
|
%
Change
|
|
Outdoor/Fitness
|
|
$
|
30,176
|
|
|
10.6
|
%
|
$
|
25,675
|
|
|
10.8
|
%
|
$
|
4,501
|
|
|
17.5
|
%
|
Marine
|
|
|
19,307
|
|
|
11.6
|
%
|
|
19,382
|
|
|
12.2
|
%
|
|
(75
|
)
|
|
-0.4
|
%
|
Automotive/Mobile
|
|
|
145,113
|
|
|
13.3
|
%
|
|
55,125
|
|
|
13.7
|
%
|
|
89,988
|
|
|
163.2
|
%
|
Aviation
|
|
|
19,917
|
|
|
8.6
|
%
|
|
21,839
|
|
|
9.5
|
%
|
|
(1,922
|
)
|
|
-8.8
|
%
|
Total
|
|
$
|
214,513
|
|
|
12.1
|
%
|
$
|
122,021
|
|
|
11.9
|
%
|
$
|
92,492
|
|
|
75.8
|
%
|
The
increase in expense was primarily attributable to increases in employment
generally across the organization, significantly increased advertising costs
(up
93%) associated primarily with mass-market advertising to increase brand
awareness and promote our automotive products, increased information technology
staffing and support costs, increased staffing in our sales and marketing group
to increase focus on specific target markets, and additional staffing in our
customer call center.
Research
and Development Expenses
|
|
Fiscal
year ended December 30, 2006
|
|
Fiscal
year ended December 31, 2005
|
|
Year
over Year
|
|
|
|
Research
& Development
|
|
%
of Revenues
|
|
Research
& Development
|
|
%
of Revenues
|
|
$
Change
|
|
%
Change
|
|
Outdoor/Fitness
|
|
$
|
16,697
|
|
|
5.9
|
%
|
$
|
14,873
|
|
|
6.3
|
%
|
$
|
1,824
|
|
|
12.3
|
%
|
Marine
|
|
|
13,121
|
|
|
7.9
|
%
|
|
8,137
|
|
|
5.1
|
%
|
|
4,984
|
|
|
61.2
|
%
|
Automotive/Mobile
|
|
|
37,125
|
|
|
3.4
|
%
|
|
17,466
|
|
|
4.3
|
%
|
|
19,659
|
|
|
112.6
|
%
|
Aviation
|
|
|
46,371
|
|
|
19.9
|
%
|
|
34,403
|
|
|
15.0
|
%
|
|
11,968
|
|
|
34.8
|
%
|
Total
|
|
$
|
113,314
|
|
|
6.4
|
%
|
$
|
74,879
|
|
|
7.3
|
%
|
$
|
38,435
|
|
|
51.3
|
%
|
The
increase in research and development expense was primarily attributable to
the
addition of over 250 associates to our research and development team during
fiscal 2006. A key strategic initiative for future growth and success of Garmin
is continuous innovation, development, and introduction of new products, which
was facilitated by these additions to research and development staff.
Other
Income (Expense)
|
|
Fiscal
year ended
|
|
Fiscal
year ended
|
|
|
|
December
30, 2006
|
|
December
31, 2005
|
|
Interest
income
|
|
$
|
35,897
|
|
$
|
19,586
|
|
Interest
expense
|
|
|
(41
|
)
|
|
(48
|
)
|
Foreign
currency gain
|
|
|
596
|
|
|
15,265
|
|
Other
|
|
|
3,543
|
|
|
(373
|
)
|
Total
|
|
$
|
39,995
|
|
$
|
34,430
|
|
Other
income (expense) principally consists of interest income, interest expense
and
foreign currency exchange gains and losses. Other income (expense) was higher
in
fiscal 2006 relative to fiscal 2005, with the majority of this difference caused
by increased interest income in 2006. Interest income for fiscal 2006 increased
due to higher interest rates and larger cash and marketable securities balances
during the year, increasing the returns on the Company’s cash and cash
equivalents.
During
fiscal 2006, the Company experienced foreign currency exchange gains of $0.6
million, although the U.S. Dollar weakened slightly versus the Taiwan Dollar
and
British Pound ($32.60 TD/USD and $0.51 GBP/USD) relative to the end of fiscal
2005 ($32.84 TD/USD and $0.58 GBP/USD). During fiscal 2005, the Company
experienced foreign currency exchange gains of $15.3 million, as the U.S. Dollar
strengthened versus the Taiwan Dollar and British Pound ($32.84 TD/USD and
$0.58
GBP/USD) relative to the end of fiscal 2004 (32.19 TD/USD and $0.52
GBP/USD).
Income
Tax Provision
Income
tax expense increased by $19.0 million, to $80.4 million, for fiscal year 2006
from $61.4 million for fiscal year 2005, due to our higher taxable income.
The
effective tax rate was 13.5% for fiscal 2006 versus 16.5% for fiscal 2005.
The
decrease in tax rate is due to additional tax benefits received from Taiwan
as a
result of our continued capital investment in our manufacturing facilities
in
Taiwan, tax credits resulting from our decision to repatriate certain of our
Taiwan earnings to our parent company, and the increased contribution to our
income from lower tax jurisdictions during 2006 relative to 2005. This lower
effective tax rate resulted in a decrease in the ratio of income tax as a
percentage of revenue of approximately 1.4% from fiscal 2005 to fiscal
2006.
Net
Income
As
a
result of the various factors noted above, net income increased 65% to $514.1
million for fiscal year 2006 compared to $311.2 million for fiscal year
2005.
Liquidity
and Capital Resources
Net
cash
generated by operations was $682.1 million, $361.9 million, and $247.0 million
for fiscal years 2007, 2006, and 2005, respectively. We operate with a
customer-oriented approach and seek to maintain 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 substantial
enough to meet most demand. We also attempt to carry sufficient inventory levels
of key components so that potential supplier shortages have as minimal an impact
as possible on our ability to deliver our finished products. We began
implementing a more linear inventory management strategy in the fourth quarter
of 2007 which management would anticipate will result in less inventory
fluctuation from quarter to quarter going forward. We prefer to have sufficient
finished goods on hand to meet anticipated demand for our products. Raw
materials and finished goods inventory levels continued to grow year over year
as a function of our growing sales. We anticipate days of inventory to stabilize
at current levels in 2008 although absolute dollars of inventory will continue
to rise, reflecting the growth of our business.
Capital
expenditures in 2007 totaled $156.8 million, an increase of $63.9 million from
fiscal 2006. This amount in 2007 reflects the purchase and build-out of an
additional manufacturing facility in Lin-Kou, Taiwan, continued expansion of
research and development facilities in our Taiwan facilities, as well as
ordinary capital expenditures for fiscal 2007. Capital expenditures in 2006
totaled $92.9 million, an increase of $65.8 million from fiscal 2005. This
amount in 2006 reflects the purchase and renovation of an additional
manufacturing facility in Jhongli, Taiwan, the purchase of a new European
headquarters, as well as ordinary capital expenditures for fiscal 2006. Capital
expenditures in 2005 totaled $27.1 million, a decrease of $51.0 million from
fiscal 2004.
We
have
budgeted approximately $115 million of capital expenditures during fiscal 2008
to include normal ongoing capital expenditures as well as purchases of
production machinery and equipment to expand capacity in the Lin-Kou, Taiwan
facility.
In
addition to capital expenditures, in 2007 cash flow used in investing related
to
the purchase of Digital Cyclone, Inc., Garmin France SAS, Garmin Deutschland
GmbH, Garmin Iberia S.A., Garmin Italia S.p.A., and the assets of Nautamatic
Marine Systems, Inc. for a total of $128.8 million, the net sale of $112.8
million of fixed income securities associated with the investment of our on-hand
cash balances and the purchase of $2.9 million of intangible assets. Garmin’s
average return on its investments during fiscal 2007 was approximately 4.3%.
In
addition to capital expenditures, in 2006 cash flow used in investing related
to
the purchase of Dynastream Innovations, Inc. for $36.5 million, the net purchase
of $93.8 million of fixed income securities associated with the investment
of
our on-hand cash balances and the purchase of $3.1 million of intangible assets.
Garmin’s average return on its investments during fiscal 2006 was approximately
4.7%. In addition to capital expenditures, in 2005 cash flow used in investing
related to the net purchase of $59.1 million of fixed income securities
associated with the investment of our on-hand cash balances and approximately
$3.6 million of intangible assets. Garmin’s average return on its investments
during fiscal 2005 was approximately 3.1%. It is management’s goal to invest the
on-hand cash consistent with Garmin’s investment policy, which has been approved
by the Board of Directors. The investment policy’s primary purpose is to
preserve capital, maintain an acceptable degree of liquidity, and maximize
yield
within the constraint of low credit risk.
Cash
flow
related to financing activities resulted in a net use of cash in 2007 of $136.1
million. During 2007, Garmin repurchased 57,235 shares of its common shares
under the 3,000,000-share stock repurchase program that was approved by the
Board of Directors on August 3, 2006 and expired on December 31, 2007. A new
5,000,000 share repurchase plan was authorized in February 2008 which expires
on
December 31, 2009. Sources and uses in financing activities during 2007 related
primarily to a use for the payment of a dividend ($162.5 million) and the
purchase of stock ($14.2 million), and a source of cash from the issuance of
common stock related to the exercise of employee stock options, the related
tax
benefit, and the employee stock purchase plan ($40.8 million). Cash flow related
to financing activities resulted in a net use of cash in 2006 of $132.7 million.
During 2006, Garmin repurchased 1,155,300 shares of its common shares under
the
3,000,000-share stock repurchase program that was approved by the Board of
Directors on August 3, 2006 and expired on December 31, 2007. Sources and uses
in financing activities during 2006 related primarily to uses for the payment
of
a dividend ($107.9 million) and stock repurchase ($50.5 million), and a source
of cash from the issuance of common stock related to the exercise of employee
stock options, the related tax benefit, and the employee stock purchase plan
($25.7 million). Cash flow related to financing activities resulted in a net
use
of cash in 2005 of $70.9 million. During 2005, Garmin repurchased 638,000 shares
of its common shares under the 3,000,000-share stock repurchase program that
was
approved by the Board of Directors on April 21, 2004 and expired on April 30,
2006. Sources and uses in financing activities during 2005 related primarily
to
uses for the payment of a dividend ($54.0 million) and stock repurchase ($26.7
million), and a source of cash from the issuance of common shares related to
the
exercise of employee stock options, the related tax benefit, and the employee
stock purchase plan ($9.7 million).
Cash
dividends paid to shareholders were $162.5 million, $107.9 million, and $54.0
million during fiscal years 2007, 2006, and 2005, respectively.
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 2010.
Contractual
Obligations and Commercial Commitments
Future
commitments of Garmin, as of December 29, 2007, aggregated by type of
contractual obligation, are:
|
|
Payments
due by period
|
|
|
|
|
|
Less
than
|
|
|
|
|
|
More
than
|
|
Contractual
Obligations
|
|
Total
|
|
1
year
|
|
1-3
years
|
|
3-5
years
|
|
5
years
|
|
Operating
Leases
|
|
$
|
43,438
|
|
$
|
6,581
|
|
$
|
11,582
|
|
$
|
9,263
|
|
$
|
16,012
|
|
Purchase
Obligations
|
|
|
5,078
|
|
|
422
|
|
|
2,251
|
|
|
2,405
|
|
|
0
|
|
Total
|
|
$
|
48,516
|
|
$
|
7,003
|
|
$
|
13,833
|
|
$
|
11,668
|
|
$
|
16,012
|
|
Operating
leases describes lease obligations associated with Garmin facilities located
in
the U.S., Taiwan, the U.K., and Canada. Purchase obligations are the aggregate
of those purchase orders that were outstanding on December 29, 2007; these
obligations are created and then paid off within 3 months during the normal
course of our manufacturing business.
Off-Balance
Sheet Arrangements
We
do not
have any off-balance sheet arrangements.
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 materials costs.
Inflation
We
do not
believe that inflation has had a material effect on our business, financial
condition or results of operations. If our costs were to become subject to
significant inflationary pressures, we may not be able to fully offset such
higher costs through price increases. Our inability or failure to do so could
adversely affect our business, financial condition and results of
operations.
Foreign
Currency Exchange Rate Risk
The
operation of Garmin’s subsidiaries in international markets results in exposure
to movements in currency exchange rates. We generally have not been
significantly affected by foreign exchange fluctuations because the Taiwan
Dollar, the Euro and British Pound have proven to be relatively stable. However,
periodically we have experienced significant foreign currency gains and losses
due to the strengthening and weakening of the U.S. dollar. The potential of
volatile foreign exchange rate fluctuations in the future could have a
significant effect on our results of operations.
The
currencies that create a majority of the Company’s exchange rate exposure are
the Taiwan Dollar, the Euro, and British Pound. Garmin Corporation, located
in
Shijr, Taiwan, uses the local currency as the functional currency. The Company
translates all assets and liabilities at year-end exchange rates and income
and
expense accounts at average rates during the year. In order to minimize the
effect of the currency exchange fluctuations on our net assets, we have elected
to retain most of our Taiwan subsidiary’s cash and investments in marketable
securities denominated in U.S. dollars.
The
NTD/USD exchange rate decreased 0.3% during 2007, which resulted in a cumulative
translation adjustment of negative $0.3 million at the end of fiscal 2007 and
a
net foreign currency loss of $2.5 million at Garmin Corporation during 2007.
Garmin
France SAS, Garmin Deutschland GmbH, Garmin Italia S.p.A., and Garmin Iberia
S.A., located in France, Germany, Italy, and Spain respectively, use the Euro
as
the functional currency
.
However,
the functional currency of our largest European subsidiary, Garmin (Europe)
Ltd.
remains the U.S. dollar, and as some transactions occurred in British Pounds
or
Euros, foreign currency gains or losses have been realized historically related
to the movements of those currencies relative to the U.S. dollar. The Company
believes that gains and losses will become more material in the future as our
European presence grows. In 2007, the Euro strengthened 10.2% relative to the
U.S. dollar and the British Pound Sterling strengthened 1.7% relative to the
U.S. dollar. These currency moves resulted in a foreign currency gain of $25.6
million in Garmin Ltd. and our European subsidiaries. These gains were offset
by
currency moves in the Taiwan dollar that generated losses described above,
combined with other losses of $0.1 million, and the timing of transactions
during the year for a net gain of $23.0 million for the Company.
If
the
TD/USD exchange rate had decreased 10%
and the
GBP/USD and EUR/USD exchange rate had each increased 10% in 2007, the cumulative
translation adjustment would have been a negative $0.4 million at the end of
fiscal 2007 and the foreign currency loss would have been $109.5 million without
the use of any hedging strategies.
Interest
Rate Risk
We
have
no outstanding long-term debt as of December 29, 2007. We, therefore, have
no
meaningful debt-related interest rate risk.
We
are
exposed to interest rate risk in connection with our investments in marketable
securities. As interest rates change, the unrealized gains and losses associated
with those securities will fluctuate accordingly. A hypothetical change of
10%
in interest rates would not have a material effect on such unrealized gains
or
losses. At December 29, 2007, cumulative unrealized gains on those securities
were $46.4 million.
Equity
Price Risk
We
are
also exposed to equity price risk inherent in our portfolio of publicly-traded
equity securities, which had an estimated fair value of $235.6 million at
December 29, 2007 and $57.5 million at December 30, 2006. We monitor our
equity investments for impairment on a periodic basis. In the event that the
carrying value of the equity investment exceeds its fair value, and we determine
the decline in value to be other than temporary, we reduce the carrying value
to
its current fair value. Generally, we do not attempt to reduce or eliminate
our
market exposure on these equity securities. We do not purchase our equity
securities with the intent to use them for speculative purposes. A hypothetical
10% adverse change in the stock prices of our publicly-traded equity securities
would result in a loss in the fair values of our marketable equity securities
of
$23.5 million at December 29, 2007 and $5.8 million at December 30,
2006.
Item
8. Financial Statements and Supplementary Data
CONSOLIDATED
FINANCIAL STATEMENTS
Garmin
Ltd. and Subsidiaries
Years
Ended December 29, 2007, December 30, 2006 and December 31, 2005
Report
of Ernst & Young LLP, Independent Registered Public Accounting Firm
|
|
|
54
|
|
Consolidated
Balance Sheets at December 29, 2007 and December 30, 2006
|
|
|
55
|
|
Consolidated
Statements of Income for the Years Ended December 29, 2007, December
30,
2006 and December 31, 2005
|
|
|
56
|
|
Consolidated
Statements of Stockholders’ Equity for the Years Ended
|
|
|
|
|
December
29, 2007, December 30, 2006 and December 31, 2005
|
|
|
57
|
|
Consolidated
Statements of Cash Flows for the Years December 29, 2007, December
30,
2006 and December 31, 2005
|
|
|
58
|
|
Notes
to Consolidated Financial Statements
|
|
|
60
|
|
Report
of Ernst & Young LLP
Independent
Registered Public Accounting Firm
The
Board
of Directors and Shareholders
Garmin
Ltd.
We
have
audited the accompanying consolidated balance sheets of Garmin Ltd. and
Subsidiaries (the Company) as of December 29, 2007 and December 30, 2006
and the
related consolidated statements of income, stockholders' equity, and cash
flows
for each of the three years in the period ended December 29, 2007. Our audits
also included the financial statement schedule listed in the index at Item
15(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 the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In
our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Garmin Ltd. and
Subsidiaries at December 29, 2007 and December 30, 2006 and the consolidated
results of their operations and their cash flows for each of the three years
in
the period ended December 29, 2007, in conformity with U.S. generally accepted
accounting principles. 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.
We
also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), Garmin Ltd.’s internal control over financial
reporting as of December 29, 2007, based on criteria established in the Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission and our report dated February 25, 2008 expressed
an
unqualified opinion thereon.
Kansas
City, Missouri
February
25, 2008
Garmin
Ltd. And Subsidiaries
|
|
Consolidated
Balance Sheets
|
|
(In
thousands, except share information)
|
|
|
|
|
|
|
|
|
|
December
29,
|
|
December
30,
|
|
|
|
2007
|
|
2006
|
|
Assets
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
707,689
|
|
$
|
337,321
|
|
Marketable
securities
( Note 4)
|
|
|
37,551
|
|
|
73,033
|
|
Accounts
receivable, less allowance for doubtful accounts of
|
|
|
|
|
|
|
|
$10,246
in 2007 and $5,340 in 2006
|
|
|
952,513
|
|
|
403,524
|
|
Inventories,
net
(Note 3)
|
|
|
505,467
|
|
|
271,008
|
|
Deferred
income taxes
(Note 7)
|
|
|
107,376
|
|
|
55,996
|
|
Prepaid
expenses and other current assets
|
|
|
22,179
|
|
|
28,202
|
|
Total
current assets
|
|
|
2,332,775
|
|
|
1,169,084
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
(Note
3)
|
|
|
|
|
|
|
|
Land
and improvements
|
|
|
79,445
|
|
|
37,103
|
|
Building
and improvements
|
|
|
204,083
|
|
|
158,873
|
|
Office
furniture and equipment
|
|
|
48,656
|
|
|
45,841
|
|
Manufacturing
equipment
|
|
|
86,037
|
|
|
51,772
|
|
Engineering
equipment
|
|
|
51,670
|
|
|
37,519
|
|
Vehicles
|
|
|
13,104
|
|
|
8,376
|
|
|
|
|
482,995
|
|
|
339,484
|
|
Accumulated
depreciation
|
|
|
108,848
|
|
|
88,496
|
|
|
|
|
374,147
|
|
|
250,988
|
|
|
|
|
|
|
|
|
|
Restricted
cash
(Note
5)
|
|
|
1,554
|
|
|
1,525
|
|
Marketable
securities
(Note 4)
|
|
|
386,954
|
|
|
407,843
|
|
License
agreements, net
|
|
|
14,672
|
|
|
3,307
|
|
Other
intangible assets
|
|
|
181,358
|
|
|
64,273
|
|
Total
assets
|
|
$
|
3,291,460
|
|
$
|
1,897,020
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders' Equity
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
341,053
|
|
$
|
88,375
|
|
Salaries
and benefits payable
|
|
|
31,696
|
|
|
16,268
|
|
Accrued
warranty costs
(Note 16)
|
|
|
71,636
|
|
|
37,639
|
|
Accrued
sales program costs
|
|
|
142,360
|
|
|
32,560
|
|
Accrued
advertising expense
|
|
|
47,512
|
|
|
26,185
|
|
Other
accrued expenses
|
|
|
90,731
|
|
|
41,987
|
|
Income
taxes payable
|
|
|
76,895
|
|
|
94,668
|
|
Total
current liabilities
|
|
|
801,883
|
|
|
337,682
|
|
|
|
|
|
|
|
|
|
Long-term
debt, less current portion
|
|
|
-
|
|
|
248
|
|
Deferred
income taxes
(Note
7)
|
|
|
11,935
|
|
|
1,191
|
|
Non-current
taxes
|
|
|
126,593
|
|
|
-
|
|
Other
liabilities
|
|
|
435
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity:
|
|
|
|
|
|
|
|
Common
stock, $0.005 par value, 1,000,000,000 shares authorized
|
|
|
|
|
|
|
|
(Notes 10 and 12)
:
|
|
|
|
|
|
|
|
Issued
and outstanding shares - 216,980,000 in 2007, and
|
|
|
|
|
|
|
|
216,097,000
in 2006
|
|
|
1,086
|
|
|
1,082
|
|
Additional
paid-in capital
|
|
|
132,264
|
|
|
83,438
|
|
Retained
earnings
(Note
3)
|
|
|
2,171,134
|
|
|
1,478,654
|
|
Accumulated
other comprehensive gain/(loss)
|
|
|
46,130
|
|
|
(5,275
|
)
|
Total
stockholders' equity
|
|
|
2,350,614
|
|
|
1,557,899
|
|
Total
liabilities and stockholders' equity
|
|
$
|
3,291,460
|
|
$
|
1,897,020
|
|
Garmin
Ltd. And Subsidiaries
|
|
Consolidated
Statements of Income
|
|
(In
Thousands, Except Per Share Information)
|
|
|
|
Fiscal
Year Ended
|
|
|
|
December
29,
|
|
December
30,
|
|
December
31,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
3,180,319
|
|
$
|
1,774,000
|
|
$
|
1,027,773
|
|
Cost
of goods sold
|
|
|
1,717,064
|
|
|
891,614
|
|
|
492,703
|
|
Gross
profit
|
|
|
1,463,255
|
|
|
882,386
|
|
|
535,070
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
|
|
396,498
|
|
|
214,513
|
|
|
122,021
|
|
Research
and development expense
|
|
|
159,406
|
|
|
113,314
|
|
|
74,879
|
|
|
|
|
555,904
|
|
|
327,827
|
|
|
196,900
|
|
Operating
income
|
|
|
907,351
|
|
|
554,559
|
|
|
338,170
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
41,995
|
|
|
35,897
|
|
|
19,586
|
|
Interest
expense
|
|
|
(207
|
)
|
|
(41
|
)
|
|
(48
|
)
|
Foreign
currency
|
|
|
22,964
|
|
|
596
|
|
|
15,265
|
|
Other
|
|
|
6,170
|
|
|
3,543
|
|
|
(373
|
)
|
|
|
|
70,922
|
|
|
39,995
|
|
|
34,430
|
|
Income
before income taxes
|
|
|
978,273
|
|
|
594,554
|
|
|
372,600
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax provision (benefit):
(Note
7)
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
179,355
|
|
|
113,226
|
|
|
52,548
|
|
Deferred
|
|
|
(56,093
|
)
|
|
(32,795
|
)
|
|
8,833
|
|
|
|
|
123,262
|
|
|
80,431
|
|
|
61,381
|
|
Net
income
|
|
$
|
855,011
|
|
$
|
514,123
|
|
$
|
311,219
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
net income per share
(Note 11)
|
|
$
|
3.95
|
|
$
|
2.38
|
|
$
|
1.44
|
|
Diluted
net income per share
(Note 11)
|
|
$
|
3.89
|
|
$
|
2.35
|
|
$
|
1.43
|
|
Garmin
Ltd. And Subsidiaries
|
|
Consolidated
Statements of Stockholders' Equity
|
|
(In
Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
Other
|
|
|
|
|
|
Common
Stock
|
|
Paid-In
|
|
Retained
|
|
Comprehensive
|
|
|
|
|
|
Shares
|
|
Dollars
|
|
Capital
|
|
Earnings
|
|
Gain/(Loss)
|
|
Total
|
|
Balance
at December 25, 2004
|
|
|
216,654
|
|
$
|
1,084
|
|
$
|
108,949
|
|
$
|
815,209
|
|
$
|
10,615
|
|
$
|
935,857
|
|
Net
income
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
311,219
|
|
|
-
|
|
|
311,219
|
|
Translation
adjustment
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(20,768
|
)
|
|
(20,768
|
)
|
Adjustment
related to unrealized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
gains
(losses) on available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
securities,
net of income tax effects
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
$533
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(2,360
|
)
|
|
(2,360
|
)
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
288,091
|
|
Dividends
paid
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(53,974
|
)
|
|
-
|
|
|
(53,974
|
)
|
Tax
benefit from exercise of employee
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stock
options
|
|
|
-
|
|
|
-
|
|
|
3,328
|
|
|
-
|
|
|
-
|
|
|
3,328
|
|
Issuance
of common stock from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
exercise
of stock options
|
|
|
644
|
|
|
3
|
|
|
6,863
|
|
|
-
|
|
|
-
|
|
|
6,866
|
|
Stock
appreciation rights
|
|
|
-
|
|
|
|
|
|
925
|
|
|
|
|
|
|
|
|
925
|
|
Purchase
and retirement of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
common
stock
|
|
|
(1,276
|
)
|
|
(7
|
)
|
|
(26,646
|
)
|
|
-
|
|
|
-
|
|
|
(26,653
|
)
|
Issuance
of common stock through
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stock
purchase plan
|
|
|
112
|
|
|
1
|
|
|
2,823
|
|
|
-
|
|
|
-
|
|
|
2,824
|
|
Balance
at December 31, 2005
|
|
|
216,134
|
|
|
1,081
|
|
|
96,242
|
|
|
1,072,454
|
|
|
(12,513
|
)
|
|
1,157,264
|
|
Net
income
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
514,123
|
|
|
-
|
|
|
514,123
|
|
Translation
adjustment
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
7,525
|
|
|
7,525
|
|
Adjustment
related to unrealized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
gains
(losses) on available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
securities,
net of income tax effects
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
$355
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(287
|
)
|
|
(287
|
)
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
521,361
|
|
Dividends
paid
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(107,923
|
)
|
|
-
|
|
|
(107,923
|
)
|
Tax
benefit from exercise of employee
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stock
options
|
|
|
-
|
|
|
-
|
|
|
9,660
|
|
|
-
|
|
|
-
|
|
|
9,660
|
|
Issuance
of common stock from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
exercise
of stock options
|
|
|
994
|
|
|
6
|
|
|
12,499
|
|
|
-
|
|
|
-
|
|
|
12,505
|
|
Stock
appreciation rights
|
|
|
-
|
|
|
-
|
|
|
11,913
|
|
|
-
|
|
|
-
|
|
|
11,913
|
|
Purchase
and retirement of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
common
stock
|
|
|
(1,155
|
)
|
|
(6
|
)
|
|
(50,444
|
)
|
|
-
|
|
|
-
|
|
|
(50,450
|
)
|
Issuance
of common stock through
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stock
purchase plan
|
|
|
125
|
|
|
1
|
|
|
3,568
|
|
|
-
|
|
|
-
|
|
|
3,569
|
|
Balance
at December 30, 2006
|
|
|
216,098
|
|
|
1,082
|
|
|
83,438
|
|
|
1,478,654
|
|
|
(5,275
|
)
|
|
1,557,899
|
|
Net
income
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
855,011
|
|
|
-
|
|
|
855,011
|
|
Translation
adjustment
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
992
|
|
|
992
|
|
Adjustment
related to unrealized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
gains
(losses) on available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
securities,
net of income tax effects
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
$31
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
50,413
|
|
|
50,413
|
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
906,415
|
|
Dividends
paid
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(162,531
|
)
|
|
-
|
|
|
(162,531
|
)
|
Tax
benefit from exercise of employee
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stock
options
|
|
|
-
|
|
|
-
|
|
|
17,434
|
|
|
-
|
|
|
-
|
|
|
17,434
|
|
Issuance
of common stock from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
exercise
of stock options
|
|
|
819
|
|
|
4
|
|
|
11,278
|
|
|
-
|
|
|
-
|
|
|
11,282
|
|
Stock
appreciation rights
|
|
|
-
|
|
|
-
|
|
|
22,164
|
|
|
-
|
|
|
-
|
|
|
22,164
|
|
Purchase
and retirement of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
common
stock
|
|
|
(57
|
)
|
|
-
|
|
|
(7,780
|
)
|
|
-
|
|
|
-
|
|
|
(7,780
|
)
|
Issuance
of common stock through
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stock
purchase plan
|
|
|
120
|
|
|
-
|
|
|
5,730
|
|
|
-
|
|
|
-
|
|
|
5,730
|
|
Balance
at December 29, 2007
|
|
|
216,980
|
|
$
|
1,086
|
|
$
|
132,264
|
|
$
|
2,171,134
|
|
$
|
46,130
|
|
$
|
2,350,614
|
|
Garmin
Ltd. And Subsidiaries
|
|
Consolidated
Statements of Cash Flows
|
|
(In
Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended
|
|
|
|
|
|
December
29,
|
|
December
30,
|
|
December
31,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
Operating
Activities:
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
855,011
|
|
$
|
514,123
|
|
$
|
311,219
|
|
Adjustments
to reconcile net income to net cash provided
|
|
|
|
|
|
|
|
|
|
|
by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
35,524
|
|
|
21,535
|
|
|
18,693
|
|
Amortization
|
|
|
28,513
|
|
|
22,940
|
|
|
24,903
|
|
Gain
on sale of property and equipment
|
|
|
560
|
|
|
67
|
|
|
37
|
|
Provision
for doubtful accounts
|
|
|
3,617
|
|
|
955
|
|
|
445
|
|
Provision
for obsolete and slow-moving inventories
|
|
|
34,975
|
|
|
23,245
|
|
|
14,755
|
|
Foreign
currency transaction gains
|
|
|
(926
|
)
|
|
(344
|
)
|
|
(13,957
|
)
|
Deferred
income taxes
|
|
|
(57,843
|
)
|
|
(35,060
|
)
|
|
8,833
|
|
Stock
compensation
|
|
|
22,164
|
|
|
11,913
|
|
|
925
|
|
Realized
gains on marketable securities
|
|
|
(5,101
|
)
|
|
(3,852
|
)
|
|
-
|
|
Changes
in operating assets and liabilities, net of acquisition:
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(477,108
|
)
|
|
(230,111
|
)
|
|
(61,607
|
)
|
Inventories
|
|
|
(224,180
|
)
|
|
(92,708
|
)
|
|
(61,262
|
)
|
Prepaid
expenses and other current assets
|
|
|
6,213
|
|
|
(4,357
|
)
|
|
(16,021
|
)
|
Purchase
of licenses
|
|
|
(23,569
|
)
|
|
(2,950
|
)
|
|
(4,192
|
)
|
Accounts
payable
|
|
|
174,781
|
|
|
10,187
|
|
|
24,127
|
|
Accrued
expenses
|
|
|
253,909
|
|
|
97,167
|
|
|
4,283
|
|
Income
taxes payable
|
|
|
55,548
|
|
|
29,105
|
|
|
(4,176
|
)
|
Net
cash provided by operating activities
|
|
|
682,088
|
|
|
361,855
|
|
|
247,005
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing
activities:
|
|
|
|
|
|
|
|
|
|
|
Purchases
of property and equipment
|
|
|
(156,777
|
)
|
|
(92,906
|
)
|
|
(27,130
|
)
|
Proceeds
from sale of property and equipment
|
|
|
5
|
|
|
76
|
|
|
-
|
|
Purchase
of intangible assets
|
|
|
(2,918
|
)
|
|
(3,115
|
)
|
|
(3,560
|
)
|
Purchase
of marketable securities
|
|
|
(1,672,041
|
)
|
|
(453,085
|
)
|
|
(342,359
|
)
|
Sales
of marketable securities
|
|
|
1,784,816
|
|
|
359,313
|
|
|
283,253
|
|
Acquisitions,
net of cash acquired
|
|
|
(128,751
|
)
|
|
(36,499
|
)
|
|
(1,483
|
)
|
Change
in restricted cash
|
|
|
(29
|
)
|
|
(169
|
)
|
|
98
|
|
Net
cash used in investing activities
|
|
|
(175,695
|
)
|
|
(226,385
|
)
|
|
(91,181
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Financing
activities:
|
|
|
|
|
|
|
|
|
|
|
Dividends
|
|
|
(162,531
|
)
|
|
(107,923
|
)
|
|
(53,974
|
)
|
Payment
on long-term debt
|
|
|
(248
|
)
|
|
(11
|
)
|
|
-
|
|
Proceeds
from issuance of common stock through
|
|
|
|
|
|
|
|
|
|
|
stock
purchase plan
|
|
|
5,730
|
|
|
3,569
|
|
|
2,824
|
|
Proceeds
from issuance of common stock from
|
|
|
|
|
|
|
|
|
|
|
exercise
of stock options
|
|
|
11,278
|
|
|
12,505
|
|
|
6,866
|
|
Tax
benefit related to stock option exercise
|
|
|
17,434
|
|
|
9,660
|
|
|
-
|
|
Purchase
of common stock
|
|
|
(7,780
|
)
|
|
(50,450
|
)
|
|
(26,653
|
)
|
Net
cash used in financing activities
|
|
|
(136,117
|
)
|
|
($132,650
|
)
|
|
(70,937
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash and cash equivalents
|
|
|
92
|
|
|
149
|
|
|
(444
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase/(decrease) in cash and cash equivalents
|
|
|
370,368
|
|
|
2,969
|
|
|
84,443
|
|
Cash
and cash equivalents at beginning of year
|
|
|
337,321
|
|
|
334,352
|
|
|
249,909
|
|
Cash
and cash equivalents at end of year
|
|
$
|
707,689
|
|
$
|
337,321
|
|
$
|
334,352
|
|
|
|
|
|
Garmin
Ltd. And Subsidiaries
|
|
Consolidated
Statements of Cash Flows (continued)
|
|
(In
Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended
|
|
|
|
December
29,
|
|
December
30,
|
|
December
31,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures of cash flow information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid during the year for income taxes
|
|
$
|
54,963
|
|
$
|
67,044
|
|
$
|
59,765
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
received during the year from income tax refunds
|
|
$
|
779
|
|
$
|
537
|
|
$
|
115
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid during the year for interest
|
|
$
|
207
|
|
$
|
41
|
|
$
|
48
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of non-cash investing and
|
|
|
|
|
|
|
|
|
|
|
financing
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in marketable securities related to unrealized
|
|
|
|
|
|
|
|
|
|
|
appreciation
(depreciation)
|
|
$
|
51,210
|
|
$
|
68
|
|
|
($2,893
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions,
net of cash acquired
|
|
|
|
|
|
|
|
|
|
|
Fair
value of assets acquired
|
|
$
|
256,609
|
|
$
|
42,616
|
|
$
|
1,490
|
|
Liabilities
assumed
|
|
|
(106,654
|
)
|
|
(5,997
|
)
|
|
(4
|
)
|
Less
cash acquired
|
|
|
(21,204
|
)
|
|
(120
|
)
|
|
(3
|
)
|
Net
cash paid
|
|
$
|
128,751
|
|
$
|
36,499
|
|
$
|
1,483
|
|
GARMIN
LTD. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(In
Thousands, Except Share and Per Share Information)
December
29, 2007 and December 30, 2006
1.
Description of the Business
Garmin
Ltd. and subsidiaries (together, the “Company”) manufacture, market, and
distribute Global Positioning System-enabled products and other related
products. Garmin Corporation (GC), wholly-owned by Garmin Ltd., is primarily
responsible for the manufacturing and distribution of the Company’s products to
Garmin International, Inc. (GII), a wholly-owned subsidiary of GC, and
Garmin
(Europe) Limited (GEL), a wholly-owned subsidiary of Garmin Ltd., and,
to a
lesser extent, new product development and sales and marketing of the Company’s
products in Asia and the Far East. GII is primarily responsible for sales
and
marketing of the Company’s products in many international markets and in the
United States as well as research and new product development. GII also
manufactures certain products for the Company’s aviation segment. GEL is
responsible for sales and marketing of the Company’s products, principally
within the European market. In addition, during 2007 the Company acquired
four
European distributors - Garmin France SAS, Garmin Deutschland GmbH, Garmin
Iberia S.A., and Garmin Italia S.p.A. - which distribute Garmin product
in
France, Germany, Spain, and Italy, respectively.
2.
Stock Split
On
July 21, 2006 a two-for-one stock split was approved
by Garmin's shareholders and was effected at the close of the
market on August 15, 2006. All prior period common stock and applicable
share
and per share amounts have been retroactively adjusted to reflect the 2006
stock
split.
3.
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. The
accompanying consolidated financial statements reflect the accounts of
Garmin
Ltd. and its wholly owned subsidiaries. All significant inter-company balances
and transactions have been eliminated.
Fiscal
Year
The
Company has adopted a 52-53-week period ending on the last Saturday of
the
calendar year. Due to the fact that there are not exactly 52 weeks in a
calendar
year and there is slightly more than one additional day per year (not including
the effects of leap year) in each calendar year as compared to a 52-week
fiscal
year, the Company will have a fiscal year comprising 53 weeks in certain
fiscal
years, as determined by when the last Saturday of the calendar year
occurs.
In
those
resulting fiscal years that have 53 weeks, the Company will record an extra
week
of sales, costs, and related financial activity. Therefore, the financial
results of those fiscal years, and the associated 14-week fourth quarter,
will
not be entirely comparable to the prior and subsequent 52-week fiscal years
and
the associated quarters having only 13 weeks. Fiscal 2007 and 2006 included
52
weeks while fiscal 2005 included 53 weeks.
Foreign
Currency Translation
GC
utilizes the New Taiwan Dollar as its functional currency. In accordance
with
Statement of Financial Accounting Standards (SFAS) No. 52,
Foreign
Currency Translation
,
the
financial statements of GC for all periods presented 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. Cumulative translation adjustments of ($315)
and ($1,307) as of December 29, 2007 and December 30, 2006, respectively,
net of
related taxes, have been included in accumulated other comprehensive
gain/(loss)
in the accompanying consolidated balance sheets.
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
of $22,964, $596 and $15,265 for the years ended December 29, 2007, December
30,
2006, and December 31, 2005, respectively. The gain in fiscal 2007 was
the
result of the strengthening of the Euro and British Pound Sterling relative
to
the United States dollar experienced by our European companies. The gain
in
fiscal 2006 was the result of nearly off-setting currency moves in the
Taiwan
Dollar and the Euro and British Pound Sterling. The gain in fiscal 2005
was the
result of strengthening of the United States dollar throughout those
years.
These gains and losses are included in other income in the accompanying
consolidated statements of income.
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 11.
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.
Trade
Accounts Receivable
We
sell
our products to retailers, wholesalers, and other customers and extend
credit
based on our evaluation of the customer’s financial condition. Potential
losses on receivables are dependent on each individual customer’s financial
condition. We carry our trade accounts receivable at net realizable value.
Typically, our accounts receivable are collected on within 60 days and
do not
bear interest. We monitor our exposure to losses on receivables and maintain
allowances for potential losses or adjustments. We determine these allowances
by
(1) evaluating the aging of our receivables; and (2) reviewing our high-risk
customers. Past due receivable balances are written off when our internal
collection efforts have been unsuccessful in collecting the amount
due.
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 GC and the FIFO method by GII, GAT and GEL. Inventories consisted
of
the following:
|
|
December
29,
|
|
December
30,
|
|
December
31,
|
|
December
25,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
Raw
materials
|
|
$
|
130,056
|
|
$
|
85,040
|
|
$
|
65,348
|
|
$
|
69,036
|
|
Work-in-process
|
|
|
57,622
|
|
|
42,450
|
|
|
27,845
|
|
|
29,959
|
|
Finished
goods
|
|
|
348,975
|
|
|
163,286
|
|
|
121,404
|
|
|
67,274
|
|
Inventory
reserves
|
|
|
(31,186
|
)
|
|
(19,768
|
)
|
|
(14,756
|
)
|
|
(11,289
|
)
|
|
|
$
|
505,467
|
|
$
|
271,008
|
|
$
|
199,841
|
|
$
|
154,980
|
|
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
|
|
|
39
|
|
Office
furniture and equipment
|
|
|
5
|
|
Manufacturing
and engineering equipment
|
|
|
5
|
|
Vehicles
|
|
|
5
|
|
Long-Lived
Assets
In
accordance with SFAS No. 144,
Accounting
for the Impairment or Disposal of Long-Lived Assets
,
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. The carrying amount of a long-lived asset is not recoverable
if it
exceeds the sum of the undiscounted cash flows expected to result from the
use
and eventual disposition of the asset. That assessment is based on the carrying
amount of the asset at the date it is tested for recoverability. An impairment
loss is measured as the amount by which the carrying amount of a long-lived
asset exceeds its fair value.
Dividends
On
August
1, 2007 the Board of Directors declared a dividend of $0.75 per share to
be paid
on September 14, 2007 to shareholders of record on August 15, 2007. The Company
paid out a dividend in the amount of $162,531. The dividend has been reported
as
a reduction of retained earnings.
On
April
26, 2006 the Board of Directors declared a post-split dividend of $0.50 per
share to be paid on December 15, 2006 to shareholders of record on December
1,
2006. The Company paid out a dividend in the amount of $107,923. The dividend
has been reported as a reduction of retained earnings.
On
July
20, 2005 the Board of Directors declared a dividend of $0.25 per share (post
split) to be paid on December 15, 2005 to shareholders of record on December
1,
2005. The Company paid out a dividend in the amount of $53,974. The dividend
has
been reported as a reduction of retained earnings.
Approximately
$159,210 and $129,651 of retained earnings are indefinitely restricted from
distribution to stockholders pursuant to the law of Taiwan at December 29,
2007
and December 30, 2006, respectively.
Intangible
Assets
At
December 29, 2007 and December 30, 2006, the Company had patents, license
agreements, customer related intangibles and other identifiable finite-lived
intangible assets recorded at a cost of $159,503 and $76,148, respectively.
The
Company’s excess purchase cost over fair value of net assets acquired (goodwill)
was $98,494 at December 29, 2007 and $24,457 at December 30, 2006.
Identifiable,
finite-lived intangible assets are amortized over their estimated useful
lives
on a straight-line basis over three to ten years. Accumulated amortization
was
$59,967 and $33,025 at December 29, 2007 and December 30, 2006 respectively.
Amortization expense was $26,942, $21,147, and $22,648, for the years ended
December 29, 2007, December 30, 2006, and December 31, 2005, respectively.
In
the next five years, the amortization expense is estimated to be $17,227,
$16,441, $14,014, $13,830, and $8,108, respectively.
Marketable
Securities
Management
determines the appropriate classification of marketable securities at the
time
of purchase and reevaluates such designation as of each balance sheet
date.
All
of
the Company’s marketable securities are considered available-for-sale at
December 29, 2007. See Note 4. Available-for-sale securities are stated at
fair
value, with the unrealized gains and losses, net of tax, reported in other
comprehensive gain. At December 29, 2007 and December 30, 2006, cumulative
unrealized gains/(losses) of $46,445 and $(3,968), respectively, were reported
accumulated in other comprehensive gain/(loss), net of related
taxes.
The
amortized cost of debt securities classified as available-for-sale is adjusted
for amortization of premiums and accretion of discounts to maturity, or in
the
case of mortgage-backed securities, over the estimated life of the security.
Such amortization is included in interest income from investments. Realized
gains and losses, and declines in value judged to be other-than-temporary
are
included in other income. The cost of securities sold is based on the specific
identification method. Realized gains and losses on available-for-sale
securities have not been material in any period.
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 by Garmin Corporation (GC) for the unremitted earnings of GI totaling
approximately $301,402 and $272,732 at December 29, 2007 and December 30,
2006,
respectively, because such earnings are intended to be reinvested in this
subsidiary indefinitely. Similarly, income taxes have not been accrued by
Garmin B.V. for the unremitted earnings of GC totaling approximately $628,323
and $656,530 at December 29, 2007 and December 30, 2006, respectively, nor
have
they been accrued by Garmin Ltd for the unremitted earnings of Garmin Europe
totaling approximately $87,954 and $50,526 at December 29, 2007 and December
30,
2006, respectively, for the same reason.
The
Company adopted the provisions of FASB Interpretation No. 48, Accounting
for
Uncertainty in Income Taxes (FIN 48), on December 31, 2006, the beginning
of
fiscal year 2007. As a result of the implementation of FIN 48, the Company
has not recognized a material increase or decrease in the liability for
unrecognized tax benefits. The total amount of unrecognized tax benefits
as of the date of adoption was $70.5 million including interest of $3.3 million.
The total amount of unrecognized tax benefits as of December 29, 2007 was
$126.6
million including interest of $4.7 million. A reconciliation of the
beginning and ending amount of unrecognized tax benefits is as follows (in
$millions):
Balance
at December 30, 2006
|
|
$
|
70.5
|
|
Additions
based on tax positions related to prior years
|
|
|
10.0
|
|
Reductions
based on tax positions related to prior years
|
|
|
(8.0
|
)
|
Additions
based on tax positions related to current period
|
|
|
73.0
|
|
Reductions
based on tax positions related to current period
|
|
|
-
|
|
Reductions
related to settelements with tax authorities
|
|
|
(7.6
|
)
|
Expiration
of statute of limitations
|
|
|
(11.3
|
)
|
Balance
at December 29, 2007
|
|
$
|
126.6
|
|
The
December 29, 2007 balance of $126.6 million of unrecognized tax benefits,
if
recognized, would reduce the effective tax rate. None of the unrecognized
tax benefits are due to uncertainty in the timing of deductibility.
FIN
48
requires unrecognized tax benefits to be classified as non-current liabilities,
except for the portion that is expected to be paid within one year of the
balance sheet date. The Company previously classified these amounts as
current liabilities, however after the adoption, the entire $126.6 million
is
required to be classified as non-current at December 29, 2007.
Interest
expense and penalties, if any, accrued on the unrecognized tax benefits are
reflected in income tax expense. $1.4 million of interest is included in
income tax expense for the year ending December 29, 2007. The Company had
no amounts accrued for penalties as the nature of the unrecognized tax benefits,
if recognized, would not warrant the imposition of penalties.
The
Company files income tax returns in the U.S. federal jurisdiction, and various
state, local and foreign jurisdictions. The Company is no longer subject
to US federal, state, or local tax examinations by tax authorities for years
prior to 2004. The Company also considers 2003 and 2004 US federal returns
to have been effectively settled due to the completion of audit examination
by
the Internal Revenue Service. The Company is no longer subject to Taiwan
income tax examinations by tax authorities for years prior to 2002. The
Company is no longer subject to United Kingdom tax examinations by tax
authorities for years prior to 2006.
At
this
time, we are unable to make a reasonably reliable estimate of the timing
of
payments in individual years beyond 12 months due to uncertainties in the
timing
of potential tax audit outcomes.
Use
of Estimates
The
preparation of consolidated financial statements in conformity with accounting
principles generally accepted in the United States requires management to
make
estimates and assumptions that affect the amounts reported in the consolidated
financial statements and accompanying notes. Actual results could differ
from
those estimates.
Concentration
of Credit Risk
The
Company grants credit to certain customers who meet the Company’s
pre-established credit requirements. Generally, the Company does not require
security when trade credit is granted to customers. Credit losses are provided
for in the Company’s consolidated financial statements and consistently have
been within management’s expectations. Certain customers are allowed extended
terms consistent with normal industry practice. Most of these extended terms
can
be classified as either relating to seasonal sales variations or to the timing
of new product releases by the Company.
Revenue
Recognition
The
Company recognizes revenue from product sales when the product is delivered
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
Shipping
and handling costs are included in cost of goods sold in the accompanying
consolidated financial statements.
Product
Warranty
The
Company provides for estimated warranty costs at the time of sale. The
warranty
period is generally for one year from date of shipment with the exception
of
certain aviation products for which the warranty period is two years from
the
date of installation and certain marine products with warranty periods
of three
years from the date of shipment
.
Sales
Programs
The
Company provides certain monthly and quarterly incentives for its dealers
based
on various factors including dealer purchasing volume and growth. Additionally,
from time to time, 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. In addition,
the
Company provides retailers with product discounts termed “price protection” to
assist these retailers in clearing older products from their inventories
in
advance of new product releases. These rebates, incentives, and price
protections 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 amounted
to
approximately $206,948, $114,749, and $59,309 for the years ended December
29,
2007, December 30, 2006, and December 31, 2005, respectively.
Research
and Development
A
majority of the Company’s research and development is performed in the United
States. Research and development costs, which are expensed as incurred,
amounted
to approximately $159,406, $113,314, and $74,879 for the years ended December
29, 2007, December 30, 2006, and December 31, 2005,
respectively.
Customer
Service and Technical Support
Customer
service and technical support costs are included on the sales and marketing
expense line on our statements of operations. Customer service and technical
support costs include costs associated with performing order processing,
answering customer inquiries by telephone and through Web sites, e-mail
and
other electronic means, and providing free technical support assistance
to
customers. In connection with the sale of certain products, we provide
a limited
amount of free technical support assistance to customers. The technical
support
is provided within one year after the associated revenue is recognized.
We
accrue the estimated cost of providing this free support upon product shipment.
Software
Development Costs
Statement
of Financial Accounting Standards (SFAS) 86,
“Accounting
for Costs of Computer Software to be Sold, Leased, or otherwise
Marketed,”
requires
companies to expense software development costs as they incur them until
technological feasibility has been established, at which time those costs
are
capitalized until the product is available for general release to customers.
Our
capitalized software development costs are not significant. SFAS 2,
“Accounting
for Research and Development Costs,”
establishes accounting and reporting standards for research and development.
In
accordance with SFAS 2, costs we incur to enhance our existing products or
after the general release of the service using the product are expensed
in the
period they are incurred and included in research and development costs
on our
statement of operations.
Accounting
for Stock-Based Compensation
The Company currently sponsors three stock based employee compensation
plans. On
January 1, 2006, the Company adopted Statement of Financial Accounting
Standards (“SFAS”) No. 123(R),
Share-Based
Payment
,
which
is a revision of SFAS No. 123,
Accounting
for Stock-Based Compensation
.
SFAS
No. 123(R) requires the measurement and recognition of compensation
expenses for all share-based payment awards made to employees and directors
including employee stock options and restricted stock based on estimated
fair
values. SFAS No. 123(R) supersedes the Company’s previous accounting under
Accounting Principles Board (“APB”) Opinion No. 25,
Accounting
for Stock Issued to Employees
,
for
periods beginning in fiscal 2006.
The Company adopted SFAS No. 123(R) using the modified prospective
method. Under the modified prospective method, compensation costs are recognized
beginning with the effective date based on the requirements of SFAS
No. 123(R) for all share-based payments granted after the effective date
and based on the requirements of SFAS No. 123 for all awards granted to
employees prior to the effective date of SFAS No. 123(R) that remain
unvested on the effective date. The Company’s consolidated financial statements
as of and for fiscal years ended December 29, 2007 and December 30, 2006
reflect
the impact of SFAS No. 123(R). In accordance with the modified prospective
transition method, the Company’s consolidated financial statements for periods
prior to adoption have not been restated to reflect, and do not include,
the
impact of SFAS No. 123(R).
SFAS No. 123(R) requires companies to estimate the fair value of
share-based payment awards on the date of grant using an option-pricing
model.
The value of the portion of the award that is ultimately expected to vest
is
recognized as stock-based compensation expenses over the requisite service
period in the Company’s consolidated financial statements. Prior to the adoption
of SFAS No. 123(R), the Company accounted for stock-based awards to
employees and directors using the intrinsic value method in accordance
with APB
Opinion No. 25 as allowed under SFAS No. 123. Under the intrinsic
value method, no stock-based compensation expenses have been recognized
in the
Company’s consolidated statements of income for stock options because the
exercise price of the Company’s stock options granted to employees and directors
equaled the fair market value of the underlying stock at the date of grant.
As stock-based compensation expenses recognized in the accompanying consolidated
statement of income for the fiscal years ended December 29, 2007 and December
30, 2006 are based on awards ultimately expected to vest, they have been
reduced
for estimated forfeitures. SFAS No. 123(R) requires forfeitures to be
estimated at the time of grant and revised, if necessary, in subsequent
periods
if actual forfeitures differ from those estimates. Forfeitures were estimated
based on historical experience and management’s estimates. In the Company’s pro
forma information required under SFAS No. 123 for the periods prior to
fiscal 2006, the Company accounted for stock option forfeitures as they
occurred. The cumulative adjustment to reduce costs that were actually
recognized to reflect estimated forfeitures is not material.
The
following table illustrates the effect on net income and earnings per share
if
the Company had applied the fair value recognition provisions of SFAS No.
123,
Accounting
for Stock-Based Compensation
,
to
stock-based employee compensation.
|
|
2005
|
|
Net
income as reported
|
|
$
|
311,219
|
|
Add:
Total stock-based employee compensation
|
|
|
|
|
expense
recorded during the year
|
|
|
925
|
|
Deduct:
Total stock-based employee compensation expense
|
|
|
|
|
determined
under fair-value based method for all awards,
|
|
|
|
|
net
of tax effects
|
|
|
(7,239
|
)
|
Pro
forma net income
|
|
$
|
304,905
|
|
|
|
|
|
|
Net
income per share as reported:
|
|
|
|
|
Basic
|
|
$
|
1.44
|
|
Diluted
|
|
$
|
1.43
|
|
Pro
forma net income per share:
|
|
|
|
|
Basic
|
|
$
|
1.41
|
|
Diluted
|
|
$
|
1.40
|
|
Recently
Issued Accounting Pronouncements
In
September 2006, the FASB issued Statement of Financial Accounting Standards
No.
157, Fair Value Measurements (“SFAS No. 157”). SFAS No. 157 establishes a
framework for measuring fair value in GAAP, and expands disclosures about
fair
value measurements. SFAS No. 157 applies under other accounting pronouncements
that require or permit fair value measurements. This statement is effective
for
fiscal years beginning after November 15, 2007, and interim periods within
those fiscal years. The Company will be required to adopt SFAS No. 157 in
the first quarter of fiscal year 2008.
We
do not
expect the adoption of SFAS No. 157 to have a material impact on our financial
reporting and disclosure.
In
February 2007, the FASB issued Statement of Financial Accounting Standards
(“SFAS No. 159”), “The Fair Value Option for Financial Assets and Financial
Liabilities.” SFAS No. 159 allows entities the option to measure eligible
financial instruments at fair value as of specified dates. Such election,
which
may be applied on an instrument by instrument basis, is typically irrevocable
once elected. SFAS No. 159 is effective for fiscal years beginning
after November 15, 2007, and early application is allowed under certain
circumstances. Management is currently evaluating the requirements of SFAS
No. 159 and has not yet determined the impact, if any, on the Company’s
consolidated financial statements.
In
June
2007, the FASB also ratified EITF 07-3, "Accounting for Nonrefundable Advance
Payments for Goods or Services Received for Use in Future Research and
Development Activities" ("EITF 07-3"). EITF 07-3 requires that
nonrefundable advance payments for goods or services that will be used or
rendered for future research and development activities be deferred and
capitalized and recognized as an expense as the goods are delivered or the
related services are performed. EITF 07-3 is effective, on a prospective
basis, for fiscal years beginning after December 15, 2007 and will be
adopted by the Company in the first quarter of fiscal 2008. The Company does
not
expect the adoption of EITF 07-3 to have a material effect on the Company's
consolidated results of operations and financial condition.
In
December 2007, the FASB issued SFAS No. 141 (revised 2007), "Business
Combinations" ("SFAS 141R"). SFAS 141R establishes principles and
requirements for how an acquirer recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed, any
noncontrolling interest in the acquiree and the goodwill acquired.
SFAS 141R also establishes disclosure requirements to enable the evaluation
of the nature and financial effects of the business combination. SFAS 141R
is effective for fiscal years beginning after December 15, 2008, and will
be adopted by the Company in the first quarter of fiscal 2009. The Company
is
currently evaluating the potential impact, if any, of the adoption of
SFAS 141R on its consolidated results of operations and financial
condition.
4.
Marketable Securities
The
following is a summary of the Company’s marketable securities classified as
available-for-sale securities at December 29, 2007:
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains/(Losses)
|
|
Estimated
Fair
Value
(Net Carrying Amount)
|
|
Mortgage-backed
securities
|
|
$
|
99,749
|
|
|
($68
|
)
|
$
|
99,681
|
|
Obligations
of states and political subdivisions
|
|
|
59,497
|
|
|
158
|
|
|
59,655
|
|
U.S.
corporate bonds
|
|
|
8,479
|
|
|
(219
|
)
|
|
8,260
|
|
Equity
securities
|
|
|
188,971
|
|
|
46,688
|
|
|
235,659
|
|
Other
|
|
|
21,333
|
|
|
(83
|
)
|
|
21,250
|
|
Total
|
|
$
|
378,029
|
|
$
|
46,476
|
|
$
|
424,505
|
|
The
following is a summary of the Company’s marketable securities classified as
available-for-sale securities at December 30, 2006:
|
|
Amortized
Cost
|
|
Gross
Unrealized Gains/(Losses)
|
|
Estimated
Fair Value (Net Carrying Amount)
|
|
Mortgage-backed
securities
|
|
$
|
359,809
|
|
|
($4,071
|
)
|
$
|
355,738
|
|
Obligations
of states and political subdivisions
|
|
|
48,354
|
|
|
(193
|
)
|
|
48,161
|
|
U.S.
corporate bonds
|
|
|
57,926
|
|
|
(429
|
)
|
|
57,497
|
|
Other
|
|
|
19,521
|
|
|
(41
|
)
|
|
19,480
|
|
Total
|
|
$
|
485,610
|
|
|
($4,734
|
)
|
$
|
480,876
|
|
The
amortized cost and estimated fair value of marketable securities at December
29,
2007, by contractual maturity, are shown below. Expected maturities will
differ
from contractual maturities because the issuers of the securities may have
the
right to prepay obligations without prepayment penalties.
|
|
|
|
Estimated
|
|
|
|
Cost
|
|
Fair
Value
|
|
|
|
|
|
|
|
Due
in one year or less (2008)
|
|
$
|
225,777
|
|
$
|
272,460
|
|
Due
after one year through five years (2009-2013)
|
|
|
29,527
|
|
|
29,463
|
|
Due
after five years through ten years (2014-2018)
|
|
|
47,806
|
|
|
47,747
|
|
Due
after ten years (2019 and thereafter)
|
|
|
74,919
|
|
|
74,835
|
|
|
|
$
|
378,029
|
|
$
|
424,505
|
|
The
Company invests in auction rate securities which effectively mature every
28
days. Upon maturity, the proceeds are reinvested in the same security. The
effective maturity date differs from the stated maturity dates. The securities
are classified in the balance sheet at their stated maturity dates.
5.
Commitments and Contingencies
Rental
expense related to office, equipment, warehouse space and real estate amounted
to $5,546, $3,119, and $690 for the years ended December 29, 2007, December
30,
2006, and December 31, 2005, respectively.
Future
minimum lease payments are as follows:
Year
|
|
Amount
|
|
|
|
|
|
2008
|
|
$
|
6,581
|
|
2009
|
|
|
6,069
|
|
2010
|
|
|
5,515
|
|
2011
|
|
|
4,778
|
|
2012
|
|
|
4,484
|
|
Thereafter
|
|
|
16,012
|
|
Certain
cash balances of GEL are held as collateral by a bank securing payment
of the
United Kingdom value-added tax requirements. The total amount of restricted
cash
balances were $1,554 and $1,525 at December 29, 2007 and December 30, 2006,
respectively.
In
the
normal course of business, the Company and its subsidiaries are parties
to
various legal claims, actions, and complaints, including matters involving
patent infringement and other intellectual property claims and various
other
risks. It is not possible to predict with certainty whether or not the
Company
and its subsidiaries will ultimately be successful in any of these legal
matters, or if not, what the impact might be. However, the Company’s management
does not expect that the results in any of these legal proceedings will
have a
material adverse effect on the Company’s results of operations, financial
position or cash flows.
We
may be
required to make significant cash outlays related to unrecognized tax benefits.
However, due to the uncertainty of the timing of future cash flows associated
with our unrecognized tax benefits, we are unable to make reasonably reliable
estimates of the period of cash settlement, if any, with the respective
taxing
authorities. Accordingly, unrecognized tax benefits of $126.6 million as
of
December 29, 2007, have been excluded from the contractual obligations
table
above. For further information related to unrecognized tax benefits, see
Note 7,
“Income Taxes”, to the consolidated financial statements included in this
Report.
6.
Employee Benefit Plans
GII
sponsors a defined contribution employee retirement plan under which its
employees may contribute up to 50% of their annual compensation subject
to
Internal Revenue Code maximum limitations and to which GII contributes
a
specified percentage of each participant’s annual compensation up to certain
limits as defined in the Plan. Additionally, GEL has a defined contribution
plan
under which its employees may contribute up to 7.5% of their annual
compensation. Both GII and GEL contribute an amount determined annually
at the
discretion of the Board of Directors. During the years ended December 29,
2007,
December 30, 2006, and December 31, 2005, expense related to these plans
of
$11,412, $8,690, and $6,378, was charged to operations.
Certain
of the Company’s foreign subsidiaries participate in local defined benefit
pension plans. Contributions are calculated by formulas that consider final
pensionable salaries. Neither obligations nor contributions for the years
ended
December 29, 2007, December 30, 2006, and December 31, 2005, were significant.
7.
Income Taxes
The
Company’s income tax provision (benefit) consists of the
following:
|
|
Fiscal
Year Ended
|
|
|
|
December
29,
|
|
December
30,
|
|
December
31,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
Federal:
|
|
|
|
|
|
|
|
Current
|
|
$
|
132,452
|
|
$
|
42,850
|
|
$
|
7,738
|
|
Deferred
|
|
|
(42,193
|
)
|
|
(21,153
|
)
|
|
11,741
|
|
|
|
|
90,259
|
|
|
21,697
|
|
|
19,479
|
|
State:
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
12,569
|
|
|
4,935
|
|
|
(656
|
)
|
Deferred
|
|
|
(2,916
|
)
|
|
(3,922
|
)
|
|
3,219
|
|
|
|
|
9,653
|
|
|
1,013
|
|
|
2,563
|
|
Foreign:
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
34,334
|
|
|
65,441
|
|
|
45,466
|
|
Deferred
|
|
|
(10,984
|
)
|
|
(7,720
|
)
|
|
(6,127
|
)
|
|
|
|
23,350
|
|
|
57,721
|
|
|
39,339
|
|
Total
|
|
$
|
123,262
|
|
$
|
80,431
|
|
$
|
61,381
|
|
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, including the impact of establishing tax contingency accruals,
are as follows:
|
|
Fiscal
Year Ended
|
|
|
|
December
29,
|
|
December
30,
|
|
December
31,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
Federal
income tax expense at
|
|
|
|
|
|
|
|
U.S.
statutory rate
|
|
$
|
342,396
|
|
$
|
208,094
|
|
$
|
130,410
|
|
State
income tax expense, net of
|
|
|
|
|
|
|
|
|
|
|
federal
tax effect
|
|
|
5,922
|
|
|
658
|
|
|
1,666
|
|
Foreign
tax rate differential
|
|
|
(230,243
|
)
|
|
(112,903
|
)
|
|
(53,712
|
)
|
Taiwan
tax holiday benefit
|
|
|
(44,128
|
)
|
|
(50,905
|
)
|
|
(48,175
|
)
|
Other
foreign taxes less
|
|
|
|
|
|
|
|
|
|
|
incentives
and credits
|
|
|
55,983
|
|
|
43,445
|
|
|
30,427
|
|
Other,
net
|
|
|
(6,668
|
)
|
|
(7,958
|
)
|
|
765
|
|
Income
tax expense
|
|
$
|
123,262
|
|
$
|
80,431
|
|
$
|
61,381
|
|
The
Company’s income before income taxes attributable to non-U.S. operations was
$850,102, $508,367, and $307,712, for the years ended December 29, 2007,
December 30, 2006, and December 31, 2005, respectively. The Taiwan tax
holiday
benefits included in the table above reflect $0.20, $0.24, and $0.22 per
weighted-average common share outstanding for the years ended December
29, 2007,
December 30, 2006, and December 31, 2005, respectively. The Company currently
expects to benefit from these Taiwan tax holidays through 2012, at which
time
these tax benefits expire.
Deferred
income taxes reflect the net tax effects of temporary differences between
the
carrying amounts of assets and liabilities for financial reporting purposes
and
the amounts used for income tax purposes. Significant components of the
Company’s deferred tax assets and liabilities are as follows:
|
|
December
29,
|
|
December
30,
|
|
December
31,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
|
Product
warranty accruals
|
|
$
|
18,975
|
|
$
|
11,259
|
|
$
|
5,017
|
|
Allowance
for doubtful accounts
|
|
|
2,430
|
|
|
1,327
|
|
|
1,361
|
|
Inventory
reserves
|
|
|
7,699
|
|
|
4,555
|
|
|
4,120
|
|
Sales
program allowances
|
|
|
42,832
|
|
|
12,629
|
|
|
3,798
|
|
Reserve
for sales returns
|
|
|
5,565
|
|
|
1,660
|
|
|
566
|
|
Other
accrual
|
|
|
3,911
|
|
|
2,424
|
|
|
1,401
|
|
Unrealized
intercompany profit in inventory
|
|
|
30,006
|
|
|
21,115
|
|
|
12,978
|
|
Unrealized
investment loss
|
|
|
-
|
|
|
-
|
|
|
219
|
|
Unrealized
foreign currency loss
|
|
|
-
|
|
|
325
|
|
|
-
|
|
Stock
option compensation
|
|
|
8,887
|
|
|
3,720
|
|
|
-
|
|
Tax
credit carryforwards, net
|
|
|
303
|
|
|
2,181
|
|
|
1,482
|
|
Net
operating losses of subsidiairies
|
|
|
1,204
|
|
|
-
|
|
|
-
|
|
Other
|
|
|
4,649
|
|
|
4,225
|
|
|
550
|
|
|
|
|
126,461
|
|
|
65,420
|
|
|
31,492
|
|
Deferred
tax liabilities:
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
9,209
|
|
|
7,883
|
|
|
9,019
|
|
Prepaid
Expenses
|
|
|
6,498
|
|
|
-
|
|
|
-
|
|
Unrealized
foreign currency loss
|
|
|
161
|
|
|
-
|
|
|
-
|
|
Book
basis in excess of tax basis for acquired entities
|
|
|
14,867
|
|
|
-
|
|
|
-
|
|
Unrealized
investment gain
|
|
|
31
|
|
|
278
|
|
|
-
|
|
Other
|
|
|
254
|
|
|
2,454
|
|
|
2,344
|
|
|
|
|
31,020
|
|
|
10,615
|
|
|
11,363
|
|
Net
deferred tax assets
|
|
$
|
95,441
|
|
$
|
54,805
|
|
$
|
20,129
|
|
8.
Fair Value of Financial Instruments
In
accordance with SFAS No. 107,
Disclosures
about Fair Value of Financial Instruments
,
the
following summarizes required information about the fair value of certain
financial instruments for which it is currently practicable to estimate such
value. None of the financial instruments are held or issued for trading
purposes. The carrying amounts and fair values of the Company’s financial
instruments are as follows:
|
|
December
29, 2007
|
|
December
30, 2006
|
|
|
|
Carrying
|
|
Fair
|
|
Carrying
|
|
Fair
|
|
|
|
Amount
|
|
Value
|
|
Amount
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
707,689
|
|
$
|
707,689
|
|
$
|
337,321
|
|
$
|
337,321
|
|
Restricted
cash
|
|
|
1,554
|
|
|
1,554
|
|
|
1,525
|
|
|
1,525
|
|
Marketable
securities
|
|
|
424,505
|
|
|
424,505
|
|
|
480,876
|
|
|
480,876
|
|
For
certain of the Company’s financial instruments, including accounts receivable,
accounts payable and other accrued liabilities, the carrying amounts approximate
fair value due to their short maturities.
9.
Segment Information
The
Company operates within its targeted markets through four reportable segments,
those being related to products sold into the marine, automotive/mobile,
outdoor/fitness, and aviation markets. All of the Company’s reportable segments
offer products through the Company’s network of independent dealers and
distributors as well as through OEM’s. However, the nature of products and types
of customers for the four segments vary significantly. As such, the segments
are
managed separately. The Company’s marine, automotive/mobile, and outdoor/fitness
segments include portable global positioning system (GPS) receivers and
accessories sold primarily to retail outlets. These products are produced
primarily by the Company’s subsidiary in Taiwan. 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 aviation dealers and certain
aircraft manufacturers.
The
Company’s Chief Executive Officer has been identified as the Chief Operating
Decision Maker (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 inter-segment
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, intangible assets, 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:
|
|
Fiscal
Year Ended December 29, 2007
|
|
|
|
|
|
Outdoor/
|
|
|
|
Auto/
|
|
|
|
|
|
Aviation
|
|
Fitness
|
|
Marine
|
|
Mobile
|
|
Total
|
|
Net
sales to external customers
|
|
$
|
294,995
|
|
$
|
339,741
|
|
$
|
203,399
|
|
$
|
2,342,184
|
|
$
|
3,180,319
|
|
Allocated
interest income
|
|
|
2,258
|
|
|
4,661
|
|
|
3,127
|
|
|
31,949
|
|
|
41,995
|
|
Allocated
interest expense
|
|
|
(3
|
)
|
|
(92
|
)
|
|
(10
|
)
|
|
(102
|
)
|
|
(207
|
)
|
Income
before income taxes
|
|
|
113,407
|
|
|
127,803
|
|
|
71,920
|
|
|
665,143
|
|
|
978,273
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
88,352
|
|
|
101,753
|
|
|
60,918
|
|
|
701,490
|
|
|
952,513
|
|
Inventories
|
|
|
46,885
|
|
|
53,997
|
|
|
32,327
|
|
|
372,258
|
|
|
505,467
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended December 30, 2006
|
|
|
|
|
|
|
|
Outdoor/
|
|
|
|
|
|
Auto/
|
|
|
|
|
|
|
|
Aviation
|
|
|
Fitness
|
|
|
Marine
|
|
|
Mobile
|
|
|
Total
|
|
Net
sales to external customers
|
|
$
|
232,906
|
|
$
|
285,362
|
|
$
|
166,639
|
|
$
|
1,089,093
|
|
$
|
1,774,000
|
|
Allocated
interest income
|
|
|
1,952
|
|
|
5,693
|
|
|
3,020
|
|
|
25,232
|
|
|
35,897
|
|
Allocated
interest expense
|
|
|
49
|
|
|
(44
|
)
|
|
17
|
|
|
(63
|
)
|
|
(41
|
)
|
Income
before income taxes
|
|
|
86,141
|
|
|
120,905
|
|
|
65,087
|
|
|
322,421
|
|
|
594,554
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
52,978
|
|
|
64,910
|
|
|
37,905
|
|
|
247,731
|
|
|
403,524
|
|
Inventories
|
|
|
35,580
|
|
|
43,594
|
|
|
25,457
|
|
|
166,377
|
|
|
271,008
|
|
|
|
|
Fiscal
Year Ended December 31, 2005
|
|
|
|
|
|
|
|
Outdoor/
|
|
|
|
|
|
Auto/
|
|
|
|
|
|
|
|
Aviation
|
|
|
Fitness
|
|
|
Marine
|
|
|
Mobile
|
|
|
Total
|
|
Net
sales to external customers
|
|
$
|
229,158
|
|
$
|
236,936
|
|
$
|
158,262
|
|
$
|
403,417
|
|
$
|
1,027,773
|
|
Allocated
interest income
|
|
|
1,257
|
|
|
4,901
|
|
|
3,152
|
|
|
10,276
|
|
|
19,586
|
|
Allocated
interest expense
|
|
|
(3
|
)
|
|
(12
|
)
|
|
(8
|
)
|
|
(25
|
)
|
|
(48
|
)
|
Income
before income taxes
|
|
|
99,504
|
|
|
90,937
|
|
|
56,620
|
|
|
125,539
|
|
|
372,600
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
38,127
|
|
|
39,421
|
|
|
26,331
|
|
|
67,118
|
|
|
170,997
|
|
Inventories
|
|
|
44,558
|
|
|
46,070
|
|
|
30,773
|
|
|
78,440
|
|
|
199,841
|
|
Net
sales, long-lived assets (property and equipment), and net assets by geographic
area are as follows as of and for the years ended December 29, 2007, December
30, 2006, and December 31, 2005:
|
|
North
|
|
|
|
|
|
|
|
|
|
America
|
|
Asia
|
|
Europe
|
|
Total
|
|
December
29, 2007
|
|
|
|
|
|
|
|
|
|
Net
sales to external customers
|
|
$
|
2,066,823
|
|
$
|
144,155
|
|
$
|
969,341
|
|
$
|
3,180,319
|
|
Long-lived
assets
|
|
|
185,838
|
|
|
143,181
|
|
|
45,128
|
|
|
374,147
|
|
Net
assets
|
|
|
908,267
|
|
|
1,309,783
|
|
|
132,564
|
|
|
2,350,614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales to external customers
|
|
$
|
1,093,581
|
|
$
|
87,048
|
|
$
|
593,371
|
|
$
|
1,774,000
|
|
Long-lived
assets
|
|
|
148,922
|
|
|
65,280
|
|
|
36,786
|
|
|
250,988
|
|
Net
assets
|
|
|
431,795
|
|
|
1,074,827
|
|
|
51,277
|
|
|
1,557,899
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales to external customers
|
|
$
|
661,085
|
|
$
|
50,447
|
|
$
|
316,241
|
|
$
|
1,027,773
|
|
Long-lived
assets
|
|
|
135,875
|
|
|
42,770
|
|
|
528
|
|
|
179,173
|
|
Net
assets
|
|
|
377,684
|
|
|
742,843
|
|
|
36,737
|
|
|
1,157,264
|
|
No
single
customer accounted for 10% or more of the Company’s consolidated net sales in
any period.
10.
Stock Compensation Plans
Accounting
for Stock-Based Compensation
The
various Company stock compensation plans are summarized below:
2005
Equity Incentive Plan
In
June
2005, the shareholders adopted an equity incentive plan (the “2005 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 10,000,000 common shares were available for issuance.
The stock options and stock appreciation rights vest evenly over a period
of
five years or as otherwise determined by the Board of Directors or the
Compensation Committee and generally expire ten years from the date of
grant, if
not exercised. During 2007, 2006, and 2005, the Company granted 2,838,200,
2,341,800, and 896,000 stock appreciation rights, respectively.
2000
Equity Incentive Plan
In
October 2000, the shareholders adopted an equity incentive plan (the
“2000
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 7,000,000 common shares of common
stock
were available for issuance. The stock options and stock appreciation
rights
vest evenly over a period of five years or as otherwise determined by
the Board
of Directors or the Compensation Committee and generally expire ten years
from
the date of grant, if not exercised. During 2007, the Company granted
20,000
stock appreciation rights and during 2006 and 2005 the Company granted
64,131
and 755,750 nonqualified stock options, respectively.
2000
Non-employee Directors’ Option Plan
Also
in
October 2000, the stockholders adopted a stock option plan for non-employee
directors (the Directors Plan) providing for grants of options for up
to 100,000
common shares. The term of each award is ten years. All awards vest evenly
over
a three-year period. During 2007, 2006, and 2005, options to purchase
5,562,
7,630, and 11,000 shares, respectively, were granted under this plan.
Stock-Based
Compensation Activity
A
summary
of the Company’s stock-based compensation activity and related information under
the 2005 Equity Incentive Plan, the 2000 Equity Incentive Plan and
the 2000
Non-employee Directors’ Option Plan for the years ended December 29, 2007,
December 30, 2006, and December 31, 2005 is provided below:
|
|
Weighted-Average
|
|
|
|
|
|
Exercise
Price
|
|
Number
of Shares
|
|
|
|
|
|
(In
Thousands)
|
|
|
|
|
|
|
|
Outstanding
at December 25, 2004
|
|
|
16.06
|
|
|
5,450
|
|
Granted
|
|
|
26.51
|
|
|
1,672
|
|
Exercised
|
|
|
10.68
|
|
|
(644
|
)
|
Forfeited
|
|
|
18.51
|
|
|
(124
|
)
|
Outstanding
at December 31, 2005
|
|
|
19.29
|
|
|
6,354
|
|
Granted
|
|
|
48.54
|
|
|
2,413
|
|
Exercised
|
|
|
12.59
|
|
|
(994
|
)
|
Forfeited
|
|
|
28.57
|
|
|
(47
|
)
|
Outstanding
at December 30, 2006
|
|
$
|
29.24
|
|
|
7,726
|
|
Granted
|
|
$
|
84.61
|
|
|
2,864
|
|
Exercised
|
|
$
|
18.29
|
|
|
(934
|
)
|
Forfeited
|
|
$
|
38.11
|
|
|
(125
|
)
|
Outstanding
at December 29, 2007
|
|
$
|
46.82
|
|
|
9,531
|
|
Exercisable
at December 29, 2007
|
|
$
|
23.21
|
|
|
3,111
|
|
|
|
Stock
Options as of December 29, 2007
|
|
|
|
Options
|
|
Remaining
|
|
Options
|
|
Price
|
|
Outstanding
|
|
Life
(Years)
|
|
Exercisable
|
|
|
|
(In
Thousands)
|
|
|
|
(In
Thousands)
|
|
|
|
|
|
|
|
|
|
$7.00
-$20.00
|
|
|
2,139
|
|
|
5.39
|
|
|
1,611
|
|
$20.01
- $40.00
|
|
|
2,270
|
|
|
7.15
|
|
|
1,091
|
|
$40.01
- $60.00
|
|
|
2,296
|
|
|
8.71
|
|
|
409
|
|
$60.01
- $80.00
|
|
|
1,376
|
|
|
9.44
|
|
|
-
|
|
$80.01
- $100.00
|
|
|
4
|
|
|
9.67
|
|
|
-
|
|
$100.01
- $120.00
|
|
|
1,443
|
|
|
9.93
|
|
|
-
|
|
$120.01
- $140.00
|
|
|
3
|
|
|
9.77
|
|
|
-
|
|
|
|
|
9,531
|
|
|
7.88
|
|
|
3,111
|
|
The
weighted-average remaining contract life for options outstanding and
exercisable
at December 29, 2007 are 7.88 and 6.11 years. respectively.
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 2007,
2006 and 2005:
|
|
2007
|
|
2006
|
|
2005
|
|
Weighted
average fair value of options granted
|
|
$
|
33.81
|
|
$
|
20.01
|
|
$
|
9.48
|
|
Expected
volatility
|
|
|
0.3677
|
|
|
0.3534
|
|
|
0.3224
|
|
Dividend
yield
|
|
|
0.76
|
%
|
|
1.00
|
%
|
|
0.98
|
%
|
Expected
life of options in years
|
|
|
6.0
|
|
|
6.3
|
|
|
6.3
|
|
Risk-free
interest rate
|
|
|
4
|
%
|
|
5
|
%
|
|
4
|
%
|
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.
The
total
fair value of shares vested during 2007, 2006 and 2005 was $17,840, $9,413,
and
$8,249, respectively.
The
aggregate intrinsic values of options outstanding and exercisable at
December 29, 2007 were $508.0 million and $236.3 million, respectively. The
aggregate intrinsic value of options exercised during the year ended
December 29, 2007 was $75.5 million. Aggregate intrinsic value represents
the positive difference between the Company’s closing stock price on the last
trading day of the fiscal period, which was $99.17 on December 28, 2007,
and the exercise price multiplied by the number of options outstanding.
As
of
December 29, 2007, there was $137.8 million of total unrecognized
compensation cost related to unvested share-based compensation awards
granted to
employees under the option plans. That cost is expected to be recognized
over a
period of five years.
Employee
Stock Purchase Plan
The
shareholders also adopted an employee stock purchase plan (ESPP). Up
to
2,000,000 shares of common stock have been reserved for the ESPP. Shares
will be
offered to employees at a price equal to the lesser of 85% of the fair
market
value of the stock on the date of purchase or 85% of the fair market
value on
the enrollment date. The ESPP is intended to qualify as an “employee stock
purchase plan” under Section 423 of the Internal Revenue Code. During 2007,
2006, and 2005, 120,230, 124,693, and 112,798 shares, respectively were
purchased under the plan for a total purchase price of $5,730, $3,569,
and
$2,824, respectively. At December 29, 2007, approximately 996,581 shares
were
available for future issuance.
11.
Earnings Per Share
The
following table sets forth the computation of basic and diluted net income
per
share:
|
|
Fiscal
Year Ended
|
|
|
|
December
29,
|
|
December
30,
|
|
December
31,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
Numerator
(in thousands):
|
|
|
|
|
|
|
|
Numerator
for basic and diluted
|
|
|
|
|
|
|
|
net
income per share - net income
|
|
$
|
855,011
|
|
$
|
514,123
|
|
$
|
311,219
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
Denominator
for basic net income per share -
|
|
|
|
|
|
|
|
|
|
|
weighted-average
common shares
|
|
|
216,524
|
|
|
216,340
|
|
|
216,294
|
|
Effect
of dilutive securities -
|
|
|
|
|
|
|
|
|
|
|
employee
stock-based awards (note 10)
|
|
|
3,351
|
|
|
2,505
|
|
|
1,942
|
|
Denominator
for diluted net income per share -
|
|
|
|
|
|
|
|
|
|
|
weighted-average
common shares
|
|
|
219,875
|
|
|
218,845
|
|
|
218,236
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
net income per share
|
|
$
|
3.95
|
|
$
|
2.38
|
|
$
|
1.44
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
net income per share
|
|
$
|
3.89
|
|
$
|
2.35
|
|
$
|
1.43
|
|
Options
to purchase 886,000, 757,000, and 1,044,000 common shares were outstanding
during 2007, 2006, and 2005 respectively, but were not included in the
computation of diluted earnings per share because the effect was
antidilutive.
12.
Share Repurchase Program
The
Board
of Directors approved a share repurchase program on August 3, 2006, authorizing
the Company to purchase up to 3,000,000 of its common shares as market and
business conditions warrant. The share repurchase authorization expired on
December 31, 2007. From inception to expiration, 1,212,535 shares were
repurchased and retired under this plan.
The
Board
of Directors approved a share repurchase program on April 21, 2004, authorizing
the Company to purchase up to 6,000,000 million of its common shares as market
and business conditions warrant. The share repurchase authorization expired
on
April 30, 2006. From inception to expiration, 1,476,000 shares were repurchased
and retired under this plan.
13.
Shareholder Rights Plan
On
October 24, 2001, Garmin’s Board of Directors adopted a shareholder rights plan
(the “Rights Plan”). Pursuant to the Rights Plan, the Board declared a dividend
of one preferred share purchase right on each outstanding common share of Garmin
to shareholders of record as of November 1, 2001. The rights trade together
with
Garmin’s common shares. The rights generally will become exercisable if a person
or group acquires or announces an intention to acquire 15% or more of Garmin’s
outstanding common shares. Each right (other than those held by the new 15%
shareholder) will then be exercisable to purchase preferred shares of Garmin
(or
in certain instances other securities of Garmin) having at that time a market
value equal to two times the then current exercise price. Garmin’s Board of
Directors may redeem the rights at $0.001 per right at any time before the
rights become exercisable. The rights expire on October 31,
2011.
14.
Selected Quarterly Information (Unaudited)
|
|
Fiscal
Year Ended December 29, 2007
|
|
|
|
Quarter
Ending
|
|
|
|
March
31
|
|
June
30
|
|
September
29
|
|
December
29
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
492,159
|
|
$
|
742,466
|
|
$
|
728,673
|
|
$
|
1,217,021
|
|
Gross
profit
|
|
|
237,752
|
|
|
374,667
|
|
|
341,851
|
|
|
508,985
|
|
Net
income
|
|
|
139,860
|
|
|
214,377
|
|
|
193,507
|
|
|
307,267
|
|
Basic
net income per share
|
|
$
|
0.65
|
|
$
|
0.99
|
|
$
|
0.89
|
|
$
|
1.42
|
|
|
|
Fiscal
Year Ended December 30, 2006
|
|
|
|
Quarter
Ending
|
|
|
|
April
1
|
|
July
1
|
|
September
30
|
|
December
30
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
322,311
|
|
$
|
432,468
|
|
$
|
407,997
|
|
$
|
611,224
|
|
Gross
profit
|
|
|
162,790
|
|
|
216,284
|
|
|
198,860
|
|
|
304,452
|
|
Net
income
|
|
|
87,516
|
|
|
123,286
|
|
|
122,978
|
|
|
180,343
|
|
Basic
net income per share
|
|
$
|
0.40
|
|
$
|
0.57
|
|
$
|
0.57
|
|
$
|
0.84
|
|
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. These results are not necessarily
indicative of future quarterly results.
15.
Acquisitions
In
the
first quarter of 2007, Garmin Ltd. acquired EME TecSat SAS (the exclusive
distributor of Garmin’s consumer products in France which has since been renamed
Garmin France SAS), Digital Cyclone, Inc. (a location based services provider),
and the assets of Nautamatic Marine Systems, Inc. (a manufacturer of the
TR-1
Gold and Gladiator marine autopilots).
In
the
third quarter of 2007, Garmin Ltd. acquired GPS Gesellschaft fur Professionelle
Satellitennavigation mbH (Garmin’s exclusive distributor of consumer products in
Germany which has since been renamed Garmin Deutschland GmbH).
In
the
fourth quarter of 2007, Garmin Ltd. acquired Electronica Trepat SA (Garmin’s
distributor of consumer products in Spain and now renamed Garmin Iberia S.A.)
and Synergy S.p.A (Garmin’s distributor of consumer products in Italy which has
since been renamed Garmin Italia S.p.A.).
These
companies were acquired for $150.0 million less $21.2 million cash acquired.
The
preliminary purchase price allocation resulted in an increase in goodwill
and
intangible assets of $110.6 million. These acquisitions are not material,
either
individually or in aggregate, therefore supplemental pro forma information
is
not presented.
16.
Warranty Reserves
The
Company’s products sold are generally covered by a warranty for periods ranging
from one to two years. The Company’s estimate of costs to service its warranty
obligations are based on historical experience and expectation of future
conditions and are recorded as a liability on the balance sheet. The following
reconciliation provides an illustration of changes in the aggregate warranty
reserve:
|
|
Fiscal
Year Ended
|
|
|
|
December
29,
|
|
December
30,
|
|
December
31,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
Balance
- beginning of period
|
|
|
37,639
|
|
$
|
18,817
|
|
$
|
15,518
|
|
Accrual
for products sold during the period
|
|
|
98,702
|
|
|
51,080
|
|
|
18,037
|
|
Expenditures
|
|
|
(64,705
|
)
|
|
(32,258
|
)
|
|
(14,738
|
)
|
Balance
- end of period
|
|
|
71,636
|
|
$
|
37,639
|
|
$
|
18,817
|
|
17.
Subsequent Events
On
January 17, 2008, Garmin Ltd. acquired Fairpoint Navigation A/S, the distributor
of Garmin’s consumer products in Denmark. The company has since been renamed
Garmin Danmark A/S. This acquisition was not material.
The
Board
of Directors approved a share repurchase program on February 4, 2008,
authorizing the Company to purchase up to 5,000,000 million of its common
shares
as market and business conditions warrant. The share repurchase authorization
expires on December 31, 2009.
The
range
of low and high closing sales prices of Garmin’s common shares as reported on
the Nasdaq Stock Market between December 30, 2007 and February 22, 2008
have
been $59.36 and $97.00.
Item
9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
None.
Item
9A. Controls and Procedures
(a)
Conclusion Regarding the Effectiveness of Disclosure Controls and
Procedures
Under
the
supervision and with the participation of our management, including the
Chief
Executive Officer and Chief Financial Officer, we have evaluated the
effectiveness of the design and operation of our disclosure controls
and
procedures pursuant to Exchange Act Rule 13a-15(b) as of the end of the
period
covered by this report. Based on the evaluation, the Chief Executive
Officer and
Chief Financial Officer have concluded that these disclosure controls
and
procedures are effective.
(b)
Management’s Report on Internal Control over Financial
Reporting
Management
of the Company is responsible for establishing and maintaining adequate
internal
control over financial reporting for the Company. The Company’s internal control
over financial reporting is a process designed to provide reasonable
assurance
regarding the reliability of financial reporting and the preparation
of
financial statements for external purposes in accordance with generally
accepted
accounting principles.
Because
of its inherent limitations, internal control over financial reporting
may not
prevent or detect misstatements. Also, projections of any evaluation
of
effectiveness to future periods are subject to the risk that controls
may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Management’s
assessment of and conclusion on the effectiveness of internal control
over
financial reporting did not include the operations resulting from the
five
acquisitions (collectively “the Acquisitions”) which were acquired during fiscal
2007 and are included in the 2007 consolidated financial statements.
The
financial reporting systems of the Acquisitions were integrated into
the
company’s financial reporting systems throughout 2007. Therefore, the company
did not have the practical ability to perform an assessment of their
internal
controls in time for this current year end. The company fully expects
to include
the Acquisitions in next year’s assessment. The Acquisitions constituted $313.1
million and $88.8 million of total and net assets, respectively, as of
December
29, 2007 and $209.6 million and $2.9 million of revenues and net loss,
respectively, for the year then ended in the consolidated financial
statements.
Management
of the Company assessed the effectiveness of the Company’s internal control over
financial reporting as of December 29, 2007. In making this assessment,
management used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in “Internal Control-Integrated
Framework”.
Based
on
such assessment and those criteria, management believes that the Company
maintained effective internal control over financial reporting as of
December
29, 2007.
Ernst
& Young LLP, the independent registered public accounting firm that audited
the Company’s consolidated financial statements, issued an attestation report on
management’s effectiveness of the Company’s internal control over financial
reporting as of December 29, 2007, as stated in their report which is
included
herein. That attestation report appears below.
(c)
Attestation
Report of the Independent Registered Public Accounting
Firm
Report
of Independent Registered Public Accounting Firm on Internal Control
over
Financial Reporting
The
Board
of Directors and Shareholders
Garmin
Ltd.
We
have
audited Garmin Ltd.’s internal control over financial reporting as of December
29, 2007, based on criteria established in Internal Control—Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission
(the COSO criteria)
.
Garmin
Ltd.’s management is responsible for maintaining effective internal control
over
financial reporting, and for its assessment of the effectiveness of internal
control over financial reporting included in the accompanying Management’s
Report on Internal Control over Financial Reporting. Our responsibility
is to
express an opinion on the company’s internal control over financial reporting
based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control
over
financial reporting, assessing the risk that a material weakness exists,
testing
and evaluating the design and operating effectiveness of internal control
based
on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a
reasonable
basis for our opinion.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in
accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain
to
the maintenance of records that, in reasonable detail, accurately and
fairly
reflect the transactions and dispositions of the assets of the company;
(2)
provide reasonable assurance that transactions are recorded as necessary
to
permit preparation of financial statements in accordance with generally
accepted
accounting principles, and that receipts and expenditures of the company
are
being made only in accordance with authorizations of management and directors
of
the company; and (3) provide reasonable assurance regarding prevention
or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting
may not
prevent or detect misstatements. Also, projections of any evaluation
of
effectiveness to future periods are subject to the risk that controls
may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
As
indicated in the accompanying Management’s Report on Internal Control over
Financial Reporting, management’s assessment of and conclusion on the
effectiveness of internal control over financial reporting did not include
the
internal controls of its 2007 acquisitions, which are included in the
2007
consolidated financial statements of Garmin Ltd. and Subsidiaries and
constituted $313.1 million and $88.8 million of total and net assets,
respectively, as of December 29, 2007 and $209.6 million and $2.9 million
of
revenues and net loss, respectively, for the year then ended. Our audit
of
internal control over financial reporting of Garmin Ltd. also did not
include an
evaluation of the internal control over financial reporting of its 2007
acquisitions.
In
our
opinion, Garmin Ltd. maintained, in all material respects, effective
internal
control over financial reporting as of December 29, 2007, based on
the
COSO
criteria
.
We
have
also audited, in accordance with the standards of the Public Company
Accounting
Oversight Board (United States), the consolidated balance sheets of
Garmin
Ltd. and Subsidiaries
as
of
December 29, 2007 and December 30, 2006 and the related consolidated
statements
of income, stockholders’ equity, and cash flows for each of the three years in
the period ended December 29, 2007 and our report dated February 25,
2008
expressed an unqualified opinion thereon.
Kansas
City, Missouri
February
25, 2008
(d)
Changes in Internal Control over Financial Reporting
There
were no changes in our internal control over financial reporting during
the year
ended December 29, 2007 that have materially affected, or are reasonably
likely
to materially affect, our internal control over financial
reporting
Item
9B. Other Information
Not
applicable.
PART
III
Item
10. Directors, Executive Officers and Corporate Governance
Garmin
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. Garmin’s definitive proxy statement in connection with its annual
meeting of shareholders scheduled for June 6, 2008 (the “Proxy Statement”) will
be filed with the Securities and Exchange Commission no later than 120
days
after December 29, 2007.
(a)
|
Directors
of the Company
|
The
information set forth in response to Item 401 of Regulation S-K under
the
headings “Proposal - Election of Two Directors” and “The Board of Directors” in
the 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 of the Registrant” 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 “Section 16(a) Beneficial Ownership Reporting Compliance” in the Proxy
Statement is hereby incorporated herein by reference in partial response
to this
Item 10.
(d)
|
Audit
Committee and Audit Committee Financial
Expert
|
The
information set forth in response to Item 402 of Regulation S-K under
the
heading “The Board of Directors -- Audit Committee” in the Proxy Statement is
hereby incorporated herein by reference in partial response to this Item
10.
Garmin’s
Board of Directors has determined that Gene M. Betts, Charles W. Peffer,
and
Thomas A. McDonnell, members of Garmin’s Audit Committee, are “audit committee
financial experts” as defined by the SEC regulations implementing Section 407 of
the Sarbanes-Oxley Act of 2002. Mr. Betts, Mr. Peffer and Mr. McDonnell
are each
“independent” as defined by current listing standards of the Nasdaq Stock
Market.
Garmin’s
Board of Directors has adopted the Code of Business Conduct and Ethics
for
Directors, Officers and Employees of Garmin Ltd. and Subsidiaries (the
“Code”).
The Code is applicable to all Garmin employees including the Chairman
and Chief
Executive Officer, the President and Chief Operating Officer, the Chief
Financial Officer, the Controller and other officers. A copy of the Code
was
filed as Exhibit 14.1 of the Annual Report on Form 10-K for the fiscal
year
ended December 25, 2004 and incorporated by reference herein and listed
as
Exhibit 14.1 to this Annual Report on Form 10-K. If any amendments to
the Code
are made, or any waivers with respect to the Code are granted to the
Chief
Executive Officer, Chief Financial Officer or Controller, such amendment
or
waiver will be disclosed in a Form 8-K filed with the Securities and
Exchange
Commission.
Item
11. Executive Compensation
The
information set forth in response to Item 402 of Regulation S-K under
the
headings “Executive Compensation Matters” and “The Board of Directors --
Compensation of Directors” in the Proxy Statement is hereby incorporated herein
by reference in partial response to this Item 11.
The
information set forth in response to Item 407(e)(4) of Regulation S-K
under the
heading “The Board of Directors
—
Compensation
Committee Interlocks and Insider Participation; Certain Relationships” in the
Proxy Statement is hereby incorporated herein by reference in partial
response
to this Item 11.
The
information set forth in response to Item 407(e)(5) of Regulation S-K
under the
heading “Executive Compensation Matters — Compensation Committee Report” in the
Proxy Statement is hereby incorporated herein by reference in partial
response
to this Item 11.
Item
12. Security Ownership of Certain Beneficial Owners and Management and
Related
Stockholder
Matters
The
information set forth in response to Item 403 of Regulation S-K under
the
heading “Stock Ownership of Certain Beneficial Owners and Management” in the
Proxy Statement is hereby incorporated herein by reference in partial
response
to this Item 12.
Equity
Compensation Plan Information
The
following table gives information as of December 29, 2007 about the Garmin
common shares that may be issued under all of the Company’s existing equity
compensation plans, as adjusted for stock splits.
|
|
A
|
|
B
|
|
C
|
|
|
|
|
|
|
|
Number
of securities
|
|
|
|
Number
of
|
|
|
|
remaining
available for future issuance
|
|
|
|
securities
to be
|
|
Weighted-
|
|
under
|
|
|
|
issued
upon
exercise
of
|
|
average
exercise price of
|
|
equity
compensation
|
|
|
|
outstanding
options,
|
|
outstanding
options,
|
|
plans
(excluding securities
|
|
Plan
Category
|
|
warrants
and rights
|
|
warrants
and rights
|
|
|
|
|
|
|
|
|
|
|
|
Equity
compensation
|
|
|
|
|
|
|
|
plans
approved by
|
|
|
9,531,334
|
|
$
|
46.82
|
|
|
5,192,682
|
|
shareholders
|
|
|
|
|
|
|
|
|
|
|
Equity
compensation
|
|
|
|
|
|
|
|
|
|
|
plans
not approved by
|
|
|
—
|
|
|
|
|
|
|
|
shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
9,531,334
|
|
$
|
46.82
|
|
|
5,192,682
|
|
(1)
Consists of the Garmin Ltd. 2005 Equity Incentive Plan, the Garmin Ltd.
2000
Equity Incentive Plan, the Garmin Ltd. 2000 Non-Employee Directors’ Option Plan
and the Garmin Ltd. Employee Stock Purchase Plan.
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, and Director
Independence
The
information set forth in response to Item 404 of Regulation S-K under
the
heading “Compensation Committee Interlocks and Insider Participation; Certain
Relationships” in the Proxy Statement is incorporated herein by reference in
partial response to this Item 13.
The
information set forth in response to Item 407(a) of Regulation S-K under
the
headings “Proposal — Election of Two Directors” and “The Board of Directors” in
the Proxy Statement is hereby incorporated herein by reference in partial
response to this Item 13.
Item
14. Principal Accounting Fees and Services
The
information set forth under the headings “Audit Matters — Independent Registered
Public Accounting Firm Fees” and “Pre-Approval of Services Provided by the
Independent Auditor” in the Proxy Statement is hereby incorporated by reference
in response to this Item 14.
PART
IV
Item
15.
Exhibits,
and Financial Statement Schedules
(a)
|
List
of Documents filed as part of this
Report
|
(1)
|
Consolidated
Financial Statements
|
The
consolidated financial statements and related notes, together with the
report of
Ernst & Young LLP, appear in Part II, Item 8 “Financial Statements and
Supplementary Data” of this Form 10-K.
(2)
|
Schedule
II Valuation and Qualifying Accounts
|
All
other
schedules have been omitted because they are not applicable, are insignificant
or the required information is shown in the consolidated financial statements
or
notes thereto.
(3)
|
Exhibits
— The following exhibits are filed as part of, or incorporated
by
reference into, this Annual Report on Form
10-K:
|
EXHIBIT
|
|
|
NUMBER
|
|
DESCRIPTION
|
|
|
|
|
|
|
3.1
|
|
Memorandum
and Articles of Association of Garmin Ltd. and Notice of Resolution
(incorporated by reference to Exhibit 3.1 of the Registrant’s Quarterly
Report on Form 10-Q filed on August 9, 2006 ).
|
|
|
|
4.1
|
|
Specimen
share certificate (incorporated by reference to Exhibit 4.1
of the
Registrant’s Registration Statement on Form S-1 filed December 6, 2000
(Commission File No. 333- 45514)).
|
|
|
|
4.2
|
|
Shareholder
Rights Agreement (incorporated by reference to Exhibit 4 of
the
Registrant’s Current Report on Form 8-K filed on October 26,
2001).
|
|
|
|
4.3
|
|
Amendment
to Shareholder Rights Agreement (incorporated by reference
to Exhibit 1.1
of the Registrant’s Amendment No.1 to Registration Statement on Form
8-A12G/A filed on November 14, 2005).
|
|
|
|
10.1
|
|
Garmin
Ltd. 2000 Equity Incentive Plan (incorporated by reference
to Exhibit 10.1
of the Registrant’s Registration Statement on Form S-1 filed December 6,
2000 (Commission File No. 333-45514)).
|
|
|
|
10.2
|
|
Form
of Stock Option Agreement pursuant to the Garmin Ltd. 2000
Equity
Incentive Plan for Employees of Garmin International, Inc.
(incorporated
by reference to Exhibit 10.1of the Registrant’s Current Report on Form 8-K
filed on September 7, 2004).
|
|
|
|
10.3
|
|
Form
of Stock Option Agreement pursuant to the Garmin Ltd. 2000
Equity
Incentive Plan for Employees of Garmin Corporation (incorporated
by
reference to Exhibit 10.3 of the Registrant’s Current Report on Form 8-K
filed on September 7, 2004).
|
|
|
|
10.4
|
|
Form
of Stock Option Agreement pursuant to the Garmin Ltd. 2000
Equity
Incentive Plan for UK-Approved Stock Options for Employees
of Garmin
(Europe) Ltd. (incorporated by reference to Exhibit 10.4 of
the
Registrant’s Current Report on Form 8- K filed on September 7,
2004).
|
10.5
|
Form
of Stock Option Agreement pursuant to the Garmin Ltd. 2000
Equity
Incentive Plan for Non UK-Approved Stock Options for Employees
of Garmin
(Europe) Ltd. (incorporated by reference to Exhibit 10.5 of
the
Registrant’s Current Report on Form 8- K filed on September 7,
2004).
|
|
|
10.6
|
Garmin
Ltd. 2000 Non-Employee Directors’ Option Plan (incorporated by reference
to Exhibit 10.2 of the Registrant’s Registration Statement on Form S-1
filed December 6, 2000 (Commission File No.
333-45514)).
|
|
|
10.7
|
Form
of Stock Option Agreement pursuant to the Garmin Ltd. Non-Employee
Directors’ Option Plan for Non-Employee Directors of Garmin Ltd.
(incorporated by reference to Exhibit 10.2 of the Registrant’s Current
Report on Form 8-K filed on September 7, 2004).
|
|
|
10.8
|
Garmin
Ltd. Amended and Restated Employee Stock Purchase Plan (incorporated
by
reference to Exhibit 10.1 of the Registrant’s Quarterly Report on Form
10-Q filed August 9, 2006).
|
|
|
10.9
|
First
Amendment to Garmin Ltd. Employee Stock Purchase Plan (incorporated
by
reference to Exhibit 10.4 of the Registrant’s Annual Report on Form 10-K
filed on March 27, 2002).
|
|
|
10.10
|
Second
Amendment to Garmin Ltd. Employee Stock Purchase Plan (incorporated
by
reference to Exhibit 10.1 of the Registrant’s Quarterly Report on Form
10-Q filed on August 13, 2003).
|
|
|
10.11
|
Garmin
Ltd. 2005 Equity Incentive Plan (incorporated by reference
to Exhibit 10.1
of the Registrant’s Current Report on Form 8-K filed on June 7,
2005).
|
|
|
10.12
|
Form
of Stock Option Agreement pursuant to the Garmin Ltd. 2005
Equity
Incentive Plan (incorporated by reference to Exhibit 10.2 of
the
Registrant’s Current Report on Form 8-K filed on June 7,
2005).
|
|
|
10.13
|
Form
of Stock Appreciation Rights Agreement pursuant to the Garmin
Ltd. 2005
Equity Incentive Plan (incorporated by reference to Exhibit
10.3 of the
Registrant’s Current Report on Form 8-K filed on June 7,
2005).
|
|
|
10.14
|
Form
of Stock Appreciation Rights Agreement pursuant to the Garmin
Ltd. 2000
Equity Incentive Plan (incorporated by reference to Exhibit
10.4) of the
Registrant’s Quarterly Report on Form 10-Q filed on May 8,
2007.
|
|
|
10.15
|
Amended
and Restated Garmin Ltd. Employee Stock Purchase Plan effective
January 1,
2008.
|
|
|
14.1
|
Code
of Business Conduct and Ethics for Directors, Officers and
Employees of
Garmin Ltd. and Subsidiaries (incorporated by reference to
Exhibit 14.1 of
the Registrant’s Annual Report on Form 10-K filed on March 10,
2004).
|
|
|
21.1
|
List
of subsidiaries
|
|
|
23.1
|
Consent
of Ernst & Young LLP
|
|
|
24.1
|
Power
of Attorney (included in signature page)
|
|
|
31.1
|
Chief
Executive Officer’s Certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
31.2
|
Chief
Financial Officer’s Certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
|
32.1
|
Chief
Executive Officer’s Certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
|
|
32.2
|
Chief
Financial Officer’s Certification pursuant to Section 906 of the
Sarbanes-Oxley Act of
2002
|
The
exhibits listed on the accompanying Exhibit Index in Item 15(a)(3) are filed
as
part of, or are incorporated by reference into, this Annual Report on Form
10-K.
(b)
|
Financial
Statement Schedules
.
|
Reference
is made to Item 15(a)(2) above.
SCHEDULE
II - VALUATION AND QUALIFYING ACCOUNTS
Garmin
Ltd. and Subsidiaries
(
In
thousands
)
|
|
|
|
Additions
|
|
|
|
|
|
|
|
Balance
at
|
|
Charged
to
|
|
Charged
to
|
|
|
|
Balance
at
|
|
|
|
Beginning
of
|
|
Costs
and
|
|
Other
|
|
|
|
End
of
|
|
Description
|
|
Period
|
|
Expenses
|
|
Accounts
|
|
Deductions
|
|
Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
Deducted
from asset accounts
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for doubtful accounts
|
|
$
|
3,565
|
|
$
|
445
|
|
|
-
|
|
$
|
216
|
|
$
|
4,226
|
|
Inventory
reserve
|
|
|
11,289
|
|
|
14,755
|
|
|
-
|
|
|
(11,288
|
)
|
|
14,756
|
|
Total
|
|
$
|
14,854
|
|
$
|
15,200
|
|
|
-
|
|
|
($11,072
|
)
|
$
|
18,982
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 30, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deducted
from asset accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for doubtful accounts
|
|
$
|
4,226
|
|
$
|
955
|
|
|
-
|
|
$
|
159
|
|
$
|
5,340
|
|
Inventory
reserve
|
|
|
14,756
|
|
|
23,245
|
|
|
-
|
|
|
(18,233
|
)
|
|
19,768
|
|
Total
|
|
$
|
18,982
|
|
$
|
24,200
|
|
|
-
|
|
|
($18,074
|
)
|
$
|
25,108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 29, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deducted
from asset accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for doubtful accounts
|
|
$
|
5,340
|
|
$
|
3,617
|
|
|
-
|
|
$
|
1,289
|
|
$
|
10,246
|
|
Inventory
reserve
|
|
|
19,768
|
|
|
34,975
|
|
|
-
|
|
|
(23,557
|
)
|
|
31,186
|
|
Total
|
|
$
|
25,108
|
|
$
|
38,592
|
|
|
-
|
|
|
($22,268
|
)
|
$
|
41,432
|
|
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf
by
the undersigned, thereunto duly authorized.
|
|
|
|
GARMIN LTD.
|
|
|
|
|
By:
|
/s/
Min
H.
Kao
|
|
Min
H. Kao
Chief Executive
Officer
|
Dated:
February 25, 2008
POWER
OF ATTORNEY
Know
all
persons by these presents, that each person whose signature appears below
constitutes and appoints Min H. Kao and Kevin Rauckman and Andrew R. Etkind,
and
each of them, as his attorney-in-fact, with the power of substitution, for
him
in any and all capacities, to sign any amendments to this Annual Report on
Form
10-K, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that said attorney-in-fact, or his substitute
or
substitutes, may do or cause to be done by virtue hereof.
Pursuant
to the requirements of the Securities Exchange Act of 1934, this Annual Report
on Form 10-K has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on February 26, 2008:
/s/
Min H. Kao
Min
H. Kao
|
|
/s/
Gene M. Betts
Gene
M. Betts
|
Chairman,
Chief
|
|
|
Executive
Officer and Director
|
|
|
(Principal
Executive Officer)
|
|
|
|
|
|
/s/
Kevin Rauckman
Kevin
Rauckman
|
|
/s/Donald
H. Eller
Donald
H. Eller
|
(Principal
Financial Officer and Principal Accounting Officer)
|
Director
|
Chief
Financial Officer and Treasurer
|
|
|
|
|
|
|
/s/
Charles W. Peffer
Charles
W. Peffer
|
|
/s/
Thomas A. McDonnell
Thomas
A. McDonnell
|
Director
|
|
Director
|
|
|
|
|
|
|
/s/
Clifton
A. Pemble
|
.
|
|
Director
|
|
|
Garmin
Ltd.
2007
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
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Number
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Document
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10.15
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Amended
and Restated Garmin Ltd. Employee Stock Purchase Plan effective
January 1,
2008
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21.1
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List
of subsidiaries
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23.1
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Consent
of Ernst & Young LLP
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31.1
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Chief
Executive Officer’s Certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
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31.2
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Chief
Financial Officer’s Certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
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32.1
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Chief
Executive Officer’s Certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
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32.2
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Chief
Financial Officer’s Certification pursuant to Section 906 of the
Sarbanes-Oxley Act of
2002
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GARMIN
LTD.
EMPLOYEE
STOCK PURCHASE PLAN
Amended
and Restated
Effective
January 1, 2008
TABLE
OF CONTENTS
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Page
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I.
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Purpose
and Effective Date
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2
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II.
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Definitions
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2
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III.
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Administration
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4
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IV.
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Number
of Shares
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5
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V.
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Eligibility
Requirements
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6
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VI.
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Enrollment
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6
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VII.
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Grant
of Options on Enrollment
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7
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VIII.
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Payroll
Deductions
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7
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IX.
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Purchase
of Shares
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8
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X.
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Withdrawal
From the Plan; Termination of Employment; Leave of Absence;
Death
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10
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XI.
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Miscellaneous
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11
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GARMIN
LTD.
EMPLOYEE
STOCK PURCHASE PLAN
I.
Purpose
and Effective Date
1.1
The
purpose of the Garmin Ltd. Employee Stock Purchase Plan is to provide an
opportunity for eligible employees to acquire a proprietary interest in Garmin
Ltd. through accumulated payroll deductions. It is the intent of the Company
to
have the Plan qualify as an "employee stock purchase plan" under Section 423
of
the Code. The provisions of the Plan shall be construed to extend and limit
participation in a manner consistent with the requirements of Section 423 of
the
Code.
1.2
The
Plan
shall be effective on the Effective Date stated below, subject to the approval
of the Company’s stockholders within one year before or one year after the date
the Plan is approved by the Board of Directors of the Company. No option shall
be granted under the Plan after the date as of which the Plan is terminated
by
the Board in accordance with Section 11.7 of the Plan.
II.
Definitions
The
following words and phrases, when used in this Plan, unless their context
clearly indicates otherwise, shall have the following respective
meanings:
2.1
"
Account
"
means a
recordkeeping account maintained for a Participant to which payroll deductions
are credited in accordance with Article VIII of the Plan.
2.2
"
Administrator
"
means
the persons or committee appointed under Section 3.1 to administer the
Plan.
2.3
"
Article
"
means
an Article of this Plan.
2.4
"
Accumulation
Period
"
means,
as to the Company or a Participating Subsidiary, a period of six months
commencing with the first regular payroll period commencing on or after each
successive January 1 and ending on each successive June 30 and a period of
six
months commencing with the first regular payroll period commencing on or after
each successive July 1 and ending on each successive December 31. The Committee
may modify (including increasing or decreasing the length of time covered)
or
suspend Accumulation Periods at anytime and from time to time.
2.5
"
Base
Earnings
"
means
base salary and wages payable by the Company or a Participating Subsidiary
to an
Eligible Employee, prior to pre-tax deductions for contributions to qualified
or
non-qualified (under the Code) benefit plans or arrangements, and excluding
bonuses, incentives and overtime pay but including commissions.
2.6
"
Board
"
means
the Board of Directors of the Company.
2.7
"
Code
"
means
the Internal Revenue Code of 1986, as amended.
2.8
"
Company
"
means
Garmin Ltd., a Cayman Islands corporation.
2.9
"
Cut-Off
Date
"
means
the date established by the Administrator from time to time by which enrollment
forms must be received with respect to an Accumulation Period.
2.10
"
Eligible
Employee
"
means
an Employee, including an employee on an Authorized Leave of Absence (as defined
in Section 10.3), eligible to participate in the Plan in accordance with Article
V.
2.11
"
Employee
"
means
an individual who performs services for the Company or a Participating
Subsidiary pursuant to an employment relationship described in Treasury
Regulations Section 31.3401(c)-1 or any successor provision, or an individual
who would be performing such services but for such individual’s Authorized Leave
of Absence (as defined in Section 10.3).
2.12
"
Enrollment
Date
"
means
the first Trading Day of an Accumulation Period beginning on or after January
1,
2008.
2.13
"
Exchange
Act
"
means
the Securities Exchange Act of 1934.
2.14
"
Fair
Market Value
"
means,
as of any applicable date:
(a)
If
the security is listed on any established stock exchange or traded on the
Nasdaq
Global Select Market or the Nasdaq Global Market (formerly the Nasdaq National
Market), the closing price, regular way, of the security on such exchange,
or if
no such reported sale of the security shall have occurred on such date, on
the
latest preceding date on which there was such a reported sale, in all cases,
as
reported in
The
Wall Street Journal
or such
other source as the Board deems reliable.
(b)
If
the security is listed or traded on the Nasdaq Capital Market (formerly the
Nasdaq SmallCap Market), the mean between the bid and asked prices for the
security on the date of determination, as reported in The Wall Street Journal
or
such other source as the Board deems reliable. Unless otherwise provided
by the
Board, if there is no closing sales price (or closing bid if no sales were
reported) for the security on the date of determination, then the Fair Market
Value shall be the mean between the bid and asked prices for the security
on the
last preceding date for which such quotation exists.
(c)
In
the
absence of such markets for the security, the value determined by the Board
in
good faith.
2.15
"
Participant
"
means
an Eligible Employee who has enrolled in the Plan pursuant to Article VI. A
Participant shall remain a Participant until the applicable date set forth
in
Article X.
2.16
"
Participating
Subsidiary
"
means a
Subsidiary incorporated under the laws of any state in the United States, a
territory of the United States, Puerto Rico, or the District of Columbia, or
such foreign Subsidiary approved under Section 3.3, which has adopted the Plan
as a Participating Subsidiary by action of its board of directors and which
has
been designated by the Board in accordance with Section 3.3 as covered by the
Plan, subject to the requirements of Section 423 of the Code except as noted
in
Section 3.3.
2.17
"
Plan
"
means
the Garmin Ltd. Employee Stock Purchase Plan as set forth herein and as from
time to time amended.
2.18
"
Purchase
Date
"
means
the specific Trading Day during an Accumulation Period on which Shares are
purchased under the Plan in accordance with Article IX. For each Accumulation
Period, the Purchase Date shall be the last Trading Day occurring in such
Accumulation Period. The Administrator may, in its discretion, designate a
different Purchase Date with respect to any Accumulation Period.
2.19
"
Qualified
Military Leave
”
means
an absence due to service in the uniformed services of the United States (as
defined in Chapter 43 of Title 38 of the United States Code) by an individual
employee of the Company or a Participating Subsidiary, provided the individual’s
rights to reemployment under the Uniformed Services Employment and Reemployment
Rights Act of 1994 have not expired or terminated.
2.20
"
Section
"
means a
section of this Plan, unless indicated otherwise.
2.21
"
Securities
Act
"
means
the Securities Act of 1933, as amended.
2.22
"
Share
"
means a
common share, $.01 par value, of Garmin Ltd.
2.23
"
Subsidiary
"
means
any corporation in an unbroken chain of corporations beginning with the Company
if, as of the applicable Enrollment Date, each of the corporations other than
the last corporation in the chain owns stock possessing 50% or more of the
total
combined voting power of all classes of stock in one of the other corporations
in the chain.
2.24
"
Trading
Day
"
means a
day the national exchange on which the Shares are listed for trading or, if
not
so listed, a day the New York Stock Exchange is open for trading.
III.
Administration
3.1
Subject
to Section 11.7, the Plan shall be administered by the Board, or committee
("Committee") appointed by the Board. The Committee shall consist of at least
one Board member, but may additionally consist of individuals who are not
members of the Board. The Committee shall serve at the pleasure of the Board.
If
the Board does not so appoint a Committee, the Board shall administer the Plan.
Any references herein to "Administrator" are, except as the context requires
otherwise, references to the Board or the Committee, as applicable.
3.2
If
appointed under Section 3.1, the Committee may select one of its members as
chairman and may appoint a secretary. The Committee shall make such rules and
regulations for the conduct of its business as it shall deem advisable;
provided, however, that all determinations of the Committee shall be made by
a
majority of its members.
3.3
The
Administrator shall have the power, in addition to the powers set forth
elsewhere in the Plan, and subject to and within the limits of the express
provisions of the Plan, to construe and interpret the Plan and options granted
under it; to establish, amend and revoke rules and regulations for
administration of the Plan; to determine all questions of policy and expediency
that may arise in the administration of the Plan; to allocate and delegate
such
of its powers as it deems desirable to facilitate the administration and
operation of the Plan; and, generally, to exercise such powers and perform
such
acts as it deems necessary or expedient to promote the best interests of the
Company. The Administrator's determinations as to the interpretation and
operation of this Plan shall be final and conclusive.
The
Board
may designate from time to time which Subsidiaries of the Company shall be
Participating Subsidiaries. Without amending the Plan, the Board may adopt
special or different rules for the operation of the Plan which allow employees
of any foreign Subsidiary to participate in the purposes of the Plan. In
furtherance of such purposes, the Board may approve such modifications,
procedures, rules or sub-plans as it deems necessary or desirable, including
those deemed necessary or desirable to comply with any foreign laws or to
realize tax benefits under foreign law. Any such different or special rules
for
employees of any foreign Subsidiary shall not be subject to Code Section 423
and
for purposes of the Code shall be treated as separate and apart from the balance
of the Plan.
3.4
This
Article III relating to the administration of the Plan may be amended by the
Board from time to time as may be desirable to satisfy any requirements of
or
under the federal securities and/or other applicable laws of the United States,
or to obtain any exemption under such laws.
IV.
Number
of Shares
4.1
Two
million (2,000,000) Shares (reflecting the Company's 2-for-1 stock split on
August 15, 2006) are reserved for sales and authorized for issuance pursuant
to
the Plan. Shares sold under the Plan may be newly-issued Shares, outstanding
Shares reacquired in private transactions or open market purchases, or any
combination of the foregoing. If any option granted under the Plan shall for
any
reason terminate without having been exercised, the Shares not purchased under
such option shall again become available for the Plan.
4.2
In
the
event of any reorganization, recapitalization, stock split, reverse stock split,
stock dividend, combination of shares, merger, consolidation, acquisition of
property or shares, separation, asset spin-off, stock rights offering,
liquidation or other similar change in the capital structure of the Company,
the
Board shall make such adjustment, if any, as it deems appropriate in the number,
kind and purchase price of the Shares available for purchase under the Plan.
In
the event that, at a time when options are outstanding hereunder, there occurs
a
dissolution or liquidation of the Company, except pursuant to a transaction
to
which Section 424(a) of the Code applies, each option to purchase Shares shall
terminate, but the Participant holding such option shall have the right to
exercise his or her option prior to such termination of the option upon the
dissolution or liquidation. The Company reserves the right to reduce the number
of Shares which Employees may purchase pursuant to their enrollment in the
Plan.
V.
Eligibility
Requirements
5.1
Except
as
provided in Section 5.2, each individual who is an Eligible Employee of the
Company or a Participating Subsidiary on the applicable Cut-Off Date shall
become eligible to participate in the Plan in accordance with Article VI as
of
the first Enrollment Date following the date the individual becomes an Employee
of the Company or a Participating Subsidiary, provided that the individual
remains an Eligible Employee on the first day of the Accumulation Period
associated with such Enrollment Date. Participation in the Plan is entirely
voluntary.
5.2
Employees
meeting any of the following restrictions are not eligible to participate in
the
Plan:
(a)
Employees
who, immediately upon enrollment in the Plan or upon grant of an Option would
own directly or indirectly, or hold options or rights to acquire, an aggregate
of 5% or more of the total combined voting power or value of all outstanding
shares of all classes of stock of the Company or any Subsidiary (and for
purposes of this paragraph, the rules of Code Section 424(d) shall apply, and
stock which the Employee may purchase under outstanding options shall be treated
as stock owned by the Employee);
(b)
Employees
(other than individuals on Authorized Leave of Absence (as defined in Section
10.3)) who are customarily employed by the Company or a Participating Subsidiary
for not more than 20 hours per week; or
(c)
Employees
(other than individuals on Authorized Leave of Absence (as defined in Section
10.3)) who are customarily employed by the Company or a Participating Subsidiary
for not more than five (5) months in any calendar year.
5.3
The
Plan
is intended to conform to the extent necessary with all provisions of the
Securities Act and the Exchange Act and any and all regulations and rules
promulgated by the Securities and Exchange Commission thereunder.
Notwithstanding anything herein to the contrary, the Plan shall be administered,
and the options shall be granted and may be exercised, only in such a manner
as
to conform to such laws, rules and regulations. To the extent permitted by
applicable law, the Plan and the options granted hereunder shall be deemed
amended to the extent necessary to conform to such laws, rules and regulations.
VI.
Enrollment
6.1
Eligible
Employees will be automatically enrolled in the Plan on the first day of each
Accumulation Period. Any Eligible Employee may consent to enrollment in the
Plan
for an Accumulation Period by completing and signing an enrollment form (which
authorizes payroll deductions during such Accumulation Period in accordance
with
Section 8.1) and submitting such enrollment form to the Company or the
Participating Subsidiary on or before the Cut-Off Date specified by the
Administrator. Payroll deductions pursuant to the enrollment form shall be
effective as of the first payroll period with a pay day after the Enrollment
Date for the Accumulation Period to which the enrollment form relates, and
shall
continue in effect until the earliest of:
(a)
the
end
of the last payroll period with a payday in the Accumulation
Period;
(b)
the
date
during the Accumulation Period as of which the Employee elects to cease his
or
her enrollment in accordance with Section 8.3; and
(c)
the
date
during the Accumulation Period as of which the Employee withdraws from the
Plan
or has a termination of employment in accordance with Article X.
Notwithstanding
anything in the Plan to the contrary, for the initial Accumulation Period the
Administrator may upon notice to Eligible Employees give effect to payroll
deductions as of a payroll period with a pay date after the Cut-Off Date for
the
Accumulation Period, with such deductions effective as to all or a portion
of
Base Earnings either payable or earned on or after the Effective Date.
VII.
Grant
of Options on Enrollment
7.1
The
automatic enrollment by an Eligible Employee in the Plan as of an Enrollment
Date will constitute the grant as of such Enrollment Date by the Company to
such
Participant of an option to purchase Shares from the Company pursuant to the
Plan.
7.2
An
option
granted to a Participant pursuant to this Plan shall expire, if not terminated
earlier for any reason, on the earliest to occur of: (a) the end of the
Purchase Date with respect to the Accumulation Period in which such option
was
granted; (b) the completion of the purchase of Shares under the option
under Article IX; or (c) the date on which participation of such
Participant in the Plan terminates for any reason.
7.3
As
of
each Enrollment Date, each Participant shall automatically be granted an option
to purchase, subject to the terms of the Plan, the number of whole Shares equal
to the quotient of $
25,000
divided
by the Fair Market Value of a Share on the Enrollment Date.
Notwithstanding
any other provision of this Plan, no Employee may be granted an option which
permits his or her rights to purchase Shares under the Plan and any other Code
Section 423 employee stock purchase plan of the Company or any of its
Subsidiaries or parent companies to accrue (when the option first becomes
exercisable) at a rate which exceeds $25,000 of Fair Market Value of such Shares
(determined at the time such option is granted) for each calendar year in which
such option is outstanding at any time.
VIII.
Payroll
Deductions
8.1
An
Employee who files an enrollment form pursuant to Article VI shall elect and
authorize in such form to have deductions made from his or her pay on each
payday he or she receives a paycheck during the Accumulation Period to which
the
enrollment form relates, and he or she shall designate in such form the
percentage (in whole percentages) of Base Earnings to be deducted each payday
during such Accumulation Period. The minimum an Employee may elect and authorize
to have deducted is 1% of his or her Base Earnings paid per pay period in such
Accumulation Period, and the maximum is 10% of his or her Base Earnings paid
per
pay period in such Accumulation Period (or such larger or smaller percentage
as
the Administrator may designate from time to time).
8.2
Except
as
provided in the last paragraph of Section 6.1, deductions from a Participant’s
Base Earnings shall commence upon the first payday on or after the commencement
of the Accumulation Period, and shall continue until the date on which such
authorization ceases to be effective in accordance with Article VI. The amount
of each deduction made for a Participant shall be credited to the Participant’s
Account. All payroll deductions received or held by the Company or a
Participating Subsidiary may be, but are not required to be, used by the Company
or Participating Subsidiary for any corporate purpose, and the Company or
Participating Subsidiary shall not be obligated to segregate such payroll
deductions, but may do so at the discretion of the Board.
8.3
As
of the
last day of any month during an Accumulation Period, a Participant may elect
to
cease (but not to increase or decrease) payroll deductions made on his or her
behalf for the remainder of such Accumulation Period by filing the applicable
election with the Company or Participating Subsidiary in such form and manner
and at such time as may be permitted by the Administrator. A Participant who
has
ceased payroll deductions may have the amount which was credited to his or
her
Account prior to such cessation applied to the purchase of Shares as of the
Purchase Date, in accordance with Section 9.1, and receive the balance of the
Account with respect to which the enrollment is ceased, if any, in cash. A
Participant who has ceased payroll deductions may also voluntarily withdraw
from
the Plan pursuant to Section 10.1. Any Participant who ceases payroll deductions
for an Accumulation Period may re-enroll in the Plan on the next subsequent
Enrollment Date following the cessation in accordance with the provisions of
Article VI. A Participant who ceases to be employed by the Company or any
Participating Subsidiary will cease to be a Participant in accordance with
Section 10.2.
8.4
A
Participant may not make any separate or additional contributions to his Account
under the Plan. Neither the Company nor any Participating Subsidiary shall
make
separate or additional contributions to any Participant’s Account under the
Plan.
IX.
Purchase
of Shares
9.1
Subject
to Section 9.2, any option held by the Participant which was granted under
this
Plan and which remains outstanding as of a Purchase Date shall be deemed to
have
been exercised on such Purchase Date for the purchase of the number of whole
Shares which the funds accumulated in his or her Account as of the Purchase
Date
will purchase at the applicable purchase price (but not in excess of the number
of Shares for which options have been granted to the Participant pursuant to
Section 7.3). No Shares will be purchased on behalf of any Participant who
fails
to file an enrollment form authorizing payroll deductions for an Accumulation
Period.
9.2
A
Participant who holds an outstanding option as of a Purchase Date shall not
be
deemed to have exercised such option if the Participant elected not to exercise
the option by withdrawing from the Plan in accordance with Section
10.1.
9.3
If,
after
a Participant’s exercise of an option under Section 9.1, an amount remains
credited to the Participant’s Account as of a Purchase Date, then the remaining
amount shall be distributed to the Participant in cash as soon as
administratively practical after such Purchase Date.
9.4
Except
as
otherwise set forth in this Section 9.4, the purchase price for each Share
purchased under any option shall be 85% of the lower of:
(a)
the
Fair
Market Value of a Share on the Enrollment Date on which such option is granted;
or
(b)
the
Fair
Market Value of a Share on the Purchase Date.
Notwithstanding
the above, the Board may establish a different purchase price for each Share
purchased under any option provided that such purchase price is determined
at
least thirty (30) days prior to the Accumulation Period for which it is
applicable and provided that such purchase price may not be less than the
purchase price set forth above.
9.5
If
Shares
are purchased by a Participant pursuant to Section 9.1, then such Shares shall
be held in non-certificated form at a bank or other appropriate institution
selected by the Administrator until the earlier of the Participant’s termination
of employment or the time a Participant requests delivery of certificates
representing such shares. If any law governing corporate or securities matters,
or any applicable regulation of the Securities and Exchange Commission or other
body having jurisdiction with respect to such matters, shall require that the
Company or the Participant take any action in connection with the Shares being
purchased under the option, delivery of the certificate or certificates for
such
Shares shall be postponed until the necessary action shall have been completed,
which action shall be taken by the Company at its own expense, without
unreasonable delay.
Certificates
delivered pursuant to this Section 9.5 shall be registered in the name of the
Participant or, if the Participant so elects, in the names of the Participant
and one or more such other persons as may be designated by the Participant
in
joint tenancy with rights of survivorship or in tenancy by the entireties or
as
spousal community property, or in such forms of trust as may be approved by
the
Administrator, to the extent permitted by law.
9.6
In
the
case of Participants employed by a Participating Subsidiary, the Board may
provide for Shares to be sold through the Subsidiary to such Participants,
to
the extent consistent with and governed by Section 423 of the Code.
9.7
If
the
total number of Shares for which an option is exercised on any Purchase Date
in
accordance with this Article IX, when aggregated with all Shares previously
granted under this Plan, exceeds the maximum number of Shares reserved in
Section 4.1, the Administrator shall make a pro rata allocation of the Shares
available for delivery and distribution in as nearly a uniform manner as shall
be practicable and as it shall determine to be equitable, and the balance of
the
cash amount credited to the Account of each Participant under the Plan shall
be
returned to him or her as promptly as administratively practical.
9.8
If
a
Participant or former Participant sells, transfers, or otherwise makes a
disposition of Shares purchased pursuant to an option granted under the Plan
within two years after the date such option is granted or within one year after
the Purchase Date to which such option relates, or if the Participant or former
Participant otherwise has a taxable event relating to Shares purchased under
the
Plan, and if such Participant or former Participant is subject to U.S. federal
income tax, then such Participant or former Participant shall notify the Company
or Participating Subsidiary in writing of any such sale, transfer or other
disposition within 10 days of the consummation of such sale, transfer or other
disposition, and shall remit to the Company or Participating Subsidiary or
authorize the Company or Participating Subsidiary to withhold from other sources
such amount as the Company may determine to be necessary to satisfy any federal,
state or local tax withholding obligations of the Company or Participating
Subsidiary. A Participant must reply to a written request, within 10 days of
the
receipt of such written request, from the Company, Participating Subsidiary,
or
Administrator regarding whether such a sale, transfer or other disposition
has
occurred.
The
Administrator may from time to time establish rules and procedures (including
but not limited to postponing delivery of Shares until the earlier of the
expiration of the two-year or one-year period or the disposition of such Shares
by the Participant) to cause the withholding requirements to be
satisfied.
X.
Withdrawal
From the Plan; Termination of Employment; Leave of Absence;
Death
10.1
Withdrawal
from the Plan
.
Effective as of the last day of any calendar quarter during an Accumulation
Period, a Participant may withdraw from the Plan in full (but not in part)
by
delivering a notice of withdrawal to the Company (in a manner prescribed by
the
Administrator) at least ten business days prior to the end of such calendar
quarter (but in no event later than the June 1 or December 1 immediately
preceding the Purchase Date for the Plan's two Accumulation Periods,
respectively). Upon such withdrawal from participation in the Plan, all funds
then accumulated in the Participant’s Account shall not be used to purchase
Shares, but shall instead be distributed to the Participant as soon as
administratively practical after the end of such calendar quarter, and the
Participant’s payroll deductions shall cease as of the end of such calendar
quarter. An Employee who has withdrawn during an Accumulation Period may not
return funds to the Company or a Participating Subsidiary during the same
Accumulation Period and require the Company or Participating Subsidiary to
apply
those funds to the purchase of Shares, nor may such Participant’s payroll
deductions continue, in accordance with Article VI. Any Eligible Employee who
has withdrawn from the Plan may, however, re-enroll in the Plan on the next
subsequent Enrollment Date following withdrawal in accordance with the
provisions of Article VI.
10.2
Termination
of Employment
.
Participation in the Plan terminates immediately when a Participant ceases
to be
employed by the Company or any Participating Subsidiary for any reason
whatsoever, including but not limited to termination of employment, whether
voluntary or involuntary, or on account of disability, or retirement, but not
including death, or if the participating Subsidiary employing the Participant
ceases for any reason to be a Participating Subsidiary. Participation in the
Plan also terminates immediately when a Participant ceases to be an Eligible
Employee under Article V or withdraws from the Plan. Upon termination of
participation such terminated Participant’s outstanding options shall thereupon
terminate. As soon as administratively practical after termination of
participation, the Company shall pay to the Participant or legal representative
all amounts accumulated in the Participant’s Account and held by the Company at
the time of termination of participation, and any Participating Subsidiary
shall
pay to the Participant or legal representative all amounts accumulated in the
Participant's Account and held by the Participating Subsidiary at the time
of
termination of participation.
10.3
Leaves
of Absence
.
(a)
If
a
Participant takes a leave of absence (other than an Authorized Leave of Absence)
without terminating employment, such Participant will be deemed to have
discontinued contributions to the Plan in accordance with Section 8.3, but
will
remain a Participant in the Plan through the balance of the Accumulation Period
in which his or her leave of absence begins, so long as such leave of absence
does not exceed 90 days. If a Participant takes a leave of absence (other than
an Authorized Leave of Absence) without terminating employment, such Participant
will be deemed to have withdrawn from the Plan in accordance with Section 10.1
if such leave of absence exceeds 90 days.
(b)
An
Employee on an Authorized Leave of Absence shall remain a Participant in the
Plan and, in the case of a paid Authorized Leave of Absence, shall have
deductions made under Section 8.1 from payments that would, but for the
Authorized Leave of Absence, be Base Earnings. An Employee who does not return
from an Authorized Leave of Absence on the scheduled date (or, in the case
of
Qualified Military Leave, prior to the date such individual’s reemployment
rights under the Uniformed Services Employment and Reemployment Rights Act
of
1994 have expired or terminated) shall be deemed to have terminated employment
on the last day of such Authorized Leave of Absence (or, in the case of
Qualified Military Leave, the date such reemployment rights expire or are
terminated).
(c)
An
“Authorized Leave of Absence” means (a) a Qualified Military Leave, and (b) an
Employee’s absence of more than 90 days which has been authorized, either
pursuant to a policy of the Company or the Participating Subsidiary that employs
the Employee, or pursuant to a written agreement between the employer and the
Employee, which policy or written agreement guarantees the Employee’s rights to
return to employment.
10.4
Death
.
As soon
as administratively feasible after the death of a Participant, amounts
accumulated in his or her Account shall be paid in cash to the beneficiary
or
beneficiaries designated by the Participant on a beneficiary designation form
approved by the Board, but if the Participant does not make an effective
beneficiary designation then such amounts shall be paid in cash to the
Participant’s spouse if the Participant has a spouse, or, if the Participant
does not have a spouse, to the executor, administrator or other legal
representative of the Participant’s estate. Such payment shall relieve the
Company and the Participating Subsidiary of further liability with respect
to
the Plan on account of the deceased Participant. If more than one beneficiary
is
designated, each beneficiary shall receive an equal portion of the Account
unless the Participant has given express contrary instructions. None of the
Participant’s beneficiary, spouse, executor, administrator or other legal
representative of the Participant’s estate shall, prior to the death of the
Participant by whom he has been designated, acquire any interest in the amounts
credited to the Participant’s Account under the Plan.
XI.
Miscellaneous
11.1
Interest
.
Interest or earnings will not be paid on any Employee Accounts.
11.2
Restrictions
on Transfer
.
The
rights of a Participant under the Plan shall not be assignable or transferable
by such Participant, and an option granted under the Plan may not be exercised
during a Participant’s lifetime other than by the Participant. Any such attempt
at assignment, transfer, pledge or other disposition shall be without effect,
except that the Company may treat such act as an election to withdraw from
the
Plan in accordance with Section 10.1.
11.3
Administrative
Assistance
.
If the
Administrator in its discretion so elects, it may retain a brokerage firm,
bank,
other financial institution or other appropriate agent to assist in the purchase
of Shares, delivery of reports or other administrative aspects of the Plan.
If
the Administrator so elects, each Participant shall (unless prohibited by
applicable law) be deemed upon enrollment in the Plan to have authorized the
establishment of an account on his or her behalf at such institution. Shares
purchased by a Participant under the Plan shall be held in the account in the
Participant’s name, or if the Participant so indicates in the enrollment form,
in the Participant’s name together with the name of one or more other persons in
joint tenancy with right of survivorship or in tenancy by the entireties or
as
spousal community property, or in such forms of trust as may be approved by
the
Administrator, to the extent permitted by law.
11.4
Costs
.
All
costs and expenses incurred in administering the Plan shall be paid by the
Company or Participating Subsidiaries, including any brokerage fees on the
purchased Shares; excepting that any stamp duties, transfer taxes, fees to
issue
stock certificates, and any brokerage fees on the sale price applicable to
participation in the Plan after the initial purchase of the Shares on the
Purchase Date shall be charged to the Account or brokerage account of such
Participant.
11.5
Equal
Rights and Privileges
.
All
Eligible Employees shall have equal rights and privileges with respect to the
Plan so that the Plan qualifies as an "employee stock purchase plan" within
the
meaning of Section 423 or any successor provision of the Code and the
related regulations. Notwithstanding the express terms of the Plan, any
provision of the Plan which is inconsistent with Section 423 or any
successor provision of the Code shall without further act or amendment by the
Company or the Board be reformed to comply with the requirements of Code
Section 423. This Section 11.5 shall take precedence over all other
provisions in the Plan.
11.6
Applicable
Law
.
The
Plan shall be governed by the substantive laws (excluding the conflict of laws
rules) of the State of Kansas.
11.7
Amendment
and Termination
.
The
Board may amend, alter or terminate the Plan at any time; provided, however,
that no amendment which would amend or modify the Plan in a manner requiring
stockholder approval under Code Section 423 or the requirements of any
securities exchange on which the Shares are traded shall be effective unless,
within one year after it is adopted by the Board, it is approved by the holders
of a majority of the voting power of the Company’s outstanding shares. In
addition, the Board (if appointed under Section 3.1) may amend the Plan as
provided in Section 3.3, subject to the conditions set forth therein and in
this
Section 11.7.
If
the
Plan is terminated, the Board may elect to terminate all outstanding options
either prior to their expiration or upon completion of the purchase of Shares
on
the next Purchase Date, or may elect to permit options to expire in accordance
with the terms of this Plan (and participation to continue through such
expiration dates). If the options are terminated prior to expiration, all funds
accumulated in Participants’ Accounts as of the date the options are terminated
shall be returned to the Participants as soon as administratively
feasible.
11.8
No
Right of Employment
.
Neither
the grant nor the exercise of any rights to purchase Shares under this Plan
nor
anything in this Plan shall impose upon the Company or Participating Subsidiary
any obligation to employ or continue to employ any employee. The right of the
Company or Participating Subsidiary to terminate any employee shall not be
diminished or affected because any rights to purchase Shares have been granted
to such employee.
11.9
Requirements
of Law
.
The
Company shall not be required to sell, issue, or deliver any Shares under this
Plan if such sale, issuance, or delivery might constitute a violation by the
Company or the Participant of any provision of law. Unless a registration
statement under the Securities Act is in effect with respect to the Shares
proposed to be delivered under the Plan, the Company shall not be required
to
issue such Shares if, in the opinion of the Company or its counsel, such
issuance would violate the Securities Act. Regardless of whether such Shares
have been registered under the Securities Act or registered or qualified under
the securities laws of any state, the Company may impose restrictions upon
the
hypothecation or further sale or transfer of such shares (including the
placement of appropriate legends on stock certificates) if, in the judgment
of
the Company or its counsel, such restrictions are necessary or desirable to
achieve compliance with the provisions of the Securities Act, the securities
laws of any state, or any other law or are otherwise in the best interests
of
the Company. Any determination by the Company or its counsel in connection
with
any of the foregoing shall be final and binding on all parties.
If,
in
the opinion of the Company and its counsel, any legend placed on a stock
certificate representing Shares issued under the Plan is no longer required
in
order to comply with applicable securities or other laws, the holder of such
certificate shall be entitled to exchange such certificate for a certificate
representing a like number of shares lacking such legend.
The
Company may, but shall not be obligated to, register or qualify any securities
covered by the Plan. The Company shall not be obligated to take any other
affirmative action in order to cause the grant or exercise of any right or
the
issuance, sale, or deliver of Shares pursuant to the exercise of any right
to
comply with any law.
11.10
Gender
.
When
used herein, masculine terms shall be deemed to include the feminine, except
when the context indicates to the contrary.
11.11
Withholding
of Taxes
.
The
Company or Participating Subsidiary may withhold from any purchase of Shares
under this Plan or any sale, transfer or other disposition thereof any local,
state, federal or foreign taxes, employment taxes, or other taxes at such times
and from such other amounts as it deems appropriate. The Company or
Participating Subsidiary may require the Participant to remit an amount in
cash
sufficient to satisfy any required withholding amounts to the Company or
Participating Subsidiary, as the case may be.
Executed
this 27th day of October, 2007.
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GARMIN
LTD.
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By:
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/s/ Min
H.
Kao
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Min
H. Kao
Chairman
and CEO
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