Unassociated Document
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 30,
2006
|
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.)
|
5th
Floor, Harbour Place, P.O. Box 30464 SMB,
103
South Church Street
George
Town, Grand Cayman, Cayman Islands
(Address
of principal executive offices)
|
N/A
(Zip
Code)
|
Registrant’s
telephone number, including area code: (345) 946-5203
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 [Ö]
NO [
]
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. YES [ ] NO [Ö
]
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 [Ö]
NO [
]
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the
best of 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. [ ]
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Act.
Large
Accelerated Filer [Ö
]
Accelerated
Filer [
]
Non-accelerated
Filer [
]
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
YES
[ ]
NO
[Ö
]
Aggregate
market value of the common shares held by non-affiliates of the registrant
as of
June 30, 2006 (based on the closing price of the registrant's common shares
on
the Nasdaq Stock Market for that date) was approximately
$7,260,517,893.
Number
of
shares outstanding of the registrant’s common shares as of February 23,
2007:
Common
Shares, $.005 par value - 216,226,811
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 2007 Annual Meeting of Shareholders
which will be filed no later than 120 days after December 30,
2006
|
|
Part
III
|
Garmin
Ltd.
2006
Form 10-K Annual Report
Table
of Contents
|
Cautionary
Statement With Respect To Forward-Looking Comments
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4
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|
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Part
I
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|
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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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19
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Item
1B.
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Unresolved
Staff Comments
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29
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Item
2.
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Properties
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29
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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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33
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Part
II
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|
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Item
5.
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Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
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35
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Item
6.
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Selected
Financial Data
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37
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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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39
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Item
7A.
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Quantitative
and Qualitative Disclosures About Market Risk
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53
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Item
8.
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Financial
Statements and Supplementary Data
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55
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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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79
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Item
9A.
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Controls
and Procedures
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79
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Item
9B.
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Other
Information
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81
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Part
III
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|
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Item
10.
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Directors,
Executive Officers and Corporate Governance
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82
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Item
11.
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Executive
Compensation
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82
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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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83
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Item
13.
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Certain
Relationships and Related Transactions, and Director
Independence
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83
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Item
14.
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Principal
Accounting Fees and Services
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84
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Part
IV
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|
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Item
15.
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Exhibits
and Financial Statement Schedules
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85
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Signatures
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90
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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 8 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 19 million products, which
includes the delivery of over 5.4 million products during 2006.
Automotive/Mobile
Product Introductions
Garmin
launched many new products in 2006. Among these were new versions of Garmin’s
popular nüvi™
Personal
Travel Assistant™ product line. The nüvi family was expanded in 2006 to include
the nüvi 360 and the nüvi 660. The nüvi 360 adds Bluetooth™ wireless capability
to the nüvi’s already full feature set of a high-sensitivity GPS receiver,
language translator, MP3 player, audio book player, currency and measurement
converter, world clock and digital photo organizer. The nüvi 660 incorporates a
wider and brighter touchscreen, an integrated traffic receiver and an integrated
FM transmitter.
Garmin
also introduced several new versions of its StreetPilot®
line of
personal navigation devices (PNDs) in 2006. The StreetPilot c-Series™
line was
expanded with the c500 series (c510, c530, and c550 models), which built upon
the success of the c300 series by adding several new features, including
Bluetooth™ wireless technology, an integrated traffic-detection receiver, a
brighter display, a high-sensitivity GPS receiver, an MP3 player, and optional
(purchased separately) Garmin Travel Guide™ functionality - giving users reviews
and recommendations for restaurants, hotels, shopping, nightlife, sporting
events, and tourist attractions. The StreetPilot 2700 series was also updated
with the introduction of the StreetPilot 2820, a premium navigation device
which
adds Bluetooth™ wireless connectivity and other upgrades to the features of the
2700 series. Garmin also introduced the zūmo™
in
2006, a navigator designed specifically for the motorcycle market with such
features as left-handed controls, a high-bright display, Bluetooth™
“hands-free-to-helmet” wireless technology capability, and a rugged locking
mount.
Garmin
continued its expansion in the rental car market in 2006 by announcing
agreements to supply GPS navigation devices to Enterprise Rent-A-Car, Avis
Rent
A Car and Budget Rent A Car.
Garmin
also expanded its Garmin Mobile™ service and family of products in 2006.
Building upon its September 2005 launch of Garmin Mobile -- a subscription-based
navigation service for select mobile phones and providers -- Garmin added the
availability of new dynamic content for Garmin Mobile (including fuel prices,
weather conditions and forecasts, and traffic information) and later announced
that Garmin Mobile would be available on select BlackBerry devices, in addition
to certain Sprint and Nextel handsets. Garmin
also introduced Garmin Mobile 20, an automotive navigation system that delivers
Garmin’s voice-prompted, turn-by-turn directions using Bluetooth wireless
technology on Nokia, Windows Mobile and Treo 650 Smartphones, and Garmin
Mobile 10,
a
product that turns Bluetooth enabled devices such as laptops, smartphones,
Pocket PCs (personal computers), and PDAs (personal data assistants) into GPS
navigators.
Outdoor/Fitness
Product Introductions
In
the
category of GPS-enabled fitness products, Garmin began selling its next
generation Forerunner® products in 2006: the Forerunner 205 and Forerunner 305.
The wrist-worn Forerunner 205 and 305 fitness products were redesigned from
the
first generation Forerunners to maximize GPS satellite reception and to provide
a sleeker design. To help promote the release of the new Forerunner products,
Garmin helped sponsor more than a dozen marathons and cycling events in 2006
and
early 2007.
Marine
Product Introductions
Garmin
introduced several new marine radar products in 2006 and, in November 2006,
we
introduced a new and completely redesigned line of marine chartplotters, sonar,
and combination units for the 2007 boating season. These new marine products
offer a new “flat screen” design, a new user interface, satellite
photo-generated cartography, and other new features.
Aviation
Product Introductions
Garmin’s
G1000 integrated avionics suite received Federal Aviation Administration (“FAA”)
certification in September 2006 for incorporation into Cessna’s Citation Mustang
very light jet.
In
November 2006, Garmin’s GNS 400/500 panel-mount avionics products received the
FAA’s TSO C146a Gamma-3 certification, which enables pilots to fly
Lateral-Precision with Vertical (LPV) guidance approaches and receive GPS
navigation via the Wide Area Augmentation System (WAAS).
Garmin
also introduced the GPSMAP 496 aviation handheld product as an upgrade to the
GPSMAP 396.
Expansion
of Facilities
In
October 2006, Garmin’s United Kingdom subsidiary acquired a building in Totton,
Southampton, England to serve as the new headquarters for Garmin (Europe) Ltd.,
Garmin’s United Kingdom subsidiary. The facility contains building space of
approximately 155,000 sq. ft, including more than 129,000 sq. ft of warehouse
space, which will serve as the European headquarters for distribution,
marketing, and product support.
In
February 2006, Garmin’s Taiwan subsidiary acquired a 223,469 sq. ft. facility in
Jhongli, Taiwan, which now serves as our second manufacturing facility for
consumer products.
Chicago
Retail Store
In
November 2006, Garmin opened its first retail store which is located in
Chicago’s North Michigan Avenue shopping district. The store is intended to
serve as a showcase for Garmin’s broad range of products.
Acquisitions
In
November 2006, Garmin acquired Dynastream Innovations Inc., a Canadian company
specializing in the field of personal monitoring technology - such as foot
pods
and heart rate monitors for sports and fitness products - and a provider of
wireless connectivity solutions for a wide range of applications. Dynastream’s
products address the needs of a broad spectrum of fitness consumers and are
expected to complement Garmin’s fitness products.
Two-For-One
Stock Split
Garmin’s
shareholders approved a two-for-one stock split on July 21, 2006, which was
effective on August 15, 2006.
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,
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
|
The
nüvi is an all-in-one Personal Travel Assistant™ that combines a
full-featured GPS navigator, optional language translator, MP3 player,
audio book player, currency and measurement converter, world clock
and
digital photo organizer. Users can also choose to purchase optional
software enabling the nüvi to be used as a digital coupon book (Garmin
SaversGuideTM)
or as a travel assistant that provides reviews and recommendations
for
restaurants, hotels, shopping, night life, sporting events, tourist
attractions, and more (Travel
Guide™).
The nüvi 600 series offers the user a wider and brighter screen and an
integrated FM traffic receiver, as well as other features, including
the
option for MSN Direct content on the nüvi 680 (announced in January 2007).
The nüvi comes in separate North American and European versions, as well
as a combined version (the nüvi 670 - announced in January 2007) that
contains pre-loaded street maps for both continents. In fiscal years
2006,
2005, and 2004, the nüvi class of products represented approximately 28%,
2%, and 0% of Garmin’s total consolidated revenues.
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|
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The
StreetPilot i-Series™ (comprised of the i2™, i3™, and i5™) are Garmin’s
smallest, most inexpensive line of automotive navigators, yet still
offer
color screens (i3 and i5) and voice prompted, turn-by-turn directions
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 c-500 series (c510, c530, c550 and
c580)
adds Bluetooth Wireless Technology, integrated traffic capabilities
(separate subscription required), a high bright display, and a
high-sensitivity GPS receiver. The StreetPilot 2720 and 2820 are
full-featured navigators 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 2006, 2005, and 2004, the
StreetPilot class of products represented approximately 28%, 30%,
and 14%
of Garmin’s total consolidated revenues.
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Pocket-sized,
portable, GPS units with navigation features, including 256-color,
bright,
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.
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A
motorcycle-specific navigator with features including a glove-friendly
touch screen 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 (announced in January 2007)
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 with either Sprint or Nextel service plans function as
versatile GPS navigators.
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Garmin
Mobile™ 10/20
(2
models)
|
Garmin
Mobile 10 allows customers to add wireless navigation capabilities
to
their Bluetooth-enabled laptop, smartphone, Pocket PC or PDA via
the
Garmin Mobile software application and a small portable GPS receiver,
which can either be mounted in the vehicle or clipped to the user’s
clothes. Garmin Mobile 20 is designed specifically for Bluetooth-enabled
smartphones and comes with a compact and portable smart mount for
the
phone, which combines a high-sensitivity GPS receiver, Bluetooth
hands-free kit, adjustable phone cradle and 12-volt phone charger
all in
one. Garmin Mobile 10 and 20 are also able to access real-time content
from the Garmin Online server, including traffic information, gasoline
prices, weather, and hotel information.
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The
GPS 18 turns a PC laptop into a GPS navigator. It is offered as a
stand-alone sensor or bundled with Garmin’s nRoute™ and City Select
software that automatically guides with turn-by-turn directions and
voice
prompts. The GPS 18 comes in two different models offering the choice
of
either a PC or USB connection.
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Outdoor/Fitness
Garmin
currently 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.
|
Compact,
lightweight training assistants for athletes with integrated GPS
sensor
that provides speed, distance and pace data. Some models also offer
a
heart rate monitoring function. The Forerunner product line was updated
in
early 2006 to include two new models (Forerunner 205 and 305) with
a
redesigned style, shape and a new high sensitivity GPS
receiver.
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Integrated
personal training systems designed for cyclists. The Edge 205 measures
speed, 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.
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Compact
handheld GPS units for outdoor enthusiasts. All models are waterproof
and
have rugged designs. The eTrex Summit and eTrex Vista have electronic
compass and barometric altimeter functions. eTrex Venture has a worldwide
database of cities. eTrex Legend and eTrex Vista have internal basemaps
of
either North and South America or Europe. eTrex Camo features a
camouflaged design and a hunting and fishing almanac. The eTrex Legend
Cx,
Vista Cx and Venture Cx models offer a bright color TFT (thin film
transistor) display, together with automatic route generation, longer
battery life and memory card slots. The Legend Cx and Vista Cx also
come
with removable 64 MB microSD cards.
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The
GPS 60 is a basic GPS without mapping while the GPSMAP 60 offers
a
monochrome display and 24 MB of downloadable memory. The GPSMAP 60Cx
and
the GPSMAP 60CSx were released in 2006 and feature a new high sensitivity
GPS receiver and a slot for a removable microSD memory, along with
a 64mb
microSD card.
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GPS
72
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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.
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Handheld
GPS with large display and a waterproof case which floats in water.
Preloaded 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. In 2006, Garmin added the GPSMAP 76Cx and the GPSMAP 76CSx
to
this family of products, which feature a new 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.
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Handheld
two-way Family Radio Service (FRS) and General Mobile Radio Service
(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 520 has 5 watts of transmit power, color
display,
mini-USB interface, and a turn-by turn automatic route calculation
for use
in automobiles. The Rino 530 has all of the features of the Rino
520, plus
a seven-channel weather receiver, electronic compass, and barometric
altimeter.
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Marine
Garmin’s
marine lineup includes network products and multifunction displays, fixed-mount
GPS/chartplotter products, and sounder products. Garmin revamped its marine
product offerings for the 2007 boating season (announced in November 2006).
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
(4
models)
|
Announced
in February 2007 and expected to be available in June 2007, these
touch-
screen multifunction displays for the Garmin Marine Network (a system
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.
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GPSMAP®
4000 series/
4200
series (4 models)
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Announced
in 2006 and expected to be available in June 2007, these multifunction
displays for the Garmin Marine Network (a system that combines 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.
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GPSMAP®
3000 series/
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These
configurable chartplotter/multifunction displays (MFDs) are all
network-enabled 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.
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3200
series (6 models)
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GDL
30 & 30A
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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.
|
|
|
|
|
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
|
Garmin
offers five 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. Three of the models offer color displays. Garmin’s
newest fishfinder - 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.
|
|
|
|
|
|
GPSMAP®
4x0 and 5x0
series
(24 models)
|
Announced
in November 2006 and expected to be available in the first quarter
of
2007, the 4x0 and 5x0 chartplotters and chartplotter/sonar units
feature
new, highly-detailed 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.
|
|
|
|
|
|
|
Garmin
offers both radomes and open array radar products with compatibility
to
any 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.
|
|
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, which was 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 years (2003, 2004,
2005 and 2006). Aviation
International News also
ranked Garmin No. 1 in avionics product support in 2006. 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 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 newly certified Citation Mustang jet and Embraer who announced in November
2005 that Garmin’s G1000 integrated flight deck had been selected 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 new 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, which was introduced in July 2006, expands on the GPSMAP
396
by adding such new 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.
|
|
|
|
|
iQue
3600a
|
Combines
the convenience of a Palm PDA with the features of a Garmin GPS aviation
portable. Features include Jeppesen database and obstacle databases,
“Terrain” mode, detailed Sectional chart-style overview, and a
patent-pending aviation cradle mount. Also features a suite of personal
information management (PIM) applications, voice recorder, MP3 player
and
SD card slot for memory expansion. Optional MapSource CD downloads
and
user-selectable formats enable the iQue 3600a to move from plane
to
automobile.
|
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.
|
|
|
|
|
|
The
GNS 430 was the world’s first ‘‘all-in-one’’ IFR certified GPS navigation
receiver/traditional VHF navigation receiver/instrument landing systems
receiver and VHF communication transmitter/receiver. Features available
in
different 400 series models include 4-color map graphics, GPS,
communication and navigation capabilities. The 430 Series units may
now be
ordered with or upgraded to Wide Area Augmentation System (WAAS)
capability.
|
|
|
|
|
|
|
These
units combine the features of the 400 series along with a larger
5” color
display. 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).
|
|
|
|
|
GTX
320A & 327
|
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.
|
|
|
|
|
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.
|
|
|
|
|
GNS
480
|
Integrated
avionics unit with GPS navigation receiver certified for primary
means
Wide Area Augmentation System (WAAS)/GPS navigation and VHF navigation
receiver/instrument landing systems receiver and VHF communication
transmitter/receiver.
|
|
|
|
|
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.
|
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 30,
2006. Marketing support is provided geographically from Garmin’s offices in
Olathe, Kansas (North, South and Central America),
Romsey
(effective April 2007 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;
|
|
·
|
Boaters
World—a
leading off-shore marine retailer with multiple locations;
|
|
·
|
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;
|
|
·
|
REI
(Recreational Equipment Inc.)—a
specialty outdoor gear consumer cooperative;
|
|
·
|
Target—a
leading mass merchandise chain of retail stores;
|
|
·
|
Wal-Mart—one
of the world’s largest mass retailers;
|
|
·
|
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
local distributors who resell to dealers. Working closely with Garmin’s in-house
sales and marketing staff in the U.K., these distributors are responsible for
inventory levels and staff training requirements at each retail location.
Garmin’s Taiwan-based marketing team handles its Asia marketing
effort.
Garmin’s
panel-mount aviation products are sold through distributors around the world.
Garmin’s largest aviation distributors include Sportsman’s Market, Tropic Aero
and JA Air Center. 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 Motorrad, and Honda
Motorcycle and 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, Premier
Marine and Pro Sports Boats and are optional equipment on boats manufactured
by
Chaparral Boats, Inc., Cruiser Yachts, Formula Boats, Glacier Bay Catamarans,
Inc., Mastercraft Boat Company 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, Columbia Aircraft
Manufacturing Corporation, Diamond Aircraft Industries, EADS SOCATA, Eurocopter,
Mooney Aircraft Corporation, Raytheon Aircraft Company, Robinson Helicopter,
and
the New 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”), Alpine Electronics, Inc.,
Navman, Mio Technology Ltd. and Sony Corporation. 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”), Navman, the Standard Vertex Division of Yaesu Co.
Ltd. (“Standard”), 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 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 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 970 people worldwide as of December 31, 2006.
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.
|
|
Fiscal
Years Ended
|
|
|
|
December
30,
|
|
December
31,
|
|
December
25,
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
($'s
in thousands)
|
|
|
|
|
|
|
|
Research
and development
|
|
$
|
113,314
|
|
$
|
74,879
|
|
$
|
61,580
|
|
Percent
of net sales
|
|
|
6.4
|
%
|
|
7.3
|
%
|
|
8.0
|
%
|
Manufacturing
and Operations
Garmin
believes that one of its core competencies is its manufacturing capability
at
its Shijr and Jhongli, 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. Reducing time to market has enabled Garmin to offer several industry
firsts, such as the Rino GPS-enabled Family Radio Service/General Mobile Radio
Service two-way radio, the iQue 3600a portable digital assistant with integrated
GPS and mapping, and the GNS 430, which integrates traditional aviation
navigation and communications systems with GPS in a single package.
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 panel-mount products are designed and manufactured according
to processes which are approved and monitored by the FAA.
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.
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 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 the Father’s Day/graduation buying season,
and in the fourth quarter, due to increased demand during the holiday 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 February 26, 2007, we held 291 U.S. patents and 13
foreign patents. As of February 26, 2007, we had 190 U.S. patent applications
and 26 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 February 26, 2007, we held 68 U.S. trademark
registrations and 135 foreign trademark registrations. Additional trademarks
are
pending registration.
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.
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
People’s Republic of China has enacted legislation which is widely known as
“China RoHS”. The first phase of China RoHS will take effect on March 1, 2007
and will require 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 30, 2006, Garmin had 4,751 full-time employees worldwide, of whom
1,728
were in the United States, 53 were in Canada, 2,807 were in Taiwan, 160 were
in
Europe, and 3 were in other global locations. None of Garmin’s employees are
represented by a labor union or covered by a collective bargaining agreement.
Garmin considers its employee relations to be good.
Item
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
Our
Global Positioning System products depend upon satellites maintained by the
United States Department of Defense. If a significant number of these satellites
become inoperable, unavailable or are not replaced or if the policies of the
United States government for the use of the Global Positioning System without
charge are changed or if there is interference with Global Positioning System
signals, our business will suffer.
The
Global Positioning System is a satellite-based navigation and positioning system
consisting of a constellation of orbiting satellites. The satellites and their
ground control and monitoring stations are maintained and operated by the United
States Department of Defense. The Department of Defense does not currently
charge users for access to the satellite signals. These satellites and their
ground support systems are complex electronic systems subject to electronic
and
mechanical failures and possible sabotage. The satellites were originally
designed to have lives of 7.5 years and are subject to damage by the hostile
space environment in which they operate. However, of the current deployment
of
satellites in place, 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 Federal Aviation
Administration (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.
On
September 11, 2001, terrorists hijacked and crashed four passenger aircraft
operated by commercial air carriers, resulting in major loss of life and
property. Following the 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 and as competition in the market for
our
products intensifies. Significant unanticipated fluctuations in demand could
cause the following problems in our operations:
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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.
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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.
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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.
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We
may become subject to significant product liability costs.
If
our
aviation products malfunction or contain errors or defects, airplane collisions
or crashes could occur resulting in property damage, personal injury or death.
Malfunctions or errors or defects in our marine navigational products could
cause boats to run aground or cause other wreckage, personal injury or death.
If
any of these events occurs, we could be subject to significant liability for
personal injury and property damage 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. 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 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 (including in the first half of 2004) 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
license mapping data for use in our products from various sources. There are
only a limited number of suppliers of mapping data for each geographical region.
If we are unable to continue licensing such mapping data and are unable to
obtain an alternative source, or if the price of the alternative source is
prohibitive, our ability to supply mapping data for use in our products would
be
seriously harmed.
We
rely on independent dealers and distributors to sell our products, and
disruption to these channels would harm our business.
Because
we sell a majority of our products to independent dealers and distributors,
we
are subject to many risks, including risks related to their inventory levels
and
support for our products. In particular, our dealers and distributors maintain
significant levels of our products in their inventories. If dealers and
distributors attempt to reduce their levels of inventory or if they do not
maintain sufficient levels to meet customer demand, our sales could be
negatively impacted.
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 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 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.
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 tend to be higher in our
fourth fiscal quarter due to increased consumer spending patterns on electronic
devices during the holiday season. In
addition, we attempt to time our new product releases to coincide with
relatively higher consumer spending in the second and fourth fiscal quarters,
which contributes to these seasonal variations.
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. 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,
Federal Aviation Administration (‘‘FAA’’) certification is required for all of
our aviation products that are intended for installation in type certificated
aircraft. To the extent required, certification is an expensive and
time-consuming process that requires significant focus and resources. An
inability to obtain, or excessive delay in obtaining, such certifications could
have an adverse effect on our ability to introduce new products and, therefore,
our operating results. In
addition, we cannot assure you that our certified products will not be
decertified. Any such decertification could have an adverse effect on our
operating results.
Our
business is subject to economic, political and other risks associated with
international sales and operations.
Our
business is subject to risks associated with doing business internationally.
We
estimate that approximately 38% of our net sales in the fiscal year ended
December 30, 2006 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:
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changes
in foreign currency exchange rates;
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changes
in a specific country’s or region’s political or economic conditions,
particularly in emerging markets;
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trade
protection measures and import or export licensing requirements;
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potentially
negative consequences from changes in tax laws;
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difficulty
in managing widespread sales and manufacturing operations; and
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less
effective protection of intellectual property.
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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 (2004 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 ourselves 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
any strategic partnerships with parties who can provide access to those assets,
additional product or services offerings or additional industry expertise.
In
December 2006, we acquired Dynastream Innovations, Inc. In January 2007, we
acquired Digital Cyclone, Inc. and EME TecSat SAS. 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
future acquisition could result in difficulties assimilating acquired 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 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.
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 2006, the closing price of our common shares ranged from a
low
of $29.75 to a high of $56.89. A variety of factors could cause the price of
our
common shares to fluctuate, perhaps substantially, including:
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announcements
and rumors of developments related to our business or the industry
in
which we compete;
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quarterly
fluctuations in our actual or anticipated operating
results;
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the
availability, pricing and timeliness of delivery of components, such
as
flash memory and liquid crystal displays, used in our
products;
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general
conditions in the worldwide economy, including fluctuations in interest
rates;
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announcements
of technological innovations;
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new
products or product enhancements by us or our
competitors;
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product
obsolescence and our ability to manage product
transitions;
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developments
in patents or other intellectual property rights and
litigation;
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developments
in our relationships with our customers and suppliers;
and
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any
significant acts of terrorism against the United States, Taiwan or
significant markets where we sell our
products.
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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, 2007 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 41% 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 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 feet facility in Shijr, Taipei
County, Taiwan and a 223,469 square feet facility in Jhongli, Tao-Yang County,
Taiwan where it manufactures all of Garmin’s consumer and portable aviation
products and warehouses, markets and supports products for the Pacific Rim
countries.
Garmin
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 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 Gamin products. This lease expires in November 2016.
Garmin
International, Inc. also leases an aggregate of 3,233 square feet of office
space in Tempe, Arizona for software development, and in Wichita, Kansas for
support of Garmin’s aviation original equipment manufacturer operations. In
addition, Garmin International, Inc. leases 1,700 square feet of office space
in
Sausalito, California which houses the MotionBased division of Garmin
International, Inc.
Garmin
(Europe) Ltd. leases an aggregate of 33,642 square feet under four leases in
Romsey, England for warehousing, marketing and supporting Garmin products in
Europe, Africa and the Middle East. Garmin (Europe) Ltd. also repairs products
at this facility. In October 2006, Garmin (Europe) Ltd purchased a 155,000
sq.
ft. building located in Totton, Southampton, England and expects to relocate
its
operations to this building beginning in April 2007.
Dynastream
Innovations, Inc. leases an aggregate of 14,575 square feet in two buildings
in
Cochrane, Alberta, Canada.
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. 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, we believe that the claims are without merit and we will vigorously
defend these actions.
Garmin
Ltd. v. TomTom, Inc.; Garmin Corporation v. TomTom, Inc.
(Wisconsin)
These
lawsuits were filed by Garmin Ltd. and Garmin Corporation against TomTom, Inc.
(“TomTom”) on January 31, 2006 and February 1, 2006, respectively, in the United
States District Court for the Western District of Wisconsin. The lawsuits have
been consolidated. Garmin Ltd. and Garmin Corporation filed an amended complaint
on May 5, 2006. The amended complaint claims that certain TomTom products
infringe U.S. Patents Nos. 6,188,956 and 6,222,485 owned by Garmin Corporation
and U.S. Patents Nos. 6,901,330; 6,687,615 and 6,999,873 owned by Garmin Ltd.
On
April 27, 2006, TomTom served amended answers and counterclaims on Garmin Ltd.
and Garmin Corporation which claim that certain products sold by these companies
are infringing three U.S. patents that were purchased by an affiliate of TomTom
International, B.V. from Horizon Navigation, Inc. on April 21, 2006. The three
patents are U.S. Patents 5,291,412, 5,550,538 and 5,922,042. The amended answers
and counterclaims also added Garmin International, Inc. as a counterclaim
defendant. On December 22, 2006 the court ruled on summary judgment motions
filed by the parties. The court ruled that Garmin Ltd. and its subsidiaries
did
not infringe any claim of any of the three patents asserted by TomTom in its
counterclaims, that TomTom did not infringe certain claims of the patents
asserted by Garmin and that certain claims of some of the patents asserted
by
Garmin were invalid. Ten claims asserted against TomTom by Garmin under a total
of four patents remain unadjudicated and Garmin has filed a motion to reopen
the
case to address these claims. This motion is currently pending before the
court.
Garmin
Ltd. v. TomTom, Inc. (Texas)
On
August
23, 2006, Garmin Ltd. filed a lawsuit in the United States District Court for
the Eastern District of Texas claiming that certain TomTom products infringe
U.S. Patent No. 7,062,378 owned by Garmin Ltd. On October 20, 2006 TomTom filed
an answer denying infringement and also filed a motion to transfer the lawsuit
to the United States District Court for the Western District of Wisconsin,
which
motion has been opposed by Garmin. On December 20, 2006 the court held a hearing
on the motion to transfer and the motion is currently pending before the court.
The case is currently in the early stages of discovery. Pending its ruling
on
the motion to transfer, the court has scheduled the trial for November
2008.
Garmin
(Europe) Ltd., Garmin International, Inc, Garmin Corporation and Garmin Ltd.
v.
TomTom International B.V.
Garmin
Ltd.
and the
above-named subsidiaries of Garmin Ltd. filed a lawsuit against TomTom
International B.V. in the District Court in the Hague, the Netherlands, on
June
27, 2006. The lawsuit seeks a declaration of non-infringement of TomTom’s
European Community Registered Design No. 000267968-001 (the “Registered
Design”). TomTom responded on July 14, 2006 by filing an action for preliminary
relief in the District Court in the Hague, the Netherlands, claiming that
certain models of Garmin’s StreetPilot products infringe the Registered Design.
TomTom has also filed a counterclaim for infringement of the Registered Design
in the main lawsuit. On November 2, 2006, the court issued a judgment in the
preliminary relief proceedings finding that Garmin’s products do not infringe
the Registered Design and denying TomTom’s claim for preliminary relief. TomTom
has filed an appeal of this judgment. The court also awarded Garmin
approximately 37,000 euros for attorneys’ fees and costs. Garmin believes that
none of its products infringe the Registered Design and Garmin is prosecuting
vigorously its action for a declaration of non-infringement. 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, we believe that our products do not infringe the Registered Design
and
we intend to vigorously prosecute our lawsuit seeking a declaration of
non-infringement.
Garmin
(Europe) Ltd. v. TomTom International B.V.
On
July
17, 2006, Garmin (Europe) Ltd. filed a lawsuit against TomTom International
B.V.
in the High Court of Justice in London, England. The lawsuit seeks a declaration
that United Kingdom Patent No. GB 2400293 B (the “’293 patent”) owned by TomTom
International B.V., is invalid and an order that the ‘293 patent be revoked. On
July 31, 2006, TomTom International B.V. filed a defense indicating that it
intended to defend this lawsuit and also filed a counterclaim alleging that
certain models of Garmin’s StreetPilot products and Garmin’s nüvi products
infringe the ‘293 patent. Garmin (Europe) Ltd. believes that none of its
products infringe the ‘293 patent and that the ‘293 patent is invalid. On
December 20, 2006, Garmin (Europe) Ltd. filed a second lawsuit against TomTom
International B.V. in the High Court of Justice in London, England. This lawsuit
seeks declarations that United Kingdom Patent Nos. GB 2400292 B (the “’292
patent”) and GB 2400294 B (the “’294 patent”), owned by TomTom International
B.V., are invalid and seeks orders that the ’292 and ’294 patents be revoked. On
January 17, 2007, TomTom International B.V. filed a defense indicating that
it
intended to defend this lawsuit. Garmin (Europe) Ltd. intends to prosecute
vigorously its actions seeking declarations of invalidity and revocation of
the
’292, ‘293, and ’294 patents and to defend vigorously TomTom’s allegation of
infringement of the ‘293 patent. 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, we believe that
TomTom’s counterclaim under the ‘293 patent is without merit and we intend to
vigorously defend it.
From
time
to time the Company 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 2006.
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 8, 2007.
Dr.
Min H. Kao,
age 58,
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
President of Garmin International, Inc. since March 2002, 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. Dr. Kao has been President of Garmin USA, Inc.
since March 2002 and a director of Garmin USA, Inc. since December 2001. Dr.
Kao
has been President of Garmin AT, Inc. and a director of Garmin AT, Inc. since
August 2003. 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 and a director of Dynastream
Innovation, Inc, since December 2006. Dr. Kao holds Ph.D. and MS degrees in
Electrical Engineering from the University of Tennessee and a BS degree in
Electrical Engineering from National Taiwan University.
Kevin
S. Rauckman,
age 44,
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 and a director of Dynastream Innovations, Inc. since
December 2006. Mr. Rauckman holds BS and MBA degrees in Business from the
University of Kansas.
Andrew
R. Etkind,
age 51,
has served as General Counsel and Secretary of Garmin Ltd. since August 2000.
He
has been General Counsel of Garmin International, Inc. since February 1998
and
Secretary since October 1998. He has been General Counsel and Secretary of
Garmin USA, Inc. since December 2001. 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 and a director of Garmin N.V. since 2005. Mr.
Etkind holds BA, MA and LLM degrees from Cambridge University, England and
a JD
degree from the University of Michigan Law School.
Clifton
A. Pemble,
age 41,
has served as a director of Garmin Ltd. since August 2004. 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 and
a
director of Dynastream Innovations, Inc. since December 2006.. He has been
Vice
President, Engineering of Garmin International, Inc. since 2005. Previously,
he
was 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.
Gary
V. Kelley,
age
60, 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.
Brian
J. Pokorny,
age 43,
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).
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 23, 2007, there were 226 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 2006 and
2005
was as follows:
|
Year
Ended
|
|
December
30, 2006
|
December
31, 2005
|
|
High
|
Low
|
High
|
Low
|
First
Quarter
|
$42.39
|
$29.75
|
$31.00
|
$23.47
|
Second
Quarter
|
$54.75
|
$39.97
|
$23.16
|
$19.75
|
Third
Quarter
|
$54.10
|
$41.20
|
$33.67
|
$20.54
|
Fourth
Quarter
|
$56.89
|
$44.53
|
$35.21
|
$27.32
|
The
Board
of Directors declared a cash dividend of $0.25 per common share to shareholders
of record on December 1, 2005 which was paid on December 15, 2005. 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 2007.
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
expires on December 31, 2007. There were 1,155,300 shares purchased under
this
authorization during the fiscal year ended December 30, 2006, and 1,844,700
are
available for purchase until December 31, 2007.
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, 2001 through December 31, 2006, 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, 2001, in Garmin common shares and in each
of
the foregoing indexes and assumes reinvestment of dividends.
|
|
|
|
|
|
|
|
12/01
|
12/02
|
12/03
|
12/04
|
12/05
|
12/06
|
|
|
|
|
|
|
|
Garmin
Ltd.
|
100.00
|
137.43
|
257.82
|
290.39
|
319.52
|
541.42
|
NASDAQ
Composite
|
100.00
|
71.97
|
107.18
|
117.07
|
120.50
|
137.02
|
NASDAQ
100
|
100.00
|
60.02
|
90.98
|
105.67
|
113.63
|
119.74
|
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 30, 2006 and
December 31, 2005 and the selected consolidated statement of income data
for the
years ended December 30, 2006, December 31, 2005, and December 25, 2004 were
derived from the Company’s audited consolidated financial statements and the
related notes thereto which are included in Item 8 of this annual report
on Form
10-K. The selected consolidated balance sheet data as of December 25, 2004,
December 27, 2003, and December 28, 2002, and the selected consolidated
statement of income data for the years ended December 27, 2003 and December
28,
2002 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.
30, 2006
|
|
Dec.
31, 2005
|
|
Dec.
25, 2004
|
|
Dec.
27, 2003
|
|
Dec.
28, 2002
|
|
|
|
|
|
(in
thousands, except per share data)
|
|
|
|
Consolidated
Statements of
|
|
|
|
|
|
|
|
|
|
|
|
Income
Data:
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
1,774,000
|
|
$
|
1,027,773
|
|
$
|
762,549
|
|
$
|
572,989
|
|
$
|
465,144
|
|
Cost
of goods sold
|
|
|
891,614
|
|
|
492,703
|
|
|
351,310
|
|
|
242,448
|
|
|
210,088
|
|
Gross
profit
|
|
|
882,386
|
|
|
535,070
|
|
|
411,239
|
|
|
330,541
|
|
|
255,056
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
administrative
|
|
|
214,513
|
|
|
122,021
|
|
|
78,991
|
|
|
59,835
|
|
|
45,453
|
|
Research
and development
|
|
|
113,314
|
|
|
74,879
|
|
|
61,580
|
|
|
43,706
|
|
|
32,163
|
|
Total
operating expenses
|
|
|
327,827
|
|
|
196,900
|
|
|
140,571
|
|
|
103,541
|
|
|
77,616
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
554,559
|
|
|
338,170
|
|
|
270,668
|
|
|
227,000
|
|
|
177,440
|
|
Other
income/(expense), net (2), (3)
|
|
|
39,995
|
|
|
34,430
|
|
|
(15,457
|
)
|
|
(1,057
|
)
|
|
5,294
|
|
Income
before income taxes
|
|
|
594,554
|
|
|
372,600
|
|
|
255,211
|
|
|
225,943
|
|
|
182,734
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax provision
|
|
|
80,431
|
|
|
61,381
|
|
|
49,511
|
|
|
47,309
|
|
|
39,937
|
|
Net
income
|
|
$
|
514,123
|
|
$
|
311,219
|
|
$
|
205,700
|
|
$
|
178,634
|
|
$
|
142,797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income per share: (4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
2.38
|
|
$
|
1.44
|
|
$
|
0.95
|
|
$
|
0.83
|
|
$
|
0.66
|
|
Diluted
|
|
$
|
2.35
|
|
$
|
1.43
|
|
$
|
0.94
|
|
$
|
0.82
|
|
$
|
0.66
|
|
Weighted
average common
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
shares
outstanding: (4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
216,340
|
|
|
216,294
|
|
|
216,322
|
|
|
216,022
|
|
|
215,548
|
|
Diluted
|
|
|
218,845
|
|
|
218,236
|
|
|
218,060
|
|
|
217,804
|
|
|
216,402
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends per share (4)
|
|
$
|
0.50
|
|
$
|
0.25
|
|
$
|
0.25
|
|
$
|
0.25
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
Sheet Data (at end of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
337,321
|
|
$
|
334,352
|
|
$
|
249,909
|
|
$
|
274,329
|
|
$
|
216,768
|
|
Marketable
securities
|
|
|
480,876
|
|
|
376,723
|
|
|
322,215
|
|
|
221,447
|
|
|
245,708
|
|
Total
assets
|
|
|
1,897,020
|
|
|
1,362,235
|
|
|
1,117,391
|
|
|
856,945
|
|
|
705,888
|
|
Total
debt (5)
|
|
|
248
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
20,000
|
|
Total
stockholders' equity
|
|
|
1,557,899
|
|
|
1,157,264
|
|
|
935,857
|
|
|
749,690
|
|
|
602,499
|
|
(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
$0.6 million and $15.3 million for foreign currency gains in 2006
and 2005
respectively, $24.8 million and $6.7 million for foreign currency
losses
in 2004 and 2003 respectively, and $0.0 million of foreign currency
gains
in 2002.
|
(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
2006, 2004, 2003, and 2002. 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 40% since 2002 and our
net
income has increased at a compounded annual growth rate of 38% since 2002.
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
in
2003, MotionBased Technologies in 2005, and Dynastream Innovations Inc. in
2006;
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 U.S. dollar (effective in 2001)
and
the functional currency of our Asian operations is the New Taiwan Dollar.
Less
than 15 percent of transactions of our European operations are now denominated
in British Pounds Sterling or the Euro. We experienced $0.6 million, $15.3
million, $(24.8) million, $(6.7) million, and $0.0 million in foreign currency
gains (losses) during fiscal years 2006, 2005, 2004, 2003, and 2002,
respectively. To date, we have not entered into hedging transactions with
the
Euro, the British Pound Sterling 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 judgements about the carrying value of assets and liabilities that
are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
Revenue
Recognition
Garmin
records estimated reductions to revenue for customer sales programs returns
and
incentive offerings including rebates, price protection, promotions and other
volume-based incentives. The reductions to revenue are based on estimates
and
judgements using historical experience and expectation of future conditions.
Changes in these estimates could negatively affect Garmin’s operating results.
These incentives are accrued for on a percentage of sales basis and reviewed
periodically. 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 judgement.
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 judgement elements. The discovery of new information
and the passage of time can significantly change these judgements. Revisions
of
impairment judgements 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, generally at the time products are
shipped. Our sales are largely of a consumer nature; therefore backlog levels
are not necessarily indicative of our future sales results. We aim to achieve
a
quick turnaround on orders we receive, and we typically ship most orders
within
72 hours.
Net
sales
are subject to some seasonal fluctuation. Typically, sales of our consumer
products are highest in the second quarter, due to increased demand during
the
spring and summer marine season, and in the fourth quarter, due to increased
demand during the holiday buying season. Our aviation products do not experience
much seasonal variation, but are more influenced by the timing of the release
of
new products when the initial demand is typically the strongest.
Gross
Profit
Raw
material costs are our most significant component of cost of goods sold.
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 auto/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. We experienced shortages in certain high technology components
in
early 2004 as well as upward pricing pressure on components in the first
half of
2004, much of which was alleviated by the end of the fiscal year.
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, 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 82% 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
30,
2006. Our top ten customers have contributed between 25% and 37% of net sales
since 2001. We have experienced average sales days in our customer accounts
receivable of between 35 and 62 days since 2001. The average sales days in
our
customer accounts receivable was 62 days as of December 30, 2006. 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 2006 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 13.5 percent
during 2006. 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 2011. The current Taiwan tax incentives for which Garmin has
received approval will end in 2011. We plan on applying for additional
incentives for years beyond 2011 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 2007, so the effective tax rate for fiscal 2007 is expected
to be
slightly higher than fiscal 2006. The actual effective tax rate will be
dependent upon the production volume, additional capital investments made
during
fiscal 2007, 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.
30,
|
|
Dec.
31,
|
|
Dec.
25,
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
Net
sales
|
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
Cost
of goods sold
|
|
|
50.3
|
%
|
|
47.9
|
%
|
|
46.1
|
%
|
Gross
profit
|
|
|
49.7
|
%
|
|
52.1
|
%
|
|
53.9
|
%
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
12.1
|
%
|
|
11.9
|
%
|
|
10.4
|
%
|
Research and development
|
|
|
6.4
|
%
|
|
7.3
|
%
|
|
8.0
|
%
|
Total
operating expenses
|
|
|
18.5
|
%
|
|
19.2
|
%
|
|
18.4
|
%
|
Operating
income
|
|
|
31.2
|
%
|
|
32.9
|
%
|
|
35.5
|
%
|
Other
income / (expense) , net
|
|
|
2.3
|
%
|
|
3.3
|
%
|
|
(2.0
|
%)
|
Income
before income taxes
|
|
|
33.5
|
%
|
|
36.2
|
%
|
|
33.5
|
%
|
Provision
for income taxes
|
|
|
4.5
|
%
|
|
6.0
|
%
|
|
6.5
|
%
|
Net
income
|
|
|
29.0
|
%
|
|
30.2
|
%
|
|
27.0
|
%
|
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 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
16,697
|
|
|
13,121
|
|
|
37,125
|
|
|
46,371
|
|
Selling,
general and administrative expenses
|
|
|
30,176
|
|
|
19,307
|
|
|
145,113
|
|
|
19,917
|
|
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
|
|
Fiscal
year ended December 31, 2005
|
|
Outdoor/
|
|
|
|
Automotive/
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
14,873
|
|
|
8,137
|
|
|
17,466
|
|
|
34,403
|
|
Selling,
general and administrative expenses
|
|
|
25,675
|
|
|
19,382
|
|
|
55,125
|
|
|
21,839
|
|
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
|
|
|
|
Outdoor/
|
|
|
|
Automotive/
|
|
|
|
Fiscal
year ended December 25, 2004
|
|
Fitness
|
|
Marine
|
|
Mobile
|
|
Aviation
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
222,042
|
|
$
|
165,510
|
|
$
|
203,471
|
|
$
|
171,526
|
|
Cost
of goods sold
|
|
|
103,106
|
|
|
75,817
|
|
|
107,881
|
|
|
64,506
|
|
Gross
profit
|
|
|
118,936
|
|
|
89,693
|
|
|
95,590
|
|
|
107,020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
12,589
|
|
|
8,309
|
|
|
10,785
|
|
|
29,897
|
|
Selling,
general and administrative expenses
|
|
|
21,717
|
|
|
18,074
|
|
|
21,151
|
|
|
18,049
|
|
Total
expenses
|
|
|
34,306
|
|
|
26,383
|
|
|
31,936
|
|
|
47,946
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
84,630
|
|
|
63,310
|
|
|
63,654
|
|
|
59,074
|
|
Other
income / (expense), net
|
|
|
(6,221
|
)
|
|
(1,432
|
)
|
|
(7,614
|
)
|
|
(190
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
$
|
78,409
|
|
$
|
61,878
|
|
$
|
56,040
|
|
$
|
58,884
|
|
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. In general, management believes that continuous
innovation and the introduction of new products are essential for future
revenue
growth.
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. Revenues can also be impacted in any given quarter by the timing
of new
product introductions.
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. 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 Federal Aviation Administration (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 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 &
|
|
|
|
Selling,
General &
|
|
|
|
|
|
|
|
Admin.
Expenses
|
|
%
of Revenues
|
|
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. 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 2007 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 30, 2006
|
|
Fiscal
year ended December 31, 2005
|
|
|
|
|
|
Research
&
|
|
|
|
Research
&
|
|
|
|
|
|
|
|
Development
|
|
%
of Revenues
|
|
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. 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 25% - 30% during fiscal
2007 on
an absolute dollar basis due to the anticipated introduction of a strong
portfolio of new products slated for fiscal 2007. 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
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, 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.
Comparison
of Fiscal Years Ended December 31, 2005 and December 25,
2004
Net
Sales
|
|
|
|
|
|
|
|
|
|
Fiscal
year ended December 31, 2005
|
|
Fiscal
year ended December 25, 2004
|
|
Year
over Year
|
|
|
|
Net
Sales
|
|
%
of Revenues
|
|
Net
Sales
|
|
%
of Revenues
|
|
$
Change
|
|
%
Change
|
|
Outdoor/Fitness
|
|
$
|
236,936
|
|
|
23.1
|
%
|
$
|
222,042
|
|
|
29.1
|
%
|
$
|
14,894
|
|
|
6.7
|
%
|
Marine
|
|
|
158,262
|
|
|
15.4
|
%
|
|
165,510
|
|
|
21.7
|
%
|
|
(7,248
|
)
|
|
-4.4
|
%
|
Automotive/Mobile
|
|
|
403,417
|
|
|
39.2
|
%
|
|
203,471
|
|
|
26.7
|
%
|
|
199,946
|
|
|
98.3
|
%
|
Aviation
|
|
|
229,158
|
|
|
22.3
|
%
|
|
171,526
|
|
|
22.5
|
%
|
|
57,632
|
|
|
33.6
|
%
|
Total
|
|
$
|
1,027,773
|
|
|
100.0
|
%
|
$
|
762,549
|
|
|
100.0
|
%
|
$
|
265,224
|
|
|
34.8
|
%
|
The
increase in total net sales during fiscal 2005 was primarily due to the
introduction of over 50 new products and overall demand for our automotive
and
aviation products. Total units sold increased 31% to 3,028,000 in 2005 from
2,306,000 in 2004. In general, management believes that continuous innovation
and the introduction of new products are essential for future revenue
growth.
The
Company’s revenues are normally seasonal, with the fiscal second and fourth
quarter revenues meaningfully higher than the first and third fiscal quarters.
In 2005 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 second quarter was primarily attributable to initial
sell-in
of popular new portable automobile navigation products, the onset of the
marine
selling season, and Father’s Day purchases. The revenue increase in the fourth
quarter was primarily attributable to sales momentum in our automotive products
segment, new product releases, and sales associated with the traditional
holiday
selling season. The increase in aviation sales for fiscal 2005 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 was the primary reason for increased OEM sales in 2005. 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 Federal Aviation Administration (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.
Revenues
can also be impacted in any given quarter by the timing of new product
introductions. It is management’s belief that the continued demand for Garmin’s
products is due to the expansion of the GPS market in general, and overall
increased consumer awareness of the capabilities and applications of GPS,
particularly as those capabilities pertain to automobile
navigation.
Gross
Profit
|
|
|
|
|
|
|
|
|
|
Fiscal
year ended December 31, 2005
|
|
Fiscal
year ended December 25, 2004
|
|
Year
over Year
|
|
|
|
Gross
Profit
|
|
%
of Revenues
|
|
Gross
Profit
|
|
%
of Revenues
|
|
$
Change
|
|
%
Change
|
|
Outdoor/Fitness
|
|
$
|
124,791
|
|
|
52.7
|
%
|
$
|
118,936
|
|
|
53.6
|
%
|
$
|
5,855
|
|
|
4.9
|
%
|
Marine
|
|
|
80,951
|
|
|
51.2
|
%
|
|
89,693
|
|
|
54.2
|
%
|
|
(8,742
|
)
|
|
-9.7
|
%
|
Automotive/Mobile
|
|
|
177,638
|
|
|
44.0
|
%
|
|
95,590
|
|
|
47.0
|
%
|
|
82,048
|
|
|
85.8
|
%
|
Aviation
|
|
|
151,690
|
|
|
66.2
|
%
|
|
107,020
|
|
|
62.4
|
%
|
|
44,670
|
|
|
41.7
|
%
|
Total
|
|
$
|
535,070
|
|
|
52.1
|
%
|
$
|
411,239
|
|
|
53.9
|
%
|
$
|
123,831
|
|
|
30.1
|
%
|
The
increase in gross profit dollars was primarily attributable to the introduction
of over 50 new products and overall demand for our marine, outdoor/fitness,
automotive/mobile, and aviation products. The reduction in gross margin
percentage was primarily due to reduced prices on older marine and
outdoor/fitness products in advance of new product releases, and a shift
in
product mix towards the faster-growing, lower-margin automotive/mobile product
line. The increase in aviation gross margin was primarily due to a shift
in
product mix within our OEM and retrofit products, as the G1000 product line
began a second year of selling into new aircraft and program costs were no
longer a significant cost in this business segment.
Selling,
General and Administrative Expenses
|
|
|
|
|
|
|
|
|
|
Fiscal
year ended December 31, 2005
|
|
Fiscal
year ended December 25, 2004
|
|
|
|
|
|
Selling,
General &
|
|
|
|
Selling,
General &
|
|
|
|
|
|
|
|
Admin.
Expenses
|
|
%
of Revenues
|
|
Admin.
Expenses
|
|
%
of Revenues
|
|
$
Change
|
|
%
Change
|
|
Outdoor/Fitness
|
|
$
|
25,675
|
|
|
10.8
|
%
|
$
|
21,717
|
|
|
9.8
|
%
|
$
|
3,958
|
|
|
18.2
|
%
|
Marine
|
|
|
19,382
|
|
|
12.2
|
%
|
|
18,074
|
|
|
10.9
|
%
|
|
1,308
|
|
|
7.2
|
%
|
Automotive/Mobile
|
|
|
55,125
|
|
|
13.7
|
%
|
|
21,151
|
|
|
10.4
|
%
|
|
33,974
|
|
|
160.6
|
%
|
Aviation
|
|
|
21,839
|
|
|
9.5
|
%
|
|
18,049
|
|
|
10.5
|
%
|
|
3,790
|
|
|
21.0
|
%
|
Total
|
|
$
|
122,021
|
|
|
11.9
|
%
|
$
|
78,991
|
|
|
10.4
|
%
|
$
|
43,030
|
|
|
54.5
|
%
|
The
increase in expense was primarily attributable to increases in employment
generally across the organization (net increase of over 400 non-engineering
employees), significantly increased advertising costs (up 101%) associated
primarily with increasing Garmin brand awareness and promotion of 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 31, 2005
|
|
Fiscal
year ended December 25, 2004
|
|
|
|
|
|
Research
&
|
|
|
|
Research
&
|
|
|
|
|
|
|
|
Development
|
|
%
of Revenues
|
|
Development
|
|
%
of Revenues
|
|
$
Change
|
|
%
Change
|
|
Outdoor/Fitness
|
|
$
|
14,873
|
|
|
6.3
|
%
|
$
|
12,589
|
|
|
5.7
|
%
|
$
|
2,284
|
|
|
18.1
|
%
|
Marine
|
|
|
8,137
|
|
|
5.1
|
%
|
|
8,309
|
|
|
5.0
|
%
|
|
(172
|
)
|
|
-2.1
|
%
|
Automotive/Mobile
|
|
|
17,466
|
|
|
4.3
|
%
|
|
10,785
|
|
|
5.3
|
%
|
|
6,681
|
|
|
61.9
|
%
|
Aviation
|
|
|
34,403
|
|
|
15.0
|
%
|
|
29,897
|
|
|
17.4
|
%
|
|
4,506
|
|
|
15.1
|
%
|
Total
|
|
$
|
74,879
|
|
|
7.3
|
%
|
$
|
61,580
|
|
|
8.1
|
%
|
$
|
13,299
|
|
|
21.6
|
%
|
The
increase in research and development expense was primarily attributable to
the
addition of 142 associates to our research and development team during fiscal
2005. Management believes that one of the key strategic initiatives for future
growth and success of the Company is continuous innovation, development,
and
introduction of new products, and this requires strong support of our research
and development activities.
Other
Income (Expense)
|
|
|
|
|
|
|
|
Fiscal
year ended
|
|
Fiscal
year ended
|
|
|
|
December
31, 2005
|
|
December
25, 2004
|
|
Interest
income
|
|
$
|
19,586
|
|
$
|
9,419
|
|
Interest
expense
|
|
|
(48
|
)
|
|
(38
|
)
|
Foreign
currency gain / (loss)
|
|
|
15,265
|
|
|
(24,819
|
)
|
Other
|
|
|
(373
|
)
|
|
(19
|
)
|
Total
|
|
$
|
34,430
|
|
|
($15,457
|
)
|
Other
income (expense) principally consists of interest income, interest expense
and
foreign currency exchange gains and losses. Other income (expense) was
significantly higher in fiscal 2005 relative to fiscal 2004, with the majority
of this difference caused by increased interest income and foreign currency
gains in 2005. Interest income for fiscal 2005 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 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 and $0.52 GBP/USD ($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). During fiscal 2004, the Company
experienced foreign currency exchange losses of $24.8 million, as the U.S.
Dollar weakened versus the Taiwan Dollar and British Pound (32.19 TD/USD
and
$0.52 GBP/USD) relative to the end of fiscal 2003 (34.05 TD/USD and $0.56
GBP/USD).
Income
Tax Provision
Income
tax expense increased by $11.9 million, to $61.4 million, for fiscal year
2005
from $49.5 million for fiscal year 2004 due to our higher taxable income.
The
effective tax rate was 16.5% for fiscal 2005 versus 19.4% for fiscal 2004.
The
decrease in tax rate was 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 2005 relative to 2004. This lower
effective tax rate resulted in a decrease in the ratio of income tax as a
percentage of revenue of approximately 0.5% from fiscal 2004 to fiscal
2005.
Net
Income
As
a
result of the various factors noted above, net income increased 51% to $311.2
million for fiscal year 2005 compared to $205.7 million for fiscal year
2004
Liquidity
and Capital Resources
Net
cash
generated by operations was $361.9 million, $247.0 million, and $208.9 million
for fiscal years 2006, 2005, and 2004, 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 significantly
increased our raw material and finished goods inventories in the third quarter
of 2006 in anticipation of a strong demand for our products during the holiday
season, and returned them to more normal levels by the end of the fourth
quarter. 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 2007 although
absolute dollars of inventory will continue to rise, reflecting the growth
of
our business.
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. Capital expenditures during 2004 included the Olathe, Kansas
facility expansion. The amount in 2005 reflects normal capital expenditure
levels.
We
have
budgeted approximately $65 million of capital expenditures during fiscal
2007 to
include normal ongoing capital expenditures as well as purchases of production
machinery and equipment to expand capacity in the Jhongli, Taiwan facility.
In
addition to capital expenditures, in 2006 cash flow used in investing related
to
the purchase of Dynastream Innovations, Inc. for $36.5 million, fixed income
securities associated with the investment of our on-hand cash balances and
approximately $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 purchase
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%. In addition
to capital expenditures, in 2004 cash flow used in investing related to the
purchase of fixed income securities associated with the investment of our
on-hand cash balances and approximately $1.8 million of intangible assets.
Garmin’s average return on its investments during fiscal year 2004 was
approximately 1.7%. 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 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 expires 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 flow related
to financing activities resulted in a net use of cash in 2004 of $51.1 million.
During 2004, Garmin repurchased 100,000 shares of its common shares under
the
3,000,000-share stock repurchase program. Sources and uses in financing
activities during 2004 related primarily to uses for the payment of a dividend
($54.1 million) and stock repurchase ($3.1 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 ($6.1
million).
Cash
dividends paid to shareholders were $107.9 million, $54.0 million, and $54.1
million during fiscal years 2006, 2005, and 2004, 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 2009.
Contractual
Obligations and Commercial Commitments
Future
payments due from Garmin, as of December 30, 2006, 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
|
|
$
|
31,145
|
|
$
|
3,357
|
|
$
|
6,271
|
|
$
|
6,040
|
|
$
|
15,477
|
|
Purchase
Obligations
|
|
$
|
265,409
|
|
$
|
265,409
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
Total
|
|
$
|
296,554
|
|
$
|
268,766
|
|
$
|
6,271
|
|
$
|
6,040
|
|
$
|
15,477
|
|
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 30, 2006; 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 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 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
TD/USD exchange rate decreased 0.7% during 2006, which resulted in a cumulative
translation adjustment of negative $1.2 million at the end of fiscal 2006
and a
net foreign currency loss of $3.1 million at Garmin Corporation during 2006.
Garmin
Europe, located in Romsey, Great Britain, uses the U.S. Dollar as the functional
currency. However, as some transactions occur in British Pounds, foreign
currency gains or losses have been realized historically and have become
more
significant in recent years as Garmin Europe has grown. The GBP/USD exchange
rate decreased 12.3% during 2006 and resulted in a net foreign currency gain
of
$3.7 million at Garmin Europe.
If
the
TD/USD exchange rate had decreased 10%
and the
GBP/USD exchange rate had increased 10% in 2006, the cumulative translation
adjustment would have been a negative $1.4 million at the end of fiscal
2006 and the foreign currency loss would have been $44.7 million. As the
majority of our worldwide sales are transacted in U.S. Dollars, the impact
on
sales related to foreign currency movements is minimal.
Interest
Rate Risk
We
have
$0.2 million of outstanding long-term debt which is associated with the
acquisition of Dynastream Innovations, Inc. which will be eliminated in fiscal
2007. Given this debt amount is financially immaterial to Garmin, there is
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 30, 2006, cumulative unrealized losses on those securities
were $4.7 million.
Item
8. Financial Statements and Supplementary Data
CONSOLIDATED
FINANCIAL STATEMENTS
Garmin
Ltd. and Subsidiaries
Years
Ended December 30, 2006, December 31, 2005, and December 25, 2004
Contents
Report
of Ernst & Young LLP, Independent Registered Public Accounting
Firm
|
56
|
Consolidated
Balance Sheets at December 30, 2006 and December 31, 2005
|
57
|
Consolidated
Statements of Income for the Years Ended December 30, 2006, December
31,
2005, and December 25, 2004
|
58
|
Consolidated
Statements of Stockholders’ Equity for the Years Ended December 30, 2006,
December 31, 2005, and December 25, 2004
|
59
|
Consolidated
Statements of Cash Flows for the Years Ended December 30, 2006,
December
31, 2005, and December 25, 2004
|
60
|
Notes
to Consolidated Financial Statements
|
62
|
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 30, 2006 and December 31, 2005,
and
the related consolidated statements of income, stockholders' equity, and
cash
flows for each of the three years in the period ended December 30, 2006.
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 30, 2006 and December 31, 2005 and the consolidated
results of their operations and their cash flows for each of the three
years in
the period ended December
30, 2006, 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), the effectiveness of Garmin Ltd. and
Subsidiaries' internal control over financial reporting as of December
30, 2006,
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 27, 2007 expressed an unqualified opinion
thereon.
Kansas
City, Missouri
February
27, 2007
Garmin
Ltd. And Subsidiaries
Consolidated
Balance Sheets
(In
thousands, except share information)
|
|
December
30,
|
|
December
31,
|
|
|
|
2006
|
|
2005
|
|
Assets
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
337,321
|
|
$
|
334,352
|
|
Marketable securities
( Note 4)
|
|
|
73,033
|
|
|
32,050
|
|
Accounts receivable, less allowance for doubtful accounts
of
|
|
|
|
|
|
|
|
$5,340
in 2006 and $4,226 in 2005
|
|
|
403,524
|
|
|
170,997
|
|
Inventories, net
|
|
|
271,008
|
|
|
199,841
|
|
Deferred income taxes
(Note 7)
|
|
|
55,996
|
|
|
29,615
|
|
Prepaid expenses and other current assets
|
|
|
28,202
|
|
|
34,312
|
|
Total
current assets
|
|
|
1,169,084
|
|
|
801,167
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net (Notes
3 and 5)
|
|
|
|
|
|
|
|
Land and improvements
|
|
|
37,103
|
|
|
31,075
|
|
Building and improvements
|
|
|
158,873
|
|
|
106,470
|
|
Office furniture and equipment
|
|
|
45,841
|
|
|
33,863
|
|
Manufacturing equipment
|
|
|
51,772
|
|
|
37,747
|
|
Engineering equipment
|
|
|
37,519
|
|
|
28,859
|
|
Vehicles
|
|
|
8,376
|
|
|
8,494
|
|
|
|
|
339,484
|
|
|
246,508
|
|
Accumulated depreciation
|
|
|
88,496
|
|
|
67,335
|
|
|
|
|
250,988
|
|
|
179,173
|
|
|
|
|
|
|
|
|
|
Restricted
cash (Note
5)
|
|
|
1,525
|
|
|
1,356
|
|
Marketable
securities
(Note 4)
|
|
|
407,843
|
|
|
344,673
|
|
License
agreements, net
|
|
|
3,307
|
|
|
6,517
|
|
Other
intangible assets
|
|
|
64,273
|
|
|
29,349
|
|
Total
assets
|
|
$
|
1,897,020
|
|
$
|
1,362,235
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders' Equity
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
88,375
|
|
$
|
76,516
|
|
Salaries and benefits payable
|
|
|
16,268
|
|
|
13,005
|
|
Accrued warranty costs
|
|
|
37,639
|
|
|
18,817
|
|
Accrued sales program costs
|
|
|
32,560
|
|
|
9,038
|
|
Other accrued expenses
|
|
|
68,172
|
|
|
14,955
|
|
Income taxes payable
|
|
|
94,668
|
|
|
63,154
|
|
Total
current liabilities
|
|
|
337,682
|
|
|
195,485
|
|
|
|
|
|
|
|
|
|
Long-term
debt, less current portion
|
|
|
248
|
|
|
-
|
|
Deferred
income taxes (Note
7)
|
|
|
1,191
|
|
|
9,486
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity:
|
|
|
|
|
|
|
|
Common stock, $0.005 par value, 1,000,000,000 shares
authorized
|
|
|
|
(Notes
10, 11 and 12):
|
|
|
|
|
|
|
|
Issued
and outstanding shares - 216,098,000 in 2006, and
|
|
|
|
|
|
|
|
216,134,000 in 2005
|
|
|
1,082
|
|
|
1,081
|
|
Additional paid-in capital
|
|
|
83,438
|
|
|
96,242
|
|
Retained earnings (Note
3)
|
|
|
1,478,654
|
|
|
1,072,454
|
|
Accumulated other comprehensive gain/(loss)
|
|
|
(5,275
|
)
|
|
(12,513
|
)
|
Total
stockholders' equity
|
|
|
1,557,899
|
|
|
1,157,264
|
|
Total
liabilities and stockholders' equity
|
|
$
|
1,897,020
|
|
$
|
1,362,235
|
|
See
accompanying notes.
Garmin
Ltd. And Subsidiaries
Consolidated
Statements of Income
(In
Thousands, Except Per Share Information)
|
|
Fiscal
Year Ended
|
|
|
|
December
30,
|
|
December
31,
|
|
December
25,
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
1,774,000
|
|
$
|
1,027,773
|
|
$
|
762,549
|
|
Cost of
goods sold
|
|
|
891,614
|
|
|
492,703
|
|
|
351,310
|
|
Gross
profit
|
|
|
882,386
|
|
|
535,070
|
|
|
411,239
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
|
|
214,513
|
|
|
122,021
|
|
|
78,991
|
|
Research
and development expense
|
|
|
113,314
|
|
|
74,879
|
|
|
61,580
|
|
|
|
|
327,827
|
|
|
196,900
|
|
|
140,571
|
|
Operating
income
|
|
|
554,559
|
|
|
338,170
|
|
|
270,668
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
35,897
|
|
|
19,586
|
|
|
9,419
|
|
Interest expense
|
|
|
(41
|
)
|
|
(48
|
)
|
|
(38
|
)
|
Foreign currency
|
|
|
596
|
|
|
15,265
|
|
|
(24,819
|
)
|
Other
|
|
|
3,543
|
|
|
(373
|
)
|
|
(19
|
)
|
|
|
|
39,995
|
|
|
34,430
|
|
|
(15,457
|
)
|
Income
before income taxes
|
|
|
594,554
|
|
|
372,600
|
|
|
255,211
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax provision (benefit): (Note
7)
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
113,226
|
|
|
52,548
|
|
|
57,462
|
|
Deferred
|
|
|
(32,795
|
)
|
|
8,833
|
|
|
(7,951
|
)
|
|
|
|
80,431
|
|
|
61,381
|
|
|
49,511
|
|
Net
income
|
|
$
|
514,123
|
|
$
|
311,219
|
|
$
|
205,700
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
net income per share
(Note 11)
|
|
$
|
2.38
|
|
$
|
1.44
|
|
$
|
0.95
|
|
Diluted
net income per share
(Note 11)
|
|
$
|
2.35
|
|
$
|
1.43
|
|
$
|
0.94
|
|
See
accompanying notes.
Garmin
Ltd. And Subsidiaries
Consolidated
Statements of Stockholders' Equity
(In
Thousands, Except Share and Per Share Information)
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
Other
|
|
|
|
|
|
Common
Stock
|
|
Paid-In
|
|
Retained
|
|
Comprehensive
|
|
|
|
|
|
Shares
|
|
Dollars
|
|
Capital
|
|
Earnings
|
|
Gain/(Loss)
|
|
Total
|
|
Balance
at December 27, 2003
|
|
|
216,332
|
|
$
|
1,082
|
|
$
|
104,022
|
|
$
|
663,604
|
|
|
($19,018
|
)
|
$
|
749,690
|
|
Net income
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
205,700
|
|
|
|
|
|
205,700
|
|
Translation adjustment
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
33,040
|
|
|
33,040
|
|
Adjustment related to unrealized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
gains
(losses) on available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
securities,
net of income tax effects
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
$1,260
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(3,407
|
)
|
|
(3,407
|
)
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
235,333
|
|
Dividends paid
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(54,095
|
)
|
|
-
|
|
|
(54,095
|
)
|
Tax benefit from exercise of employee
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stock options
|
|
|
-
|
|
|
-
|
|
|
1,980
|
|
|
-
|
|
|
-
|
|
|
1,980
|
|
Issuance of common stock from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
exercise of stock options
|
|
|
404
|
|
|
2
|
|
|
3,438
|
|
|
-
|
|
|
-
|
|
|
3,440
|
|
Purchase and retirement of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
common stock
|
|
|
(200
|
)
|
|
(1
|
)
|
|
(3,181
|
)
|
|
-
|
|
|
-
|
|
|
(3,182
|
)
|
Issuance of common stock through
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stock purchase plan
|
|
|
118
|
|
|
1
|
|
|
2,690
|
|
|
-
|
|
|
-
|
|
|
2,691
|
|
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
|
|
See
accompanying notes.
Consolidated
Statements of Cash Flows
(In
Thousands)
|
|
Fiscal
Year Ended
|
|
|
|
December
30,
|
|
December
31,
|
|
December
25,
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
Operating
Activities:
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
514,123
|
|
$
|
311,219
|
|
$
|
205,700
|
|
Adjustments
to reconcile net income to net cash provided
|
|
|
|
|
|
|
|
|
|
|
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
21,535
|
|
|
18,693
|
|
|
13,069
|
|
Amortization
|
|
|
22,940
|
|
|
24,903
|
|
|
21,530
|
|
Gain
on sale of property and equipment
|
|
|
67
|
|
|
37
|
|
|
191
|
|
Provision
for doubtful accounts
|
|
|
955
|
|
|
445
|
|
|
187
|
|
Provision
for obsolete and slow-moving inventories
|
|
|
23,245
|
|
|
14,755
|
|
|
7,158
|
|
Foreign
currency transaction gains/losses
|
|
|
(344
|
)
|
|
(13,957
|
)
|
|
19,736
|
|
Deferred
income taxes
|
|
|
(35,060
|
)
|
|
8,833
|
|
|
(7,951
|
)
|
Stock
appreciation rights
|
|
|
11,913
|
|
|
925
|
|
|
-
|
|
Realized
gains on marketable securities
|
|
|
(3,852
|
)
|
|
-
|
|
|
-
|
|
Changes
in operating assets and liabilities, net of acquisition:
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(230,111
|
)
|
|
(61,607
|
)
|
|
(27,086
|
)
|
Inventories
|
|
|
(92,708
|
)
|
|
(61,262
|
)
|
|
(61,534
|
)
|
Prepaid
expenses and other current assets
|
|
|
(4,357
|
)
|
|
(16,021
|
)
|
|
(3,190
|
)
|
Purchase
of licenses
|
|
|
(2,950
|
)
|
|
(4,192
|
)
|
|
(32,796
|
)
|
Accounts
payable
|
|
|
10,187
|
|
|
24,127
|
|
|
10,638
|
|
Accrued
expenses
|
|
|
97,167
|
|
|
4,283
|
|
|
26,424
|
|
Income
taxes payable
|
|
|
29,105
|
|
|
(4,176
|
)
|
|
36,860
|
|
Net
cash provided by operating activities
|
|
|
361,855
|
|
|
247,005
|
|
|
208,936
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing
activities:
|
|
|
|
|
|
|
|
|
|
|
Purchases
of property and equipment
|
|
|
(92,906
|
)
|
|
(27,130
|
)
|
|
(78,145
|
)
|
Proceeds
from sale of property and equipment
|
|
|
76
|
|
|
-
|
|
|
25
|
|
Purchase
of intangible assets
|
|
|
(3,115
|
)
|
|
(3,560
|
)
|
|
(1,791
|
)
|
Purchase
of marketable securities
|
|
|
(453,085
|
)
|
|
(342,359
|
)
|
|
(293,780
|
)
|
Sales
of marketable securities
|
|
|
359,313
|
|
|
283,253
|
|
|
189,221
|
|
Purchase
of Dynastream Innovations, Inc.
|
|
|
(36,499
|
)
|
|
-
|
|
|
-
|
|
Purchase
of MotionBased Technologies
|
|
|
-
|
|
|
(1,483
|
)
|
|
-
|
|
Change
in restricted cash
|
|
|
(169
|
)
|
|
98
|
|
|
153
|
|
Net
cash used in investing activities
|
|
|
(226,385
|
)
|
|
(91,181
|
)
|
|
(184,317
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Financing
activities:
|
|
|
|
|
|
|
|
|
|
|
Dividends
|
|
|
(107,923
|
)
|
|
(53,974
|
)
|
|
(54,095
|
)
|
Payment
on long-term debt
|
|
|
(11
|
)
|
|
-
|
|
|
-
|
|
Proceeds
from issuance of common stock through
|
|
|
|
|
|
|
|
|
|
|
stock purchase plan
|
|
|
3,569
|
|
|
2,824
|
|
|
2,691
|
|
Proceeds
from issuance of common stock from
|
|
|
|
|
|
|
|
|
|
|
exercise of stock options
|
|
|
12,505
|
|
|
6,866
|
|
|
3,440
|
|
Tax
benefit related to stock option exercise
|
|
|
9,660
|
|
|
-
|
|
|
-
|
|
Purchase
of common stock
|
|
|
(50,450
|
)
|
|
(26,653
|
)
|
|
(3,182
|
)
|
Net
cash used in financing activities
|
|
|
($132,650
|
)
|
|
(70,937
|
)
|
|
(51,146
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash and cash equivalents
|
|
|
149
|
|
|
(444
|
)
|
|
2,107
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase/(decrease) in cash and cash equivalents
|
|
|
2,969
|
|
|
84,443
|
|
|
(24,420
|
)
|
Cash
and cash equivalents at beginning of year
|
|
|
334,352
|
|
|
249,909
|
|
|
274,329
|
|
Cash
and cash equivalents at end of year
|
|
$
|
337,321
|
|
$
|
334,352
|
|
$
|
249,909
|
|
See
accompanying notes.
Garmin
Ltd. And Subsidiaries
Consolidated
Statements of Cash Flows (continued)
(In
Thousands)
|
|
Fiscal
Year Ended
|
|
|
|
December
30,
|
|
December
31,
|
|
December
25,
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures of cash flow information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid during the year for income taxes
|
|
$
|
67,044
|
|
$
|
59,765
|
|
$
|
27,467
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
received during the year from income tax refunds
|
|
$
|
537
|
|
$
|
115
|
|
$
|
1,015
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid during the year for interest
|
|
$
|
41
|
|
$
|
48
|
|
$
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of non-cash investing and
|
|
|
|
|
|
|
|
|
|
|
financing
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in marketable securities related to unrealized
|
|
|
|
|
|
|
|
|
|
|
appreciation
(depreciation)
|
|
$
|
68
|
|
|
($2,893
|
)
|
|
($4,667
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value of assets acquired
|
|
|
42,616
|
|
$
|
1,490
|
|
|
-
|
|
Liabilities
assumed
|
|
|
(5,997
|
)
|
|
(4
|
)
|
|
-
|
|
Less:
cash acquired
|
|
|
|
|
|
(3
|
)
|
|
-
|
|
Net
cash paid
|
|
$
|
36,499
|
|
$
|
1,483
|
|
|
-
|
|
See
accompanying notes.
GARMIN
LTD. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(In
Thousands, Except Share and Per Share Information)
December
30, 2006 and December 31, 2005
1.
History 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
primarily responsible for sales and marketing of the Company’s products,
principally within the European market.
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 2006 and 2004 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
($1,168) as of December 30, 2006 and ($8,693) as of December 31, 2005,
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 $596 and $15,265, and an exchange loss of $24,819, for the years ended
December 30, 2006, December 31, 2005, and December 25, 2004, respectively.
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. The loss in fiscal 2004 was due to weakening of the United States
dollar
compared to the Taiwan Dollar throughout the year. 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.
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
30,
|
|
December
31,
|
|
December
25,
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
Raw
materials
|
|
$
|
85,040
|
|
$
|
65,348
|
|
$
|
69,036
|
|
Work-in-process
|
|
|
42,450
|
|
|
27,845
|
|
|
29,959
|
|
Finished
goods
|
|
|
160,748
|
|
|
121,404
|
|
|
67,274
|
|
Inventory
reserves
|
|
|
(17,230
|
)
|
|
(14,756
|
)
|
|
(11,289
|
)
|
|
|
$
|
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
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.
On
July
23, 2004 the Board of Directors declared a dividend of $0.25 per share (post
split) to be paid on December 15, 2004 to shareholders of record on December
1,
2004. The Company paid out a dividend in the amount of $54,095. The dividend
has
been reported as a reduction of retained earnings.
Approximately
$129,651 and $106,979 of GARMIN’s retained earnings are indefinitely restricted
from distribution to stockholders pursuant to the law of Taiwan at December
30,
2006, and December 31, 2005, respectively.
Intangible
Assets
At
December 30, 2006 and December 31, 2005, the Company had patents, license
agreements, customer related intangibles and other identifiable finite-lived
intangible assets recorded at a cost of $76,148 and $93,472, respectively.
The
Company’s excess purchase cost over fair value of net assets acquired (goodwill)
was $24,457 at December 30, 2006 and $13,701 at December 31, 2005.
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
$33,025 and $61,290 at December 30, 2006 and December 31, 2005 respectively.
Amortization expense was $21,147, $22,648, and $20,832, for the years ended
December 30, 2006, December 31, 2005, and December 25, 2004, respectively.
In
the next five years, the amortization expense is estimated to be $5,695,
$4,498,
$3,967, $3,865, and $3,681, 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 30, 2006. 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 30, 2006 and December 31, 2005, cumulative
unrealized losses of $3,968 and $3,681, 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 net securities gains (losses). The cost of securities sold is
based
on the specific identification method. Realized gains and losses on
available-for-sale securities 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 $272,732 and
$210,216 at December 30, 2006 and December 31, 2005, 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 $656,530 and $753,474 at December 30,
2006
and December 31, 2005 nor have they been accrued by Garmin Ltd for the
unremitted earnings of Garmin Europe totaling approximately $50,526 and $35,987
at December 30, 2006 and December 31,2005 for the same reason.
The
Company’s income tax liability balance includes tax contingencies that are
recorded to address potential exposures involving tax positions we have taken
that could be challenged by taxing authorities. These exposures result
from the varying applications of statutes, rules, regulations, and
interpretations. The Company’s tax contingencies are established based on
judgments about potential actions by taxing jurisdictions and relate to transfer
pricing positions we have taken in a variety of the countries in which we
operate, certain tax credits, and various foreign and state tax matters.
The ultimate resolution of these matters may be materially greater or less
than
the amount we have accrued and could have a material effect on our effective
tax
rate in the period when such matter is resolved.
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 shipped
to the
customer and title has transferred. The Company assumes no remaining significant
obligations associated with the product sale other than that related to its
warranty programs discussed below.
Shipping
and Handling Costs
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 and marine products for which the warranty period
is
two years from the date of installation.
Sales
Programs
The
Company provides certain monthly and quarterly incentives for its dealers
based
on various factors including dealer purchasing volume and growth. Additionally,
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 $114,749, $59,309, and $29,577 for the years ended December
30,
2006, December 31, 2005, and December 25, 2004, 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 $113,314, $74,879, and $61,580 for the years ended December
30,
2006, December 31, 2005, and December 25, 2004, 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 year ended 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 the prior periods 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 year ended December 30, 2006 is based
on
awards ultimately expected to vest, it has 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
|
|
2004
|
|
Net
income as reported
|
|
$
|
311,219
|
|
$
|
205,700
|
|
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
|
)
|
|
(5,460
|
)
|
Pro
forma net income
|
|
$
|
304,905
|
|
$
|
200,240
|
|
|
|
|
|
|
|
|
|
Net
income per share as reported:
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.44
|
|
$
|
0.95
|
|
Diluted
|
|
$
|
1.43
|
|
$
|
0.94
|
|
Pro
forma net income per share:
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.41
|
|
$
|
0.93
|
|
Diluted
|
|
$
|
1.40
|
|
$
|
0.92
|
|
Recently
Issued Accounting Pronouncements
In
June
2006, The Financial Accounting Standards Board (FASB) issued FASB Interpretation
No. 48, “Accounting for Uncertainty in Income Taxes - an interpretation of FASB
Statement No. 109” (FIN 48), which prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement
of
a tax position taken or expected to be taken in a tax return. FIN 48 also
provides guidance on derecognition, classification, interest and penalties,
accounting in interim periods, disclosure and transition. FIN 48 will be
effective for our fiscal year beginning December 31, 2006. We are currently
evaluating the impact of the adoption of FIN 48, however we do not expect
the
adoption to have a material impact on our financial reporting and
disclosure.
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. SFAS No. 157 will be effective for our
fiscal year beginning December 31, 2006. We do not expect the adoption of
SFAS
No. 158 to have a material impact on our financial reporting and
disclosure.
SFAS
No. 153, “Exchanges
of Nonmonetary Assets, an amendment of APB Opinion No. 29, Accounting for
Nonmonetary Transactions”
eliminates the narrow exception for nonmonetary exchanges of similar productive
assets and replaces it with a broader exception for exchanges of nonmonetary
assets that do not have commercial substance. Further, the amendments made
by
SFAS No. 153 are based on the principle that exchanges of nonmonetary
assets should be measured based on the fair value of the assets exchanged.
Previously, Opinion No. 29 required that the accounting for an exchange of
a productive asset for a similar productive asset or an equivalent interest
in
the same or similar productive asset should be based on the recorded amount
of
the asset relinquished. The statement is effective for nonmonetary asset
exchanges occurring in fiscal periods beginning after June 15, 2005.
Earlier application is permitted for nonmonetary asset exchanges in fiscal
periods beginning after the date of issuance. The provisions of this statement
shall be applied prospectively. The adoption of SFAS No. 153 did
not have a material effect on the Company’s consolidated financial
statements.
SFAS
No. 154, “Accounting
Changes and Error Corrections”
is
a
replacement of APB Opinion No. 20, Accounting
Changes,
and
FASB Statement No. 3, Reporting
Accounting Changes in Interim Financial Statements.
Statement 154 applies to all voluntary changes in accounting principle and
changes the accounting for and a reporting of a change in accounting principle.
Statement 154 requires retrospective application to the prior periods’ financial
statements of a voluntary change in accounting principle unless it is
impracticable. Statement 154 is effective for the accounting changes and
corrections of errors made in fiscal years beginning after December 15,
2005. The adoption of SFAS No. 154 did not have a material effect on
the Company’s consolidated financial statements.
4.
Marketable Securities
The
following is a summary of the Company’s marketable securities classified as
available-for-sale securities at December 30, 2006:
|
|
|
|
|
|
Estimated
Fair
|
|
|
|
|
|
Gross
Unrealized
|
|
Value
(Net
|
|
|
|
Amortized
Cost
|
|
Gains/Losses
|
|
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
following is a summary of the Company’s marketable securities classified as
available-for-sale securities at December 31, 2005:
|
|
|
|
|
|
Estimated
Fair
|
|
|
|
|
|
Gross
Unrealized
|
|
Value
(Net
|
|
|
|
Amortized
Cost
|
|
Gains/Losses
|
|
Carrying
Amount)
|
|
Mortgage-backed
securities
|
|
$
|
278,932
|
|
|
($4,611
|
)
|
$
|
274,321
|
|
Obligations
of states and political subdivisions
|
|
|
33,425
|
|
|
(456
|
)
|
|
32,969
|
|
U.S.
corporate bonds
|
|
|
45,718
|
|
|
(731
|
)
|
|
44,987
|
|
Other
|
|
|
23,450
|
|
|
996
|
|
|
24,446
|
|
Total
|
|
$
|
381,525
|
|
|
($4,802
|
)
|
$
|
376,723
|
|
The
amortized cost and estimated fair value of marketable securities at December
30,
2006, 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 (2006)
|
|
$
|
73,398
|
|
$
|
73,033
|
|
Due
after one year through five years (2007-2011)
|
|
|
277,510
|
|
|
274,143
|
|
Due
after five years through ten years (2012-2016)
|
|
|
106,917
|
|
|
106,124
|
|
Due
after ten years (2017 and thereafter)
|
|
|
27,785
|
|
|
27,576
|
|
|
|
$
|
485,610
|
|
$
|
480,876
|
|
|
|
|
|
|
|
|
|
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 $3,119, $690, and $608 for the years ended December 30, 2006, December
31,
2005, and December 25, 2004, respectively.
Future
minimum lease payments are as follows:
Year
|
|
Amount
|
|
|
|
|
|
2007
|
|
$
|
3,357
|
|
2008
|
|
|
3,181
|
|
2009
|
|
|
3,090
|
|
2010
|
|
|
3,064
|
|
2011
|
|
|
2,976
|
|
Thereafter
|
|
|
15,477
|
|
Certain
cash balances of GEL are held as collateral by a bank securing payment of
the
United Kingdom value-added tax requirements. These amounted to $1,525 and
$1,356
at December 30, 2006 and December 31, 2005, respectively, and are reported
as
restricted cash.
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.
6.
Employee Benefit Plans
GII
sponsors an 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 30, 2006, December 31, 2005, and December
25,
2004, expense related to these plans of $8,690, $6,378, and $5,183, 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 30, 2006, December 31, 2005, and December 25, 2004, were significant.
7.
Income Taxes
The
Company’s income tax provision (benefit) consists of the following:
|
|
Fiscal
Year Ended
|
|
|
|
December
30,
|
|
December
31,
|
|
December
25,
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
Federal:
|
|
|
|
|
|
|
|
Current
|
|
$
|
42,850
|
|
$
|
7,738
|
|
$
|
10,323
|
|
Deferred
|
|
|
(21,153
|
)
|
|
11,741
|
|
|
1,362
|
|
|
|
|
21,697
|
|
|
19,479
|
|
|
11,685
|
|
State:
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
4,935
|
|
|
(656
|
)
|
|
3,253
|
|
Deferred
|
|
|
(3,922
|
)
|
|
3,219
|
|
|
(5,258
|
)
|
|
|
|
1,013
|
|
|
2,563
|
|
|
(2,005
|
)
|
Foreign:
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
65,441
|
|
|
45,466
|
|
|
43,886
|
|
Deferred
|
|
|
(7,720
|
)
|
|
(6,127
|
)
|
|
(4,055
|
)
|
|
|
|
57,721
|
|
|
39,339
|
|
|
39,831
|
|
Total
|
|
$
|
80,431
|
|
$
|
61,381
|
|
$
|
49,511
|
|
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
30,
|
|
December
31,
|
|
December
25,
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
Federal
income tax expense at
|
|
|
|
|
|
|
|
U.S. statutory rate
|
|
$
|
208,094
|
|
$
|
130,410
|
|
$
|
89,324
|
|
State
income tax expense, net of
|
|
|
|
|
|
|
|
|
|
|
federal tax effect
|
|
|
658
|
|
|
1,666
|
|
|
(1,303
|
)
|
Foreign
tax rate differential
|
|
|
(112,903
|
)
|
|
(53,712
|
)
|
|
(32,516
|
)
|
Taiwan
tax holiday benefit
|
|
|
(50,905
|
)
|
|
(48,175
|
)
|
|
(27,753
|
)
|
Other
foreign taxes less
|
|
|
|
|
|
|
|
|
|
|
incentives
and credits
|
|
|
43,445
|
|
|
30,427
|
|
|
26,080
|
|
Other,
net
|
|
|
(7,958
|
)
|
|
765
|
|
|
(4,321
|
)
|
Income
tax expense
|
|
$
|
80,431
|
|
$
|
61,381
|
|
$
|
49,511
|
|
The
Company’s income before income taxes attributable to non-U.S. operations was
$508,367, $307,712, and $211,093, for the years ended December 30, 2006,
December 31, 2005, and December 25, 2004, respectively. The Taiwan tax holiday
benefits included in the table above reflect $0.24, $0.22, and $0.13 per
weighted-average common share outstanding for the years ended December 30,
2006,
December 31, 2005, and December 25, 2004, respectively. The Company currently
expects to benefit from these Taiwan tax holidays through 2011, at which
time
these tax benefits expire.
Deferred
income taxes reflect the net tax effects of temporary differences between
the
carrying amounts of assets and liabilities for financial reporting purposes
and
the amounts used for income tax purposes. Significant components of the
Company’s deferred tax assets and liabilities are as follows:
|
|
December
30,
|
|
December
31,
|
|
December
25,
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
|
Product warranty accruals
|
|
$
|
11,259
|
|
$
|
5,017
|
|
$
|
4,084
|
|
Allowance for doubtful accounts
|
|
|
1,327
|
|
|
1,361
|
|
|
1,187
|
|
Inventory carrying value
|
|
|
4,555
|
|
|
4,120
|
|
|
2,792
|
|
Sales program allowances
|
|
|
12,629
|
|
|
3,798
|
|
|
4,035
|
|
Reserve for sales returns
|
|
|
1,660
|
|
|
566
|
|
|
1,129
|
|
Vacation accrual
|
|
|
2,424
|
|
|
1,401
|
|
|
1,022
|
|
Unrealized intercompany profit in inventory
|
|
|
21,115
|
|
|
12,978
|
|
|
16,905
|
|
Unrealized investment loss
|
|
|
-
|
|
|
219
|
|
|
433
|
|
Unrealized foreign currency loss
|
|
|
325
|
|
|
550
|
|
|
3,579
|
|
Stock option compensation
|
|
|
3,720
|
|
|
-
|
|
|
-
|
|
Tax credit carryforwards, net
|
|
|
2,181
|
|
|
1,482
|
|
|
2,914
|
|
Other
|
|
|
4,225
|
|
|
-
|
|
|
447
|
|
|
|
|
65,420
|
|
|
31,492
|
|
|
38,527
|
|
Deferred
tax liabilities:
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
7,883
|
|
|
9,019
|
|
|
5,267
|
|
Unrealized investment gain
|
|
|
278
|
|
|
-
|
|
|
-
|
|
Other
|
|
|
2,454
|
|
|
2,344
|
|
|
-
|
|
|
|
|
10,615
|
|
|
11,363
|
|
|
5,267
|
|
Net
deferred tax assets
|
|
$
|
54,805
|
|
$
|
20,129
|
|
$
|
33,260
|
|
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
30, 2006
|
|
December
31, 2005
|
|
|
|
Carrying
|
|
Fair
|
|
Carrying
|
|
Fair
|
|
|
|
Amount
|
|
Value
|
|
Amount
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
337,321
|
|
$
|
337,321
|
|
$
|
334,352
|
|
$
|
334,352
|
|
Restricted
cash
|
|
|
1,525
|
|
|
1,525
|
|
|
1,356
|
|
|
1,356
|
|
Marketable
securities
|
|
|
480,876
|
|
|
480,876
|
|
|
376,723
|
|
|
376,723
|
|
9.
Segment Information
In
the
first quarter of 2006, the Company changed its internal reporting. Upon this
change, it determined that it has four reportable segments. Prior periods
have
been restated to conform to the current period’s presentation.
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 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended December 25, 2004
|
|
|
|
|
|
Outdoor/
|
|
|
|
Auto/
|
|
|
|
|
|
Aviation
|
|
Fitness
|
|
Marine
|
|
Mobile
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales to external customers
|
|
$
|
171,526
|
|
$
|
222,042
|
|
$
|
165,510
|
|
$
|
203,471
|
|
$
|
762,549
|
|
Allocated
interest income
|
|
|
1,091
|
|
|
3,008
|
|
|
2,107
|
|
|
3,213
|
|
|
9,419
|
|
Allocated
interest expense
|
|
|
(4
|
)
|
|
(12
|
)
|
|
(9
|
)
|
|
(13
|
)
|
|
(38
|
)
|
Income
before income taxes
|
|
|
58,884
|
|
|
78,409
|
|
|
61,878
|
|
|
56,040
|
|
|
255,211
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
24,770
|
|
|
32,065
|
|
|
23,901
|
|
|
29,383
|
|
|
110,119
|
|
Inventories
|
|
|
34,861
|
|
|
45,128
|
|
|
33,638
|
|
|
41,353
|
|
|
154,980
|
|
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 30, December 31,
2005, and December 25, 2004:
|
|
North
|
|
|
|
|
|
|
|
|
|
America
|
|
Asia
|
|
Europe
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
25, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales to external customers
|
|
$
|
532,501
|
|
$
|
34,185
|
|
$
|
195,863
|
|
$
|
762,549
|
|
Long-lived
assets
|
|
|
133,832
|
|
|
37,341
|
|
|
457
|
|
|
171,630
|
|
Net
assets
|
|
|
330,350
|
|
|
573,363
|
|
|
31,874
|
|
|
935,587
|
|
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
Stock-based
compensation expenses recognized in the accompanying consolidated statement
of
income for the fiscal year ended December 30, 2006, was $12 million. As a
result
of the adoption of SFAS No. 123(R), the Company’s income before income taxes and
net income for the fiscal year ended December 30, 2006 are $6,194 and $5,358
million lower, respectively, than if it had continued to account for share-based
compensation under APB Opinion No. 25. The adoption of SFAS No. 123(R) decreased
the Company’s calculation of basic and diluted earnings per share by $0.02
during the fiscal year ended December 30, 2006.
The
various Company stock compensation plans are summarized below:
2005
Equity Incentive Plan
In
June,
2005, the shareholders adopted an equity incentive plan (the Plan) providing
for
grants of incentive and nonqualified stock options and “other” stock
compensation awards to employees of the Company and its subsidiaries, pursuant
to which up to 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
2006 and 2005, the Company granted 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 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 2006, 2005, and 2004, the Company granted 64,131, 755,750,
and 1,394,000 nonqualified stock options, respectively. There have been no
“other” stock compensation awards granted under the Plan.
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 2006, 2005, and 2004, options to purchase 7,630,
11,000, and 13,242 shares 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 30, 2006,
December 31, 2005, and December 25, 2004 is provided below:
|
|
Weighted-Average
|
|
Number
of
|
|
|
|
Exercise
Price
|
|
Shares
|
|
|
|
|
|
(In
Thousands)
|
|
|
|
|
|
|
|
Outstanding
at December 27, 2003
|
|
$ |
14.21
|
|
|
4,514
|
|
Granted
|
|
|
19.87
|
|
|
1,406
|
|
Exercised
|
|
|
8.56
|
|
|
(404
|
)
|
Canceled
|
|
|
16.08
|
|
|
(66
|
)
|
Outstanding
at December 25, 2004
|
|
|
16.06
|
|
|
5,450
|
|
Granted
|
|
|
26.51
|
|
|
1,672
|
|
Exercised
|
|
|
10.68
|
|
|
(644
|
)
|
Canceled
|
|
|
18.51
|
|
|
(124
|
)
|
Outstanding
at December 31, 2005
|
|
|
19.29
|
|
|
6,354
|
|
Granted
|
|
|
48.54
|
|
|
2,413
|
|
Exercised
|
|
|
12.59
|
|
|
(994
|
)
|
Canceled
|
|
|
28.57
|
|
|
(47
|
)
|
Outstanding
at December 30, 2006
|
|
$ |
29.24
|
|
|
7,726
|
|
Exercisable
at December 30, 2006
|
|
$ |
16.98
|
|
|
2,591
|
|
Stock
Options as of December 30, 2006
|
|
Exercise
|
|
Options
|
|
Remaining
|
|
Options
|
|
Price
|
|
Outstanding
|
|
Life
(Years)
|
|
Exercisable
|
|
|
|
(In
Thousands)
|
|
|
|
(In
Thousands)
|
|
|
|
|
|
|
|
|
|
$7.00
-$15.00
|
|
|
1,566
|
|
|
4.98
|
|
|
1,390
|
|
$15.01
- $25.00
|
|
|
1,970
|
|
|
7.99
|
|
|
553
|
|
$25.01
- $35.00
|
|
|
1,803
|
|
|
7.97
|
|
|
648
|
|
$35.01
- $45.00
|
|
|
20
|
|
|
9.43
|
|
|
-
|
|
$45.01
- $55.00
|
|
|
2,366
|
|
|
9.69
|
|
|
-
|
|
$55.01
- $65.00
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
7,726
|
|
|
7.90
|
|
|
2,591
|
|
The
weighted-average remaining contract life for options outstanding and exercisable
at December 30, 2006 are 7.90 and 6.14 years respectively.
Pro
forma
information regarding net income and earnings per share is required by SFAS
No.
123. SFAS
No.
123 requires the pro forma information be determined as if the Company has
accounted for its employee stock options under the fair value method of that
statement. As described below, the fair value accounting provided under SFAS
No.
123 requires the use of option valuation models that were not developed for
use
in valuing employee stock options.
The
fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions for
2006,
2005 and 2004:
|
|
2006
|
|
2005
|
|
2004
|
|
Weighted
average fair value of options granted
|
|
$
|
20.01
|
|
$
|
9.48
|
|
$
|
7.28
|
|
Expected
volatility
|
|
|
0.3534
|
|
|
0.3224
|
|
|
0.3577
|
|
Distribution
yield
|
|
|
1.00
|
%
|
|
0.98
|
%
|
|
1.30
|
%
|
Expected
life of options in years
|
|
|
6.3
|
|
|
6.3
|
|
|
6.3
|
|
Risk-free
interest rate
|
|
|
5
|
%
|
|
4
|
%
|
|
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 2006, 2005, and 2004 was $9,413, $8,249,
and
$6,418 respectively.
The
aggregate intrinsic values of options outstanding and exercisable at December
30, 2006 were $204.1 million and $100.2 million, respectively. The aggregate
intrinsic value of options exercised during the year ended December 30, 2006
was
$42.8 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 $55.66 on December 29, 2006, and the exercise price multiplied
by the number of options outstanding.
As
of
December 30, 2006, there was $64.2 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 2006,
2005, and 2004, 124,693, 112,798, and 117,900 shares were purchased under
the
plan for a total purchase price of $3,569, $2,824, and $2,691, respectively.
At
December 30, 2006, approximately 1,116,811 shares were available for future
issuance.
11.
Earnings Per Share
All
share
and per share data is presented post-split. The following table sets forth
the
computation of basic and diluted net income per share:
|
|
Fiscal
Year Ended
|
|
|
|
December
30,
|
|
December
31,
|
|
December
25,
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
Numerator
(in thousands):
|
|
|
|
|
|
|
|
Numerator
for basic and diluted
|
|
|
|
|
|
|
|
|
|
|
net
income per share - net income
|
|
$
|
514,123
|
|
$
|
311,219
|
|
$
|
205,700
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
Denominator
for basic net income per share -
|
|
|
|
|
|
|
|
|
|
|
weighted-average
common shares
|
|
|
216,340
|
|
|
216,294
|
|
|
216,322
|
|
Effect
of dilutive securities -
|
|
|
|
|
|
|
|
|
|
|
employee
stock-based awards (note 9)
|
|
|
2,505
|
|
|
1,942
|
|
|
1,738
|
|
Denominator
for diluted net income per share -
|
|
|
|
|
|
|
|
|
|
|
adjusted
weighted-average common shares
|
|
|
218,845
|
|
|
218,236
|
|
|
218,060
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
net income per share
|
|
$
|
2.38
|
|
$
|
1.44
|
|
$
|
0.95
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
net income per share
|
|
$
|
2.35
|
|
$
|
1.43
|
|
$
|
0.94
|
|
Options
to purchase 757,000, 1,044,000, and 1,110,000 shares of common stock were
outstanding during 2006, 2005, and 2004 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 expires on
December 31, 2007. As of December 30, 2006, the Company had repurchased
1,155,300 shares using cash of $50,450. This amount was reported as a reduction
in additional paid-in capital because companies incorporated in the Cayman
Islands are not permitted by law to hold treasury stock.
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, split adjusted)
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended December 31, 2005
|
|
|
|
Quarter
Ending
|
|
|
|
March
26
|
|
June
25
|
|
September
24
|
|
December
31
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
192,651
|
|
$
|
264,497
|
|
$
|
251,329
|
|
$
|
319,296
|
|
Gross
profit
|
|
|
103,198
|
|
|
139,981
|
|
|
129,452
|
|
|
162,439
|
|
Net
income
|
|
|
47,400
|
|
|
74,194
|
|
|
102,490
|
|
|
87,135
|
|
Basic
net income per share
|
|
$
|
0.22
|
|
$
|
0.34
|
|
$
|
0.48
|
|
$
|
0.40
|
|
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.
Dynastream Innovations Inc. Acquisition
On
November 30, 2006, the Company acquired Dynastream Innovations Inc.
(“Dynastream”) for $36.5 million. Dynastream, headquartered in Alberta, Canada,
provides personal monitoring technology (such as foot pods and heart rate
monitors) for sports and fitness products, and also provides low power and
low
cost wireless connectivity solutions. Dynastream products are used in some
of
the Company’s Forerunner devices. The purchase price was allocated primarily to
technology/patents, customer contracts, goodwill and other assets, less
liabilities assumed.
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
30,
|
|
December
31,
|
|
December
25,
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
Balance
- beginning of period
|
|
$
|
18,817
|
|
$
|
15,518
|
|
$
|
8,399
|
|
Accrual
for products sold during the period
|
|
|
51,080
|
|
|
18,037
|
|
|
24,622
|
|
Expenditures
|
|
|
(32,258
|
)
|
|
(14,738
|
)
|
|
(17,503
|
)
|
Balance
- end of period
|
|
$
|
37,639
|
|
$
|
18,817
|
|
$
|
15,518
|
|
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
of the Company assessed the effectiveness of the Company’s internal control over
financial reporting as of December 30, 2006. 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
30, 2006.
Ernst
& Young LLP, the independent registered public accounting firm that audited
the Company’s consolidated financial statements, issued an attestation report on
management’s assessment of the Company’s internal control over financial
reporting. 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 management’s assessment, included in the accompanying Management’s
Report on Internal Control over Financial Reporting, that Garmin Ltd. and
Subsidiaries maintained effective internal control over financial reporting
as
of December 30, 2006, 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. and Subsidiaries’
management is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal
control over financial reporting. Our responsibility is to express an opinion
on
management’s assessment and an opinion on the effectiveness of 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, evaluating management’s assessment, testing and evaluating
the design and operating effectiveness of internal control, 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.
In
our
opinion, management’s assessment that Garmin Ltd. and Subsidiaries maintained
effective internal control over financial reporting as of December 30, 2006,
is
fairly stated, in all material respects, based on the COSO criteria. Also,
in
our opinion, Garmin Ltd. and Subsidiaries maintained, in all material respects,
effective internal control over financial reporting as of December 30, 2006,
based on the
COSO
criteria.
We
also
have 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 30, 2006 and December 31, 2005, and the related consolidated statements
of income, stockholders’ equity, and cash flows for each of the three years in
the period ended December 30, 2006 of Garmin Ltd. and Subsidiaries and our
report dated February 27, 2007 expressed an unqualified opinion
thereon.
Kansas
City, Missouri
February
27, 2007
(d)
Changes in Internal Control over Financial Reporting
There
were no changes in our internal control over financial reporting during the
year
ended December 30, 2006 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 8, 2007 (the “Proxy Statement”) will
be filed with the Securities and Exchange Commission no later than 120 days
after December 30, 2006.
(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 Chief Executive
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 30, 2006 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
|
|
|
|
remaining
available for
|
Plan
Category
|
Number
of securities to be
|
Weighted-average
|
future
issuance under
|
|
issued
upon exercise of
|
exercise
price of
|
equity
compensation
|
|
outstanding
options,
|
outstanding
options,
|
plans
(excluding
|
|
warrants
and rights
|
warrants
and rights
|
securities
reflected in
|
|
|
|
column
A)
|
Equity
compensation
|
|
|
|
plans
approved by
|
7,725,826
|
$29.24
|
7,950,885
|
shareholders
(1)
|
|
|
|
Equity
compensation
|
|
|
|
plans
not approved by
|
--
|
--
|
--
|
shareholders
|
|
|
|
|
|
|
|
Total
|
7,725,826
|
$29.24
|
7,950,885
|
(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
|
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 Current Report on Form 8-K filed on June 7,
2005).
|
|
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 Actof 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.
(c)
|
Financial
Statement Schedules.
|
Reference
is made to Item 15(a)(2) above.
GARMIN
LTD. AND SUBSIDIARIES
INDEX
TO FINANCIAL STATEMENT SCHEDULE
Garmin
Ltd. Financial Statement Schedule for the years ended December 30, 2006,
December 31, 2005 and December 25, 2004
Schedule
II - Valuation and qualifying accounts
|
89
|
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 25, 2004:
|
|
|
|
|
|
|
|
|
|
|
|
Deducted
from asset accounts
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for doubtful accounts
|
|
$
|
3,576
|
|
$
|
187
|
|
|
-
|
|
|
($198
|
)
|
$
|
3,565
|
|
Inventory
reserve
|
|
|
11,485
|
|
|
7,158
|
|
|
-
|
|
|
(7,354
|
)
|
|
11,289
|
|
Total
|
|
$
|
15,061
|
|
$
|
7,345
|
|
|
-
|
|
|
($7,552
|
)
|
$
|
14,854
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
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 28, 2007
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 28, 2007:
/s/
Min H. Kao
|
|
/s/
Gene M. Betts
|
Min
H. Kao
|
|
Gene
M. Betts
|
Chairman,
Chief
|
|
Director
|
Executive
Officer and Director
|
|
|
(Principal
Executive Officer)
|
|
|
|
|
|
|
|
|
/s/
Kevin Rauckman
|
|
/s/Donald
H. Eller
|
Kevin
Rauckman
|
|
Donald
H. Eller
|
(Principal
Financial Officer and Principal Accounting Officer)
|
|
Director
|
Chief
Financial Officer and Treasurer
|
|
|
|
|
|
/s/
Charles W. Peffer
|
|
/s/
Thomas A. McDonnell
|
Charles
W. Peffer
|
|
Thomas
A. McDonnell
|
Director
|
|
Director
|
|
|
|
/s/
Clifton
A. Pemble
|
|
|
Clifton
A Pemble
|
|
|
Director
|
|
|
Garmin
Ltd.
2006
Form 10-K Annual Report
Exhibit
Index
The
following exhibits are attached hereto. See Part IV of this Annual Report
on
Form 10-K for a complete list of exhibits.
Exhibit
|
|
|
Number
|
|
Document
|
|
|
|
21.1
|
|
List
of subsidiaries
|
|
|
|
23.1
|
|
Consent
of Ernst & Young LLP
|
|
|
|
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
|