Garmin 2001 Annual Report Download - page 55

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GARMIN LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 13. Stock Compensation Plans (continued)
The weighted-average remaining contract life for options outstanding at December 29, 2001 is approximately nine years. Options
outstanding at December 29, 2001 have exercise prices ranging from $14.00 to $22.54. At December 29, 2001, options to purchase
234,150 shares are exercisable. No options were exercisable at December 30, 2000.
Pro forma information regarding net income and earnings per share is required by SFAS No. 123. SFAS No. 123 requires the pro
forma information be determined as if the Company has accounted for its employee stock options under the fair value method
of that statement. As described below, the fair value accounting provided under SFAS No. 123 requires the use of option valuation
models that were not developed for use in valuing employee stock options. The fair value for these options was estimated at the
date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for 2001 and 2000
(no options were granted prior to 2000): risk-free interest rate of 5.11% and 5.75%, respectively; no dividend yield; volatility
factor of the expected market price of the Company’s common stock of 0.591 and 0.530, respectively; and a weighted-average
expected life of the option of seven years.
The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including
the expected stock price volatility. Because the Company’s employee stock options have characteristics significantly different from
those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in
management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee
stock options.
For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the option’s vesting
period. The Company’s pro forma information for the years ended December 29, 2001 and December 30, 2000 is as follows:
December 29, 2001 December 30, 2000
Pro forma net income $112,150 $105,580
Pro forma net income per share:
Basic $ 1.04 $ 1.05
Diluted $ 1.03 $ 1.05
Employee Stock Purchase Plan
The stockholders also adopted an employee stock purchase plan (ESPP). Up to 1,000,000 shares of common stock have been reserved
for the ESPP. Shares will be offered to employees at a price equal to the lesser of 85% of the fair market value of the stock on
the date of purchase or 85% of the fair market value on the enrollment date. The ESPP is intended to qualify as an “employee
stock purchase plan” under Section 423 of the Internal Revenue Code. During 2001, 123,007 shares were purchased under the plan
for a total purchase price of $1,464. No shares were purchased during 2000.
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