Garmin 2002 Annual Report Download - page 34

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Liquidity and Capital Resources
Net cash generated by operations was $175.4 million, $130.0 million, and $83.5 million for fiscal years 2002, 2001, and 2000,
respectively. We operate with a strong customer driven approach and therefore carry sufficient inventory to meet customer
demand. Because we desire to respond quickly to our customers and minimize order fulfillment time, our inventory levels are
generally high enough to meet most demand. We also attempt to carry sufficient inventory levels on key components so that
potential supplier shortages have as minimal an impact as possible on our ability to deliver our finished products. We do not
anticipate that our inventory management techniques will have a negative impact on our financial results in the future. We were
able to reduce inventory levels during fiscal year 2002 by $3.6 million when compared to fiscal year end 2001, without impairing
our ability to meet customer demand, by effectively managing the introduction of 22 new products during the year. We expect
that inventory levels may increase during fiscal 2003 due to anticipated increase in sales.
During fiscal 2002, our capital expenditures totaled $12.4 million, which was $2.5 million less than during 2001. In fiscal 2001 and
2000, our capital expenditures totaled approximately $14.9 million and $24.8 million, respectively. The expenditures in fiscal 2002
were primarily related to general corporate purposes ($9.8 million) and the addition of surface-mount production equipment in
both the Olathe, Kansas and Shijr, Taiwan facilities ($2.6 million). The expenditures in fiscal 2001 were incurred primarily for the
completed expansion of our Olathe, Kansas facility ($3.2 million), the construction of our new flight test and certification facility
($1.6 million) located at the New Century Airport near Olathe, Kansas, and for general corporate purposes. The expenditures in
fiscal 2000 were incurred primarily to increase our manufacturing capacity both in the United States and in Taiwan. We financed
these capital expenditures through net operating cash flow and debt from outside financial institutions.
We expect our future capital requirements to include construction costs related to our recently-announced facilities expansion in
Olathe, Kansas, and purchases of production machinery and equipment to expand capacity. A portion will also be used for
conversion of available space in our Olathe, Kansas building for manufacturing use and expansion of our manufacturing
operations within our facility in Shijr, Taiwan. We may use a portion of the net proceeds from our December 2000 Initial Public
Offering (“IPO”) to acquire targeted strategic businesses, and we continue to look for these opportunities.
In addition to capital expenditures, cash flow used in investing activities principally relates to the purchase of fixed income
securities associated with the investment of our on-hand cash balances and approximately $13.5 million related to the purchase
of licenses, of which $11.5 million consists of prepaid royalties under our license agreement with PalmSource, Inc. for the Palm
Operating System. It is management’s goal to invest the on-hand cash consistent with the Company’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 maximum safety. The Company’s average return on its
investments during fiscal year 2002 was approximately 1.6%.
Cash flow used in financing activities during 2002 relates primarily to the reduction of our debt. The Company retired
approximately $12.2 million of its long-term debt during fiscal 2002, consisting in good part of an outstanding issue of industrial
revenue bonds. The employee stock purchase program and stock option exercises were sources of cash in 2002. The Company
retired approximately $14.2 million of its long-term debt during fiscal 2001. The Company repurchased 595,200 shares of its
common stock under its stock repurchase program that was approved by the Board of Directors on September 24, 2001 and
expired on December 31, 2002. The cash flow source from financing activities during 2000 was due primarily to the issuance of
debt and IPO proceeds less dividend distributions.
We currently use cash flow from operations to fund our capital expenditures, to repay debt and to support our working capital
requirements. We expect that future cash requirements will principally be for capital expenditures, repayment of indebtedness,
and working capital requirements.
Cash dividends paid to stockholders were $0.0 million, $0.0 million, and $29.0 million during fiscal years 2002, 2001 and 2000,
respectively. Included in cash dividends for fiscal 2000 was a special one-time dividend of $17.4 million that was paid in order to
provide funds to shareholders to pay withholding taxes and stock transfer taxes related to the reorganization of Garmin
Corporation.
We 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 2003.