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 27, 2008
or
¨
|
TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
transition period from
to ______
Commission
file number 0-31983
GARMIN LTD.
(Exact
name of registrant as specified in its charter)
Cayman
Islands
|
98-0229227
|
(State
or other jurisdiction
|
(I.R.S.
Employer Identification No.)
|
of
incorporation or organization)
|
|
P.O.
Box 10670, Grand Cayman KY1-1006
|
|
Suite
3206B, 45 Market Street, Gardenia Court
|
N/A
|
Camana
Bay, Cayman Islands
|
(Zip
Code)
|
(Address
of principal executive offices)
|
|
Registrant’s
telephone number, including area code: (345) 640-9050
Securities
registered pursuant to Section 12(b) of the Act:
Common
Shares, $0.005 Per Share Par Value
|
NASDAQ
Global Select Market
|
(Title
of each class)
|
(Name
of each exchange on which
registered)
|
Securities
registered pursuant to Section 12(g) of the Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. YES þ NO ¨
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
þ
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES þ NO ¨
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the
best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. þ
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer”,
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
Large
Accelerated Filer þ
|
Accelerated Filer
¨
|
|
|
Non-accelerated
Filer ¨
|
Smaller reporting company
¨
|
(Do not
check if a smaller reporting company)
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
YES ¨ NO
þ
Aggregate market value of the common
shares held by non-affiliates of the registrant as of June 28, 2008 (based on
the closing price of the registrant's common shares on the Nasdaq Stock Market
for that date) was $6,026,179,129.
Number of
shares outstanding of the registrant’s common shares as of February 20,
2009:
Common
Shares, $.005 par value – 200,392,897
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 2009 Annual Meeting of Shareholders which will be
filed no later than 120 days after December 27, 2008.
|
|
Part
III
|
Garmin
Ltd.
2008
Form 10-K Annual Report
Table
of Contents
Cautionary
Statement With Respect To Forward-Looking Comments
|
3
|
|
|
|
|
Part
I
|
|
|
|
|
Item
1.
|
Business
|
3
|
Item
1A.
|
Risk
Factors
|
18
|
Item
1B.
|
Unresolved
Staff Comments
|
28
|
Item
2.
|
Properties
|
28
|
Item
3.
|
Legal
Proceedings
|
29
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
30
|
|
Executive
Officers of the Registrant
|
30
|
|
|
|
|
Part
II
|
|
|
|
|
Item
5.
|
Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
|
32
|
Item
6.
|
Selected
Financial Data
|
34
|
Item
7.
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations
|
36
|
Item
7A.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
50
|
Item
8.
|
Financial
Statements and Supplementary Data
|
52
|
Item
9.
|
Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
|
78
|
Item
9A.
|
Controls
and Procedures
|
79
|
Item
9B.
|
Other
Information
|
81
|
|
|
|
|
Part
III
|
|
|
|
|
Item
10.
|
Directors,
Executive Officers and Corporate Governance
|
82
|
Item
11.
|
Executive
Compensation
|
83
|
Item
12.
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
|
83
|
Item
13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
84
|
Item
14.
|
Principal
Accounting Fees and Services
|
84
|
|
|
|
|
Part
IV
|
|
|
|
|
Item
15.
|
Exhibits
and Financial Statement Schedules
|
85
|
|
Signatures
|
89
|
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 Operations.” 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, communication and information
devices and applications, 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 48 million products, which
includes the delivery of 16.9 million products during 2008.
Automotive/Mobile
Product Introductions
Garmin
introduced a number of new versions of Garmin’s popular nüvi® personal
navigation device (PND) product line in 2008, including the nüvi 880, a premium
PND which features speech recognition and MSN® Direct
services, the nüvi 780 with MSN® Direct
services, the nüvi 260W a value-priced PND that speaks street names
and has a 4.3” wide screen, the nüvi 2x5 series with Bluetooth®
wireless technology for hands-free calling and a bundled subscription to traffic
alerts and the nüvi 7x5 series with Lane Assist which depicts road signs and
provides guidance to the correct lane for an approaching turn or exit. Also in
2008, Garmin introduced the multi-mode nüvi 500 series that combine PND
functionality with outdoor and marine navigation capabilities.
Also in
2008, Garmin announced the nüvifoneTM a
touchscreen smartphone that integrates a mobile phone, web browser and PND. The
nüvifone is expected to be released in the first half of 2009.
Outdoor/
Fitness Product Introductions
Garmin expanded its Forerunner® line of
products for the fitness market with the Forerunner 405, a compact-sized,
wrist-worn GPS-enabled fitness device that allows runners to track their speed,
distance, heart rate and location, access their training history or challenge a
Virtual Partner™ and automatically upload their data wirelessly to a personal
computer. To help promote its full line of fitness products, Garmin
entered into a sponsorship agreement with the Slipstream Sports cycling team to
become the lead sponsor of the team, which is now known as Team
Garmin-Slipstream.
Garmin
also introduced the OregonTM series
of rugged, color touchscreen handheld GPS devices and the ColoradoTM series
of handheld GPS devices with color displays. Both the Oregon and Colorado series
are available with a variety of mapping options suitable for outdoor and marine
applications.
Marine
Product Introductions
In
September 2008 Garmin introduced a new line of VHF marine communication radios,
the VHF 100 and VHF 200. In October 2008 Garmin announced the GPSMAP 600 series
of portable and rugged touchscreen marine chartplotters that also function as
automotive navigators with voice-prompted turn-by-turn directions.
Aviation Product Introductions
and Certifications
In April
2008 Garmin received Federal Aviation Administration (FAA) Supplemental Type
Certification (STC) for Garmin Synthetic Vision Technology (SVT™), which is
designed to integrate with Garmin’s G1000 avionics suite. Garmin’s SVT presents
a 3-D depiction of terrain, obstacles and traffic on the G1000’s primary
flight-display so that the avionics panel replicates what pilots would see
outside the cockpit on a clear day.
In April
2008 Garmin also announced the G950 avionics suite, an all-glass avionics suite
designed for aircraft manufacturers who want a standardized avionics
configuration and will complete certification of their airframe’s avionics panel
on their own.
In July
2008 Garmin received FAA Approved Model List Supplemental Type Certification
with an Approved Model List (AML STC) for the G600, a new avionics suite
designed for the retrofit and forward fit avionics market.
Also in
2008, Garmin introduced several new portable aviation navigators, including the
GPSMAP 696, a tablet-styled GPS navigator with a 7-inch screen, detailed
electronic charts, real-time weather and high resolution terrain
display.
Acquisitions
During 2008 Garmin acquired its
independent distributors in Austria, Belgium, Denmark, Finland, Portugal and
Sweden to strengthen its presence and capabilities in the European
market.
Gain
on Sale/Tender of Tele Atlas N.V. Shares
Garmin
realized a gain of $72.4 million during 2008 following the sales and tender to
TomTom N.V. of the shares of Tele Atlas N.V. that were acquired by Garmin in
2007 in connection with its announced intent to make a cash offer for all
outstanding shares of Tele Atlas N.V., which was subsequently abandoned. This
gain includes $21.5 million of foreign currency gain due to the strengthening of
the Euro.
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 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 products are known for their value, high performance, ease of use,
innovation, and ergonomics. The table below includes a sampling of
the automotive and mobile products that Garmin currently offers to consumers
around the world.
(27
models)
|
The
nüvi is Garmin’s popular thin-profile personal navigation device
(PND). All nüvi models combine a full-featured GPS navigator
(with built-in maps) with a currency and measurement converter, world
clock and digital photo organizer. Different nüvi models
and optional add-ons offer different feature sets, including a wide screen
display, integrated traffic receiver for traffic data, spoken street
names, speech recognition, speed limit indication, lane assist,
3-D building view, MSN Direct content, Bluetooth® hands-free capability,
MP3 player, language translator, audio book player, FM transmitter,
built-in maps of Europe, and the ability to add custom points of
interest. Users can also choose to purchase a travel assistant
that provides reviews and recommendations for restaurants, hotels,
shopping, night life, sporting events, tourist attractions, and more
(Garmin Travel
Guide™). In fiscal years 2008, 2007, and 2006, the nüvi class of
products represented approximately 64%, 52% and 28% respectively of
Garmin’s total consolidated
revenues.
|
(2
models)
|
Motorcycle-specific
navigators with features including a glove-friendly touch screen with 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 660 features 3-D
building view and lane assist and a digital fuel
gauge.
|
Garmin
Mobile™
|
Garmin
Mobile is a subscription-based software application that lets compatible
cell phones function as versatile GPS
navigators.
|
Garmin
Mobile™ XT
|
Garmin
Mobile XT is a data card that turns many smartphones into full-featured
navigators. Users can simply plug the microSD card into a
compatible phone and begin navigating. No network coverage or
subscription is required.
|
Outdoor/Fitness
(8
models)
|
Compact,
lightweight training assistants for athletes with integrated GPS sensor
(except for Forerunner 50 and FR60) that provide time, speed, distance,
pace and other data. Some models also offer a heart rate monitoring
function. The Forerunner 50 is an entry-level
advanced fitness watch that allows runners and walkers to track their
workouts and automatically upload their data (via a wireless USB ANT™
Stick) to a personal computer. The Forerunner 405 is a
compact-sized, wrist-worn GPS-enabled device that allows runners and
joggers to track their speed, distance, heart rate and location, access
their training history or challenge a Virtual Partner™ and automatically
upload their data wirelessly to a personal
computer.
|
(4
models)
|
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. The Edge 605 and 705 provide
mapping capabilities (including street navigation) and a 2.2” color
display in addition to tracking vertical profiles, climb and descent,
altitude, speed, distance, and
time.
|
(4
models)
|
The
Colorado series features Garmin’s Rock ‘n Roller™ wheel, which
allows the user to operate many of the units’ features with the user’s
thumb. The Colorado 300 features a worldwide basemap with
shaded relief. The Colorado 400c provides marine chart coverage
for the coastal U.S. and Bahamas. The Colorado 400i offers
shoreline details, depth contours and boat ramps for U.S. inland lakes and
rivers. The Colorado 400t gives hikers 3-D elevation perspective and
preloaded U.S. topographic maps. All Colorado models are equipped with a
barometric altimeter and electronic
compass.
|
(5
models)
|
The
Oregon series combines a bright 3 inch color touchscreen, rugged design
and a variety of preloaded mapping options. The Oregon 400t gives hikers
preloaded U.S. topographic maps with 3-D elevation perspective. The Oregon
400i offers shoreline details, depth contours and boat ramps for U.S.
inland lakes and navigable rivers. The Oregon 400c features chart coverage
for the coastal U.S. and Bahamas. The Oregon 300 features a worldwide
basemap with shaded relief. The Oregon 400t, 400c, 400i and 300 are
equipped with a barometric altimeter and electronic compass and are
compatible with Garmin’s heart-rate monitors and speed/cadence
sensors.
|
eTrex
®
(8
models)
|
Compact
handheld GPS units for outdoor enthusiasts. All models are waterproof and
have rugged designs.
|
GPS
60
(4
models)
|
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 feature a high sensitivity GPS receiver and a
slot for a removable microSD memory, along with a 64mb microSD
card.
|
|
|
(5
models) |
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. The GPSMAP 76Cx
and the GPSMAP 76CSx each feature a high sensitivity GPS receiver and a
slot for a removable microSD memory, along with a 128mb microSD card, all
in the same rugged and waterproof housing that floats in
water. |
(5
models)
|
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 520HCx has a high sensitivity GPS receiver,
5 watts of transmit power, color display, mini-USB interface, and a
turn-by turn automatic route calculation for use in
automobiles. The Rino 530HCx has all of the features of the
Rino 520HCx, plus a seven-channel weather receiver, electronic compass,
and barometric altimeter.
|
Approach™
G5
|
Announced
in January 2009 with expected availability in the second quarter of 2009,
the Approach G5 is a rugged, waterproof, touchscreen, handheld GPS for
golfers that features thousands of preloaded golf course maps. Approach G5
uses a high-sensitivity GPS receiver to measure individual shot distances
and show the exact yardage to fairways, hazards and
greens.
|
Astro®
|
High
sensitivity GPS-enabled dog tracking system. The Astro is
designed to pinpoint up to ten dogs’ positions at one time through
all-weather collars and a handheld system. The system also
provides a Dog Tracker page and a Covey Countertm
to assist the hunter. It is loaded with many of the
features of our outdoor devices including: barometric
altimeter, electronic compass, microSD slot, area calculator and a
waterproof exterior.
|
Marine
Garmin’s
marine lineup includes network products and multifunction displays, fixed-mount
GPS/chartplotter products, instruments, radar, autopilots, and sounder
products. The table below includes a sampling of some of
the marine products that Garmin currently offers to consumers.
Marine
Chartplotters and Networking Products
(6
models)
|
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, 3-D map perspective, aerial reference photos, and auto
guidance. The 5215 and 5015 offer 15-inch diagonal
sunlight-readable touchcreen
displays.
|
GPSMAP® 4000
series/
4200
series (6 models)
|
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, 3-D map perspective,
aerial reference photos, and auto guidance. The 4210 and 4010
feature 10.4-inch diagonal sunlight- readable displays and Garmin’s new
marine user interface.
|
GPSMAP® 3000
series/
3200
series (6 models)
|
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.
|
GPSMAP® 4x0 and
5x0
(20
models)
|
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.
|
GDL
30 & 30A
|
These
weather data receivers deliver real-time XM WX Satellite Weather data for
the continental United States to Garmin Marine Network compatible display
units. In addition, the GDL 30A adds CD-quality audio
capability utilizing the XM Satellite Radio service (separate subscription
required).
|
GSD
21 and 22
|
These
“black-box” sounders interface with Garmin display units and chartplotters
and enhance their utility by providing the depth sounder and fish finder
functions in a remote mounted
package.
|
GMS
10
|
The
GMS 10 Network Port Expander is the "nerve center" of the Garmin Marine
Network. This 100-Mbit switch is designed to support the
connection of multiple sensors to the Garmin Marine
Network.
|
GMI
10
|
The
GMI 10 is a NMEA 2000 and NMEA 0183 compliant instrument that displays
data from multiple remote sensors on one screen. Mariners can
use the GMI 10 to display instrument data such as depth, speed through the
water, water temperature, fuel flow rate, engine data, fuel level, wind
direction and more, depending upon what sensors are
connected.
|
Autopilot
System
|
The
GHP 10’s patented Shadow Drive™ technology automatically disengages the
autopilot if the helm is turned, allowing the helmsman to maneuver the
boat. The autopilot automatically re-engages when a steady course is held
by the helmsman.
|
(5
models)
|
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. Four
of the models offer color displays. The Fishfinder 400C comes
with dual beam or dual frequency transducers for easy adaptability to
either freshwater or saltwater fishing. It also offers a new,
easy-to-use interface and built in CANet connectivity to enable sonar data
to be shared with compatible Garmin
chartplotters.
|
(6
models)
|
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 and 21 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. The
GMR 18 HD and GMR 24 HD radomes feature digital signal processing
providing sharper radar imagery and improved target
separation.
|
Aviation
Garmin’s
panel-mounted product line includes GPS-enabled navigation, VHF communications
transmitters/receivers, multi-function displays, receivers, instrument landing
system (ILS) receivers, digital transponders (which transmit an aircraft’s
altitude and its flight identification number in response to requests
transmitted by ground-based air traffic control radar systems or collision
avoidance devices on other aircraft), marker beacon receivers and audio
panels.
Garmin’s
aviation products have won prestigious awards throughout the industry for their
innovative features and ease of use. The GNS 430/530 offers multiple
features and capabilities integrated into a single product. This high level of
integration minimizes the use of precious space in the cockpit, enhances the
quality and safety of flight through the use of modern designs and components
and reduces the cost of equipping an aircraft with modern
electronics. The GNS 430 was recognized by Flying Magazine as the
Editor’s Choice Product of the Year for 1998. In 1994, and again in
2000, Garmin earned recognition from the Aircraft Electronics Association for
outstanding contribution to the general aviation electronics
industry. The GPSMAP 295 won Aviation Consumer Magazine’s
Gear of the Year award for best aviation portable product in 2000 and again in
2001. Flying Magazine’s
editors awarded the GPSMAP 396 with a 2005 Editors’ Choice Award for outstanding
achievements. The GPSMAP 496, introduced in 2006, won the “2006 Gear
of the Year” award from Aviation Consumer
magazine. Flying Magazine’s editors
awarded Garmin a 2007 Flying
Editors’ Choice Award for making the safety and precision of WAAS (Wide
Area Augmentation System) available in its GPS navigation
systems. 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 and
2007. Garmin has been ranked No. 1 among avionics manufacturers for avionics
product support in Professional Pilot magazine’s
survey of its readers in each of the last five survey years. Aviation International News
also ranked Garmin No. 1 in avionics product support in 2008, making it
the fifth consecutive year that Garmin has earned that No. 1
ranking. Garmin received the Airline Technology Achievement Award
from Air Transport World
Magazine in January 2005 for championing the development of Automatic
Dependent Surveillance-Broadcast (ADS-B) technology, an enabling technology for
air traffic management.
Garmin’s
panel-mounted aviation products are sold in both new aircraft and the retrofit
market where existing aircraft are fitted with the latest electronics from
Garmin’s broad product line.
Garmin
has also expanded its range of avionics offerings to leading General Aviation
aircraft manufacturers such as the Cessna Aircraft Company, Cirrus Design
Corporation, Hawker Beechcraft Corporation, Diamond Aircraft Industries, Mooney
Airplane Company, Piper Aircraft, Inc. and EADS SOCATA through the
installation of the G1000 integrated flight deck as original equipment aboard
new aircraft. This system integrates attitude, heading, air data, navigation,
communication, engine monitoring, and other aircraft functions into a single
cohesive system which interfaces with the flight crew using a set of large,
bright TFT displays. The G1000 also comes with an optional integrated
autopilot – the GFC70. Garmin also has expanded its G1000 sales to
the business jet segment, such as Cessna with its Citation Mustang jet and
Embraer which has selected Garmin’s G1000 integrated flight deck for Embraer’s
new Phenom 100 (very light jet) and Phenom 300 (light jet)
programs.
The table
below includes a sampling of some of the aviation products currently offered by
Garmin:
Handheld
and portable aviation products:
GPSMAP® 96 & 96C
|
Portable
units integrating GPS navigation with Jeppesen database and comprehensive
towers-and-obstacles database. GPSMAP 96C offers a color
display and 119 MB of memory for downloadable maps.
|
|
|
GPSMAP 296
|
In
addition to a 3.8” diagonal color display, this portable GPS receiver
offers features like terrain cautions and alerts, sectional chart-like
topographic data, a built-in obstacle database, and a transparent
navigation arc view for course, speed and distance
information.
|
|
|
GPSMAP 396
|
A
portable navigation device that offers users GPS navigation, XM WX
Satellite Weather™ capability, featuring Next Generation Radar (NEXRAD), a
terrain awareness and warning system (TAWS), and XM entertainment
programming, among other features.
|
|
|
GPSMAP 495/496
|
The
GPSMAP 496 expands on the GPSMAP 396 by adding such additional features as
Garmin’s SafeTaxi™ airport diagrams, Aircraft Owners and Pilots
Association (AOPA) Airport directory data, Garmin’s Smart Airspace
enhanced high-resolution terrain database, accelerated GPS update rate,
and pre-loaded automotive maps of North America. The GPSMAP 495 offers
many of the same features as the GPSMAP 496 at a lower price
point.
|
GPSMAP 695/696
|
The
GPSMAP 696 expands on the features of the GPSMAP 496 by adding a 7 inch
screen, preloaded detailed electronic charts, preloaded airways and IFR
map mode. The GPSMAP 696 has a receiver for XM radio and XM WX Satellite
Weather (U.S. customers only) that gives next generation radar (NEXRAD),
aviation routine weather reports (METARs), terminal aerodrome forecasts
(TAFs), temporary flight restrictions (TFRs), lightning, winds aloft,
turbulence forecasts, and several other important weather products. The
GPSMAP 695 has the same features except for XM radio and
weather.
|
Integrated
avionics systems:
|
The
G1000 integrates navigation, communication, attitude, weather, terrain,
traffic, surveillance and engine information on large high-resolution
color displays. The G1000 offers general aviation airplane manufacturers
an easy-to-install solution for flight displays and provides the aircraft
owner the benefits of a state-of-the-art avionics system which relies on
modern technologies such as solid state components and bright,
sunlight-readable TFT displays.
|
|
|
G600™
|
The
G600 brings the style and function of an all-glass integrated avionics
suite to the retrofit market. The G600 incorporates two
individual displays – a PFD and MFD – in a customized package specifically
designed for easy retrofit installation. The G600 is designed to
communicate and integrate with Garmin’s WAAS enabled panel mount products,
and provides essential information such as attitude, air data, weather,
terrain and traffic. Garmin has received the FAA’s Approved
Model List Supplemental Type Certification (AML STC) for the G600, which
will simplify certification for over 300 different aircraft models.
|
|
|
|
An
all-glass integrated avionics system specifically designed for kitplane
builders of the Lancair and Van’s RV-series aircraft.
|
|
|
GDU 370/375
|
Multifunction
displays for the light sport retrofit and experimental aircraft markets
(expected to be available in the second quarter of
2009).
|
Panel-mount
aviation products:
400
Series
|
|
(3
models)
|
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.
|
|
|
500
Series
|
|
(2
models)
|
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). These transponders may also be optionally upgraded to
provide 1090 MHz Extended Squitter (ES) transmission capabilities, which
will increase situational awareness once the Automatic Dependent
Surveillance-Broadcast (ADS-B) system is fully
implemented.
|
|
|
GTX
320A,327 & 328
|
FAA-certified
transponders which transmit altitude or flight identification to air
traffic control radar systems or other aircraft’s air traffic avoidance
devices and feature solid-state construction for longer
life. The GTX 327 offers a digital display with timing
functions. The 328 is designed exclusively for Europe and
satisfies the European requirement for a Mode S solution that meets the
reduced certification requirements for the VFR Mode S
mandate.
|
|
|
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 to be used to broadcast traffic and weather
services. Pilots equipped with the GDL 90 and operating within
the ground station coverage area will receive aircraft traffic and
real-time weather information free of charge.
|
|
|
GDL
69 and 69A
|
The
GDL 69 offers the ability to provide real-time weather information to the
aircraft which can be displayed on one of several panel-mounted devices,
such as the GNS 430, GNS 530, MX20, and G1000 systems. The GDL 69 and GDL
69A receive real-time weather information broadcast by the XM WX Satellite
radio system. In addition, the GDL 69A expands the utility of
the system by providing CD quality audio provided by XM Satellite Radio
(separate subscriptions for weather data and audio
required).
|
|
|
GMX
200™
|
A
large (6.5 inch) sunlight-readable, high-resolution, multi-function
display.
|
|
|
SL
30 and SL 40
|
The
SL30 is a compact VHF navigation and communications unit that combines a
760-channel VHF communications radio with 200-channel glideslope and
localizer receivers. The SL40 is a 760-channel VHF
communications radio only. Both the SL30 and SL40 feature 10
watt communications transmitters.
|
|
|
GWX™
68
|
The
GWX 68 is an all-in-one antenna/receiver/transmitter that brings real-time
weather to Garmin’s newest multi-function
displays.
|
Sales
and Marketing
Garmin’s
non-aviation 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. Best Buy was the only
customer whose purchases represented 10% or more of Garmin’s consolidated
revenues in the fiscal year ended December 27, 2008 (Best Buy’s purchases
totaled 12.0% of Garmin’s 2008 consolidated revenues). Marketing support is
provided geographically from Garmin’s offices in Olathe, Kansas (North, South
and Central America),
Southampton, U.K. (Europe, Middle East and Africa) and Shijr, Taiwan
(Asia, Australia and New Zealand). Garmin’s distribution strategy is
intended to increase Garmin’s global penetration and presence while maintaining
high quality standards to ensure end-user satisfaction.
Garmin’s
U.S. consumer product sales are handled through its network of 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. and Canadian electronics
retailers;
|
·
|
Amazon.com—internet
retailer;
|
·
|
Costco—an international
chain of membership warehouses that carry quality, brand name
merchandise;
|
·
|
Halford’s—a large
European retailer specializing in car parts and
accessories;
|
·
|
Petra—a large
distributor who sells to such dealers as Costco and
Amazon.com;
|
·
|
Target— one of the
nation’s largest general merchandise
retailers;
|
·
|
Wal-Mart—the world’s
largest mass retailer; and
|
·
|
Wynit—a large
distributor who sells to such dealers as Radio Shack and
Amazon.com.
|
Garmin’s
Europe, Middle East and Africa consumer product sales are handled through our
in-country subsidiaries or local distributors who resell to dealers. Working
closely with Garmin’s in-house sales and marketing staff in the U.K., these
in-country subsidiaries or independent distributors are responsible for
inventory levels and staff training requirements at each retail location.
Garmin’s Taiwan-based marketing team handles the Company’s Asia sales and
marketing effort.
Garmin’s
panel-mount aviation products are sold through aviation distributors around the
world. Garmin’s largest aviation distributors include Sportsman’s Market,
Aircraft Spruce and Specialty Co., Gulf Coast Avionics, Pacific Coast Avionics,
and Sarasota Avionics. These distributors have the training, equipment and
certified staff required for at-airport installation of Garmin’s avionics
equipment. Garmin’s portable aviation products are sold through distributors and
through catalogs.
In
addition to the traditional distribution channels mentioned, Garmin has many
relationships with original equipment manufacturers (OEMs). In the
consumer market, Garmin’s products are sold to certain automotive and motorcycle
OEMs such as Chrysler/Mopar, Toyota, Suzuki, Harley-Davidson, Ford, BMW and BMW
Motorrad, Honda Access, Mercedes Benz, Smart Car, Peugeot, Hyundai, Mazda,
Nissan, Volvo, Bombardier, and Polaris, for dealer-installed aftermarket
accessory programs. Garmin also has a factory-installed program with
Honda Motorcycles and also delivered to Suzuki a factory-integrated PND product
in 2008 for Suzuki’s SX4 vehicle in North America. In addition,
Garmin also sells products and applications to Kenwood for bundling with
Kenwood’s OEM products, and in 2008 Garmin announced a relationship with
Panasonic Automotive Systems to supply products and applications to Panasonic
for automotive OEM sales. Garmin also has relationships with certain
rental car companies including Dollar/Thrifty, Enterprise, Avis, Budget,
National, Europcar, and Alamo. Garmin has also developed promotional
relationships with certain automotive dealerships in certain countries including
BMW, Southeast Toyota, Penske, Mazda, Saab and Ford. Garmin’s
products are also standard equipment on various models of boats manufactured by
Edgewater Boats, Bennington Marine, Cigarette Racing Team, Inc., Cobalt Boats,
G3 Boats, and are optional equipment on boats manufactured by Chaparral Boats,
Inc., Formula Boats, Fountain Powerboats, Mainship (Luhrs Corp.), and Pro-Line
Boats. In the aviation market, Garmin’s avionics are standard
equipment on various models of aircraft built by Cessna Aircraft Company,
Embraer, Cirrus Design Corporation, Diamond Aircraft Industries, EADS SOCATA,
Eurocopter, Mooney Aircraft Corporation, Hawker Beechcraft Aircraft Company,
Robinson Helicopter, and the Piper Aircraft Company. Other aircraft
manufacturers offer Garmin’s products as optional equipment.
Competition
The
market for navigation, communications and information products is highly
competitive. Garmin believes the principal competitive factors
impacting the market for its products are design, functionality, quality and
reliability, customer service, brand, price, time-to-market and
availability. Garmin believes that it generally competes favorably in
each of these areas.
Garmin
believes that its principal competitors for portable automotive products are
TomTom N.V. and MiTAC Digital Corporation (which distributes products
under the brand names of Magellan, Mio, and Navman). and Navigon
AG. Garmin believes that its principal competitors for outdoor
product lines are Magellan and Lowrance Electronics, Inc., a subsidiary of
Navico Holding AS, (“Lowrance”) For marine chartplotter products, Garmin
believes that its principal competitors are Raymarine Ltd. (“Raymarine”), Furuno
Electronic Company (“Furuno”), Lowrance and Simrad Yachting AS
(“Simrad”). For Garmin’s fishfinder/depth sounder product lines,
Garmin believes that its principal competitors are Lowrance, Raymarine, the
Humminbird division of Johnson Outdoors, Inc., 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, Rockwell Collins, Inc., Universal Avionics Systems
Corporation, Chelton Flight Systems, Aspen Avionics, and Free Flight Systems for
panel-mount GPS and display units. For Garmin’s Family Radio Service
and General Mobile Radio Service product line, Garmin believes that its
principal competitors are Motorola, Inc. (“Motorola”), Cobra Electronics
Corporation and Midland Radio Corporation. Garmin believes that its
principal competitors for smartphones are Apple, Inc., HTC Corporation, Nokia
Oyj, Samsung Corporation and Sony Ericsson Mobile Communications
AB.
Research
and Development
Garmin’s
product innovations are driven by its strong emphasis on research and
development and the close partnership between Garmin’s engineering and
manufacturing teams. Garmin’s products are created by its engineering
and development staff, which numbered 1,738 people worldwide as of December 27,
2008. Garmin’s manufacturing staff includes manufacturing process
engineers who work closely with Garmin’s design engineers to ensure
manufacturability and manufacturing cost control for its products. Garmin’s
development staff includes industrial designers, as well as software engineers,
electrical engineers, mechanical engineers and cartographic
engineers. Garmin believes the industrial design of its products has
played an important role in Garmin’s success. Once a development
project is initiated and approved, a multi-disciplinary team is created to
design the product and transition it into manufacturing.
Below is
a table of Garmin’s expenditures on research and development over the last three
fiscal years.
|
|
December 27,
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
($'s
in thousands)
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
$ |
206,109 |
|
|
$ |
159,406 |
|
|
$ |
113,314 |
|
Percent
of net sales
|
|
|
5.9 |
% |
|
|
5.0 |
% |
|
|
6.4 |
% |
Manufacturing
and Operations
Garmin
believes that one of its core competencies is its manufacturing capability at
its Shijr, Jhongli and LinKou, Taiwan facilities, its Olathe, Kansas facility,
and its Salem, Oregon facility. Garmin believes that its vertically
integrated approach has provided it the following benefits:
Reduced
time-to-market. Utilizing concurrent engineering techniques, Garmin’s
products are introduced to production at an early development stage and the
feedback provided by manufacturing is incorporated into the design before mass
production begins. In this manner, Garmin attempts to reduce the time
required to move a product from its design phase to mass production deliveries,
with improved quality and yields.
Design and
process optimization. Garmin uses its manufacturing resources
to rapidly prototype design concepts, products and processes in order to achieve
higher efficiency, lower cost and better value for
customers. Garmin’s ability to fully explore product design and
manufacturing process concepts has enabled it to optimize its designs to
minimize size and weight in GPS devices that are functional, waterproof, and
rugged.
Logistical
agility. Operating its own manufacturing facilities
helps Garmin minimize problems, such as component shortages and long component
lead times which are common in the electronics industry. Many
products can be re-engineered to bypass component shortages or reduce cost and
the new designs can be delivered to market quickly. Garmin reacts
rapidly to changes in market demand by striving to maintain a safety stock of
long-lead components and by rescheduling components from one product line to
another.
Garmin’s
design, manufacturing, distribution, and servicing processes in our US, Taiwan,
and UK facilities are certified to ISO 9001, an international quality standard
developed by the International Organization for Standardization. Garmin’s Taiwan
manufacturing facilities have also achieved TS 16949 certification, a quality
standard for automotive suppliers. In addition, Garmin’s aviation
operations have achieved certification to AS9100, the quality standard for the
aviation industry.
Garmin
(Europe) Ltd and Garmin Corporation have also achieved certification of their
environmental management systems to the ISO14001 standard. This
certification recognizes that Garmin’s UK and Taiwan subsidiaries have 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 significant
seasonal fluctuation. Sales of our consumer products are generally
significantly higher in the fourth quarter, due to increased demand for
automotive/mobile products during the holiday buying season, and, to a lesser
extent, the second quarter, due to increased demand during the spring and summer
marine season and the Father’s Day/graduation buying season. Sales of
consumer products are also influenced by the timing of the release of new
products. Our aviation products do not experience much seasonal
variation, but are more influenced by the timing of the release of new products
when the initial demand is typically the strongest.
Backlog
Our sales are generally of a consumer
nature and there is a relatively short cycle between order and
shipment. Therefore, we believe that backlog information is not
material to the understanding of our business. We typically ship most
orders within 72 hours of receipt.
Intellectual
Property
Our
success and ability to compete is dependent in part on our proprietary
technology. We rely on a combination of patent, copyright, trademark
and trade secret laws, as well as confidentiality agreements, to establish and
protect our proprietary rights. As of January 27, 2009, we held 307
U.S. utility patents, 77 U.S. design patents, 16 foreign patents and 26 foreign
registered designs. As of January 27, 2009, we held 127 U.S.
utility patent applications, 16 U.S. design patent applications, 33 foreign
patent applications, and 3 foreign design applications
pending. In addition, Garmin often relies on licenses of
intellectual property for use in its business. For example, Garmin
obtains licenses for digital cartography technology for use in our products from
various sources. As of January 27, 2009, we held 96 U.S. trademark registrations
and 191 foreign trademark registrations. As of January
27, 2009, we had 11 U.S. trademark applications and 46 foreign trademark
applications pending.
We
believe that our continued success depends on the intellectual skills of our
employees and their ability to continue to innovate. Garmin will
continue to file and prosecute patent applications when appropriate to attempt
to protect Garmin’s rights in its proprietary technologies. Garmin
was selected as a constituent of the Ocean Tomo® 300 Patent Index and The Ocean
Tomo® 300 Patent Growth Index, which are indices that recognize companies with
high intellectual property value.
There is
no assurance that our current patents, or patents which we may later acquire,
may successfully withstand any challenge, in whole or in part. It is also
possible that any patent issued to us may not provide us with any competitive
advantages, or that the patents of others will preclude us from manufacturing
and marketing certain products. Despite our efforts to protect our proprietary
rights, unauthorized parties may attempt to copy aspects of our products or to
obtain and use information that we regard as proprietary. Litigation
may be necessary in the future to enforce our intellectual property rights, to
protect our 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 Communications 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 the Republic of China (Taiwan), 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”) 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 modified the design of our products and our
manufacturing processes in order to comply with such laws and
regulations.
The EU
has also enacted the Registration, Evaluation, and Authorization of Chemicals
(“REACH”) regulation. REACH requires manufacturers and importers of
articles to register the substances contained in the articles if the substances
are intended to be released under normal or reasonably foreseeable conditions of
use. Because the substances contained in our products are not intended to
be released under normal or reasonably foreseeable conditions of use, we do not
believe we or the importers of our products have an obligation under REACH to
register those substances. It is possible, however, that Garmin could
participate in the REACH regulations as necessary to support possible REACH
registration requirements of the recyclers of our products. REACH also
imposes notification requirements on manufacturers and importers of articles if
the articles contain “substances of very high concern.” We have
established a program in order to comply when and to the extent necessary.
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.
Garmin
products may also become subject to further energy efficiency requirements if
and when required under U.S. Federal climate change legislation.
The
People’s Republic of China has enacted legislation which is widely known as
“China RoHS”. The first phase of China RoHS took effect on March 1,
2007 and requires the disclosure and marking of certain substances, including
lead, mercury, cadmium and hexavalent chromium in certain electronic
products. We have established a program in order to comply with the
first phase of China RoHS.
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.
Garmin
has implemented multiple Environmental Management System (“EMS”) policies in
accordance with the International Organization for Standardization (ISO) 14001
standard for Environmental Health and Safety Management. Garmin’s EMS
policies set forth practices, standards, and procedures to ensure compliance
with applicable environmental laws and regulations at Garmin’s Kansas
headquarters facility, Garmin’s European headquarters facility, and Garmin’s
Taiwan manufacturing facility.
Employees
As of
December 31, 2008, Garmin had 8,919 full and
part-time employees worldwide, of whom 2,896 were in the United States, 76 were
in Canada, 5,253 were in Taiwan, 644 were in Europe, and 50 were in other global
locations. Except for some of Garmin’s employees in Brazil,
Iceland and Sweden, none of Garmin’s employees are represented by a labor
union and none of Garmin's North American or Taiwan employees are covered by a
collective bargaining agreement. Garmin considers its employee
relations to be good.
Item
1A. Risk Factors
The
risks described below are not the only ones facing our
company. Additional risks and uncertainties not presently known to us
or that we currently believe to be immaterial may also impair our business
operations. If any of the following risks occur, our business,
financial condition or operating results could be materially adversely
affected.
Risks
Related to the Company
Economic
conditions and uncertainty could adversely affect our revenue and
margins
Global
financial market downturns increased significantly during the fourth quarter of
2008. Falling equity market values, depressed housing markets, credit
market constraints, weakened consumer confidence and increased unemployment have
created fears of a severe recession. Our revenue and margins depend
significantly on general economic conditions and the demand for products in the
markets in which we compete. The current economic weakness and
constrained consumer and business spending has resulted, and may result in the
future, in decreased revenue, margins, earnings or growth rates and problems
with our ability to manage inventory levels and collect customer receivables. In
addition, financial difficulties experienced by our retailer and OEM customers
have resulted, and could result in the future, in significant bad debt
write-offs and additions to reserves in our receivables and could have an
adverse affect on our results of operations. The current economic
recession also may lead to restructuring actions and associated
expenses.
Our
financial results are highly dependent on the automotive/mobile segment, which
now represents over 70% of our revenues and may be maturing leading to lesser
growth than we have experienced in the past.
We
have experienced substantial growth in the automotive/mobile segment of our
business in recent years as the products have become mass-market consumer
electronics in both Europe and North America. This market growth may
now be slowing as penetration rates increase and competing technologies
emerge. Slowing growth, along with the significant price reductions
that have occurred during the past two years, could result in lower
revenues. As margins have also declined in this segment, slowing
growth may also result in lower earnings per share.
The
demand for personal navigation devices (PNDs) may be eroded by replacement
technologies becoming available on mobile handsets and factory-installed systems
in new autos.
We
have experienced substantial growth in the automotive/mobile segment which has
resulted in GPS/navigation technologies being incorporated into competing
devices such as mobile handsets and new automobiles through factory-installed
systems. Mobile handsets are frequently GPS-enabled and many
companies are now offering navigation software for mobile
devices. The acceptance of this technology by consumers could slow
our growth and further reduce margins. Navigation systems are
becoming more prevalent as optional equipment on new
automobiles. Increased navigation penetration on new automobiles
could slow our growth and further reduce margins.
Best
Buy is a significant customer, representing over 10% of net sales.
Accordingly, our revenues and profitability will be adversely impacted if Best
Buy’s business declines or if Best Buy is unable to pay timely.
Best Buy
is our largest customer and accounted for 12.0% of our total net sales in 2008.
If Best Buy’s business declines due to the economic conditions, market
share losses or other factors, our revenues and profitability will be adversely
impacted. In addition, if Best Buy’s liquidity erodes for any of the
reasons discussed above or a tightening in the credit markets and they are
unwilling or unable to pay timely, our profitability will be adversely
impacted.
Many
of our Products Rely on the Global Positioning System
The
Global Positioning System is a satellite-based navigation and positioning system
consisting of a constellation of orbiting satellites. The satellites
and their ground control and monitoring stations are maintained and operated by
the United States Department of Defense. The Department of Defense
does not currently charge users for access to the satellite
signals. These satellites and their ground support systems are
complex electronic systems subject to electronic and mechanical failures and
possible sabotage. The satellites were originally designed to have lives of 7.5
years and are subject to damage by the hostile space environment in which they
operate. However, of the current deployment of satellites in place,
some have been operating for more than 13 years.
If a
significant number of satellites were to become inoperable, unavailable or are
not replaced, it would impair the current utility of our Global Positioning
System products and would have a material negative effect on our
business. In addition, there can be no assurance that the U.S.
government will remain committed to the operation and maintenance of Global
Positioning System satellites over a long period, or that the policies of the
U.S. government that provide for the use of the Global Positioning System
without charge and without accuracy degradation will remain
unchanged. Because of the increasing commercial applications of the
Global Positioning System, other U.S. government agencies may become involved in
the administration or the regulation of the use of Global Positioning System
signals. However, in a presidential policy statement
issued in December 2004, the Bush administration indicated that the U.S. is
committed to supporting and improving the Global Positioning System and will
continue providing it free from direct user fees.
Some of
our products also use signals from systems that augment GPS, such as the Wide
Area Augmentation System (WAAS). WAAS is operated by the FAA. Any
curtailment of the operating capability of WAAS could result in decreased user
capability for many of our aviation products, thereby impacting our
markets.
Any of
the foregoing factors could affect the willingness of buyers of our products to
select Global Positioning System-based products instead of products based on
competing technologies.
A
shut down of U.S. airspace or imposition of restrictions on general aviation
would harm our business.
Following the September 11, 2001
terrorist attacks, the FAA ordered all aircraft operating in the U.S. to be
grounded for several days. In addition to this shut down of U.S.
airspace, the general aviation industry was further impacted by the additional
restrictions implemented by the FAA on those flights that fly utilizing Visual
Flight Rules (VFR). The FAA restricted VFR flight inside 30 enhanced
Class B (a 20-25 mile radius around the 30 largest metropolitan areas in the
USA) airspace areas. The Aircraft Owners and Pilots Association
(AOPA) estimated that these restrictions affected approximately 41,800 general
aviation aircraft based at 282 airports inside the 30 enhanced Class B airspace
areas. The AOPA estimates that approximately 90% of all general
aviation flights are conducted VFR, and that only 15% of general aviation pilots
are current to fly utilizing Instrument Flight Rules (IFR).
The shut down of U.S. airspace
following September 11, 2001 caused reduced sales of our general aviation
products and delays in the shipment of our products manufactured in our Taiwan
manufacturing facility to our distribution facility in Olathe, Kansas, thereby
adversely affecting our ability to supply new and existing products to our
dealers and distributors.
Any
future shut down of U.S. airspace or imposition of restrictions on general
aviation could have a material adverse effect on our business and financial
results.
Any
reallocation of radio frequency spectrum could cause interference with the
reception of Global Positioning System signals. This interference could harm our
business.
Our
Global Positioning System technology is dependent on the use of the Standard
Positioning Service (SPS) provided by the U.S. Government’s Global Positioning
System satellites. The Global Positioning System operates in radio
frequency bands that are globally allocated for radio navigation satellite
services. The assignment of spectrum is controlled by an
international organization known as the International Telecommunications Union
(‘‘ITU’’). The Federal Communications Commission (‘‘FCC’’) is
responsible for the assignment of spectrum for non-government use in the United
States in accordance with ITU regulations. Any ITU or FCC
reallocation of radio frequency spectrum, including frequency band segmentation
or sharing of spectrum, could cause interference with the reception of Global
Positioning System signals and may materially and adversely affect the utility
and reliability of our products, which would, in turn, have a material adverse
effect on our operating results. In addition, emissions from mobile
satellite service and other equipment operating in adjacent frequency bands or
inband may materially and adversely affect the utility and reliability of our
products, which could result in a material adverse effect on our operating
results.
The FCC continually receives proposals for new
technologies and services, such as
ultra-wideband technologies, which may seek to operate in,
or across, the radio frequency bands currently
used by the GPS SPS. Adverse decisions by the FCC that
result in harmful interference to the delivery of the GPS SPS
may materially and adversely affect
the utility and reliability of
our products, which could result in
a material adverse effect on our business and financial condition.
If
we are not successful in the continued development, introduction or timely
manufacture of new products, demand for our products could
decrease.
We expect
that a significant portion of our future revenue will continue to be derived
from sales of newly introduced products. The market for our products
is characterized by rapidly changing technology, evolving industry standards and
changes in customer needs. If we fail to introduce new products, or
to modify or improve our existing products, in response to changes in
technology, industry standards or customer needs, our products could rapidly
become less competitive or obsolete. We must continue to make
significant investments in research and development in order to continue to
develop new products, enhance existing products and achieve market acceptance
for such products. However, there can be no assurance that
development stage products will be successfully completed or, if developed, will
achieve significant customer acceptance.
If we are
unable to successfully develop and introduce competitive new products, and
enhance our existing products, our future results of operations would be
adversely affected. Our pursuit of necessary technology may require
substantial time and expense. We may need to license new technologies
to respond to technological change. These licenses may not be
available to us on terms that we can accept or may materially change the gross
profits that we are able to obtain on our products. We may not succeed in
adapting our products to new technologies as they emerge. Development
and manufacturing schedules for technology products are difficult to predict,
and there can be no assurance that we will achieve timely initial customer
shipments of new products. The timely availability of these products
in volume and their acceptance by customers are important to our future
success. From time to time we have experienced delays in shipping
certain of our new products and any future delays, whether due to product
development delays, manufacturing delays, lack of market acceptance, delays in
regulatory approval, or otherwise, could have a material adverse effect on our
results of operations.
If
we do not correctly anticipate demand for our products, we may not be able to
secure sufficient quantities or cost-effective production of our products or we
could have costly excess production or inventories.
We have
generally been able to increase production to meet this increasing
demand. However, the demand for our products depends on many factors
and will be difficult to forecast. We expect that it will become more
difficult to forecast demand as we introduce and support multiple products, as
competition in the market for our products intensifies and as the markets for
some of our products mature to the mass market category. Significant
unanticipated fluctuations in demand could cause the following problems in our
operations:
|
|
If
demand increases beyond what we forecast, we would have to rapidly
increase production. We would depend on suppliers to provide additional
volumes of components and those suppliers might not be able to increase
production rapidly enough to meet unexpected
demand.
|
|
|
Rapid
increases in production levels to meet unanticipated demand could result
in higher costs for manufacturing and supply of components and other
expenses. These higher costs could lower our profit
margins. Further, if production is increased rapidly,
manufacturing quality could decline, which may also lower our margins and
reduce customer satisfaction.
|
|
|
If
forecasted demand does not develop, we could have excess production
resulting in higher inventories of finished products and components, which
would use cash and could lead to write-offs of some or all of the excess
inventories. Lower than forecasted demand could also result in
excess manufacturing capacity or reduced manufacturing efficiencies at our
facilities, which could result in lower
margins.
|
We
may become subject to significant product liability costs.
If our
aviation products malfunction or contain errors or defects, airplane collisions
or crashes could occur resulting in property damage, personal injury or
death. Malfunctions or errors or defects in our marine navigational
products could cause boats to run aground or cause other wreckage, personal
injury or death. If our automotive or marine products contain defects
or errors in the mapping supplied by third-party map providers or if our users
do not heed our warnings about the proper use of these products, collisions or
accidents could occur resulting in property damage, personal injury or
death. If any of these events occurs, we could be subject to
significant liability for personal injury and property damage and under certain
circumstances could be subject to a judgment for punitive damages. We
maintain insurance against accident-related risks involving our
products. However, there can be no assurance that such insurance
would be sufficient to cover the cost of damages to others or that such
insurance will continue to be available at commercially reasonable
rates. In addition, insurance coverage generally will not cover
awards of punitive damages and may not cover the cost of associated legal fees
and defense costs, which could result in lower margins. If we are
unable to maintain sufficient insurance to cover product liability costs or if
our insurance coverage does not cover the award, this could have a materially
adverse impact on our business, financial condition and results of
operations.
We
depend on our suppliers, some of which are the sole source for specific
components, and our production would be seriously harmed if these suppliers are
not able to meet our demand and alternative sources are not available, or if the
costs of components rise.
We are
dependent on third party suppliers for various components used in our current
products. Some of the components that we procure from third party
suppliers include semiconductors and electroluminescent panels, liquid crystal
displays, memory chips, batteries and microprocessors. The cost,
quality and availability of components are essential to the successful
production and sale of our products. Some components we use are from
sole source suppliers. Certain application-specific integrated circuits
incorporating our proprietary designs are manufactured for us by sole source
suppliers. Alternative sources may not be currently available for
these sole source components.
In the
past we have experienced shortages of liquid crystal displays and other
components. In addition, if there are shortages in supply of
components, the costs of such components may rise. If suppliers are unable to
meet our demand for components on a timely basis and if we are unable to obtain
an alternative source or if the price of the alternative source is prohibitive,
or if the costs of components rise, our ability to maintain timely and
cost-effective production of our products would be seriously
harmed.
We
depend on third party licensors for the digital map data contained in our
automotive/mobile products, and our business and/or gross margins could be
harmed if we become unable to continue licensing such mapping data or if the
royalty costs for such data rise.
We
license digital mapping data for use in our products from various
sources. There are only a limited number of suppliers of mapping data
for each geographical region. The two largest digital map suppliers
are NAVTEQ Corporation and Tele Atlas N.V. NAVTEQ Corporation is
owned by Nokia Oyj and Tele Atlas N.V. is owned by TomTom N.V. Nokia
and TomTom are both competitors of Garmin.
Although
we do not foresee difficulty in continuing to license data at favorable pricing
due to the long term license extension signed between Garmin and NAVTEQ in
November 2007 (extending our NAVTEQ license agreement through 2015 with an
option to extend through 2019), if we are unable to continue licensing such
mapping data and are unable to obtain an alternative source, or if the nature of
our relationships with NAVTEQ changes detrimentally, our ability to supply
mapping data for use in our products would be seriously harmed.
We
rely on independent dealers and distributors to sell our products, and
disruption to these channels would harm our business.
Because
we sell a majority of our products to independent dealers and distributors, we
are subject to many risks, including risks related to their inventory levels and
support for our products. In particular, our dealers and distributors
maintain significant levels of our products in their inventories. If
dealers and distributors attempt to reduce their levels of inventory or if they
do not maintain sufficient levels to meet customer demand, our sales could be
negatively impacted.
Many of
our dealers and distributors also sell products offered by our
competitors. If our competitors offer our dealers and distributors
more favorable terms, those dealers and distributors may de-emphasize or decline
to carry our products. In the future, we may not be able to retain or attract a
sufficient number of qualified dealers and distributors. If we are
unable to maintain successful relationships with dealers and distributors or to
expand our distribution channels, our business will suffer.
Failure
to manage our growth and expansion effectively could adversely impact our
business.
Our
ability to successfully offer our products and implement our business plan in a
rapidly evolving market requires an effective planning and management
process. We continue to increase the scope of our operations
domestically and internationally and have grown our shipments and headcount
substantially. This growth has placed, and our anticipated growth in
future operations will continue to place, a significant strain on our management
systems and resources.
Our
business may suffer if we are not able to hire and retain sufficient qualified
personnel or if we lose our key personnel.
Our
future success depends partly on the continued contribution of our key
executive, engineering, sales, marketing, manufacturing and administrative
personnel. We currently do not have employment agreements with any of
our key executive officers. We do not have key man life insurance on
any of our key executive officers and do not currently intend to obtain such
insurance. The loss of the services of any of our senior level
management, or other key employees, could harm our
business. Recruiting and retaining the skilled personnel we require
to maintain and grow our market position may be difficult. For
example, in some recent years there has been a nationwide shortage of qualified
electrical engineers and software engineers who are necessary for us to design
and develop new products, and therefore, it has sometimes been challenging to
recruit such personnel. If we fail to hire and retain qualified
employees, we may not be able to maintain and expand our business.
Gross
margins for our products may fluctuate or erode.
Gross
margins on our automotive/mobile products have been declining due to price
reductions in the increasingly competitive market for personal navigation
devices (PNDs). We expect that gross margins on automotive/mobile products will
continue to erode. In addition, our overall gross margin may
fluctuate from period to period due to a number of factors, including product
mix, competition and unit volumes. In particular, the average selling
prices of a specific product tend to decrease over that product’s
life. To offset such decreases, we intend to rely primarily on
component cost reduction, obtaining yield improvements and corresponding cost
reductions in the manufacture of existing products and on introducing new
products that incorporate advanced features and therefore can be sold at higher
average selling prices. However, there can be no assurance that we
will be able to obtain any such yield improvements or cost reductions or
introduce any such new products in the future. To the extent that
such cost reductions and new product introductions do not occur in a timely
manner or our products do not achieve market acceptance, our business, financial
condition and results of operations could be materially adversely
affected.
Our
quarterly operating results are subject to fluctuations and
seasonality.
Our
operating results are difficult to predict. Our future quarterly operating
results may fluctuate significantly. If such operating results
decline, the price of our stock would likely decline. As we expand
our operations, our operating expenses, particularly our advertising and
research and development costs, may increase as a percentage of our
sales. If revenues decrease and we are unable to reduce those costs
rapidly, our operating results would be negatively affected.
Historically,
our revenues have usually been weaker in the first and third quarters of each
fiscal year and have, from time to time, been lower than the preceding
quarter. Our devices are highly consumer-oriented, and consumer
buying is traditionally lower in these quarters. Sales of certain of
our marine and automotive products tend to be
higher in our second fiscal quarter due to increased consumer spending for such
products during the recreational marine, fishing, and travel
season. Sales of our automotive/mobile products also have been higher
in our fourth fiscal quarter due to increased consumer spending patterns on
electronic devices during the holiday season. In addition, we attempt
to time our new product releases to coincide with relatively higher consumer
spending in the second and fourth fiscal quarters, which contributes to these
seasonal variations.
Adverse
economic conditions may harm our investments.
Inflation
or other changes in general economic conditions could adversely affect our
investment portfolio.
Our
quarterly financial statements will reflect fluctuations in foreign currency
translation.
Our Taiwan subsidiary holds, and is
expected to continue to hold, significant cash, cash equivalents, and marketable
securities and receivables denominated in U.S. Dollars. Because the
U.S. Dollar is the primary currency for our business and in order to
substantially reduce the economic consequence of any variation in the exchange
rate for the U.S. Dollar and the 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 Taiwan Dollars all such U.S. Dollar
denominated assets held by our Taiwan subsidiary. This translation is
required because the 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 Taiwan Dollar/U.S.
Dollar exchange rate varies. Such gain or loss will create variations
in our earnings per share. Because there is minimal cash impact
caused by such exchange rate variations, management will continue to focus on
the Company’s operating performance before the impact of the foreign currency
translation.
If
we are unable to compete effectively with existing or new competitors, our
resulting loss of competitive position could result in price reductions, fewer
customer orders, reduced margins and loss of market share.
The
markets for our products are highly competitive, and we expect competition to
increase in the future. Some of our competitors have significantly greater
financial, technical and marketing resources than we do. These
competitors may be able to respond more rapidly to new or emerging technologies
or changes in customer requirements. They may also be able to devote
greater resources to the development, promotion and sale of their
products. Increased competition could result in price reductions,
fewer customer orders, reduced margins and loss of market share. Our
failure to compete successfully against current or future competitors could
seriously harm our business, financial condition and results of
operations.
Our
intellectual property rights are important to our operations, and we could
suffer loss if they infringe upon other’s rights or are infringed upon by
others.
We rely
on a combination of patents, copyrights, trademarks and trade secrets,
confidentiality provisions and licensing arrangements to establish and protect
our proprietary rights. To this end, we hold rights to a number of
patents and registered trademarks and regularly file applications to attempt to
protect our rights in new technology and trademarks. However, there
is no guarantee that our patent applications will become issued patents, or that
our trademark applications will become registered
trademarks. Moreover, even if approved, our patents or trademarks may
thereafter be successfully challenged by others or otherwise become invalidated
for a variety of reasons. Thus, any patents or trademarks we
currently have or may later acquire may not provide us a significant competitive
advantage.
Third
parties may claim that we are infringing their intellectual property
rights. Such claims could have a material adverse effect on our
business and financial condition. From time to time we receive
letters alleging infringement of patents, trademarks or other intellectual
property rights. Litigation concerning patents or other intellectual
property is costly and time consuming. We may seek licenses from such
parties, but they could refuse to grant us a license or demand commercially
unreasonable terms. We might not have sufficient resources to pay for
the licenses. Such infringement claims could also cause us to incur
substantial liabilities and to suspend or permanently cease the use of critical
technologies or processes or the production or sale of major
products.
Failure
to obtain required certifications of our products on a timely basis could harm
our business.
We have
certain products, especially in our aviation segment, that are subject to
governmental and similar certifications before they can be sold. For
example, FAA certification is required for all of our aviation products that are
intended for installation in type certificated aircraft. To the
extent required, certification is an expensive and time-consuming process that
requires significant focus and resources. An inability to obtain, or
excessive delay in obtaining, such certifications could have an adverse effect
on our ability to introduce new products and, for certain aviation OEM products,
our customers’ ability to sell airplanes. Therefore, such inabilities
or delays could adversely affect our operating results. In addition, we cannot
assure you that our certified products will not be decertified. Any
such decertification could have an adverse effect on our operating
results.
Our
business is subject to economic, political and other risks associated with
international sales and operations.
Our
business is subject to risks associated with doing business
internationally. We estimate that approximately 39% of our net sales
in the fiscal year ended December 27, 2008 represented products shipped to
international destinations. Accordingly, our business, financial
condition and results of operations could be harmed by a variety of
international factors, including:
|
|
changes
in foreign currency exchange rates;
|
|
|
changes
in a specific country’s or region’s political or economic conditions,
particularly in emerging markets;
|
|
|
trade
protection measures and import or export licensing
requirements;
|
|
|
potentially
negative consequences from changes in tax
laws;
|
|
|
difficulty
in managing widespread sales and manufacturing
operations;
|
|
·
|
acts
of war, terrorism, or political unrest;
and
|
|
|
less
effective protection of intellectual
property.
|
We
may experience unique economic and political risks associated with companies
that operate in Taiwan.
Relations
between Taiwan and the People’s Republic of China, also referred to as the PRC,
and other factors affecting the political or economic conditions of Taiwan in
the future could materially adversely affect our business, financial condition
and results of operations and the market price and the liquidity of our
shares. Our principal manufacturing facilities where we manufacture
all of our products, except our panel-mounted aviation products, are located in
Taiwan.
Taiwan
has a unique international political status. The PRC asserts
sovereignty over all of China, including Taiwan, certain other islands and all
of mainland China. The PRC government does not recognize the
legitimacy of the Taiwan government. Although significant economic
and cultural relations have been established during recent years between Taiwan
and the PRC, the PRC government has indicated that it may use military force to
gain control over Taiwan in certain circumstances, such as the declaration of
independence by Taiwan. Relations between Taiwan and the PRC have on
occasion adversely affected the market value of Taiwanese companies and could
negatively affect our operations in Taiwan in the future.
There
is uncertainty as to our shareholders’ ability to enforce certain foreign civil
liabilities in the Cayman Islands and Taiwan.
We are a
Cayman Islands company and a substantial portion of our assets are located
outside the United States, particularly in Taiwan. As a result, it
may be difficult to effect service of process within the United States upon
us. In addition, there is uncertainty as to whether the courts of the
Cayman Islands or Taiwan would recognize or enforce judgments of United States
courts obtained against us predicated upon the civil liability provisions of the
securities laws of the United States or any state thereof, or be competent to
hear original actions brought in the Cayman Islands or Taiwan against us
predicated upon the securities laws of the United States or any state
thereof.
Our
shareholders may face difficulties in protecting their interests because we are
incorporated under Cayman Islands law.
Our
corporate affairs are governed by our Memorandum and Articles of Association, as
amended, and by the Companies Law (2007 Revision) and the common law of the
Cayman Islands. The rights of our shareholders and the fiduciary
responsibilities of our directors under Cayman Islands law are not as clearly
established as under statutes or judicial precedent in existence in
jurisdictions in the United States. Therefore, you may have more
difficulty in protecting your interests in the face of actions by the
management, directors or our controlling shareholders than would shareholders of
a corporation incorporated in a jurisdiction in the United States, due to the
comparatively less developed nature of Cayman Islands law in this
area.
Unlike
many jurisdictions in the United States, Cayman Islands law does not
specifically provide for shareholder appraisal rights on a merger or
consolidation of a company. This may make it more difficult for you to assess
the value of any consideration you may receive in a merger or consolidation or
to require that the offeror give you additional consideration if you believe the
consideration offered is insufficient.
Shareholders
of Cayman Islands exempted companies such as Garmin have no general rights under
Cayman Islands law to inspect corporate records and accounts or to obtain copies
of lists of shareholders of the company. This may make it more difficult for you
to obtain the information needed to establish any facts necessary for a
shareholder motion or to solicit proxies from other shareholders in connection
with a proxy contest.
Subject
to limited exceptions, under Cayman Islands law, a minority shareholder may not
bring a derivative action against the board of directors. Our Cayman Islands
counsel has advised that they are not aware of any reported class action or
derivative action having been brought in a Cayman Islands court.
We
may pursue strategic acquisitions, investments, strategic partnerships or other
ventures, and our business could be materially harmed if we fail to successfully
identify, complete and integrate such transactions.
We intend
to evaluate acquisition opportunities and opportunities to make investments in
complementary businesses, technologies, services or products, or to enter into
strategic partnerships with parties who can provide access to those assets,
additional product or services offerings, additional distribution or marketing
synergies or additional industry expertise. In 2008, we acquired our
distributors in Austria, Belgium, Denmark, Finland, Portugal and Sweden to
strengthen its presence and capabilities in the European
market. We may not be able to identify suitable acquisition,
investment or strategic partnership candidates, or if we do identify suitable
candidates in the future, we may not be able to complete those transactions on
commercially favorable terms, or at all.
Any past
or future acquisitions could also result in difficulties assimilating acquired
employees (including cultural differences with foreign acquisitions),
operations, and products and diversion of capital and management’s attention
away from other business issues and opportunities. Integration of
acquired companies may result in problems related to integration of technology
and inexperienced management teams. In addition, the key personnel of the
acquired company may decide not to work for us. Our management has
had limited experience in assimilating acquired organizations and products into
our operations. We may not successfully integrate internal controls,
compliance under the Sarbanes-Oxley Act of 2002 and other corporate governance
matters, operations, personnel or products related to acquisitions we made in
2008 or may make in the future. If we fail to successfully integrate
such transactions, our business could be materially harmed.
We
have benefited in the past from Taiwan government tax incentives offered on
certain high technology capital investments that may not always be
available.
Our
effective tax rate is lower than the U.S. federal statutory rate, because we
have benefited from incentives offered in Taiwan related to our high technology
investments in Taiwan. The loss of these tax benefits could have a
significant effect on our financial results in the future.
Changes
in our United States federal income tax classification or in applicable tax law
could result in adverse tax consequences to our shareholders.
We do not
believe that we (or any of our non-United States subsidiaries) are currently a
‘‘passive foreign investment company’’ for United States federal income tax
purposes. We do not expect to become a passive foreign investment
company. However, because the passive foreign investment company
determination is made annually based on whether the company’s income or assets
meet certain thresholds as determined under United States federal tax principles
which are based on facts and circumstances that may be beyond our control, we
cannot assure that we will not become a passive foreign investment company in
the future. 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 on their pro rata share of our income 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 mentioned above.
We do not
believe that we (or any of our non-United States subsidiaries) are currently a
Controlled Foreign Corporation (CFC) for United States federal income tax
purposes. We do not expect to become a CFC. The CFC
determination is made daily based on whether the United States shareholders own
more than fifty percent of the voting power or value of the
Company. Only United States persons that own ten percent or more of
the voting power of the Company’s shares qualify as United States
shareholders. If the Company were to be classified as a CFC for an
uninterrupted thirty day period in any year, the Company’s shareholders that
qualify as United States shareholders could be liable to pay US income tax at
ordinary income tax rates on their pro-rata share of certain categories of the
Company’s income for the period in which the Company is classified as a CFC. As
the Company cannot control the ownership of the Company’s stock nor can the
Company control which shareholders participate in the Company’s stock buyback
program, ownership changes could result that create United States shareholders
which increase the risk of Garmin being treated as a CFC.
We may have additional tax
liabilities.
We are
subject to income taxes in both the United States and numerous foreign
jurisdictions. Significant judgment is required in determining our worldwide
provision for income taxes. In the ordinary course of our business, there are
many transactions and calculations where the ultimate tax determination is
uncertain. We are regularly under audit by tax authorities. Although we believe
our tax estimates are reasonable, the final determination of tax audits and any
related litigation could be materially different from our historical income tax
provisions and accruals. The results of an audit or litigation could have a
material effect on our income tax provision, net income or cash flows in the
period or periods for which that determination is made.
Risks
Relating to Our Shares
The
volatility of our stock price could adversely affect investment in our common
shares.
The
market price of our common shares has been, and may continue to be, highly
volatile. During 2008, the price of our common shares ranged from a
low of $14.40 to a high of $95.58. A variety of factors could cause the price of
our common shares to fluctuate, perhaps substantially, including:
|
·
|
announcements
and rumors of developments related to our business, our competitors, our
suppliers or the markets in which we
compete;
|
|
·
|
quarterly
fluctuations in our actual or anticipated operating
results;
|
|
·
|
the
availability, pricing and timeliness of delivery of components, such as
flash memory and liquid crystal displays, used in
our products;
|
|
·
|
general
conditions in the worldwide economy, including fluctuations in interest
rates;
|
|
·
|
announcements
of technological innovations;
|
|
·
|
new
products or product enhancements by us or our
competitors;
|
|
·
|
product
obsolescence and our ability to manage product
transitions;
|
|
·
|
developments
in patents or other intellectual property rights and
litigation;
|
|
·
|
developments
in our relationships with our customers and
suppliers;
|
|
·
|
research
reports or opinions issued by securities analysts or brokerage houses
related to Garmin, our competitors, our suppliers or our customers;
and
|
|
·
|
any
significant acts of terrorism against the United States, Taiwan or
significant markets where we sell our
products.
|
In
addition, in recent years the stock market in general and the markets for shares
of technology companies in particular, have experienced extreme price
fluctuations which have often been unrelated to the operating performance of
affected companies. Any such fluctuations in the future could
adversely affect the market price of our common shares, and the market price of
our common shares may decline.
Our
officers and directors exert substantial influence over us.
As of
February 4, 2009 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 43.7% 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 otherprovision
of the Companies Law.
|
There are proposals to amend the
Companies Law to permit companies to merge in a manner broadly similar to the
mergers provisions in the State of Delaware. Those proposals were
released by the Cayman Islands government for comment on January 20,
2009. Although the period for comments has now expired, a final draft
bill has not been released and, therefore, it is not possible to specify the
final form of the proposals or an anticipated date for such legislation to be
adopted.
Item
1B. Unresolved Staff Comments
None.
Item
2. Properties
The
following are the principal properties owned or leased by the Company and its
subsidiaries:
Garmin
International, Inc. and Garmin USA, Inc. occupy a facility of approximately
995,000 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. An additional
approximately 125,000 square foot expansion to the main Olathe facility is in
process for additional development and/or aviation manufacturing space (expected
completion June 2009), which will bring the total size of the main Olathe
facility to 1,120,000 square feet when complete. Garmin’s subsidiary,
Garmin Realty, LLC also owns an additional 46 acres of land on the Olathe site
for future expansion. In connection with the bond financings for the
facility in Olathe and the expansion of that facility, the City of Olathe holds
the legal title to the Olathe facility which is leased to Garmin’s subsidiaries
by the City. Upon the payment in full of the outstanding bonds, the
City of Olathe is obligated to transfer title to Garmin’s subsidiaries for the
aggregate sum of $200. Garmin International, Inc. has purchased all
the outstanding bonds and continues to hold the bonds until maturity in order to
benefit from property tax abatement.
Garmin
Corporation owns and occupies a 249,326 square foot facility in Shijr, Taipei
County, Taiwan, a 223,469 square foot facility in Jhongli, Tao-Yang County,
Taiwan, and an approximately 580,000 square foot facility in LinKou, Tao-Yang
County, Taiwan. In these three facilities Garmin Corporation manufactures all of
Garmin’s consumer and portable aviation products and warehouses, markets and
supports products for the Pacific Rim countries.
Garmin
AT, Inc. leases approximately 15 acres of land in Salem, Oregon under a ground
lease. This ground lease expires in 2030 but Garmin AT has the option
to extend the ground lease until 2050. Garmin AT, Inc. owns and
occupies a 115,000 square foot facility for office, development and
manufacturing use and a 33,000 square foot aircraft hangar, flight test and
certification facility on this land.
Garmin
International, Inc. leases 148,320 square feet of land at New Century Airport in
Gardner, Kansas under a ground lease which expires in 2026. Garmin
International, Inc. owns and occupies a 47,254 square foot aircraft hangar,
flight test and certification facility on this land which is used in development
and certification of aviation products.
Garmin
International, Inc. leases approximately 15,000 square feet of space at 669
North Michigan Avenue in Chicago, Illinois which is used as a retail store and
showroom for Garmin products. This lease expires in November
2016.
Garmin
International, Inc. also leases an additional: (i) 18,392 square feet of office
space in Kansas City, Missouri for a call center operation; (ii) 48,625 square
feet of office space in Olathe, Kansas for a call center operation; (iii) 15,096
square feet of aggregate office space in two buildings in Tempe, Arizona for
software development; (iv) 5,509 square feet of office space in San Francisco,
CA for its Garmin Connect division; (v) 8,183 square feet of office space in
Diamond Bar, California for software development; (vi) 5,952 square feet of
office space (and 17,536 square feet of land on which the premises sits) in
Wichita, Kansas for aviation development and support; and (vii)
11,857 aggregate square feet in two buildings in South Beach, Oregon for the
former Nautamatic (now TR-1) marine autopilot operations.
Garmin
(Europe) Ltd. owns and occupies a 155,000 square foot building located in
Totton, Southampton, England.
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 International, Inc. and five other unrelated companies,
alleging infringement of U.S. Patent No. 5,241,671 (“the ’671
patent”). On December 30, 2005, Garmin International filed a Motion
for Summary Judgment for Claim Invalidity Based on Indefiniteness. On
September 30, 2008, the court issued a Memorandum Opinion and Order granting
Garmin International’s Motion for Summary Judgment for Claim Invalidity Based on
Indefiniteness with respect to the ’671 patent. On October 8, 2008,
the court issued an Amended Final Judgment ordering that Encyclopaedia
Britannica take nothing from its action against Garmin International with
respect to the ’671 patent and closed that case.
On May
23, 2006, Encyclopaedia Britannica filed an amended complaint claiming that
Garmin International and the other defendants also infringe U.S. Patent No.
7,051,018 (“the ‘018 patent”), a continuation patent of the ‘671 patent, which
issued on May 23, 2006. Garmin International believes that it should
not be found liable for infringement of the ‘018 patent and additionally that
the ‘018 patent is invalid. On July 25, 2006, Encyclopaedia
Britannica filed a new complaint claiming that Garmin International and the
other defendants also infringe U.S. Patent No. 7,082,437 (“the ‘437 patent”), a
continuation patent of the ‘671 patent, which issued on July 25,
2006. Garmin International believes that it should not be found
liable for infringement of the ‘437 patent and additionally that the ‘437 patent
is invalid. Encyclopaedia Britannica has asserted the ’018 and ’437
patents against other parties in Encyclopaedia Britannica v. Magellan
Navigation, Inc., et al., Case No. 07-CA-787 (LY)(W.D. Tex). On
October 5, 2007, the defendants in that case filed a Motion for Summary Judgment
of Invalidity of the ’018 and ’437 patents and the parties await a hearing
and/or the court’s ruling on that motion. On February 6, 2009, the court entered
a scheduling order enabling all defendants in these cases to file a consolidated
Joint Motion for Summary Judgment of Invalidity of the ’018 and ’437 patents and
stayed all proceedings pending the court’s ruling on the joint motion for
summary judgment. Although there can be no assurance that an unfavorable outcome
of this litigation would not have a material adverse effect on our operating
results, liquidity or financial position, Garmin International believes that the
claims are without merit and intends to vigorously defend these
actions.
SP
Technologies, LLC v. Garmin Ltd., Garmin International, Inc., TomTom, Inc., and
Magellan Navigation, Inc.
On June 5, 2008, SP Technologies, LLC
filed suit in the United States District Court for the Northern District of
Illinois against Garmin Ltd. and Garmin International, Inc. alleging
infringement of U.S. Patent No. 6,784,873 (“the ’873 patent”). On
July 7, 2008, SP Technologies, LLC filed an amended complaint alleging
infringement of the ’873 patent against additional defendants TomTom, Inc. and
Magellan Navigation, Inc. Garmin believes that it should not be found
liable for infringement of the ’873 patent and additionally that the ’873 patent
is invalid. Garmin intends to vigorously defend this
lawsuit
On August 18, 2008, Garmin filed its
answer to the amended complaint along with a motion for dismissal of SP
Technologies, LLC’s claims of willful and inducement infringement of the ’873
patent. On October 16, 2008, the court granted Garmin’s motion for
partial dismissal, striking the willful and inducement infringement allegations
from the amended complaint.
On
January 7, 2009, Garmin filed an Amended Answer and Counterclaims asserting the
’873 patent is not infringed, is invalid, and that the plaintiff committed
inequitable conduct resulting in unenforceability of the ’873
patent. On February 2, 2009, codefendant TomTom filed a Motion for
Summary Judgment of Unenforceability of the ’873 Patent Due to Inequitable
Conduct. The parties await a hearing or the Court’s ruling on this
summary judgment motion.
Scott
C. Harris and Memory Control Enterprise, LLC v. Dash Navigation, Inc., Garmin
International, Inc., Lowrance Electronics, Inc., Magellan Navigation, Inc., Mio
Technology USA, Navigon Inc., Netropa Corporation, and Sony Electronics,
Inc.
On September 4, 2008, Scott C. Harris
and Memory Control Enterprise, LLC filed suit in the United States District
Court for the Northern District of Illinois against Garmin International, Inc.,
along with Dash Navigation, Inc., Lowrance Electronics, Inc., Magellan
Navigation, Inc., Mio Technology USA, Navigon Inc., Netropa Corporation, and
Sony Electronics, Inc. The complaint against Garmin International, Inc. alleges
infringement of U.S. Patent No. 6,892,136 (“the ’136 patent”). Garmin believes
that it should not be found liable of infringement of the ’136 patent and
additionally that the ’136 patent is invalid. Garmin intends to
vigorously defend this lawsuit.
From time
to time Garmin is involved in other legal actions arising in the ordinary course
of our business. We believe that the ultimate outcome of these
actions will not have a material adverse effect on our business, financial
condition and results of operations.
Item
4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of
shareholders of Garmin during the fourth fiscal quarter of 2008.
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 5, 2009.
Dr. Min H. Kao, age 60, 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. Dr. Kao has served as a director and officer of various
subsidiaries of the Company since August 1990. Dr. Kao holds Ph.D.
and MS degrees in Electrical Engineering from the University of Tennessee and a
BS degree in Electrical Engineering from National Taiwan
University.
Clifton A. Pemble, age 43, has
served as a director of Garmin Ltd. since August 2004, and as President and
Chief Operating Officer of Garmin Ltd. since October 2007. Mr. Pemble has served
as a director and officer of various Garmin subsidiaries since August 2003.
Previously, he was Vice President, Engineering of Garmin International, Inc.
from 2005 to October 2007, Director of Engineering of Garmin International, Inc.
from 2003 to 2005, and Software Engineering Manager of Garmin International,
Inc. from 1995 to 2002 and a Software Engineer with Garmin International, Inc.
from 1989 to 1995. Mr. Pemble holds BA degrees in Mathematics and
Computer Science from MidAmerica Nazarene University.
Kevin S. Rauckman, age 46, has
served as Chief Financial Officer and Treasurer of Garmin Ltd. since August
2000. He previously served as Director of Finance and Treasurer of
Garmin International, Inc. since January 1999 and has served as a director and
officer of various subsidiaries of the Company since April 2001. Mr. Rauckman
holds BS and MBA degrees in Business from the University of Kansas.
Andrew R. Etkind, age 53, has
served as Vice President, General Counsel and Secretary of Garmin Ltd. since
June 2008. He was previously General Counsel and Secretary of Garmin Ltd. from
August 2000 to June 2008. He has been Vice President and General
Counsel of Garmin International, Inc. since July 2007, General Counsel since
February 1998, and Secretary since October 1998. Mr. Etkind has served as a
director and officer of various Garmin subsidiaries since December
2001. Mr. Etkind holds BA, MA and LLM degrees from Cambridge
University, England and a JD degree from the University of Michigan Law
School.
Brian J. Pokorny, age 45, has
been Vice President, Operations of Garmin International, Inc. since 2005.
Previously, he was Director of Operations of Garmin International, Inc. from
1997 to 2005 and Production Planning Manager of Garmin International, Inc. from
1995 to 1997. Mr. Pokorny holds a BS degree in Business Management
and a MBA from the University of Nebraska - Lincoln and holds the professional
certification of CPIM (Certified in Production and Inventory
Management).
Danny J. Bartel, age 59, has
been Vice President, Worldwide Sales of Garmin International, Inc. since
2006. Previously, he was Technical/Survey Sales Manager of
Garmin International, Inc. from 1992 to 1993, Director, Europe, Middle East and
Africa of Garmin (Europe) Ltd. from 1994 to 1999, and Director of Consumer
Electronic Sales of Garmin International, Inc. from 1999 to 2006. He has been a
director of Garmin (Europe) Ltd. since July 2004. Mr. Bartel holds a
B.S. in Electrical Engineering from South Dakota State University and a B.A. in
Management from Central Michigan University.
Gary V. Kelley, age 62, has been Vice
President, Marketing of Garmin International, Inc. since 2005. Previously, he
was Director of Marketing of Garmin International, Inc. from 1992 to 2005. He
has also been Director of Marketing of Garmin USA, Inc. since January 2002. Mr.
Kelley was a director of Garmin (Europe) Ltd. from 1993 to
2004. Mr. Kelley holds a BBA degree from Baker
University. He also holds a commercial pilot license with instrument
and flight instructor ratings.
All executive officers are elected by
and serve at the discretion of the Company’s Board of Directors. None
of the executive officers has an employment agreement with the
Company. There are no arrangements or understandings between the
executive officers and any other person pursuant to which he or she was or is to
be selected as an officer. There is no family relationship among any of the
executive officers. Dr. Min H. Kao is the brother of Ruey-Jeng Kao,
who is a supervisor of Garmin Corporation, Garmin’s Taiwan subsidiary, who
serves as an ex-officio member of Garmin Corporation’s Board of
Directors.
PART
II
Item
5. Market for the Company’s Common Shares, Related Shareholder
Matters and Issuer Purchases of Equity Securities
Garmin’s common shares have traded on
the Nasdaq National Market under the symbol “GRMN” since its initial public
offering on December 8, 2000 (the “IPO”). As of February 8, 2009,
there were 280 shareholders of record.
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 2008 and 2007 was as follows:
|
|
Year Ended
|
|
|
|
December 27, 2008
|
|
|
December 29, 2007
|
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
First
Quarter
|
|
$ |
97.00 |
|
|
$ |
53.10 |
|
|
$ |
57.66 |
|
|
$ |
49.19 |
|
Second
Quarter
|
|
$ |
56.41 |
|
|
$ |
40.90 |
|
|
$ |
75.03 |
|
|
$ |
52.69 |
|
Third
Quarter
|
|
$ |
48.70 |
|
|
$ |
32.11 |
|
|
$ |
121.14 |
|
|
$ |
75.18 |
|
Fourth
Quarter
|
|
$ |
34.34 |
|
|
$ |
15.22 |
|
|
$ |
123.80 |
|
|
$ |
82.32 |
|
The Board of Directors declared a cash
dividend of $0.75 per common share to shareholders of record on December 1, 2008
which was paid on December 15, 2008. The Board of Directors declared a cash
dividend of $0.75 per common share to shareholders of record on August 15, 2007
which was paid on September 14, 2007. Garmin currently expects
to pay a cash dividend in December 2009. The decision whether to pay a dividend
and the amount of the dividend will be made closer to the payment date based
on the Company’s cash balance, cash requirements and cash flow
generation..
The Board
of Directors approved a share repurchase program on February 4, 2008,
authorizing the Company to repurchase up to 5.0 million shares of the Company as
market and business conditions warrant. This share repurchase program
was completed in second quarter 2008.
The Board
of Directors approved a share repurchase program on June 6, 2008, authorizing
the Company to repurchase up to 10.0 million shares of the Company as market and
business conditions warrant. This share repurchase program was
completed in fourth quarter 2008.
The Board
of Directors approved a share repurchase program on October 22, 2008,
authorizing the Company to repurchase up to $300 million of the Company’s shares
as market and business conditions warrant. Approximately $258 million
of this plan remains outstanding. The share repurchase authorization
expires on December 31, 2009.
|
|
|
|
|
|
|
|
Maximum Number of Shares (or
|
|
|
|
|
|
|
|
|
|
Approx. Dollar Value of Shares
|
|
|
|
Total # of
|
|
|
Average Price
|
|
|
in Thousands) That May Yet Be
|
|
Period
|
|
Shares Purchased
|
|
|
Paid Per Share
|
|
|
Purchased Under the Plans or Programs
|
|
October
2008
|
|
|
242,445 |
|
|
$ |
22.58 |
|
|
|
$300,000 |
|
November
2008
|
|
|
1,962,081 |
|
|
$ |
19.83 |
|
|
|
$261,096 |
|
December
2008
|
|
|
175,258 |
|
|
$ |
15.86 |
|
|
|
$258,317 |
|
Total
|
|
|
2,379,784 |
|
|
$ |
19.82 |
|
|
|
$258,317 |
|
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.
|
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, 2003 through December 31, 2008, 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, 2003, in Garmin
common shares and in each of the foregoing indexes and assumes reinvestment of
dividends.
|
|
|
12/03 |
|
|
|
12/04 |
|
|
|
12/05 |
|
|
|
12/06 |
|
|
|
12/07 |
|
|
|
12/08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Garmin
Ltd.
|
|
|
100.00 |
|
|
|
112.63 |
|
|
|
123.94 |
|
|
|
210.00 |
|
|
|
368.72 |
|
|
|
76.08 |
|
NASDAQ
Composite
|
|
|
100.00 |
|
|
|
110.08 |
|
|
|
112.88 |
|
|
|
126.51 |
|
|
|
138.13 |
|
|
|
80.47 |
|
NASDAQ-100
|
|
|
100.00 |
|
|
|
109.73 |
|
|
|
112.30 |
|
|
|
123.84 |
|
|
|
145.65 |
|
|
|
86.63 |
|
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
27, 2008 and December 29, 2007 and the selected consolidated statement of income
data for the years ended December 27, 2008, December 29, 2007, and December 30,
2006 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 30, 2006, December 31, 2005, and December 25, 2004 and
the selected consolidated statement of income data for the years ended December
31, 2005 and December 25, 2004 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. 27,
2008
|
|
|
Dec. 29,
2007
|
|
|
Dec. 30,
2006
|
|
|
Dec. 31,
2005
|
|
|
Dec. 25,
2004
|
|
|
|
(in thousands, except per share data)
|
|
Consolidated
Statements of Income Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
3,494,077 |
|
|
$ |
3,180,319 |
|
|
$ |
1,774,000 |
|
|
$ |
1,027,773 |
|
|
$ |
762,549 |
|
Cost
of goods sold
|
|
|
1,940,562 |
|
|
|
1,717,064 |
|
|
|
891,614 |
|
|
|
492,703 |
|
|
|
351,310 |
|
Gross
profit
|
|
|
1,553,515 |
|
|
|
1,463,255 |
|
|
|
882,386 |
|
|
|
535,070 |
|
|
|
411,239 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative
|
|
|
485,389 |
|
|
|
396,498 |
|
|
|
214,513 |
|
|
|
122,021 |
|
|
|
78,991 |
|
Research
and development
|
|
|
206,109 |
|
|
|
159,406 |
|
|
|
113,314 |
|
|
|
74,879 |
|
|
|
61,580 |
|
Total
operating expenses
|
|
|
691,498 |
|
|
|
555,904 |
|
|
|
327,827 |
|
|
|
196,900 |
|
|
|
140,571 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
862,017 |
|
|
|
907,351 |
|
|
|
554,559 |
|
|
|
338,170 |
|
|
|
270,668 |
|
Other
income/(expense), net (2), (3), (4)
|
|
|
52,349 |
|
|
|
70,922 |
|
|
|
39,995 |
|
|
|
34,430 |
|
|
|
(15,457 |
) |
Income
before income taxes
|
|
|
914,366 |
|
|
|
978,273 |
|
|
|
594,554 |
|
|
|
372,600 |
|
|
|
255,211 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax provision
|
|
|
181,518 |
|
|
|
123,262 |
|
|
|
80,431 |
|
|
|
61,381 |
|
|
|
49,511 |
|
Net
income
|
|
$ |
732,848 |
|
|
$ |
855,011 |
|
|
$ |
514,123 |
|
|
$ |
311,219 |
|
|
$ |
205,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income per share: (5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
3.51 |
|
|
$ |
3.95 |
|
|
$ |
2.38 |
|
|
$ |
1.44 |
|
|
$ |
0.95 |
|
Diluted
|
|
$ |
3.48 |
|
|
$ |
3.89 |
|
|
$ |
2.35 |
|
|
$ |
1.43 |
|
|
$ |
0.94 |
|
Weighted
average common shares outstanding: (5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
208,993 |
|
|
|
216,524 |
|
|
|
216,340 |
|
|
|
216,294 |
|
|
|
216,322 |
|
Diluted
|
|
|
210,680 |
|
|
|
219,875 |
|
|
|
218,845 |
|
|
|
218,236 |
|
|
|
218,060 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends per share (5)
|
|
$ |
0.75 |
|
|
$ |
0.75 |
|
|
$ |
0.50 |
|
|
$ |
0.25 |
|
|
$ |
0.25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
Sheet Data (at end of Period):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
696,335 |
|
|
$ |
707,689 |
|
|
$ |
337,321 |
|
|
$ |
334,352 |
|
|
$ |
249,909 |
|
Marketable
securities
|
|
|
274,895 |
|
|
|
424,505 |
|
|
|
480,876 |
|
|
|
376,723 |
|
|
|
322,215 |
|
Total
assets
|
|
|
2,924,581 |
|
|
|
3,291,460 |
|
|
|
1,897,020 |
|
|
|
1,362,235 |
|
|
|
1,117,391 |
|
Total
debt (6)
|
|
|
- |
|
|
|
- |
|
|
|
248 |
|
|
|
- |
|
|
|
- |
|
Total
stockholders' equity
|
|
|
2,225,854 |
|
|
|
2,350,614 |
|
|
|
1,557,899 |
|
|
|
1,157,264 |
|
|
|
935,857 |
|
(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 gain on sale of equity
securities, interest income, interest expense, andforeign
currency gain (loss)
|
(3)
|
Includes
$23.0 million, $0.6 million and $15.3 million for foreign currency gains
in 2007, 2006 and 2005 respectively,and
$35.3 million and $24.8 million for foreign currency losses in 2008 and
2004 respectively.
|
(4)
|
Includes
a $50.9 million gain on sale of equity securities primarily related to the
sale of our equity interest in Tele Atlas
N.V.
|
(5)
|
All
prior period common stock and applicable share and per share amounts have
been retroactively adjustedto
reflect a 2-for-1 split of the Company's common stock effective August 15,
2006.
|
(6)
|
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 2008, 2007, 2006,
and 2004. 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 subsidiary distributors and 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 46% since 2004 and our net income has increased
at a compounded annual growth rate of 37% since 2004. 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 MotionBased Technologies LLC
in 2005, Dynastream Innovations Inc. in 2006, Digital Cyclone, Inc. and the
assets of Nautamatic Marine Systems, Inc. in 2007, and ten European distributors
in 2007 and 2008. These acquisitions had no significant impact on net
income for those years.
Since our principal locations are in
the United States, Taiwan and the U.K., we experience some foreign currency
fluctuations in our operating results. The functional currency of our
European operations is the Euro (effective July 2007) and the functional
currency of Garmin Corporation, headquartered in Taiwan, is the Taiwan
Dollar. Approximately 76% of sales by our European subsidiaries are
now denominated in British Pounds Sterling or the Euro. We
experienced ($35.3) million, $23.0 million, $0.6 million, $15.3 million, and
($24.8) million in foreign currency gains (losses) during fiscal years 2008,
2007, 2006, 2005, and 2004, respectively. The 2008 foreign currency
loss includes a realized gain of $21.5 million due to the strengthening of the
Euro between the date we purchased shares in Tele Atlas N.V. in October 2007 and
the tender of shares in February, March, and June 2008. To date, we
have not entered into hedging transactions with the Euro, the British Pound
Sterling, or the Taiwan Dollar, and we do not currently plan to utilize hedging
transactions in the future.
Critical
Accounting Policies and Estimates
General
Garmin’s discussion and analysis of its
financial condition and results of operations are based upon Garmin’s
consolidated financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States. The
presentation of these financial statements requires Garmin to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent assets and
liabilities. On an on-going basis, Garmin evaluates its estimates,
including those related to customer sales programs and incentives, product
returns, bad debts, inventories, investments, intangible assets, income taxes,
warranty obligations, and contingencies and litigation. Garmin bases
its estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying value of assets and liabilities
that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or
conditions.
Revenue
Recognition
Garmin records estimated reductions to
revenue for customer sales programs returns and incentive offerings including
rebates, price protection (product discounts offered to retailers to assist in
clearing older products from their inventories in advance of new product
releases), promotions and other volume-based incentives. The
reductions to revenue are based on estimates and judgments using historical
experience and expectation of future conditions. Changes in
these estimates could negatively affect Garmin’s operating
results. These incentives are reviewed periodically and, with
the exceptions of price protection and certain other promotions, are accrued for
on a percentage of sales basis. If market conditions were to
decline, Garmin may take actions to increase customer incentive offerings
possibly resulting in an incremental reduction of revenue at the time the
incentive is offered.
Trade
Accounts Receivable
We sell
our products to retailers, wholesalers, and other customers and extend credit
based on our evaluation of the customer’s financial condition. Potential
losses on receivables are dependent on each individual customer’s financial
condition. We carry our trade accounts receivable at net realizable value.
Typically, our accounts receivable are collected within 60 days and do not bear
interest. We monitor our exposure to losses on receivables and maintain
allowances for potential losses or adjustments. We determine these allowances by
(1) evaluating the aging of our receivables; and (2) reviewing our high-risk
customers. Past due receivable balances are written off when our internal
collection efforts have been unsuccessful in collecting the amount
due.
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. Fair
value of investments in auction rate securities are valued using third party
estimates which followed an income approach valuation
methodology. Investments are reviewed periodically to determine if
they have suffered an impairment of value that is considered other than
temporary. If investments are determined to be impaired, a
capital loss is recognized at the date of determination.
Testing
for impairment of investments also requires significant management
judgment. The identification of potentially impaired
investments, the determination of their fair value and the assessment of whether
any decline in value is other than temporary are the key judgment
elements. The discovery of new information and the passage of
time can significantly change these judgments. Revisions
of impairment judgments are made when new information becomes known, and any
resulting impairment adjustments are made at that time. The economic
environment and volatility of securities markets increase the difficulty of
determining fair value and assessing investment impairment.
Income
Taxes
Garmin provides deferred tax assets and
liabilities based on the difference between the tax basis of assets and
liabilities and their carrying amount for financial reporting purposes as
measured by the enacted tax rates and laws that will be in effect when the
differences are expected to reverse. While no valuation
allowance has been recorded, it is Garmin’s policy to record a valuation
allowance to reduce its deferred tax assets to an amount that it believes is
more likely than not to be realized. While Garmin has considered
future taxable income and ongoing prudent and feasible tax planning strategies
in assessing the need for the valuation allowance, in the event Garmin were to
determine that it would not be able to realize all or part of its net deferred
tax assets in the future, an adjustment to the deferred tax assets would be
charged to income in the period such determination is 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 is
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 awards stock options, stock
appreciation rights (“SARs”), restricted stock units (“RSUs”) and/or performance
shares each year as part of Garmin’s compensation package for
employees. Employees with certain levels of responsibility within
Garmin are eligible for stock options, SAR grants, RSU grants and/or performance
shares but the granting of options, SARs, RSUs and/or performance shares 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 9 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. The Company recognizes revenue when
persuasive evidence of a sales arrangement exists, delivery has occurred, the
sales price is fixed or determinable, and collection is reasonably assured.
Product is considered delivered to the customer once it has been shipped and
title and risk of loss have been transferred. For most of the Company’s product
sales, these criteria are met at the time the product is delivered to the
customer’s location. The Company assumes no remaining significant obligations
associated with the product sale other than that related to its warranty
programs discussed below. 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 seasonal
fluctuation. Typically, sales of our consumer products are highest in
the second quarter, due to increased demand during the spring and summer 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.
Raw material costs are our most
significant component of cost of goods sold. In 2008, gross margin
for our automotive/mobile segment declined 310 basis points as the average
selling price continued to decline and we experienced further shift in product
mix to lower-margin product groups. These impacts were somewhat
offset by raw material price declines, most significantly flash
memory. In the first half of 2007, we experienced favorable product
mix and product pricing, which allowed us to hold margins in our
automotive/mobile segment steady; margin declines in the second half of 2007
were primarily a result of average selling price declines, coupled with raw
materials price increases, most notably the costs for flash memory, in late
second quarter and through the third quarter of 2007 when we were purchasing
these components for our holiday production runs, resulting in margin declines
as these components were sold, primarily in the fourth quarter of
2007. In the first half of 2006, we experienced meaningful
price declines on flash memory and color screens, which allowed us to hold
margins in our automotive/mobile segment steady in the face of price declines,
and allowed us to improve margins in other business segments as
well. While these price declines did not continue throughout
all of 2006, we did have additional component cost reductions as we neared year
end that offset a shift in product mix to lower-margin product
groups. Gross margins for the aviation, marine, and outdoor/fitness
segments are more stable. Our long-term gross margin targets are 65%,
55% and 55%, respectively, for these segments.
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, Jhongli, and Lin-Kou manufacturing plants in Taiwan, our
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 differences 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.
|
As revenues have grown, selling,
general and administrative expenses have also increased during the past five
years. Due to the economic pressure on our consumer-oriented
business, we plan to decrease selling, general and administrative expenses in
2009. We expect to decrease advertising and marketing expenses to
better match anticipated demand and to support operating margins. We
also reduced advertising and marketing expenses in the second half of 2008 and
did not experience a negative impact to our market share. We also
expect selling, general and administrative costs, excluding advertising, to be
flat in 2009.
Research
and Development
The majority of our research and
development costs represent salaries for our engineers, costs for high
technology components and costs of test equipment used in product and prototype
development. Approximately 86% of the research and
development of our products is performed in North America. 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
Best Buy accounted for 12.0% of our net
sales in the year ended December 27, 2008. Our top ten customers have
contributed between 24% and 43% of net sales since 2004. We have
experienced average sales days in our customer accounts receivable of between 43
and 70 days since 2004. We have experienced an increase in the level
of customer accounts receivable days due to changes in product mix, longer
payment terms, and macroeconomic conditions. We expect to reduce the
level of customer accounts receivable days as we negotiate shorter payment terms
with our customers. In 2008, one of our key customers, Circuit City,
filed for bankruptcy resulting in an increase of $18.5 million in accounts
receivable reserve.
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, the profit entitlement
afforded our parent company based on its intellectual property rights ownership
of our consumer products along with substantial tax incentives offered by the
Taiwanese government on certain high-technology capital investments have
continued to reduce our tax rate. As a result, our consolidated
effective tax rate was approximately 19.9% during 2008. This is an
increase from 12.6% during 2007 due to a change in tax law related to the
repatriation of earnings from our Taiwan subsidiary and a more unfavorable mix
of taxable income among the tax jurisdictions in which the Company
operates. 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 2013. We plan on applying for additional
incentives for years beyond 2013 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 believes that due to lower operating
margins predicted for fiscal 2009, there may be slightly less revenue recognized
by entities in lower tax rate jurisdictions. Therefore, the effective tax
rate for fiscal 2009 is expected to be slightly higher than fiscal 2008.
The actual effective tax rate will be dependent upon the operating margins,
production volume, additional capital investments made during fiscal 2009, 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.
27,
|
|
|
Dec.29,
|
|
|
Dec.
30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Net
sales
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
Cost
of goods sold
|
|
|
55.5 |
% |
|
|
54.0 |
% |
|
|
50.3 |
% |
Gross
profit
|
|
|
44.5 |
% |
|
|
46.0 |
% |
|
|
49.7 |
% |
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative
|
|
|
13.9 |
% |
|
|
12.5 |
% |
|
|
12.1 |
% |
Research
and development
|
|
|
5.9 |
% |
|
|
5.0 |
% |
|
|
6.4 |
% |
Total
operating expenses
|
|
|
19.8 |
% |
|
|
17.5 |
% |
|
|
18.5 |
% |
Operating
income
|
|
|
24.7 |
% |
|
|
28.5 |
% |
|
|
31.2 |
% |
Other
income / (expense) , net
|
|
|
1.5 |
% |
|
|
2.2 |
% |
|
|
2.3 |
% |
Income
before income taxes
|
|
|
26.2 |
% |
|
|
30.7 |
% |
|
|
33.5 |
% |
Provision
for income taxes
|
|
|
5.2 |
% |
|
|
3.9 |
% |
|
|
4.5 |
% |
Net
income
|
|
|
21.0 |
% |
|
|
26.8 |
% |
|
|
29.0 |
% |
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 27, 2008
|
|
Fitness
|
|
|
Marine
|
|
|
Mobile
|
|
|
Aviation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
427,783 |
|
|
$ |
204,477 |
|
|
$ |
2,538,411 |
|
|
$ |
323,406 |
|
Cost
of goods sold
|
|
|
181,037 |
|
|
|
93,052 |
|
|
|
1,560,816 |
|
|
|
105,657 |
|
Gross
profit
|
|
|
246,746 |
|
|
|
111,425 |
|
|
|
977,595 |
|
|
|
217,749 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
25,419 |
|
|
|
19,374 |
|
|
|
85,610 |
|
|
|
75,706 |
|
Selling,
general and administrative expenses
|
|
|
60,732 |
|
|
|
32,068 |
|
|
|
367,880 |
|
|
|
24,709 |
|
Total
expenses
|
|
|
86,151 |
|
|
|
51,442 |
|
|
|
453,490 |
|
|
|
100,415 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
160,595 |
|
|
|
59,983 |
|
|
|
524,105 |
|
|
|
117,334 |
|
Other
income / (expense), net
|
|
|
5,391 |
|
|
|
3,921 |
|
|
|
41,634 |
|
|
|
1,403 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
$ |
165,986 |
|
|
$ |
63,904 |
|
|
$ |
565,739 |
|
|
$ |
118,737 |
|
|
|
Outdoor/
|
|
|
|
|
|
Automotive/
|
|
|
|
|
Fiscal
year ended December 29, 2007
|
|
Fitness
|
|
|
Marine
|
|
|
Mobile
|
|
|
Aviation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
339,741 |
|
|
$ |
203,399 |
|
|
$ |
2,342,184 |
|
|
$ |
294,995 |
|
Cost
of goods sold
|
|
|
155,086 |
|
|
|
93,230 |
|
|
|
1,368,979 |
|
|
|
99,769 |
|
Gross
profit
|
|
|
184,655 |
|
|
|
110,169 |
|
|
|
973,205 |
|
|
|
195,226 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
23,302 |
|
|
|
16,879 |
|
|
|
59,390 |
|
|
|
59,835 |
|
Selling,
general and administrative expenses
|
|
|
41,119 |
|
|
|
25,914 |
|
|
|
305,065 |
|
|
|
24,400 |
|
Total
expenses
|
|
|
64,421 |
|
|
|
42,793 |
|
|
|
364,455 |
|
|
|
84,235 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
120,234 |
|
|
|
67,376 |
|
|
|
608,750 |
|
|
|
110,991 |
|
Other
income / (expense), net
|
|
|
7,570 |
|
|
|
4,544 |
|
|
|
56,392 |
|
|
|
2,416 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
$ |
127,804 |
|
|
$ |
71,920 |
|
|
$ |
665,142 |
|
|
$ |
113,407 |
|
|
|
Outdoor/
|
|
|
|
|
|
Automotive/
|
|
|
|
|
Fiscal
year ended December 30, 2006
|
|
Fitness
|
|
|
Marine
|
|
|
Mobile
|
|
|
Aviation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
285,362 |
|
|
$ |
166,639 |
|
|
$ |
1,089,093 |
|
|
$ |
232,906 |
|
Cost
of goods sold
|
|
|
121,724 |
|
|
|
73,687 |
|
|
|
613,902 |
|
|
|
82,301 |
|
Gross
profit
|
|
|
163,638 |
|
|
|
92,952 |
|
|
|
475,191 |
|
|
|
150,605 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
Comparison
of 52-Weeks Ended December 27, 2008 and December 29, 2007
Net
Sales
|
|
52-weeks ended December 27, 2008
|
|
|
52-weeks ended December 29, 2007
|
|
|
Year
over Year
|
|
|
|
Net
Sales
|
|
|
% of Revenues
|
|
|
Net
Sales
|
|
|
% of Revenues
|
|
|
$ Change
|
|
|
% Change
|
|
Outdoor/Fitness
|
|
$ |
427,783 |
|
|
|
12.2 |
% |
|
$ |
339,741 |
|
|
|
10.7 |
% |
|
$ |
88,042 |
|
|
|
25.9 |
% |
Marine
|
|
|
204,477 |
|
|
|
5.9 |
% |
|
|
203,399 |
|
|
|
6.4 |
% |
|
|
1,078 |
|
|
|
0.5 |
% |
Automotive/Mobile
|
|
|
2,538,411 |
|
|
|
72.6 |
% |
|
|
2,342,184 |
|
|
|
73.6 |
% |
|
|
196,227 |
|
|
|
8.4 |
% |
Aviation
|
|
|
323,406 |
|
|
|
9.3 |
% |
|
|
294,995 |
|
|
|
9.3 |
% |
|
|
28,411 |
|
|
|
9.6 |
% |
Total
|
|
$ |
3,494,077 |
|
|
|
100.0 |
% |
|
$ |
3,180,319 |
|
|
|
100.0 |
% |
|
$ |
313,758 |
|
|
|
9.9 |
% |
The
increase in total net sales for 2008 was primarily driven by outdoor/fitness,
automotive/mobile and aviation product offerings. Automotive/mobile
revenue remains a significantly larger portion of our revenue mix, decreasing
slightly from 73.6% in 2007 to 72.6% in 2008. Total unit sales
increased 38% to 16.9 million in 2008 from 12.3 million in
2007. The higher unit sales volume in 2008 was primarily
attributable to strong sales of automotive products, particularly in North
America, and outdoor/fitness products. In general, management
believes that continuous innovation and the introduction of new products are
essential for future revenue growth.
Automotive/mobile
segment revenue grew 8.4% in 2008, on the strength of the nuvi® series
of personal navigation devices (PNDs), as well as increased consumer awareness
of the capabilities and applications of GPS. On a percentage
basis, revenues in our outdoor/fitness segment grew faster than any other
segment from the year ago period due to the introduction of the Colorado™
series, the Oregon ™ series, the Forerunner® 405 and
Edge®
705 which offer enhanced form factors and cartography. Our
aviation segment continued to grow on the strength of our G1000 cockpit as an
OEM (original equipment manufacturer) solution. This growth slowed
significantly in the second half of 2008 as the macroeconomic conditions
influenced purchasing decisions and slowed OEM production
schedules. Marine revenues were slightly higher than the prior
year due to strong growth in the first quarter of 2008 offset by flat to
declining revenue in the remainder of the year due to macroeconomic conditions
and fuel prices.
The
Company anticipates that the macroeconomic conditions will dampen or eliminate
revenue growth in 2009 across all segments.
Gross
Profit
|
|
52-weeks
ended December 27, 2008
|
|
|
52-weeks
ended December 29, 2007
|
|
|
Year
over Year
|
|
|
|
Gross
Profit
|
|
|
% of
Revenues
|
|
|
Gross
Profit
|
|
|
% of
Revenues
|
|
|
$
Change
|
|
|
%
Change
|
|
Outdoor/Fitness
|
|
$ |
246,746 |
|
|
|
57.7 |
% |
|
$ |
184,655 |
|
|
|
54.4 |
% |
|
$ |
62,091 |
|
|
|
33.6 |
% |
Marine
|
|
|
111,425 |
|
|
|
54.5 |
% |
|
|
110,169 |
|
|
|
54.2 |
% |
|
|
1,256 |
|
|
|
1.1 |
% |
Automotive/Mobile
|
|
|
977,595 |
|
|
|
38.5 |
% |
|
|
973,205 |
|
|
|
41.6 |
% |
|
|
4,390 |
|
|
|
0.5 |
% |
Aviation
|
|
|
217,749 |
|
|
|
67.3 |
% |
|
|
195,226 |
|
|
|
66.2 |
% |
|
|
22,523 |
|
|
|
11.5 |
% |
Total
|
|
$ |
1,553,515 |
|
|
|
44.5 |
% |
|
$ |
1,463,255 |
|
|
|
46.0 |
% |
|
$ |
90,260 |
|
|
|
6.2 |
% |
The increase in gross profit dollars
was primarily attributable to the outdoor/fitness and aviation segments where
revenue growth and consistent margins contributed. Gross profit
margin percentage for the Company overall decreased 150 basis points as a result
of the automotive/mobile segment decline of 310 basis points offset to some
extent by strong gross margins in our other three segments. The
automotive/mobile segment is by nature a lower-margin business and the Company
has begun to see the impacts expected on gross margin due to falling prices and
a product mix shift toward lower end PNDs. Management believes that
the trend to lower gross margins for this segment will continue due to ongoing
price declines and further product mix shift toward lower margin
products. Outdoor/fitness gross margin has increased due to a newer
suite of products. A product mix favoring the high margin G1000 in
the aviation segment resulted in favorable gross margins for the aviation
segment in 2008. Marine gross margin remained relatively stable
and within historic ranges.
Selling,
General and Administrative Expenses
|
|
52-weeks
ended December 27, 2008
|
|
|
52-weeks
ended December 29, 2007
|
|
|
|
|
|
|
|
|
|
Selling, General &
|
|
|
|
|
|
Selling, General &
|
|
|
|
|
|
Year over Year
|
|
|
|
Admin. Expenses
|
|
|
% of Revenues
|
|
|
Admin. Expenses
|
|
|
% of Revenues
|
|
|
$ Change
|
|
|
% Change
|
|
Outdoor/Fitness
|
|
$ |
60,732 |
|
|
|
14.2 |
% |
|
$ |
41,119 |
|
|
|
12.1 |
% |
|
$ |
19,613 |
|
|
|
47.7 |
% |
Marine
|
|
|
32,068 |
|
|
|
15.7 |
% |
|
|
25,914 |
|
|
|
12.7 |
% |
|
|
6,154 |
|
|
|
23.7 |
% |
Automotive/Mobile
|
|
|
367,880 |
|
|
|
14.5 |
% |
|
|
305,065 |
|
|
|
13.0 |
% |
|
|
62,815 |
|
|
|
20.6 |
% |
Aviation
|
|
|
24,709 |
|
|
|
7.6 |
% |
|
|
24,400 |
|
|
|
8.3 |
% |
|
|
309 |
|
|
|
1.3 |
% |
Total
|
|
$ |
485,389 |
|
|
|
13.9 |
% |
|
$ |
396,498 |
|
|
|
12.5 |
% |
|
$ |
88,891 |
|
|
|
22.4 |
% |
The increase in selling, general and
administrative expense was driven primarily by costs associated with the
European distributors acquired in 2007 and 2008, increased staffing to support
our growth and bad debt expense. Selling, general and
administrative expenses excluding advertising increased by $87.7 million in 2008
due to the acquired European distributors, information technology, call center
operations, and other administrative areas to support the growth of our
businesses, as well as bad debt expense due to the bankruptcy of Circuit City.
We expect selling, general and administrative expenses excluding advertising to
be flat in 2009. Further bankruptcies among our customer base or
inability to pay timely, could result in increased bad debt expense in
2009. Advertising expenses increased by $1.2 million on a
year-over-year basis as we reduced activities during the second half of the year
due to moderating growth associated with the macroeconomic
pressures. Management expects to continue to reduce advertising costs
in 2009 to better match anticipated demand and to support operating
margins.
Research
and Development Expense
|
|
52-weeks ended December 27, 2008
|
|
|
52-weeks ended December 29, 2007
|
|
|
|
|
|
|
Research &
|
|
|
|
|
|
Research &
|
|
|
|
|
|
Year over Year
|
|
|
|
Development
|
|
|
% of Revenues
|
|
|
Development
|
|
|
% of Revenues
|
|
|
$ Change
|
|
|
% Change
|
|
Outdoor/Fitness
|
|
$ |
25,419 |
|
|
|
5.9 |
% |
|
$ |
23,302 |
|
|
|
6.9 |
% |
|
$ |
2,117 |
|
|
|
9.1 |
% |
Marine
|
|
|
19,374 |
|
|
|
9.5 |
% |
|
|
16,879 |
|
|
|
8.3 |
% |
|
|
2,495 |
|
|
|
14.8 |
% |
Automotive/Mobile
|
|
|
85,610 |
|
|
|
3.4 |
% |
|
|
59,390 |
|
|
|
2.5 |
% |
|
|
26,220 |
|
|
|
44.1 |
% |
Aviation
|
|
|
75,706 |
|
|
|
23.4 |
% |
|
|
59,835 |
|
|
|
20.3 |
% |
|
|
15,871 |
|
|
|
26.5 |
% |
Total
|
|
$ |
206,109 |
|
|
|
5.9 |
% |
|
$ |
159,406 |
|
|
|
5.0 |
% |
|
$ |
46,703 |
|
|
|
29.3 |
% |
The increase in research and
development expense dollars was due to ongoing development activities for new
products, the addition of 350 new engineering personnel to our staff during the
period, and an increase in engineering program costs in 2008 as a result of our
continued emphasis on product innovation. 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 10%-15% during fiscal 2009 on an absolute
dollar basis due to the anticipated introduction of a strong portfolio of new
products slated for fiscal 2009. 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)
|
|
52-weeks ended
|
|
|
52-weeks ended
|
|
|
|
December 27, 2008
|
|
|
December 29, 2007
|
|
Interest
Income
|
|
$ |
35,535 |
|
|
$ |
41,995 |
|
Foreign
Currency Exchange
|
|
$ |
(35,286 |
) |
|
$ |
22,964 |
|
Gain
on sale of equity securities
|
|
$ |
50,884 |
|
|
$ |
5,101 |
|
Other
|
|
$ |
1,216 |
|
|
$ |
862 |
|
Total
|
|
$ |
52,349 |
|
|
$ |
70,922 |
|
Other
income (expense) principally consists of interest income, interest expense and
foreign currency exchange gains and losses. Other income (expense)
was lower in fiscal 2008 relative to fiscal 2007, with the majority of this
difference caused by a large foreign currency loss in 2008. Interest
income for fiscal 2008 decreased due to lower interest rates and a decline in
our cash and marketable securities balances during the year.
Foreign
currency gains and losses for the Company are primarily tied to movements by the
Taiwan Dollar , the Euro, and the British Pound Sterling. The
U.S. Dollar remains the functional currency of Garmin (Europe)
Ltd. The Euro is the functional currency of all other European
subsidiaries excluding Garmin Danmark and Garmin Sweden. As these
entities have grown, Euro currency moves generated material gains and
losses. Additionally, Euro-based inter-company transactions in
Garmin Ltd. can also generate currency gains and losses. The Canadian
dollar, Danish Krone, Swedish Krona and Australian Dollar are the functional
currency of Dynastream Innovations, Inc., Garmin Danmark, Garmin Sweden, and
Garmin Australasia respectively; due to these entities’ relative size, currency
moves are not expected to have a material impact on the Company’s financial
statements.
The $35.3
million currency loss in 2008 was related to the strengthening of the U.S.
Dollar offset by a gain associated with the sales and tender of our Tele Atlas
N.V. shares. During 2008, the Taiwan Dollar weakened 1.6% in
comparison to the U.S. Dollar, resulting in a $20.8 million gain. The
Euro weakened 4.1% and the British Pound Sterling weakened 26.1% relative to the
U.S. Dollar in 2008 which resulted in a $77.3 million loss. The relative
weakness of the Taiwan Dollar and Euro/British Pound Sterling have offsetting
impacts due to the use of the Taiwan Dollar for manufacturing costs while the
Euro and British Pound Sterling transactions relate to revenue. Offsetting this
net loss was a realized gain of $21.5 million due to the strengthening of the
Euro between the date of purchase of the Tele Atlas N.V. shares in October 2007
to the dates of tender in February, March, and June 2008. Other net
currency losses and the timing of transactions created the remaining loss of
$0.3 million.
The
majority of the $23.0 million currency gain in fiscal 2007 was due to the
weakening of the U.S. Dollar compared to the Euro and the British Pound
Sterling. During fiscal 2007, the Taiwan Dollar strengthened
relative to the U.S. Dollar, resulting in a $2.5 million
loss. The British Pound Sterling and the Euro strengthened 2%
and 11.4% respectively, relative to the U.S. Dollar during fiscal 2007, which
resulted in a $25.6 million gain. Other net currency gains and
the timing of transactions created the remaining loss of $0.1
million.
Other
income of $50.9 million in 2008 was primarily generated from the sale of our
equity interest in Tele Atlas N.V. which we acquired in 2007 in connection with
our announced intent to make a cash offer for all outstanding shares, which was
subsequently abandoned.
Income
Tax Provision
Our
earnings before taxes fell 6.5% when compared to 2007, yet our income tax
expense increased by $58.2 million, to $181.5 million, for fiscal year 2008 from
$123.3 million for fiscal year 2007, due to a higher effective tax
rate. The effective tax rate was 19.9% for fiscal 2008 compared to
12.6% for fiscal 2007. The increase in tax rate is due to a change in
tax law related to the repatriation of earnings from our Taiwan subsidiary and
the unfavorable mix of taxable income among the tax jurisdictions in which the
Company operates.
Net
Income
As a
result of the various factors noted above, net income decreased 14% to $732.8
million for fiscal year 2008 compared to $855.0 million for fiscal year
2007.
Comparison
of Fiscal Years Ended December 27, 2007 and December 30, 2006
Net
Sales
|
|
Fiscal year ended December 29, 2007
|
|
|
Fiscal year ended December 30, 2006
|
|
|
Year over Year
|
|
|
|
Net Sales
|
|
|
% of Revenues
|
|
|
Net Sales
|
|
|
% of Revenues
|
|
|
$ Change
|
|
|
% Change
|
|
Outdoor/Fitness
|
|
$ |
339,741 |
|
|
|
10.7 |
% |
|
$ |
285,362 |
|
|
|
16.1 |
% |
|
$ |
54,379 |
|
|
|
19.1 |
% |
Marine
|
|
|
203,399 |
|
|
|
6.4 |
% |
|
|
166,639 |
|
|
|
9.4 |
% |
|
|
36,760 |
|
|
|
22.1 |
% |
Automotive/Mobile
|
|
|
2,342,184 |
|
|
|
73.6 |
% |
|
|
1,089,093 |
|
|
|
61.4 |
% |
|
|
1,253,091 |
|
|
|
115.1 |
% |
Aviation
|
|
|
294,995 |
|
|
|
9.3 |
% |
|
|
232,906 |
|
|
|
13.1 |
% |
|
|
62,089 |
|
|
|
26.7 |
% |
Total
|
|
$ |
3,180,319 |
|
|
|
100.0 |
% |
|
$ |
1,774,000 |
|
|
|
100.0 |
% |
|
$ |
1,406,319 |
|
|
|
79.3 |
% |
The increase in total net sales during
fiscal 2007 was primarily due to the introduction of over 60 new products and
overall demand for our automotive products. The aviation, marine, and
outdoor/fitness segments also experienced solid growth in
2007. Total units sold increased 128% to 12.3 million in 2007
from 5.4 million in 2006.
The increase in net sales to consumers
was primarily due to the introduction of many new automotive, outdoor/fitness,
and marine products, strong demand for our automotive products, and solid demand
for our aviation, marine, and outdoor/fitness products. It is
management’s belief that the continued demand for the Company’s automotive
products is due to overall increased consumer awareness of the capabilities and
applications of GPS, particularly as those capabilities pertain to automobile
navigation. Additionally, the expansion of the GPS market in general,
as well as enhanced feature sets in our products specifically, has added to our
growth. Innovative new product offerings, enhanced cartography, rich
feature sets, and products featuring high sensitivity GPS capabilities increased
sales of our marine and outdoor fitness segments. The increase in
aviation sales for fiscal 2007 was primarily due to increased sales from panel
mount products sold into the OEM (original equipment manufacturers) and retrofit
markets. Sales of the G1000 integrated glass cockpit were the primary reason for
increased OEM sales in 2006. While Temporary Flight Restrictions
(TFR's) continue to impact general aviation, the flying community is adapting to
these changes and returning to the skies in greater numbers.
Gross
Profit
|
|
Fiscal year ended December 29, 2007
|
|
|
Fiscal year ended December 30, 2006
|
|
|
Year over Year
|
|
|
|
Gross Profit
|
|
|
% of Revenues
|
|
|
Gross Profit
|
|
|
% of Revenues
|
|
|
$ Change
|
|
|
% Change
|
|
Outdoor/Fitness
|
|
$ |
184,655 |
|
|
|
54.4 |
% |
|
$ |
163,638 |
|
|
|
57.3 |
% |
|
$ |
21,017 |
|
|
|
12.8 |
% |
Marine
|
|
|
110,169 |
|
|
|
54.2 |
% |
|
|
92,952 |
|
|
|
55.8 |
% |
|
|
17,217 |
|
|
|
18.5 |
% |
Automotive/Mobile
|
|
|
973,205 |
|
|
|
41.6 |
% |
|
|
475,191 |
|
|
|
43.6 |
% |
|
|
498,014 |
|
|
|
104.8 |
% |
Aviation
|
|
|
195,226 |
|
|
|
66.2 |
% |
|
|
150,605 |
|
|
|
64.7 |
% |
|
|
44,621 |
|
|
|
29.6 |
% |
Total
|
|
$ |
1,463,255 |
|
|
|
46.0 |
% |
|
$ |
882,386 |
|
|
|
49.7 |
% |
|
$ |
580,869 |
|
|
|
65.8 |
% |
The increase in gross profit dollars
was primarily attributable to the introduction of over 60 new products and
strong demand for our automotive and outdoor/fitness products. The
reduction in gross margin percentage was primarily due to the strong growth
experienced in our lower-margin automotive/mobile product line, offset to some
extent by strong gross margins in our other three segments. Notably
gross margin in our automotive/mobile segment did not fall as much as
anticipated due to volume discounts on certain components, less price
competition than anticipated, and new “premium” feature-rich products with
higher selling prices and margins. The rise in aviation gross margin
was primarily due to a shift in product mix within our OEM and retrofit
products. The decline in gross margin in the outdoor/fitness and
marine segments was primarily due to a shift in product mix.
Selling,
General and Administrative Expenses
|
|
Fiscal year ended December 29, 2007
|
|
|
Fiscal year ended December 30, 2006
|
|
|
|
|
|
|
|
|
|
Selling, General &
|
|
|
|
|
|
Selling, General &
|
|
|
|
|
|
Year over Year
|
|
|
|
Admin. Expenses
|
|
|
% of Revenues
|
|
|
Admin. Expenses
|
|
|
% of Revenues
|
|
|
$ Change
|
|
|
% Change
|
|
Outdoor/Fitness
|
|
$ |
41,119 |
|
|
|
12.1 |
% |
|
$ |
30,176 |
|
|
|
10.6 |
% |
|
$ |
10,943 |
|
|
|
36.3 |
% |
Marine
|
|
|
25,914 |
|
|
|
12.7 |
% |
|
|
19,307 |
|
|
|
11.6 |
% |
|
|
6,607 |
|
|
|
34.2 |
% |
Automotive/Mobile
|
|
|
305,065 |
|
|
|
13.0 |
% |
|
|
145,113 |
|
|
|
13.3 |
% |
|
|
159,952 |
|
|
|
110.2 |
% |
Aviation
|
|
|
24,400 |
|
|
|
8.3 |
% |
|
|
19,917 |
|
|
|
8.6 |
% |
|
|
4,483 |
|
|
|
22.5 |
% |
Total
|
|
$ |
396,498 |
|
|
|
12.5 |
% |
|
$ |
214,513 |
|
|
|
12.1 |
% |
|
$ |
181,985 |
|
|
|
84.8 |
% |
The increase in expense was primarily
attributable to increases in employment generally across the organization,
significantly increased advertising costs (up 80%) associated primarily with
mass-market advertising to increase brand awareness and promote our automotive
products, increased information technology staffing and support costs, increased
staffing in our sales and marketing group to increase focus on specific target
markets, and additional staffing in our customer call center.
Research
and Development Expenses
|
|
Fiscal year ended December 29, 2007
|
|
|
Fiscal year ended December 30, 2006
|
|
|
|
|
|
|
|
|
|
Research &
|
|
|
|
|
|
Research &
|
|
|
|
|
|
Year over Year
|
|
|
|
Development
|
|
|
% of Revenues
|
|
|
Development
|
|
|
% of Revenues
|
|
|
$ Change
|
|
|
% Change
|
|
Outdoor/Fitness
|
|
$ |
23,302 |
|
|
|
6.9 |
% |
|
$ |
16,697 |
|
|
|
5.9 |
% |
|
$ |
6,605 |
|
|
|
39.6 |
% |
Marine
|
|
|
16,879 |
|
|
|
8.3 |
% |
|
|
13,121 |
|
|
|
7.9 |
% |
|
|
3,758 |
|
|
|
28.6 |
% |
Automotive/Mobile
|
|
|
59,390 |
|
|
|
2.5 |
% |
|
|
37,125 |
|
|
|
3.4 |
% |
|
|
22,265 |
|
|
|
60.0 |
% |
Aviation
|
|
|
59,835 |
|
|
|
20.3 |
% |
|
|
46,371 |
|
|
|
19.9 |
% |
|
|
13,464 |
|
|
|
29.0 |
% |
Total
|
|
$ |
159,406 |
|
|
|
5.0 |
% |
|
$ |
113,314 |
|
|
|
6.4 |
% |
|
$ |
46,092 |
|
|
|
40.7 |
% |
The increase in research and
development expense was primarily attributable to the addition of over 400
associates to our research and development team during fiscal 2007. A
key strategic initiative for future growth and success of Garmin is continuous
innovation, development and introduction of new products, which was facilitated
by these additions to research and development staff.
Other
Income (Expense)
|
|
Fiscal year ended
|
|
|
Fiscal year ended
|
|
|
|
December 29, 2007
|
|
|
December 30, 2006
|
|
Interest income
|
|
$ |
41,995 |
|
|
$ |
35,897 |
|
Interest
expense
|
|
|
(207 |
) |
|
|
(41 |
) |
Foreign
currency gain
|
|
|
22,964 |
|
|
|
596 |
|
Gain
on sale of equity securities
|
|
|
5,101 |
|
|
|
3,852 |
|
Other
|
|
|
1,069 |
|
|
|
(309 |
) |
Total
|
|
$ |
70,922 |
|
|
$ |
39,995 |
|
Other
income (expense) principally consists of interest income, interest expense and
foreign currency exchange gains and losses. Other income (expense)
was higher in fiscal 2007 relative to fiscal 2006, with the majority of this
difference caused by increased interest income and a large foreign currency gain
in 2007. Interest income for fiscal 2007 increased due to higher
interest rates and larger cash and marketable securities balances during the
year, increasing the returns on the Company’s cash and cash
equivalents.
Foreign
currency gains and losses for the Company in 2007 were primarily tied to
movements by the Taiwan Dollar, the Euro, and the British Pound
Sterling. The U.S. Dollar remains the functional currency of
Garmin (Europe) Ltd. The Euro Dollar is the functional currency of
Garmin France, Garmin Deutschland, Garmin Iberia, and Garmin
Italia. As these entities grow, Euro currency moves will generate
material gains and losses. Additionally, Euro-based
inter-company transactions between Garmin Ltd. and its subsidiaries can also
generate currency gains and losses. The Canadian dollar is the
functional currency of Dynastream Innovations, Inc.; due to this entity’s
relative size, its currency moves do not have a material impact on the Company’s
financial statements.
The
majority of the $23.0 million currency gain in fiscal 2007 was due to the
weakening of the U.S. Dollar compared to the Euro and the British Pound
Sterling. During fiscal 2007, the Taiwan Dollar weakened
relative to the U.S. Dollar, resulting in a $2.5 million
loss. The British Pound Sterling and the Euro strengthened 2%
and 11.4% respectively, relative to the U.S. Dollar during fiscal 2007, which
resulted in a $25.6 million gain. Other net currency gains and
the timing of transactions created the remaining loss of $0.1
million.
Foreign
currency gains and losses for the Company in 2006 were primarily tied to
movements by the Taiwan Dollar and the British Pound Sterling relative to the
U.S. Dollar. The U.S. dollar weakened when compared to the
Taiwan Dollar during fiscal 2006, creating a $3.0 million loss, which was offset
almost entirely by a $4.5 million gain as a result of strengthening in the U.S.
Dollar relative to the British Pound Sterling. Other net
currency gains and the timing of transactions created the remaining loss of $0.9
million.
Income
Tax Provision
Income
tax expense increased by $42.9 million, to $123.3 million, for fiscal year 2007
from $80.4 million for fiscal year 2006, due to our higher taxable
income. The effective tax rate was 12.6% for fiscal 2007 versus 13.5%
for fiscal 2006. The decrease in tax rate is due to additional tax
benefits received from Taiwan as a result of our continued capital investment in
our manufacturing facilities in Taiwan, tax credits resulting from our decision
to repatriate certain of our Taiwan earnings to our parent company, and the
increased contribution to our income from lower tax jurisdictions during 2007
relative to 2006. This lower effective tax rate resulted in a
decrease in the ratio of income tax as a percentage of revenue of approximately
0.7% from fiscal 2006 to fiscal 2007.
Net
Income
As a
result of the various factors noted above, net income increased 66% to $855.0
million for fiscal year 2007 compared to $514.1 million for fiscal year
2006.
Liquidity
and Capital Resources
Net cash
generated by operations was $862.2 million, $682.1 million, and $361.9 million
for fiscal years 2008, 2007 and 2006, respectively. We experienced
reductions in both accounts receivable and inventories that contributed to cash
generated by operations in 2008. Accounts payable also decreased
representing a use of cash. We are focused on reducing accounts
receivable days outstanding as we negotiate shorter payment terms with our
customers. With regard to inventory, 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 do plan to further reduce inventory levels in
2009 in response to slowing consumer demand.
Capital expenditures in 2008 totaled
$119.6 million, a decrease of $37.2 million from fiscal 2007. This
amount in 2008 reflects the build-out of additional manufacturing lines in
Lin-Kou, Taiwan, completion of our expanded North American distribution facility
and maintenance activities. Capital expenditures in 2007 totaled
$156.8 million, an increase of $63.9 million from fiscal
2006. This amount in 2007 reflects the purchase and build-out
of an additional manufacturing facility in Lin-Kou, Taiwan, continued expansion
of research and development facilities in our Taiwan facilities, as well as
ordinary capital expenditures for fiscal 2007. Capital expenditures
in 2006 totaled $92.9 million, an increase of $65.8 million from fiscal
2005. This amount in 2006 reflects the purchase and renovation
of an additional manufacturing facility in Jhongli, Taiwan, the purchase of a
new European headquarters in the United Kingdom, as well as ordinary capital
expenditures for fiscal 2006.
We have budgeted approximately $60
million of capital expenditures during fiscal 2009 to include normal ongoing
capital expenditures, as well as completion of the aviation manufacturing
expansion in Olathe, Kansas.
In addition to capital expenditures,
2008 cash flow used in investing related to the purchase of European
distributors for a total of $60.1 million, the net sale of $130.7 million of
fixed income securities associated with the investment of our on-hand cash
balances and the purchase of $7.0 million of intangible assets. The
net sale of fixed income securities was primarily related to $239.3 million of
cash generated from the tender of our shares of Tele Atlas
N.V. Garmin’s average return on its investments during fiscal 2008
was approximately 3.4%. In addition to capital
expenditures, 2007 cash flow used in investing related to the purchase of
Digital Cyclone, Inc., Garmin France SAS, Garmin Deutschland GmbH, Garmin Iberia
S.A., Garmin Italia S.p.A., and the assets of Nautamatic Marine Systems, Inc.
for a total of $128.8 million, the net sale of $112.8 million of fixed income
securities associated with the investment of our on-hand cash balances and the
purchase of $2.9 million of intangible assets. The $112.8 million net
sale of fixed income securities includes the purchase of $188.2 million of Tele
Atlas N.V. outstanding shares in connection with our announced intent to make a
cash offer for all outstanding shares which was subsequently
abandoned. Garmin’s average return on its investments during fiscal
2007 was approximately 4.3%. In addition to capital
expenditures, in 2006 cash flow used in investing related to the purchase of
Dynastream Innovations, Inc. for $36.5 million, the net purchase of $93.8
million of fixed income securities associated with the investment of our on-hand
cash balances and the purchase of $3.1 million of intangible
assets. Garmin’s average return on its investments during fiscal 2006
was approximately 4.7%. 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.
Net cash
used by financing activities during 2008 was $808.1 million resulting from the
use of $671.8 million for the stock repurchases and $150.3 million for the
payment of a dividend offset by $14.0 million from the issuance of common shares
related to the exercise of employee stock options and stock appreciation rights
and the related tax benefit. The $671.8 million of share repurchases
represents 17.1 million common shares. Refer to “Item
5. Market for the Company’s Common Shares, Related Shareholder
Matters and Issuer Purchases of Equity Securities” for additional discussion
regarding the 2008 share repurchase programs. Cash flow related to
financing activities resulted in a net use of cash in 2007 of $136.1
million. During 2007, Garmin repurchased 57,235 of its common
shares under the 3,000,000-share stock repurchase program that was approved by
the Board of Directors on August 3, 2006 and expired on December 31,
2007. Sources and uses in financing activities during 2007
related primarily to a use for the payment of a dividend ($162.5 million) and
the purchase of stock ($7.8 million), and a source of cash from the issuance of
common shares related to the exercise of employee stock options and stock
appreciation rights the related tax benefit, and the employee stock purchase
plan ($34.4 million). Cash flow related to financing activities
resulted in a net use of cash in 2006 of $132.7 million. During
2006, Garmin repurchased 1,155,300 shares of its common shares under the
3,000,000-share stock repurchase program that was approved by the Board of
Directors on August 3, 2006 and expired on December 31,
2007. Sources and uses in financing activities during 2006
related primarily to uses for the payment of a dividend ($107.9 million) and
stock repurchase ($50.5 million), and a source of cash from the issuance of
common shares related to the exercise of employee stock options and stock
appreciation rights and the related tax benefit, and the employee stock purchase
plan ($25.7 million).
Cash
dividends paid to shareholders were $150.3 million, $162.5 million, and $107.9
million during fiscal years 2008, 2007, and 2006, respectively.
We currently use cash flow from
operations to fund our capital expenditures, to support our working capital
requirements and to repurchase shares. We expect that future cash
requirements will principally be for capital expenditures, working capital,
repurchase of shares, and payment of dividends declared.
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 commitments of Garmin, as of
December 27, 2008, 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
|
|
$ |
44,048 |
|
|
$ |
7,957 |
|
|
$ |
13,789 |
|
|
$ |
11,061 |
|
|
$ |
11,241 |
|
Purchase
Obligations
|
|
|
51,471 |
|
|
|
47,966 |
|
|
|
2,265 |
|
|
|
1,240 |
|
|
|
0 |
|
Total
|
|
$ |
95,519 |
|
|
$ |
55,923 |
|
|
$ |
16,054 |
|
|
$ |
12,301 |
|
|
$ |
11,241 |
|
Operating
leases describes lease obligations associated with Garmin facilities located in
the U.S., Taiwan, Europe, and Canada. Purchase obligations are
the aggregate of those purchase orders that were outstanding on December 27,
2008; these obligations are created and then paid off within 3 months during the
normal course of our manufacturing business.
We may be
required to make significant cash outlays related to unrecognized tax
benefits. However, due to the uncertainty of the timing of future
cash flows associated with our unrecognized tax benefits, we are unable to make
reasonably reliable estimates of the period of cash settlement, if any, with the
respective taxing authorities. Accordingly, unrecognized tax benefits
of $214.4 million as of December 27, 2008, have been excluded from the
contractual obligations table above. For further information related
to unrecognized tax benefits, see Note 2, “Income Taxes”, to the consolidated
financial statements included in this Report.
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 have experienced
significant foreign currency gains and losses due to the strengthening and
weakening of the U.S. dollar. The potential of volatile foreign
exchange rate fluctuations in the future could have a significant effect on our
results of operations.
The currencies that create a majority
of the Company’s exchange rate exposure are the Taiwan Dollar, the Euro, and
British Pound Sterling. Garmin Corporation, headquartered 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. In
2008, the Taiwan Dollar weakened 1.6% relative to the U.S. Dollar which resulted
in a cumulative translation adjustment of negative $15.3 million at the end of
fiscal 2008 and a net foreign currency gain of $20.8 million at Garmin
Corporation during 2008.
All
European subsidiaries excluding Garmin (Europe) Ltd., Garmin Danmark and Garmin
Sweden use the Euro as the functional currency. The functional
currency of our largest European subsidiary, Garmin (Europe) Ltd. remains the
U.S. dollar, and as some transactions occurred in British Pounds Sterling or
Euros, foreign currency gains or losses have been realized historically related
to the movements of those currencies relative to the U.S.
dollar. The Company believes that gains and losses will become
more material in the future as our European presence
grows. In 2008, the Euro weakened 4.1% relative to the
U.S. dollar and the British Pound Sterling weakened 26.1% relative to the U.S.
dollar. These currency moves resulted in a foreign currency
loss of $77.3 million in Garmin Ltd. and our European
subsidiaries. Offsetting this net loss was a realized gain of $21.5
million due to the strengthening of the Euro between the date of purchase of the
Tele Atlas N.V. shares in October 2007 to the dates of sale and tender in
February, March, and June 2008. The net result of these currency
moves combined with other losses of $0.3 million, and the timing of transactions
during the year for a net loss of $35.3 million for the Company.
Interest
Rate Risk
We have
no outstanding long-term debt as of December 27, 2008. We,
therefore, have no meaningful debt-related interest rate risk.
We are
exposed to interest rate risk in connection with our investments in marketable
securities. As interest rates change, the unrealized gains and
losses associated with those securities will fluctuate accordingly. A
hypothetical change of 10% in interest rates would not have a material effect on
such unrealized gains or losses. At December 27, 2008, cumulative
unrealized losses on those securities were $22.2 million.
Item
8. Financial Statements and Supplementary Data
CONSOLIDATED
FINANCIAL STATEMENTS
Garmin
Ltd. and Subsidiaries
Years
Ended December 27, 2008, December 29, 2007 and December 30, 2006
Contents
Report
of Ernst & Young LLP, Independent Registered Public Accounting
Firm
|
|
53
|
Consolidated
Balance Sheets at December 27, 2008 and December 29, 2007
|
|
54
|
Consolidated
Statements of Income for the Years Ended December 27, 2008, December 29,
2007 and December 30, 2006
|
|
55
|
Consolidated
Statements of Stockholders’ Equity for the Years Ended December 27, 2008,
December 29, 2007 and December 30, 2006
|
|
56
|
Consolidated
Statements of Cash Flows for the Years December 27, 2008, December 29,
2007 and December 30, 2006
|
|
57
|
Notes
to Consolidated Financial Statements
|
|
59
|
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 27, 2008 and December 29, 2007 and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the three years in the period ended December 27,
2008. 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 27, 2008 and December 29, 2007 and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 27, 2008, in conformity with U.S. generally accepted
accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), Garmin Ltd.’s internal control over financial
reporting as of December 27, 2008, 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 24, 2009 expressed an
unqualified opinion thereon.
Kansas
City, Missouri
February
24, 2009
Garmin
Ltd. And Subsidiaries
Consolidated
Balance Sheets
(In
thousands, except share information)
|
|
December 27,
|
|
|
December 29,
|
|
|
|
2008
|
|
|
2007
|
|
Assets
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
696,335 |
|
|
$ |
707,689 |
|
Marketable
securities ( Note
3)
|
|
|
12,886 |
|
|
|
37,551 |
|
Accounts
receivable, less allowance for doubtful accounts of $42,409 in
2008 and $10,246 in 2007
|
|
|
741,321 |
|
|
|
952,513 |
|
Inventories,
net
|
|
|
425,312 |
|
|
|
505,467 |
|
Deferred
income taxes (Note
6)
|
|
|
49,825 |
|
|
|
107,376 |
|
Prepaid
expenses and other current assets
|
|
|
58,746 |
|
|
|
22,179 |
|
Total
current assets
|
|
|
1,984,425 |
|
|
|
2,332,775 |
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net (Note 2)
|
|
|
|
|
|
|
|
|
Land
and improvements
|
|
|
88,272 |
|
|
|
79,445 |
|
Building
and improvements
|
|
|
244,804 |
|
|
|
204,083 |
|
Office
furniture and equipment
|
|
|
72,665 |
|
|
|
48,656 |
|
Manufacturing
equipment
|
|
|
113,956 |
|
|
|
86,037 |
|
Engineering
equipment
|
|
|
59,009 |
|
|
|
51,670 |
|
Vehicles
|
|
|
14,698 |
|
|
|
13,104 |
|
|
|
|
593,404 |
|
|
|
482,995 |
|
Accumulated
depreciation
|
|
|
(148,152 |
) |
|
|
(108,848 |
) |
|
|
|
445,252 |
|
|
|
374,147 |
|
|
|
|
|
|
|
|
|
|
Restricted
cash (Note
4)
|
|
|
1,941 |
|
|
|
1,554 |
|
Marketable
securities (Note
3)
|
|
|
262,009 |
|
|
|
386,954 |
|
License
agreements, net
|
|
|
16,013 |
|
|
|
14,672 |
|
Other
intangible assets
|
|
|
214,941 |
|
|
|
181,358 |
|
Total
assets
|
|
$ |
2,924,581 |
|
|
$ |
3,291,460 |
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders' Equity
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
160,094 |
|
|
$ |
341,053 |
|
Salaries
and benefits payable
|
|
|
34,241 |
|
|
|
31,696 |
|
Accrued
warranty costs
|
|
|
87,408 |
|
|
|
71,636 |
|
Accrued
sales program costs
|
|
|
90,337 |
|
|
|
142,360 |
|
Other
accrued expenses
|
|
|
87,021 |
|
|
|
138,243 |
|
Income
taxes payable
|
|
|
20,075 |
|
|
|
76,895 |
|
Total
current liabilities
|
|
|
479,176 |
|
|
|
801,883 |
|
|
|
|
|
|
|
|
|
|
Deferred
income taxes (Note
6)
|
|
|
4,070 |
|
|
|
11,935 |
|
Non-current
taxes
|
|
|
214,366 |
|
|
|
126,593 |
|
Other
liabilities
|
|
|
1,115 |
|
|
|
435 |
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity:
|
|
|
|
|
|
|
|
|
Common
stock, $0.005 par value, 1,000,000,000 shares authorized
(Notes 9, 10 and
11):
|
|
|
|
|
|
|
|
|
Issued
and outstanding shares - 200,363,000 in 2008, and 216,980,000 in
2007
|
|
|
1,002 |
|
|
|
1,086 |
|
Additional
paid-in capital
|
|
|
- |
|
|
|
132,264 |
|
Retained
earnings (Note
2)
|
|
|
2,262,503 |
|
|
|
2,171,134 |
|
Accumulated
other comprehensive gain/(loss)
|
|
|
(37,651 |
) |
|
|
46,130 |
|
Total
stockholders' equity
|
|
|
2,225,854 |
|
|
|
2,350,614 |
|
Total
liabilities and stockholders' equity
|
|
$ |
2,924,581 |
|
|
$ |
3,291,460 |
|
See
accompanying notes.
Garmin
Ltd. And Subsidiaries
Consolidated
Statements of Income
(In
Thousands, Except Per Share Information)
|
|
Fiscal Year Ended
|
|
|
|
December 27,
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
3,494,077 |
|
|
$ |
3,180,319 |
|
|
$ |
1,774,000 |
|
Cost of
goods sold
|
|
|
1,940,562 |
|
|
|
1,717,064 |
|
|
|
891,614 |
|
Gross
profit
|
|
|
1,553,515 |
|
|
|
1,463,255 |
|
|
|
882,386 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
|
|
485,389 |
|
|
|
396,498 |
|
|
|
214,513 |
|
Research
and development expense
|
|
|
206,109 |
|
|
|
159,406 |
|
|
|
113,314 |
|
|
|
|
691,498 |
|
|
|
555,904 |
|
|
|
327,827 |
|
Operating
income
|
|
|
862,017 |
|
|
|
907,351 |
|
|
|
554,559 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
35,535 |
|
|
|
41,995 |
|
|
|
35,897 |
|
Interest
expense
|
|
|
(607 |
) |
|
|
(207 |
) |
|
|
(41 |
) |
Foreign
currency
|
|
|
(35,286 |
) |
|
|
22,964 |
|
|
|
596 |
|
Gain
on sale of equity securities
|
|
|
50,884 |
|
|
|
5,101 |
|
|
|
3,852 |
|
Other
|
|
|
1,823 |
|
|
|
1,069 |
|
|
|
(309 |
) |
|
|
|
52,349 |
|
|
|
70,922 |
|
|
|
39,995 |
|
Income
before income taxes
|
|
|
914,366 |
|
|
|
978,273 |
|
|
|
594,554 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax provision (benefit): (Note
6)
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
136,252 |
|
|
|
179,355 |
|
|
|
113,226 |
|
Deferred
|
|
|
45,266 |
|
|
|
(56,093 |
) |
|
|
(32,795 |
) |
|
|
|
181,518 |
|
|
|
123,262 |
|
|
|
80,431 |
|
Net
income
|
|
$ |
732,848 |
|
|
$ |
855,011 |
|
|
$ |
514,123 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
net income per share
(Note 10)
|
|
$ |
3.51 |
|
|
$ |
3.95 |
|
|
$ |
2.38 |
|
Diluted
net income per share
(Note 10)
|
|
$ |
3.48 |
|
|
$ |
3.89 |
|
|
$ |
2.35 |
|
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 31, 2005
|
|
|
216,134 |
|
|
$ |
1,081 |
|
|
$ |
96,242 |
|
|
$ |
1,072,454 |
|
|
$ |
(12,513 |
) |
|
$ |
1,157,264 |
|
Net
income
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
514,123 |
|
|
|
– |
|
|
|
514,123 |
|
Translation
adjustment
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
7,525 |
|
|
|
7,525 |
|
Adjustment
related to unrealized gains (losses) on available-for-sale securities, net
of income tax effects of $355
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(287 |
) |
|
|
(287 |
) |
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
521,361 |
|
Dividends
paid
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(107,923 |
) |
|
|
– |
|
|
|
(107,923 |
) |
Tax
benefit from exercise of employee stock options
|
|
|
– |
|
|
|
– |
|
|
|
9,660 |
|
|
|
– |
|
|
|
– |
|
|
|
9,660 |
|
Issuance
of common stock from exercise of stock options
|
|
|
994 |
|
|
|
6 |
|
|
|
12,499 |
|
|
|
– |
|
|
|
– |
|
|
|
12,505 |
|
Stock
appreciation rights
|
|
|
– |
|
|
|
– |
|
|
|
11,913 |
|
|
|
– |
|
|
|
– |
|
|
|
11,913 |
|
Purchase
and retirement of common stock
|
|
|
(1,155 |
) |
|
|
(6 |
) |
|
|
(50,444 |
) |
|
|
– |
|
|
|
– |
|
|
|
(50,450 |
) |
Issuance
of common stock through stock purchase plan
|
|
|
125 |
|
|
|
1 |
|
|
|
3,568 |
|
|
|
– |
|
|
|
– |
|
|
|
3,569 |
|
Balance
at December 30, 2006
|
|
|
216,098 |
|
|
$ |
1,082 |
|
|
$ |
83,438 |
|
|
$ |
1,478,654 |
|
|
$ |
(5,275 |
) |
|
$ |
1,557,899 |
|
Net
income
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
855,011 |
|
|
|
– |
|
|
|
855,011 |
|
Translation
adjustment
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
992 |
|
|
|
992 |
|
Adjustment
related to unrealized gains (losses) on available-for-sale securities, net
of income tax effects of $31
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
50,413 |
|
|
|
50,413 |
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
906,415 |
|
Dividends
paid
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(162,531 |
) |
|
|
– |
|
|
|
(162,531 |
) |
Tax
benefit from exercise of employee stock options
|
|
|
– |
|
|
|
– |
|
|
|
17,434 |
|
|
|
– |
|
|
|
– |
|
|
|
17,434 |
|
Issuance
of common stock from exercise of stock options
|
|
|
819 |
|
|
|
4 |
|
|
|
11,278 |
|
|
|
– |
|
|
|
– |
|
|
|
11,282 |
|
Stock
appreciation rights
|
|
|
– |
|
|
|
– |
|
|
|
22,164 |
|
|
|
– |
|
|
|
– |
|
|
|
22,164 |
|
Purchase
and retirement of common stock
|
|
|
(57 |
) |
|
|
– |
|
|
|
(7,780 |
) |
|
|
– |
|
|
|
– |
|
|
|
(7,780 |
) |
Issuance
of common stock through stock purchase plan
|
|
|
120 |
|
|
|
– |
|
|
|
5,730 |
|
|
|
– |
|
|
|
– |
|
|
|
5,730 |
|
Balance
at December 29, 2007
|
|
|
216,980 |
|
|
$ |
1,086 |
|
|
$ |
132,264 |
|
|
$ |
2,171,134 |
|
|
$ |
46,130 |
|
|
$ |
2,350,614 |
|
Net
income
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
732,848 |
|
|
|
– |
|
|
|
732,848 |
|
Translation
adjustment
|
|
|
– |
|
|
|
– |
|
|
|
(3,053 |
) |
|
|
(1,595 |
) |
|
|
(14,991 |
) |
|
|
(19,639 |
) |
Adjustment
related to unrealized gains (losses) on available-for-sale securities, net
of income tax effects of $122
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(68,790 |
) |
|
|
(68,790 |
) |
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
644,419 |
|
Dividends
paid
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(150,251 |
) |
|
|
– |
|
|
|
(150,251 |
) |
Tax
benefit from exercise of employee stock options
|
|
|
– |
|
|
|
– |
|
|
|
2,143 |
|
|
|
– |
|
|
|
– |
|
|
|
2,143 |
|
Issuance
of common stock from exercise of stock options
|
|
|
158 |
|
|
|
2 |
|
|
|
2,873 |
|
|
|
– |
|
|
|
– |
|
|
|
2,875 |
|
Stock
appreciation rights
|
|
|
– |
|
|
|
– |
|
|
|
38,872 |
|
|
|
– |
|
|
|
– |
|
|
|
38,872 |
|
Purchase
and retirement of common stock
|
|
|
(17,138 |
) |
|
|
(86 |
) |
|
|
(182,128 |
) |
|
|
(489,633 |
) |
|
|
– |
|
|
|
(671,847 |
) |
Issuance
of common stock through stock purchase plan
|
|
|
363 |
|
|
|
– |
|
|
|
9,029 |
|
|
|
– |
|
|
|
– |
|
|
|
9,029 |
|
Balance
at December 27, 2008
|
|
|
200,363 |
|
|
$ |
1,002 |
|
|
$ |
– |
|
|
$ |
2,262,503 |
|
|
$ |
(37,651 |
) |
|
$ |
2,225,854 |
|
See
accompanying notes.
Garmin
Ltd. And Subsidiaries
Consolidated
Statements of Cash Flows
(In
Thousands)
|
|
Fiscal Year Ended
|
|
|
|
December 27,
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Operating
Activities:
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
732,848 |
|
|
$ |
855,011 |
|
|
$ |
514,123 |
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
46,910 |
|
|
|
35,524 |
|
|
|
21,535 |
|
Amortization
|
|
|
31,507 |
|
|
|
28,513 |
|
|
|
22,940 |
|
Loss on sale of property and equipment
|
|
|
124 |
|
|
|
560 |
|
|
|
67 |
|
Provision for doubtful accounts
|
|
|
32,355 |
|
|
|
3,617 |
|
|
|
955 |
|
Provision for obsolete and slow-moving inventories
|
|
|
24,461 |
|
|
|
34,975 |
|
|
|
23,245 |
|
Unrealized foreign currency losses/(gains)
|
|
|
15,887 |
|
|
|
(926 |
) |
|
|
(344 |
) |
Deferred income taxes
|
|
|
50,887 |
|
|
|
(57,843 |
) |
|
|
(35,060 |
) |
Stock compensation
|
|
|
38,872 |
|
|
|
22,164 |
|
|
|
11,913 |
|
Realized gains on marketable securities
|
|
|
(50,884 |
) |
|
|
(5,101 |
) |
|
|
(3,852 |
) |
Changes in operating assets and liabilities, net of
acquisition:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
206,101 |
|
|
|
(477,108 |
) |
|
|
(230,111 |
) |
Inventories
|
|
|
83,035 |
|
|
|
(224,180 |
) |
|
|
(92,708 |
) |
Prepaid expenses and other current assets
|
|
|
(4,356 |
) |
|
|
6,213 |
|
|
|
(4,357 |
) |
Purchase of licenses
|
|
|
(15,289 |
) |
|
|
(23,569 |
) |
|
|
(2,950 |
) |
Accounts payable
|
|
|
(236,287 |
) |
|
|
174,781 |
|
|
|
10,187 |
|
Accrued expenses
|
|
|
(3,827 |
) |
|
|
253,909 |
|
|
|
97,167 |
|
Income taxes payable
|
|
|
(90,180 |
) |
|
|
55,548 |
|
|
|
29,105 |
|
Net
cash provided by operating activities
|
|
|
862,164 |
|
|
|
682,088 |
|
|
|
361,855 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
of property and equipment
|
|
|
(119,623 |
) |
|
|
(156,777 |
) |
|
|
(92,906 |
) |
Proceeds
from sale of property and equipment
|
|
|
19 |
|
|
|
5 |
|
|
|
76 |
|
Purchase
of intangible assets
|
|
|
(6,971 |
) |
|
|
(2,918 |
) |
|
|
(3,115 |
) |
Purchase
of marketable securities
|
|
|
(373,580 |
) |
|
|
(1,672,041 |
) |
|
|
(453,085 |
) |
Redemption
of marketable securities
|
|
|
504,324 |
|
|
|
1,784,816 |
|
|
|
359,313 |
|
Acquistions,
net of cash acquired
|
|
|
(60,131 |
) |
|
|
(128,751 |
) |
|
|
(36,499 |
) |
Change
in restricted cash
|
|
|
(387 |
) |
|
|
(29 |
) |
|
|
(169 |
) |
Net
cash used in investing activities
|
|
|
(56,349 |
) |
|
|
(175,695 |
) |
|
|
(226,385 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
|
|
|
(150,251 |
) |
|
|
(162,531 |
) |
|
|
(107,923 |
) |
Payment
on long-term debt
|
|
|
- |
|
|
|
(248 |
) |
|
|
(11 |
) |
Proceeds
from issuance of common stock through stock purchase plan
|
|
|
9,029 |
|
|
|
5,730 |
|
|
|
3,569 |
|
Proceeds
from issuance of common stock from exercise of stock
options
|
|
|
2,875 |
|
|
|
11,278 |
|
|
|
12,505 |
|
Tax
benefit related to stock option exercise
|
|
|
2,143 |
|
|
|
17,434 |
|
|
|
9,660 |
|
Purchase
of common stock
|
|
|
(671,847 |
) |
|
|
(7,780 |
) |
|
|
(50,450 |
) |
Net
cash used in financing activities
|
|
|
(808,051 |
) |
|
|
(136,117 |
) |
|
|
(132,650 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash and cash equivalents
|
|
|
(9,118 |
) |
|
|
92 |
|
|
|
149 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase/(decrease) in cash and cash equivalents
|
|
|
(11,354 |
) |
|
|
370,368 |
|
|
|
2,969 |
|
Cash
and cash equivalents at beginning of year
|
|
|
707,689 |
|
|
|
337,321 |
|
|
|
334,352 |
|
Cash
and cash equivalents at end of year
|
|
$ |
696,335 |
|
|
$ |
707,689 |
|
|
$ |
337,321 |
|
See
accompanying notes.
|
|
Fiscal Year Ended
|
|
|
|
December 27,
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures of cash flow information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid during the year for income taxes
|
|
$ |
134,421 |
|
|
$ |
54,963 |
|
|
$ |
67,044 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
received during the year from income tax refunds
|
|
$ |
177 |
|
|
$ |
779 |
|
|
$ |
537 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid during the year for interest
|
|
$ |
607 |
|
|
$ |
207 |
|
|
$ |
41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of non-cash investing and financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in marketable securities related to unrealized appreciation
(depreciation)
|
|
$ |
(68,668 |
) |
|
$ |
51,210 |
|
|
$ |
68 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions,
net of cash acquired
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value of assets acquired
|
|
$ |
136,952 |
|
|
$ |
256,609 |
|
|
$ |
42,616 |
|
Liabilities
assumed
|
|
|
(60,336 |
) |
|
|
(106,654 |
) |
|
|
(5,997 |
) |
Less
cash acquired
|
|
|
(16,485 |
) |
|
|
(21,204 |
) |
|
|
(120 |
) |
Net
cash paid
|
|
$ |
60,131 |
|
|
$ |
128,751 |
|
|
$ |
36,499 |
|
See
accompanying notes.
GARMIN
LTD. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(In
Thousands, Except Share and Per Share Information)
December
27, 2008 and December 29, 2007
1.
Description of the Business
Garmin
Ltd. and subsidiaries (together, the “Company”) manufacture, market, and
distribute Global Positioning System-enabled products and other related
products. Garmin Corporation (GC), wholly-owned by Garmin Ltd.,
is primarily responsible for the manufacturing and distribution of the Company’s
products to Garmin International, Inc. (GII), a wholly-owned subsidiary of GC,
and Garmin (Europe) Limited (GEL), a wholly-owned subsidiary of Garmin Ltd.,
and, to a lesser extent, new product development and sales and marketing of the
Company’s products in Asia and the Far East. GII is primarily
responsible for sales and marketing of the Company’s products in many
international markets and in the United States as well as research and new
product development. GII also manufactures certain products for the Company’s
aviation segment. GEL is responsible for sales and marketing of
the Company’s products, principally within the European
market. In addition, the Company acquired ten European
distributors in 2007 and 2008 which distribute Garmin product throughout
Europe.
2. Summary
of Significant Accounting Policies
Basis
of Presentation and Principles of Consolidation
The
accompanying consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United
States. 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 2008, 2007
and 2006 included 52 weeks.
Foreign
Currency Translation
GC
utilizes the 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 (USD), 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 ($15,306) and ($315) as of December 27, 2008 and December 29,
2007, 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/(losses) of ($35,286), $22,964, and $596 for the years ended December 27,
2008, December 29, 2007, and December 30, 2006, respectively. The
loss in fiscal 2008 was the result of the strengthening of the USD offset by a
gain associated with the sale and tender of our Tele Atlas N.V.
shares. The gain in fiscal 2007 was the result of the strengthening
of the Euro and British Pound Sterling relative to the United States dollar
experienced by our European companies. The gain in fiscal 2006
was the result of nearly off-setting currency moves in the Taiwan Dollar and the
Euro and British Pound Sterling.
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 10.
Cash
and Cash Equivalents
For
purposes of reporting cash flows, cash and cash equivalents include cash on
hand, operating accounts, money market funds, and securities with maturities of
three months or less when purchased. The carrying amount of cash and cash
equivalents approximates fair value, given the short maturity of those
instruments.
Trade
Accounts Receivable
We sell
our products to retailers, wholesalers, and other customers and extend credit
based on our evaluation of the customer’s financial condition. Potential
losses on receivables are dependent on each individual customer’s financial
condition. We carry our trade accounts receivable at net realizable value.
Typically, our accounts receivable are collected within 60 days and do not bear
interest. We monitor our exposure to losses on receivables and maintain
allowances for potential losses or adjustments. We determine these allowances by
(1) evaluating the aging of our receivables; and (2) reviewing our high-risk
customers. Past due receivable balances are written off when our internal
collection efforts have been unsuccessful in collecting the amount
due.
Inventories
Inventories
are stated at the lower of cost or market. Cost is determined using the
weighted-average method (which approximates the first-in, first-out (FIFO)
method) by GC and the FIFO method by GII, GAT and
GEL. Inventories consisted of the following:
|
|
December 27,
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Raw
materials
|
|
$ |
151,132 |
|
|
$ |
130,056 |
|
|
$ |
85,040 |
|
Work-in-process
|
|
|
28,759 |
|
|
|
57,622 |
|
|
|
42,450 |
|
Finished
goods
|
|
|
268,625 |
|
|
|
348,975 |
|
|
|
163,286 |
|
Inventory
reserves
|
|
|
(23,204 |
) |
|
|
(31,186 |
) |
|
|
(19,768 |
) |
|
|
$ |
425,312 |
|
|
$ |
505,467 |
|
|
$ |
271,008 |
|
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.
SFAS
No. 142, Goodwill and
Other Intangible Assets, requires that goodwill and intangible assets
with indefinite useful lives should not be amortized but rather be tested for
impairment at least annually or sooner whenever events or changes in
circumstances indicate that they may be impaired. The Company did not recognize
any goodwill or intangible asset impairment charges in 2008, 2007, or 2006. The
Company established reporting units based on its current reporting structure.
For purposes of testing goodwill for impairment, goodwill has been allocated to
these reporting units to the extent it relates to each reporting unit.
SFAS No. 142 also requires that intangible assets with definite lives be
amortized over their estimated useful lives and reviewed for impairment in
accordance with SFAS No. 144. The Company is currently amortizing its
acquired intangible assets with definite lives over periods ranging from 3 to 10
years.
Dividends
On June
6, 2008 the Board of Directors declared a dividend of $0.75 per share to be paid
on December 15, 2008 to shareholders of record on December 1,
2008. The Company paid out a dividend in the amount of
$150,251. The dividend has been reported as a reduction of retained
earnings.
On August
1, 2007 the Board of Directors declared a dividend of $0.75 per share to be paid
on September 14, 2007 to shareholders of record on August 15,
2007. The Company paid out a dividend in the amount of
$162,531. The dividend has been reported as a reduction of retained
earnings.
On April
26, 2006 the Board of Directors declared a post-split dividend of $0.50 per
share to be paid on December 15, 2006 to shareholders of record on December 1,
2006. The Company paid out a dividend in the amount of
$107,923. The dividend has been reported as a reduction of retained
earnings.
Approximately
$186,383 and $159,210 of retained earnings are indefinitely restricted from
distribution to stockholders pursuant to the laws of Taiwan at December 27, 2008
and December 29, 2007, respectively.
Intangible
Assets
At
December 27, 2008 and December 29, 2007, the Company had patents, license
agreements, customer related intangibles and other identifiable finite-lived
intangible assets recorded at a cost of $152,104 and $159,503,
respectively. The Company’s excess purchase cost over fair value of
net assets acquired (goodwill) was $127,429 at December 27, 2008 and $98,494 at
December 29, 2007.
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 $48,579 and $59,967 at December 27, 2008 and December 29, 2007
respectively. Amortization expense was $30,874, $26,942, and $21,147,
for the years ended December 27, 2008, December 29, 2007, and December 30, 2006,
respectively. In the next five years, the amortization expense is
estimated to be $22,859, $22,285, $20,408, $10,465, and $3,965,
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 27, 2008. See Note 3. Available-for-sale securities are
stated at fair value, with the unrealized gains and losses, net of tax, reported
in other comprehensive gain/(loss). At December 27, 2008 and December
29, 2007, cumulative unrealized gains/(losses) of ($22,345) and $46,445,
respectively, were reported accumulated in other comprehensive gain/(loss), net
of related taxes.
The
amortized cost of debt securities classified as available-for-sale is adjusted
for amortization of premiums and accretion of discounts to maturity, or in the
case of mortgage-backed securities, over the estimated life of the security.
Such amortization is included in interest income from investments. Realized
gains and losses, and declines in value judged to be other-than-temporary are
included in other income. The cost of securities sold is based on the specific
identification method.
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 of $153,170 and $149,071 at December 27, 2008 and December 29, 2007,
respectively, have not been accrued by the Company for the unremitted earnings
of several of its subsidiaries because such earnings are intended to be
reinvested in the subsidiaries indefinitely.
The Company adopted the provisions of
FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48),
on December 31, 2006, the beginning of fiscal year 2007. As a result of
the implementation of FIN 48, the Company has not recognized a material increase
or decrease in the liability for unrecognized tax benefits. The total
amount of unrecognized tax benefits as of December 27, 2008 was $214.4 million
including interest of $11.1 million. A reconciliation of the beginning and
ending amount of unrecognized tax benefits for years ending December 27, 2008
and December 29, 2007 is as follows (in $millions):
|
|
December 27,
|
|
|
December 29,
|
|
|
|
2008
|
|
|
2007
|
|
Balance
at beginning of year
|
|
$ |
126.6 |
|
|
$ |
70.5 |
|
Additions
based on tax positions related to prior years
|
|
|
14.2 |
|
|
|
10.0 |
|
Reductions
based on tax positions related to prior years
|
|
|
(4.6 |
) |
|
|
(8.0 |
) |
Additions
based on tax positions related to current period
|
|
|
83.8 |
|
|
|
73.0 |
|
Reductions
based on tax positions related to current period
|
|
|
- |
|
|
|
- |
|
Reductions
related to settelements with tax authorities
|
|
|
- |
|
|
|
(7.6 |
) |
Expiration
of statute of limitations
|
|
|
(5.6 |
) |
|
|
(11.3 |
) |
Balance at December 27, 2008
|
|
$ |
214.4 |
|
|
$ |
126.6 |
|
The
December 27, 2008 balance of $214.4 million of unrecognized tax benefits, if
recognized, would reduce the effective tax rate. None of the unrecognized
tax benefits are due to uncertainty in the timing of
deductibility.
FIN 48
requires unrecognized tax benefits to be classified as non-current liabilities,
except for the portion that is expected to be paid within one year of the
balance sheet date. Prior to FIN 48 adoption, unrecognized tax benefits
were classified as current liabilities, but the entire $214.4 million is
required to be classified as non-current at December 27, 2008.
Interest
expense and penalties, if any, accrued on the unrecognized tax benefits are
reflected in income tax expense. At December 27, 2008 and December 29,
2007, the Company had accrued approximately $11.1 million and $4.7 million
respectively for interest. Interest expense included in income
tax expense for the years ending December 27, 2008 and December 29, 2007 are
$6.4 million and $1.4 million, respectively. The Company had no
amounts accrued for penalties as the nature of the unrecognized tax benefits, if
recognized, would not warrant the imposition of penalties.
The
Company files income tax returns in the U.S. federal jurisdiction, and various
state, local and foreign jurisdictions. The Company is no longer subject
to U.S. federal, state, or local tax examinations by tax authorities for years
prior to 2005. The Company also considers 2003 and 2004 US federal returns
to have been effectively settled due to the completion of audit examination by
the Internal Revenue Service. The Company is no longer subject to Taiwan
income tax examinations by tax authorities for years prior to 2003. The
Company is no longer subject to United Kingdom tax examinations by tax
authorities for years prior to 2007.
The Company believes that it is
reasonably possible that approximately $20 million of its reserves for certain
unrecognized tax benefits will decrease within the next 12 months as the result
of the expiration of statute of limitations. This potential decrease
in unrecognized tax benefits would impact the Company’s effective tax rate
within the next 12 months.
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 typically have been
within management’s expectations. Credit risk has become more
significant in fiscal 2008 due to the macro economic conditions but the Company
is managing credit terms and balances accordingly. 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 when persuasive evidence of a sales arrangement
exists, delivery has occurred, the sales price is fixed or determinable, and
collection is reasonably assured. Product is considered delivered to the
customer once it has been shipped and title and risk of loss have been
transferred. For most of the Company’s product sales, these criteria are met at
the time the product is delivered to the customer’s location. The Company
assumes no remaining significant obligations associated with the product sale
other than that related to its warranty programs discussed below.
Shipping
and Handling Costs
Shipping
and handling costs are included in cost of goods sold in the accompanying
consolidated financial statements.
Product
Warranty
The
Company provides for estimated warranty costs at the time of sale. The warranty
period is generally for one year from date of shipment with the exception of
certain aviation products for which the warranty period is two years from the
date of installation and certain marine products for which the warranty period
is three years from the date of shipment.
Sales
Programs
The
Company provides certain monthly and quarterly incentives for its dealers and
distributors 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 dealers
and distributors are regularly reviewed and recorded as accrued expenses on a
monthly basis. In addition, the Company provides dealers and
distributors with product discounts termed “price protection” to assist these
customers in clearing older products from their inventories in advance of new
product releases. Each price protection discount is tied to a specific product
and can be applied to all customers who have purchased the price protected
product or a special price protection discount may be agreed to on an individual
customer basis. These rebates, incentives, and price protections are
recorded as reductions to net sales in the accompanying consolidated statements
of income in the period the Company has sold the product.
Advertising
Costs
The
Company expenses advertising costs as incurred. Advertising expense amounted to
approximately $208,177, $206,948, and $114,749 for the years ended December 27,
2008, December 29, 2007, and December 30, 2006, 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 $206,109, $159,406, and $113,314 for the years ended December
27, 2008, December 29, 2007, and December 30, 2006, respectively.
Customer
Service and Technical Support
Customer
service and technical support costs are included on the selling, general and
administrative 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. See Note 9.
The
Company adopted SFAS No. 123(R) using the modified prospective method.
Under the modified prospective method, compensation costs are recognized
beginning with the effective date based on the requirements of SFAS
No. 123(R) for all share-based payments granted after the effective date
and based on the requirements of SFAS No. 123 for all awards granted to
employees prior to the effective date of SFAS No. 123(R) that remain
unvested on the effective date. The Company’s consolidated financial statements
as of and for fiscal years ended December 27, 2008, December 29, 2007, and
December 30, 2006 reflect 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.
As
stock-based compensation expenses recognized in the accompanying consolidated
statement of income for the fiscal years ended December 27, 2008, December 29,
2007 and December 30, 2006 are based on awards ultimately expected to vest, they
have been reduced for estimated forfeitures. SFAS No. 123(R) requires
forfeitures to be estimated at the time of grant and revised, if necessary, in
subsequent periods if actual forfeitures differ from those estimates.
Forfeitures were estimated based on historical experience and management’s
estimates.
Recently
Issued Accounting Pronouncements
In
September 2006, the FASB issued Statement of Financial Accounting Standards No.
157, Fair Value Measurements (“SFAS No. 157”). SFAS No. 157 establishes a
framework for measuring fair value in GAAP, and expands disclosures about fair
value measurements. SFAS No. 157 applies under other accounting pronouncements
that require or permit fair value measurements. This statement is effective for
fiscal years beginning after November 15, 2007, and interim periods within
those fiscal years. The Company adopted SFAS No. 157 effective December 30,
2007 and the adoption did not have a material impact on the Company’s financial
condition or operating results.
SFAS No.
157 defines fair value as the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market
participants at the measurement date (exit price). SFAS No. 157
classifies the inputs used to measure fair value into the following
hierarchy:
Level
1
|
Unadjusted
quoted prices in active markets for identical assets or
liability
|
|
|
Level
2
|
Unadjusted
quoted prices in active markets for similar assets or liabilities,
or
|
|
Unadjusted
quoted prices for identical or similar assets
|
|
|
Level
3
|
Unobservable
inputs for the asset or
liability
|
The Company endeavors to utilize the
best available information in measuring fair value. Financial assets
and liabilities are classified in their entirety based on the lowest level of
input that is significant to the fair value measurement.
For fair
value measurements using significant unobservable inputs, an independent third
party provided the valuation. The inputs used in the valuations used the
following methodology. The collateral composition was used to estimate
Weighted Average Life based on historical and projected payment
information. Cash flows were projected for the issuing trusts,
taking into account underlying loan principal, bonds outstanding, and payout
formulas. Taking this information into account, assumptions were made as
to the yields likely to be required, based upon then current market conditions
for comparable or similar term Asset Based Securities as well as other fixed
income securities.
Assets
and liabilities measured at estimated fair value on a recurring basis are
summarized below:
|
|
Fair Value Measurements as
|
|
|
|
of December 27, 2008
|
|
Description
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available
for-sale securites
|
|
$ |
203,592 |
|
|
$ |
203,592 |
|
|
|
- |
|
|
|
- |
|
Failed
Auction rate securities
|
|
|
71,303 |
|
|
|
- |
|
|
|
- |
|
|
|
71,303 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
274,895 |
|
|
$ |
203,592 |
|
|
$ |
- |
|
|
$ |
71,303 |
|
For
assets and liabilities measured at fair value on a recurring basis using
significant unobservable inputs (Level 3) during the period, SFAS No. 157
requires a reconciliation of the beginning and ending balances, separately for
each major category of assets. The reconciliation is as
follows:
|
|
Fair Value Measurements Using
|
|
|
|
Significant Unobservable Inputs (Level 3)
|
|
|
|
13-Weeks Ended
|
|
|
52-Weeks Ended
|
|
|
|
Dec 27, 2008
|
|
|
Dec 27, 2008
|
|
|
|
|
|
|
|
|
Beginning
balance of auction rate securities
|
|
$ |
83,140 |
|
|
$ |
- |
|
Total
unrealized losses included in other comprehensive income
|
|
|
(11,837 |
) |
|
|
(21,547 |
) |
Purchases
in and/or out of Level 3
|
|
|
- |
|
|
|
92,850 |
|
Transfers
in and/or out of Level 3
|
|
|
- |
|
|
|
- |
|
Ending
balance of auction rate securities
|
|
$ |
71,303 |
|
|
$ |
71,303 |
|
In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities – including an amendment of FASB Statement No.
115. SFAS No. 159 allows companies to choose to measure
eligible financial instruments and certain other items at fair value that are
not required to be measured at fair value. SFAS No. 159 requires that
unrealized gains and losses on items for which the fair value option has been
elected be reported in earnings at each reporting date. SFAS No. 159
is effective for fiscal years beginning after November 15, 2007. The
Company adopted SFAS No. 159 effective December 30, 2007 and the adoption did
not have a material impact on the Company’s financial condition or operating
results.
In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements (“SFAS 160”). SFAS 160 outlines the accounting
and reporting for ownership interests in subsidiaries held by parties other than
the parent, the amount of consolidated net income attributable to the parent and
to the noncontrolling interest, changes in a parent’s ownership interest, and
the valuation of retained noncontrolling equity investments when a subsidiary is
deconsolidated. SFAS 160 also establishes disclosure requirements that clearly
identify and distinguish between the interests of the parent and the interests
of the noncontrolling owners. The statement is effective for fiscal years
beginning on or after December 15, 2008. We do not expect the adoption of
SFAS No. 160 to have a material impact on our financial reporting and
disclosure.
In
December 2007, the FASB issued SFAS No. 141 (revised 2007), Business
Combinations (“SFAS 141R”). This standard establishes principles and
requirements for how an acquirer recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed, any
non-controlling interest in the acquiree and the goodwill acquired. SFAS 141R
also establishes disclosure requirements that will enable users to evaluate the
nature and financial effects of the business combination. The statement is
effective for financial statements issued for fiscal years beginning on or after
December 15, 2008 and interim periods within those fiscal years. The
Company will determine the impact of adopting SFAS 141R on its consolidated
financial statements should applicable transactions occur in the
future.
In March
2008, the FASB issued Statement of Financial Accounting Standards No. 161,
Disclosures about Derivative Instruments and Hedging Activities (“SFAS No.
161”). This statement will require holders of derivative instruments
to provide qualitative disclosures about objectives and strategies for using
derivatives, quantitative disclosures about fair value amounts of gains and
losses from derivative instruments, and disclosures about credit-risk-related
contingent features in derivative agreements. This statement is
effective for interim and annual periods beginning after November 15,
2008. The company is not currently the holder of any derivative
instruments; thus, currently adoption of this statement would not have any
effect on the Company’s results of operations, financial condition, or cash
flows.
3.
Marketable Securities
The
following is a summary of the Company’s marketable securities classified as
available-for-sale securities at December 27, 2008:
|
|
|
|
|
|
|
|
Estimated Fair
|
|
|
|
|
|
|
Gross Unrealized
|
|
|
Value (Net
|
|
|
|
Amortized Cost
|
|
|
Gains/(Losses)
|
|
|
Carrying Amount)
|
|
Mortgage-backed
securities
|
|
$ |
137,854 |
|
|
$ |
1,044 |
|
|
$ |
138,898 |
|
Auction
rate securities
|
|
|
92,850 |
|
|
|
(21,547 |
) |
|
|
71,303 |
|
Obligations
of states and political subdivisions
|
|
|
40,336 |
|
|
|
948 |
|
|
|
41,284 |
|
U.S.
corporate bonds
|
|
|
16,545 |
|
|
|
(2,507 |
) |
|
|
14,038 |
|
Other
|
|
|
9,502 |
|
|
|
(130 |
) |
|
|
9,372 |
|
Total
|
|
$ |
297,087 |
|
|
$ |
(22,192 |
) |
|
$ |
274,895 |
|
The
following is a summary of the Company’s marketable securities classified as
available-for-sale securities at December 29, 2007:
|
|
|
|
|
|
|
|
Estimated Fair
|
|
|
|
|
|
|
Gross Unrealized
|
|
|
Value (Net
|
|
|
|
Amortized Cost
|
|
|
Gains/(Losses)
|
|
|
Carrying Amount)
|
|
Mortgage-backed
securities
|
|
$ |
99,749 |
|
|
$ |
(68 |
) |
|
$ |
99,681 |
|
Obligations
of states and political subdivisions
|
|
|
59,497 |
|
|
|
158 |
|
|
|
59,655 |
|
U.S.
corporate bonds
|
|
|
8,479 |
|
|
|
(219 |
) |
|
|
8,260 |
|
Equity
securities
|
|
|
188,971 |
|
|
|
46,688 |
|
|
|
235,659 |
|
Other
|
|
|
21,333 |
|
|
|
(83 |
) |
|
|
21,250 |
|
Total
|
|
$ |
378,029 |
|
|
$ |
46,476 |
|
|
$ |
424,505 |
|
The
unrealized losses on the Company’s investment in 2008 were caused primarily by
changes in interest rates, specifically, widening credit spreads. The
Company’s investment policy requires investments to be rated A or better with
the objective of minimizing the potential risk of principal
loss. Therefore, the Company considers the declines to be temporary
in nature. Fair values were determined for each individual security
in the investment portfolio. When evaluating the investments for
other-than-temporary impairment, the Company review factors such as the length
of time and extent to which fair value has been below cost basis, the financial
condition of the issuer, and the Company’s ability and intent to hold the
investment for a period of time, which may be sufficient for anticipated
recovery in market value. During 2008, the Company did not record any
material impairment charges on its outstanding securities. As of
December 27, 2008, the Company does not consider any of its investment to be
other-than-temporarily impaired.
At
December 29, 2007, the Company’s equity securities were primarily comprised of
an investment in Tele Atlas N.V. acquired by Garmin in 2007 in connection with
its announced intent to make a cash offer for all outstanding shares of Tele
Atlas N.V., which was subsequently abandoned. This resulted in a $46.7 million
unrealized gain in fiscal 2007. In fiscal 2008, the Company realized
a gain of $72.4 million following the sales and tender of the shares of Tele
Atlas N.V. including foreign currency gain due to the strengthening of the
Euro. As a result of this transaction, the unrealized gain on equity
securities in fiscal 2007 was eliminated.
The
amortized cost and estimated fair value of marketable securities at December 27,
2008, 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 (2009)
|
|
$ |
14,535 |
|
|
$ |
14,675 |
|
Due
after one year through five years (2010-2014)
|
|
|
29,906 |
|
|
|
28,110 |
|
Due
after five years through ten years (2015-2019)
|
|
|
66,515 |
|
|
|
67,037 |
|
Due
after ten years (2020 and thereafter)
|
|
|
186,131 |
|
|
|
165,073 |
|
|
|
$ |
297,087 |
|
|
$ |
274,895 |
|
The
effective maturity date differs from the stated maturity
dates. The securities are classified in the balance sheet at
their stated maturity dates.
In
accordance with FASB Staff Position FAS 115-1 and FAS 124-1, The Meaning of Other-Than-Temporary
Impairment and Its Application to Certain Investments, the Company
evaluated investments that were in an unrealized loss position to determine the
length of time that individual securities have been in a continuous loss
position. No investments that were in an unrealized loss position
have been held for greater than twelve months.
4.
Commitments and Contingencies
Rental
expense related to office, equipment, warehouse space and real estate amounted
to $8,419, $5,546, and $3,119 for the years ended December 27, 2008, December
29, 2007, and December 30, 2006, respectively.
Future
minimum lease payments are as follows:
Year
|
|
Amount
|
|
|
|
|
|
2009
|
|
$ |
7,957 |
|
2010
|
|
|
7,393 |
|
2011
|
|
|
6,396 |
|
2012
|
|
|
5,607 |
|
2013
|
|
|
5,454 |
|
Thereafter
|
|
|
11,241 |
|
Certain
cash balances of GEL are held as collateral by a bank securing payment of the
United Kingdom value-added tax requirements. The total amount of
restricted cash balances were $1,941 and $1,554 at December 27, 2008
and December 29, 2007, respectively.
In the
normal course of business, the Company and its subsidiaries are parties to
various legal claims, actions, and complaints, including matters involving
patent infringement and other intellectual property claims and various other
risks. It is not possible to predict with certainty whether or not
the Company and its subsidiaries will ultimately be successful in any of these
legal matters, or if not, what the impact might be. However,
the Company’s management does not expect that the results in any of these legal
proceedings will have a material adverse effect on the Company’s results of
operations, financial position or cash flows.
5. Employee
Benefit Plans
GII
sponsors a defined contribution employee retirement plan under which its
employees may contribute up to 50% of their annual compensation subject to
Internal Revenue Code maximum limitations and to which GII contributes a
specified percentage of each participant’s annual compensation up to certain
limits as defined in the Plan. Additionally, GEL has a defined
contribution plan under which its employees may contribute up to 7.5% of their
annual compensation. Both GII and GEL contribute an amount determined annually
at the discretion of the Board of Directors. During the years ended December 27,
2008, December 29, 2007, and December 30, 2006, expense related to these plans
of $14,927, $11,412, and $8,690, 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 27, 2008, December 29, 2007, and December 30, 2006,
were significant.
6.
Income Taxes
The
Company’s income tax provision (benefit) consists of the following:
|
|
Fiscal Year Ended
|
|
|
|
December 27,
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Federal:
|
|
|
|
|
|
|
|
|
|
Current
|
|
$ |
90,655 |
|
|
$ |
132,452 |
|
|
$ |
42,850 |
|
Deferred
|
|
|
23,639 |
|
|
|
(42,193 |
) |
|
|
(21,153 |
) |
|
|
|
114,294 |
|
|
|
90,259 |
|
|
|
21,697 |
|
State:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
1,318 |
|
|
|
12,569 |
|
|
|
4,935 |
|
Deferred
|
|
|
1,090 |
|
|
|
(2,916 |
) |
|
|
(3,922 |
) |
|
|
|
2,408 |
|
|
|
9,653 |
|
|
|
1,013 |
|
Foreign:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
44,279 |
|
|
|
34,334 |
|
|
|
65,441 |
|
Deferred
|
|
|
20,537 |
|
|
|
(10,984 |
) |
|
|
(7,720 |
) |
|
|
|
64,816 |
|
|
|
23,350 |
|
|
|
57,721 |
|
Total
|
|
$ |
181,518 |
|
|
$ |
123,262 |
|
|
$ |
80,431 |
|
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 27,
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Federal
income tax expense at
|
|
|
|
|
|
|
|
|
|
U.S.
statutory rate
|
|
$ |
332,278 |
|
|
$ |
342,396 |
|
|
$ |
208,094 |
|
State
income tax expense, net of federal tax effect
|
|
|
2,030 |
|
|
|
5,922 |
|
|
|
658 |
|
Foreign
tax rate differential
|
|
|
(233,928 |
) |
|
|
(230,243 |
) |
|
|
(112,903 |
) |
Taiwan
tax holiday benefit
|
|
|
(24,904 |
) |
|
|
(44,128 |
) |
|
|
(50,905 |
) |
Net
change in uncertain tax postions
|
|
|
87,800 |
|
|
|
56,100 |
|
|
|
37,544 |
|
Other
foreign taxes less incentives and credits
|
|
|
20,428 |
|
|
|
(117 |
) |
|
|
5,901 |
|
Other,
net
|
|
|
(2,186 |
) |
|
|
(6,668 |
) |
|
|
(7,958 |
) |
Income
tax expense
|
|
$ |
181,518 |
|
|
$ |
123,262 |
|
|
$ |
80,431 |
|
The
Company’s income before income taxes attributable to non-U.S. operations was
$823,364, $850,102, and $508,367, for the years ended December 27, 2008,
December 29, 2007, and December 30, 2006, respectively. The Taiwan tax holiday
benefits included in the table above reflect $0.12, $0.20, and $0.24 per
weighted-average common share outstanding for the years ended December 27, 2008,
December 29, 2007, and December 30, 2006, respectively. The Company
currently expects to benefit from these Taiwan tax holidays through 2013, 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 27,
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
|
|
|
Product
warranty accruals
|
|
$ |
1,696 |
|
|
$ |
18,975 |
|
|
$ |
11,259 |
|
Allowance
for doubtful accounts
|
|
|
15,098 |
|
|
|
2,430 |
|
|
|
1,327 |
|
Inventory
reserves
|
|
|
5,331 |
|
|
|
7,699 |
|
|
|
4,555 |
|
Sales
program allowances
|
|
|
14,471 |
|
|
|
42,832 |
|
|
|
12,629 |
|
Reserve
for sales returns
|
|
|
2,914 |
|
|
|
5,565 |
|
|
|
1,660 |
|
Other
accrual
|
|
|
5,411 |
|
|
|
3,911 |
|
|
|
2,424 |
|
Unrealized
intercompany profit in inventory
|
|
|
3,601 |
|
|
|
30,006 |
|
|
|
21,115 |
|
Unrealized
foreign currency loss
|
|
|
- |
|
|
|
- |
|
|
|
325 |
|
Stock
option compensation
|
|
|
20,375 |
|
|
|
8,887 |
|
|
|
3,720 |
|
Tax
credit carryforwards, net
|
|
|
36,406 |
|
|
|
15,198 |
|
|
|
30,287 |
|
Net
operating losses of subsidiaries
|
|
|
2,809 |
|
|
|
1,800 |
|
|
|
195 |
|
Other
|
|
|
5,022 |
|
|
|
4,649 |
|
|
|
4,225 |
|
Valuation
allowance: NOL, loss carryforward, tax credits
|
|
|
(34,487 |
) |
|
|
(15,491 |
) |
|
|
(28,301 |
) |
|
|
|
78,647 |
|
|
|
126,461 |
|
|
|
65,420 |
|
Deferred
tax liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
12,872 |
|
|
|
9,209 |
|
|
|
7,883 |
|
Prepaid
Expenses
|
|
|
3,031 |
|
|
|
6,498 |
|
|
|
- |
|
Unrealized
foreign currency loss
|
|
|
522 |
|
|
|
161 |
|
|
|
- |
|
Book
basis in excess of tax basis for acquired entities
|
|
|
15,936 |
|
|
|
14,867 |
|
|
|
- |
|
Unrealized
investment gain
|
|
|
153 |
|
|
|
31 |
|
|
|
278 |
|
Other
|
|
|
378 |
|
|
|
254 |
|
|
|
2,454 |
|
|
|
|
32,892 |
|
|
|
31,020 |
|
|
|
10,615 |
|
Net
deferred tax assets
|
|
$ |
45,755 |
|
|
$ |
95,441 |
|
|
$ |
54,805 |
|
At
December 27, 2008, the company had $36.4 million of tax credit carryover which
includes $31.5 million of Taiwan surtax credit with no
expiration. Additionally, the Company had $3.7 million in Taiwan
investment credit which will expire in 2012.
7. 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 27, 2008
|
|
|
December 29, 2007
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
|
Fair
|
|
|
|
Amount
|
|
|
Value
|
|
|
Amount
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
696,335 |
|
|
$ |
696,335 |
|
|
$ |
707,689 |
|
|
$ |
707,689 |
|
Restricted
cash
|
|
|
1,941 |
|
|
|
1,941 |
|
|
|
1,554 |
|
|
|
1,554 |
|
Marketable
securities
|
|
|
274,895 |
|
|
|
274,895 |
|
|
|
424,505 |
|
|
|
424,505 |
|
For
certain of the Company’s financial instruments, including accounts receivable,
accounts payable and other accrued liabilities, the carrying amounts approximate
fair value due to their short maturities.
8. Segment
Information
The Company operates within its
targeted markets through four reportable segments, those being related to
products sold into the marine, automotive/mobile, outdoor/fitness, and aviation
markets. All of the Company’s reportable segments offer products through the
Company’s network of independent dealers and distributors as well as through
OEM’s. However, the nature of products and types of customers for the
four segments vary significantly. As such, the segments are managed separately.
The Company’s marine, automotive/mobile, and outdoor/fitness segments include
portable global positioning system (GPS) receivers and accessories sold
primarily to retail outlets. These products are produced primarily by the
Company’s subsidiary in Taiwan. The Company’s aviation products are
portable and panel mount avionics for Visual Flight Rules and Instrument Flight
Rules navigation and are sold primarily to aviation dealers and certain aircraft
manufacturers.
The
Company’s Chief Executive Officer has been identified as the Chief Operating
Decision Maker (CODM). The CODM evaluates performance and allocates resources
based on income before income taxes of each segment. Income before income
taxes represents net sales less operating expenses including certain allocated
general and administrative costs, interest income and expense, foreign currency
adjustments, and other non-operating corporate expenses. The accounting policies
of the reportable segments are the same as those described in the summary of
significant accounting policies. There are no inter-segment sales or
transfers.
The
identifiable assets associated with each reportable segment reviewed by the CODM
include accounts receivable and inventories. The Company does not report
property and equipment, intangible assets, depreciation and amortization, or
capital expenditures by segment to the CODM.
Revenues,
interest income and interest expense, income before income taxes, and
identifiable assets for each of the Company’s reportable segments are presented
below:
|
|
Fiscal Year Ended December 27, 2008
|
|
|
|
|
|
|
Outdoor/
|
|
|
|
|
|
Auto/
|
|
|
|
|
|
|
Aviation
|
|
|
Fitness
|
|
|
Marine
|
|
|
Mobile
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales to external customers
|
|
$ |
323,406 |
|
|
$ |
427,783 |
|
|
$ |
204,477 |
|
|
$ |
2,538,411 |
|
|
$ |
3,494,077 |
|
Allocated
interest income
|
|
|
957 |
|
|
|
5,006 |
|
|
|
1,867 |
|
|
|
27,705 |
|
|
|
35,535 |
|
Allocated
interest expense
|
|
|
(109 |
) |
|
|
(23 |
) |
|
|
(104 |
) |
|
|
(371 |
) |
|
|
(607 |
) |
Income
before income taxes
|
|
|
118,737 |
|
|
|
165,986 |
|
|
|
63,904 |
|
|
|
565,739 |
|
|
|
914,366 |
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
68,615 |
|
|
|
90,761 |
|
|
|
43,383 |
|
|
|
538,562 |
|
|
|
741,321 |
|
Inventories
|
|
|
39,366 |
|
|
|
52,071 |
|
|
|
24,890 |
|
|
|
308,985 |
|
|
|
425,312 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended December 29, 2007
|
|
|
|
|
|
|
|
Outdoor/
|
|
|
|
|
|
|
Auto/
|
|
|
|
|
|
|
|
Aviation
|
|
|
Fitness
|
|
|
Marine
|
|
|
Mobile
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales to external customers
|
|
$ |
294,995 |
|
|
$ |
339,741 |
|
|
$ |
203,399 |
|
|
$ |
2,342,184 |
|
|
$ |
3,180,319 |
|
Allocated
interest income
|
|
|
2,258 |
|
|
|
4,661 |
|
|
|
3,127 |
|
|
|
31,949 |
|
|
|
41,995 |
|
Allocated
interest expense
|
|
|
(3 |
) |
|
|
(92 |
) |
|
|
(10 |
) |
|
|
(102 |
) |
|
|
(207 |
) |
Income
before income taxes
|
|
|
113,407 |
|
|
|
127,804 |
|
|
|
71,920 |
|
|
|
665,142 |
|
|
|
978,273 |
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
88,352 |
|
|
|
101,753 |
|
|
|
60,918 |
|
|
|
701,490 |
|
|
|
952,513 |
|
Inventories
|
|
|
46,885 |
|
|
|
53,997 |
|
|
|
32,327 |
|
|
|
372,258 |
|
|
|
505,467 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended December 30, 2006
|
|
|
|
|
|
|
|
Outdoor/
|
|
|
|
|
|
|
Auto/
|
|
|
|
|
|
|
|
Aviation
|
|
|
Fitness
|
|
|
Marine
|
|
|
Mobile
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales to external customers
|
|
$ |
232,906 |
|
|
$ |
285,362 |
|
|
$ |
166,639 |
|
|
$ |
1,089,093 |
|
|
$ |
1,774,000 |
|
Allocated
interest income
|
|
|
1,952 |
|
|
|
5,693 |
|
|
|
3,020 |
|
|
|
25,232 |
|
|
|
35,897 |
|
Allocated
interest expense
|
|
|
49 |
|
|
|
(44 |
) |
|
|
17 |
|
|
|
(63 |
) |
|
|
(41 |
) |
Income
before income taxes
|
|
|
86,141 |
|
|
|
120,905 |
|
|
|
65,087 |
|
|
|
322,421 |
|
|
|
594,554 |
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
52,978 |
|
|
|
64,910 |
|
|
|
37,905 |
|
|
|
247,731 |
|
|
|
403,524 |
|
Inventories
|
|
|
35,580 |
|
|
|
43,594 |
|
|
|
25,457 |
|
|
|
166,377 |
|
|
|
271,008 |
|
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 27, 2008, December
29, 2007, and December 30, 2006:
|
|
North
|
|
|
|
|
|
|
|
|
|
|
|
|
America
|
|
|
Asia
|
|
|
Europe
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
27, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales to external customers
|
|
$ |
2,333,585 |
|
|
$ |
144,740 |
|
|
$ |
1,015,752 |
|
|
$ |
3,494,077 |
|
Long
lived assets
|
|
|
221,158 |
|
|
|
168,528 |
|
|
|
55,566 |
|
|
|
445,252 |
|
Net
assets
|
|
|
687,638 |
|
|
|
1,371,240 |
|
|
|
166,976 |
|
|
|
2,225,854 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
29, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales to external customers
|
|
$ |
2,066,823 |
|
|
$ |
144,155 |
|
|
$ |
969,341 |
|
|
$ |
3,180,319 |
|
Long-lived
assets
|
|
|
185,838 |
|
|
|
143,181 |
|
|
|
45,128 |
|
|
|
374,147 |
|
Net
assets
|
|
|
908,267 |
|
|
|
1,309,783 |
|
|
|
132,564 |
|
|
|
2,350,614 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales to external customers
|
|
$ |
1,093,581 |
|
|
$ |
87,048 |
|
|
$ |
593,371 |
|
|
$ |
1,774,000 |
|
Long-lived
assets
|
|
|
148,922 |
|
|
|
65,280 |
|
|
|
36,786 |
|
|
|
250,988 |
|
Net
assets
|
|
|
431,795 |
|
|
|
1,074,827 |
|
|
|
51,277 |
|
|
|
1,557,899 |
|
Best Buy,
a customer in the outdoor/fitness, marine, and auto/mobile segments, accounted
for 12.0% of the Company’s consolidated net sales in the year ended December 27,
2008.
9.
Stock Compensation Plans
Accounting
for Stock-Based Compensation
The
various Company stock compensation plans are summarized below:
2005
Equity Incentive Plan
In June
2005, the shareholders adopted an equity incentive plan (the “2005 Plan”)
providing for grants of incentive and nonqualified stock options, stock
appreciation rights (“SARs”), restricted stock units (“RSUs”) and/or performance
shares 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 2008, 2007, and 2006, the Company granted
1,454,050, 2,838,200, and 2,341,800 stock appreciation rights, respectively.
Also during 2008, 1,043,800 restricted stock units were granted which vest
evenly over a five year period and 30,000 performance shares were granted which
cliff vest in three years subject to a performance condition pertaining to
operating income growth.
2000
Equity Incentive Plan
In
October 2000, the shareholders adopted an equity incentive plan (the “2000
Plan”) providing for grants of incentive and nonqualified stock options, stock
appreciation rights (“SARs”), restricted stock units (“RSUs”) and/or performance
shares to employees of the Company and its subsidiaries, pursuant to which up to
7,000,000 common shares were available for issuance. The stock options and stock
appreciation rights vest evenly over a period of five years or as otherwise
determined by the Board of Directors or the Compensation Committee and generally
expire ten years from the date of grant, if not
exercised. During 2007, the Company granted 20,000 stock
appreciation rights and during 2006 the Company granted 64,131 nonqualified
stock options, respectively.
2000
Non-employee Directors’ Option Plan
Also in
October 2000, the stockholders adopted a stock option plan for non-employee
directors (the Directors Plan) providing for grants of options for up to 100,000
common shares. The term of each award is ten years. All awards vest evenly over
a three-year period. During 2008, 2007, and 2006, options to purchase 15,696,
5,562, and 7,630 shares, respectively, were granted under this
plan.
Stock-Based
Compensation Activity
A summary
of the Company’s stock-based compensation activity and related information under
the 2005 Equity Incentive Plan, the 2000 Equity Incentive Plan and the 2000
Non-employee Directors’ Option Plan for the years ended December 27, 2008,
December 29, 2007, and December 30, 2006 is provided below:
|
|
Weighted-Average
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
|
Exercise Price
|
|
|
Number of Shares
|
|
|
Fair Value RSUs
|
|
|
Number of Shares
|
|
|
|
|
|
|
(In
Thousands)
|
|
|
|
|
|
(In
Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2005
|
|
$
|
19.29 |
|
|
|
6,354 |
|
|
|
- |
|
|
|
- |
|
Granted
|
|
$
|
48.54 |
|
|
|
2,413 |
|
|
|
- |
|
|
|
- |
|
Exercised
|
|
$
|
12.59 |
|
|
|
(994 |
) |
|
|
- |
|
|
|
- |
|
Forfeited
|
|
$
|
28.57 |
|
|
|
(47 |
) |
|
|
- |
|
|
|
- |
|
Outstanding
at December 30, 2006
|
|
$
|
29.24 |
|
|
|
7,726 |
|
|
|
- |
|
|
|
- |
|
Granted
|
|
$
|
84.61 |
|
|
|
2,864 |
|
|
|
- |
|
|
|
- |
|
Exercised
|
|
$
|
18.29 |
|
|
|
(934 |
) |
|
|
- |
|
|
|
- |
|
Forfeited
|
|
$
|
38.11 |
|
|
|
(125 |
) |
|
|
- |
|
|
|
- |
|
Outstanding
at December 29, 2007
|
|
$
|
46.82 |
|
|
|
9,531 |
|
|
|
- |
|
|
|
- |
|
Granted
|
|
$
|
51.00 |
|
|
|
1,470 |
|
|
$
|
19.59 |
|
|
|
1,044 |
|
Exercised
|
|
$
|
22.35 |
|
|
|
(226 |
) |
|
|
- |
|
|
|
- |
|
Forfeited
|
|
$
|
53.89 |
|
|
|
(249 |
) |
|
|
- |
|
|
|
- |
|
Outstanding
at December 27, 2008
|
|
$
|
47.76 |
|
|
|
10,526 |
|
|
$
|
19.59 |
|
|
|
1,044 |
|
Exercisable
at December 27, 2008
|
|
$
|
33.27 |
|
|
|
4,656 |
|
|
|
- |
|
|
|
- |
|
Stock Options as of December 27, 2008
|
|
Exercise
|
|
Options
|
|
|
Remaining
|
|
|
Options
|
|
Price
|
|
Outstanding
|
|
|
Life (Years)
|
|
|
Exercisable
|
|
|
|
(In Thousands)
|
|
|
|
|
|
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
$7.00 -$20.00
|
|
|
2,001 |
|
|
|
4.40 |
|
|
|
1,744 |
|
$20.01 - $40.00
|
|
|
2,142 |
|
|
|
6.13 |
|
|
|
1,521 |
|
$40.01 - $60.00
|
|
|
3,626 |
|
|
|
8.38 |
|
|
|
837 |
|
$60.01 - $80.00
|
|
|
1,345 |
|
|
|
8.44 |
|
|
|
270 |
|
$80.01 - $100.00
|
|
|
7 |
|
|
|
8.81 |
|
|
|
1 |
|
$100.01 - $120.00
|
|
|
1,402 |
|
|
|
8.92 |
|
|
|
282 |
|
$120.01 - $140.00
|
|
|
3 |
|
|
|
8.78 |
|
|
|
1 |
|
|
|
|
10,526 |
|
|
|
7.25 |
|
|
|
4,656 |
|
The
weighted-average remaining contract life for options outstanding and exercisable
at December 27, 2008 is 7.25 and 5.88 years, respectively.
The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions for 2008,
2007, and 2006:
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Weighted
average fair value of options granted
|
|
$ |
18.47 |
|
|
$ |
33.81 |
|
|
$ |
20.01 |
|
Expected
volatility
|
|
|
0.3845 |
|
|
|
0.3677 |
|
|
|
0.3534 |
|
Dividend
yield
|
|
|
3.75 |
% |
|
|
0.76 |
% |
|
|
1.00 |
% |
Expected
life of options in years
|
|
|
6.0 |
|
|
|
6.0 |
|
|
|
6.3 |
|
Risk-free
interest rate
|
|
|
2 |
% |
|
|
4 |
% |
|
|
5 |
% |
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 fair
value of the RSUs was determined based on the market value at the date of
grant.
The total
fair value of awards vested during 2008, 2007, and 2006 was $35,384, $17,840,
and $9,413, respectively. The total stock based compensation expense
calculated using the Black-Scholes option valuation model in 2008, 2007, and
2006 was $38,872, $22,164, and $11,913, respectively.The aggregate intrinsic
values of options outstanding and exercisable at December 27, 2008 were $8.2
million and $8.2 million, respectively. The aggregate intrinsic value of options
exercised during the year ended December 27, 2008 was $0.6 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 $19.39 on
December 27, 2008, and the exercise price multiplied by the number of
options exercised. As of December 27, 2008, there was $141.7 million of total
unrecognized compensation cost related to unvested share-based compensation
awards granted to employees under the stock compensation 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 2008, 2007, and 2006, 362,902, 120,230, and 124,693
shares, respectively were purchased under the plan for a total purchase price of
$8,782, $5,730, and $3,569, respectively. At December 27, 2008,
approximately 663,679 shares were available for future issuance.
10. Earnings
Per Share
The
following table sets forth the computation of basic and diluted net income per
share:
|
|
Fiscal Year Ended
|
|
|
|
December 27,
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Numerator (in thousands):
|
|
|
|
|
|
|
|
|
|
Numerator
for basic and diluted
|
|
|
|
|
|
|
|
|
|
net
income per share - net income
|
|
$ |
732,848 |
|
|
$ |
855,011 |
|
|
$ |
514,123 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
for basic net income per share -
|
|
|
|
|
|
|
|
|
|
|
|
|
weighted-average
common shares
|
|
|
208,993 |
|
|
|
216,524 |
|
|
|
216,340 |
|
Effect
of dilutive securities -
|
|
|
|
|
|
|
|
|
|
|
|
|
employee
stock-based awards (note 10)
|
|
|
1,687 |
|
|
|
3,351 |
|
|
|
2,505 |
|
Denominator
for diluted net income per share -
|
|
|
|
|
|
|
|
|
|
|
|
|
weighted-average
common shares
|
|
|
210,680 |
|
|
|
219,875 |
|
|
|
218,845 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
net income per share
|
|
$ |
3.51 |
|
|
$ |
3.95 |
|
|
$ |
2.38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
net income per share
|
|
$ |
3.48 |
|
|
$ |
3.89 |
|
|
$ |
2.35 |
|
Options
to purchase 5,846,000, 886,000, and 757,000 common shares were outstanding
during 2008, 2007, and 2006 respectively, but were not included in the
computation of diluted earnings per share because the effect was
antidilutive.
11. Share
Repurchase Program
The Board
of Directors approved a share repurchase program on October 22, 2008,
authorizing the Company to purchase up to $300 million of its common shares as
market and business conditions warrant. The share repurchase
authorization expires on December 31, 2009. During fiscal 2008,
$42 million of common shares were repurchased and retired under this
plan.
The Board
of Directors approved a share repurchase program on June 6, 2008, authorizing
the Company to purchase up to 10,000,000 of its common shares as market and
business conditions warrant. The share repurchase authorization
expires on December 31, 2009. During fiscal 2008, 10,000,000
shares were repurchased and retired under this plan.
The Board
of Directors approved a share repurchase program on February 4, 2008,
authorizing the Company to purchase up to 5,000,000 of its common shares as
market and business conditions warrant. The share repurchase
authorization expires on December 31, 2009. During fiscal 2008,
5,000,000 shares were repurchased and retired under this plan.
The Board
of Directors approved a share repurchase program on August 3, 2006, authorizing
the Company to purchase up to 3,000,000 of its common shares as market and
business conditions warrant. The share repurchase authorization
expired on December 31, 2007. From inception to expiration,
1,212,535 shares were repurchased and retired under this plan.
12. 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.
13. Selected
Quarterly Information (Unaudited)
|
|
Fiscal Year Ended December 27, 2008
|
|
|
|
Quarter Ending
|
|
|
|
March 29
|
|
|
June 28
|
|
|
September 27
|
|
|
December 27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
663,805 |
|
|
$ |
911,671 |
|
|
$ |
870,355 |
|
|
$ |
1,048,246 |
|
Gross
profit
|
|
|
320,115 |
|
|
|
417,128 |
|
|
|
385,639 |
|
|
|
430,633 |
|
Net
income
|
|
|
147,779 |
|
|
|
256,092 |
|
|
|
171,244 |
|
|
|
157,733 |
|
Basic
net income per share
|
|
$ |
0.68 |
|
|
$ |
1.20 |
|
|
$ |
0.83 |
|
|
$ |
0.78 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended December 29, 2007
|
|
|
|
Quarter Ending
|
|
|
|
March 31
|
|
|
June 30
|
|
|
September 29
|
|
|
December 29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
492,159 |
|
|
$ |
742,466 |
|
|
$ |
728,673 |
|
|
$ |
1,217,021 |
|
Gross
profit
|
|
|
237,752 |
|
|
|
374,667 |
|
|
|
341,851 |
|
|
|
508,985 |
|
Net
income
|
|
|
139,860 |
|
|
|
214,377 |
|
|
|
193,507 |
|
|
|
307,267 |
|
Basic
net income per share
|
|
$ |
0.65 |
|
|
$ |
0.99 |
|
|
$ |
0.89 |
|
|
$ |
1.42 |
|
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.
14.
Acquisitions
In the
first quarter of 2008, Garmin Ltd. acquired Fairpoint Navigation A/S (the
distributor of Garmin’s consumer products in Denmark). The company has been
renamed Garmin Danmark A/S.
In the
second quarter of 2008, Garmin Ltd. acquired Formar Electronics N.V./S.A. (the
distributor of Garmin’s consumer products in Belgium and
Luxembourg). The company has been renamed Garmin Belux
N.V./S.A.
In the
third quarter of 2008, Garmin Ltd. acquired NavCor Oy, the distributor of
Garmin’s consumer products in Finland; Puls Elektronik GmbH, the distributor of
Garmin’s consumer products in Austria; and SatSignal Equipamentos
de Comunicações e de Navegação S.A., the distributor of Garmin’s consumer
products in Portugal. NavCor Oy has been renamed Garmin
Suomi Oy. Puls Elektronik GmbH has been renamed Garmin Austria
GmbH. SatSignal Equipamentos de Comunicações e de Navegação S.A.
has been renamed Garmin Portugal – Equipamentos de Comunicações e de Navegação,
Lda.
In the
fourth quarter of 2008, Garmin Ltd. acquired Sportmanship International AB, the
distributor of Garmin’s consumer products in Sweden. Sportmanship
International AB has been renamed Garmin Sweden AB.
These
companies were acquired for $76.6 million less $16.5 million cash
acquired. The preliminary purchase price allocation resulted in an
increase in goodwill and intangible assets of $44.3 million. These
acquisitions are not material, either individually or in aggregate, therefore
supplemental pro forma information is not presented.
15.
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 27,
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- beginning of period
|
|
$ |
71,636 |
|
|
$ |
37,639 |
|
|
$ |
18,817 |
|
Accrual
for products sold during the period
|
|
|
132,644 |
|
|
|
98,702 |
|
|
|
51,080 |
|
Expenditures
|
|
|
(116,872 |
) |
|
|
(64,705 |
) |
|
|
(32,258 |
) |
Balance
- end of period
|
|
$ |
87,408 |
|
|
$ |
71,636 |
|
|
$ |
37,639 |
|
16.
Subsequent Events
On February 4, 2009, Garmin Ltd. and
ASUSTeK Computer Inc. announced a strategic alliance that will leverage the
companies’ navigation and mobile telephony expertise to design, manufacture and
distribute co-branded location-centric mobile phones. The mobile
phone product line will be known as the Garmin-Asus nüvifoneTM
series.
Item
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Item
9A. Controls and Procedures
(a) Conclusion
Regarding the Effectiveness of Disclosure Controls and Procedures
Under the
supervision and with the participation of our management, including the Chief
Executive Officer and Chief Financial Officer, we have evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures pursuant to Exchange Act Rule 13a-15(b) as of the end of the period
covered by this report. Based on the evaluation, the Chief Executive
Officer and Chief Financial Officer have concluded that these disclosure
controls and procedures are effective.
(b) Management’s
Report on Internal Control over Financial Reporting
Management
of the Company is responsible for establishing and maintaining adequate internal
control over financial reporting for the Company. The Company’s internal control
over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Management’s
assessment of and conclusion on the effectiveness of internal control over
financial reporting did not include the operations resulting from the six
entities (collectively “the Acquisitions”) which were acquired during fiscal
2008 and are included in the 2008 consolidated financial statements. The
financial reporting systems of the Acquisitions were integrated into the
company’s financial reporting systems throughout 2008. Therefore, the company
did not have the practical ability to perform an assessment of their internal
controls in time for this current year end. The company fully expects to include
the Acquisitions in next year’s assessment. The Acquisitions constituted $76.9
million and $37.9 million of total and net assets, respectively, as of December
27, 2008 and $105.3 million and $5.8 million of revenues and net income,
respectively, for the year then ended in the consolidated financial
statements.
Management
of the Company assessed the effectiveness of the Company’s internal control over
financial reporting as of December 27, 2008. 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
27, 2008.
Ernst
& Young LLP, the independent registered public accounting firm that audited
the Company’s consolidated financial statements, issued an attestation report on
management’s effectiveness of the Company’s internal control over financial
reporting as of December 27, 2008, as stated in their report which is included
herein. That attestation report appears below.
(c) Attestation Report of the
Independent Registered Public Accounting Firm
Report
of Independent Registered Public Accounting Firm on Internal Control over
Financial Reporting
The Board
of Directors and Shareholders
Garmin
Ltd.
We have
audited Garmin Ltd.’s internal control over financial reporting as of December
27, 2008, based on criteria established in Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (the COSO criteria). Garmin Ltd.’s management is
responsible for maintaining effective internal control over financial reporting,
and for its assessment of the effectiveness of internal control over financial
reporting included in the accompanying Management’s Report on Internal Control
over Financial Reporting. Our responsibility is to express an opinion on the
company’s internal control over financial reporting based on our
audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
As
indicated in the accompanying Management’s Report on Internal Control over
Financial Reporting, management’s assessment of and conclusion on the
effectiveness of internal control over financial reporting did not include the
internal controls of its 2008 acquisitions, which are included in the 2008
consolidated financial statements of Garmin Ltd. and Subsidiaries and
constituted $76.9 million and $37.9 million of total and net assets,
respectively, as of December 27, 2008 and $105.3 million and $5.8 million of
revenues and net income, respectively, for the year then ended. Our
audit of internal control over financial reporting of Garmin Ltd. also did not
include an evaluation of the internal control over financial reporting of its
2008 acquisitions.
In our
opinion, Garmin Ltd. maintained, in all material respects, effective internal
control over financial reporting as of December 27, 2008, based on the COSO criteria.
We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of Garmin Ltd. and
Subsidiaries as of
December 27, 2008 and December 29, 2007 and the related consolidated statements
of income, stockholders’ equity, and cash flows for each of the three years in
the period ended December 27, 2008 and our report dated February 24, 2009
expressed an unqualified opinion thereon.
/s/ Ernst
& Young LLP
Kansas
City, Missouri
February
24, 2009
(d) Changes
in Internal Control over Financial Reporting
There
were no changes in our internal control over financial reporting during the year
ended December 27, 2008 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 5, 2009 (the “Proxy Statement”) will
be filed with the Securities and Exchange Commission no later than 120 days
after December 27, 2008.
(a)
|
Directors
of the Company
|
The
information set forth in response to Item 401 of Regulation S-K under the
headings “Proposal 1 - 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 Conduct of Garmin Ltd.
and Subsidiaries (the “Code”). The Code is applicable to all Garmin
employees including the Chairman and Chief Executive Officer, the President and
Chief Operating Officer, the Chief Financial Officer, the Controller and other
officers. A copy of the Code is filed 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 – Non-Management Director Compensation” 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 – Report of Compensation Committee” 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 27, 2008 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
|
|
|
|
|
|
|
|
|
|
future issuance under
|
|
|
|
Number of securities to be
|
|
|
Weighted-average
|
|
|
equity compensation
|
|
|
|
issued upon exercise of
|
|
|
exercise price of
|
|
|
plans (excluding
|
|
|
|
outstanding options,
|
|
|
outstanding options,
|
|
|
securities reflected in
|
|
Plan Category
|
|
warrants and rights
|
|
|
warrants and rights
|
|
|
column A)
|
|
Equity
compensation
|
|
|
|
|
|
|
|
|
|
plans approved by
shareholders
|
|
|
10,525,858 |
|
|
$ |
47.76 |
|
|
|
2,316,234 |
|
Equity
compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
plans not approved
by shareholders
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
10,525,858 |
|
|
$ |
47.76 |
|
|
|
2,316,234 |
|
(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 One— Election of Two Directors” and “The Board of Directors”
in the Proxy Statement is hereby incorporated herein by reference in partial
response to this Item 13.
Item
14. Principal Accounting Fees and Services
The
information set forth under the headings “Audit Matters — Independent Registered
Public Accounting Firm Fees” and “Pre-Approval of Services Provided by the
Independent Auditor” in the Proxy Statement is hereby incorporated by reference
in response to this Item 14.
PART
IV
Item 15. Exhibits, and Financial Statement
Schedules
(a)
|
List
of Documents filed as part of this
Report
|
|
(1)
|
Consolidated
Financial Statements
|
The
consolidated financial statements and related notes, together with the report of
Ernst & Young LLP, appear in Part II, Item 8 “Financial Statements and
Supplementary Data” of this Form 10-K.
|
(2)
|
Schedule
II Valuation and Qualifying
Accounts
|
|
All
other schedules have been omitted because they are not applicable, are
insignificant or the required information is shown in the consolidated
financial statements or notes
thereto.
|
|
(3)
|
Exhibits
— The following exhibits are filed as part of, or incorporated by
reference into, this Annual Report on Form
10-K:
|
EXHIBIT
|
|
|
NUMBER
|
|
DESCRIPTION
|
|
|
|
3.1
|
|
Memorandum
and Articles of Association of Garmin Ltd. and Notice of
Resolution (incorporated by reference to Exhibit 3.1
of the Registrant’s Quarterly Report on Form 10-Q filed on
August 9, 2006 ).
|
|
|
|
4.1
|
|
Specimen
share certificate (incorporated by reference to Exhibit
4.1 of the Registrant’s Registration Statement on
Form S-1 filed December 6, 2000 (Commission File No.
333-45514)).
|
|
|
|
4.2
|
|
Shareholder
Rights Agreement (incorporated by reference to Exhibit 4 of the
Registrant’s Current Report on Form 8-K filed on October 26,
2001).
|
|
|
|
4.3
|
|
Amendment
to Shareholder Rights Agreement (incorporated by reference to Exhibit
1.1 of the Registrant’s Amendment No.1 to Registration
Statement on Form 8-A12G/A filed on November 14, 2005).
|
|
|
|
10.1
|
|
Garmin
Ltd. 2000 Equity Incentive Plan (incorporated by reference to Exhibit
10.1 of the Registrant’s Registration Statement on
Form S-1 filed December 6, 2000 (Commission File No.
333-45514)).
|
|
|
|
10.2
|
|
Form
of Stock Option Agreement pursuant to the Garmin Ltd. 2000 Equity
Incentive Plan for Employees of Garmin International, Inc. (incorporated
by reference to Exhibit 10.1of the Registrant’s Current Report on Form 8-K
filed on September 7, 2004).
|
|
|
|
10.3
|
|
Form
of Stock Option Agreement pursuant to the Garmin Ltd. 2000 Equity
Incentive Plan for Employees of Garmin Corporation (incorporated by
reference to Exhibit 10.3 of the Registrant’s Current Report on Form 8-K
filed on September 7, 2004).
|
|
|
|
10.4
|
|
Form
of Stock Option Agreement pursuant to the Garmin Ltd. 2000 Equity
Incentive Plan for UK-Approved Stock Options for Employees of Garmin
(Europe) Ltd. (incorporated by reference to Exhibit 10.4 of the
Registrant’s Current Report on Form 8-K filed on September 7,
2004).
|
10.5
|
|
Form
of Stock Option Agreement pursuant to the Garmin Ltd. 2000 Equity
Incentive Plan for Non UK-Approved Stock Options for Employees of Garmin
(Europe) Ltd. (incorporated by reference to Exhibit 10.5 of the
Registrant’s Current Report on Form 8-K filed on September 7,
2004).
|
|
|
|
10.6
|
|
Garmin
Ltd. 2000 Non-Employee Directors’ Option Plan (incorporated by reference
to Exhibit 10.2 of the Registrant’s Registration Statement on
Form S-1 filed December 6, 2000 (Commission File No.
333-45514)).
|
|
|
|
10.7
|
|
Form
of Stock Option Agreement pursuant to the Garmin
Ltd. Non-Employee Directors’ Option Plan for Non-Employee
Directors of Garmin Ltd. (incorporated by reference to Exhibit 10.2 of the
Registrant’s Current Report on Form 8-K filed on September 7,
2004).
|
|
|
|
10.8
|
|
Garmin
Ltd. Amended and Restated Employee Stock Purchase Plan (incorporated by
reference to Exhibit 10.1 of the Registrant’s Quarterly Report
on Form 10-Q filed August 9, 2006).
|
|
|
|
10.9
|
|
First
Amendment to Garmin Ltd. Employee Stock Purchase Plan (incorporated by
reference to Exhibit 10.4 of the Registrant’s Annual Report on Form 10-K
filed on March 27, 2002).
|
|
|
|
10.10
|
|
Second
Amendment to Garmin Ltd. Employee Stock Purchase Plan (incorporated by
reference to Exhibit 10.1 of the Registrant’s Quarterly Report on Form
10-Q filed on August 13, 2003).
|
|
|
|
10.11
|
|
Garmin
Ltd. 2005 Equity Incentive Plan (incorporated by reference to Exhibit
10.1 of the Registrant’s Current Report on Form 8-K
filed on June 7, 2005).
|
|
|
|
10.12
|
|
Form
of Stock Option Agreement pursuant to the Garmin Ltd. 2005 Equity
Incentive Plan (incorporated by reference to Exhibit 10.2 of the
Registrant’s Current Report on Form 8-K filed on June 7,
2005).
|
|
|
|
10.13
|
|
Form
of Stock Appreciation Rights Agreement pursuant to the Garmin Ltd. 2005
Equity Incentive Plan (incorporated by reference to Exhibit 10.3 of the
Registrant’s Current Report on Form 8-K filed on June 7,
2005).
|
|
|
|
10.14
|
|
Form
of Stock Appreciation Rights Agreement pursuant to the Garmin Ltd. 2000
Equity Incentive Plan (incorporated by reference to Exhibit 10.4) of the
Registrant’s Quarterly Report on Form 10-Q filed on May 8,
2007.
|
|
|
|
10.15
|
|
Amended
and Restated Garmin Ltd. Employee Stock Purchase Plan effective January 1,
2008.
|
|
|
|
10.16
|
|
Form
of Time Vested Restricted Stock Unit Award Agreement under the 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 December 17,
2008).
|
|
|
|
10.17
|
|
Form
of Performance Shares Award Agreement under 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 December 17,
2008).
|
|
|
|
10.18
|
|
Garmin
Ltd. 2009 Cash Incentive Bonus Plan.
|
|
|
|
10.19
|
|
Vendor
Agreement dated February 27, 2004 between Best Buy Purchasing LLC and
Garmin USA, Inc.
|
10.20
|
|
Best
Buy Vendor Program Agreement dated February 29, 2008
|
|
|
|
14.1
|
|
Code
of Conduct of Garmin Ltd. and Subsidiaries.
|
|
|
|
21.1
|
|
List
of subsidiaries
|
|
|
|
23.1
|
|
Consent
of Ernst & Young LLP
|
|
|
|
24.1
|
|
Power
of Attorney (included in signature page)
|
|
|
|
31.1
|
|
Chief
Executive Officer’s Certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
31.2
|
|
Chief
Financial Officer’s Certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
32.1
|
|
Chief
Executive Officer’s Certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
32.2
|
|
Chief
Financial Officer’s Certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
The
exhibits listed on the accompanying Exhibit Index in Item 15(a)(3) are filed as
part of, or are incorporated by reference into, this Annual Report on Form
10-K.
(c)
|
Financial Statement
Schedules.
|
Reference
is made to Item 15(a)(2) above.
SCHEDULE
II – VALUATION AND QUALIFYING ACCOUNTS
Garmin
Ltd. and Subsidiaries
(In thousands)
|
|
|
|
|
Additions
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
Charged to
|
|
|
Charged to
|
|
|
|
|
|
Balance at
|
|
|
|
Beginning of
|
|
|
Costs and
|
|
|
Other
|
|
|
|
|
|
End of
|
|
Description
|
|
Period
|
|
|
Expenses
|
|
|
Accounts
|
|
|
Deductions
|
|
|
Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 27, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deducted
from asset accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for doubtful accounts
|
|
$ |
10,246 |
|
|
$ |
32,355 |
|
|
|
- |
|
|
$ |
(192 |
) |
|
$ |
42,409 |
|
Inventory
reserve
|
|
|
31,186 |
|
|
|
24,461 |
|
|
|
- |
|
|
|
(32,443 |
) |
|
|
23,204 |
|
Total
|
|
$ |
41,432 |
|
|
$ |
56,816 |
|
|
|
- |
|
|
$ |
(32,635 |
) |
|
$ |
65,613 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 29, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deducted
from asset accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for doubtful accounts
|
|
$ |
5,340 |
|
|
$ |
3,617 |
|
|
|
- |
|
|
$ |
1,289 |
|
|
$ |
10,246 |
|
Inventory
reserve
|
|
|
19,768 |
|
|
|
34,975 |
|
|
|
- |
|
|
|
(23,557 |
) |
|
|
31,186 |
|
Total
|
|
$ |
25,108 |
|
|
$ |
38,592 |
|
|
|
- |
|
|
$ |
(22,268 |
) |
|
$ |
41,432 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
25, 2009
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 25, 2009:
/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.
2008
Form 10-K Annual Report
Exhibit
Index
The following exhibits are attached
hereto. See Part IV of this Annual Report on Form 10-K for a complete
list of exhibits.
Exhibit
|
|
|
Number
|
|
Document
|
|
|
|
10.18
|
|
Garmin
Ltd. 2009 Cash Incentive Bonus Plan
|
|
|
|
10.19
|
|
Vendor
Agreement dated February 27, 2004 between Best Buy Purchasing LLC and
Garmin USA, Inc.
|
|
|
|
10.20*
|
|
Best
Buy Vendor Program Agreement dated February 29, 2008
|
|
|
|
14.1
|
|
Code
of Conduct of Garmin Ltd. and Subsidiaries
|
|
|
|
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
|
* Portions
of Exhibit 10.20 have been omitted pursuant to a request for confidential
treatment.