Garmin 2002 Annual Report Download - page 35

Contractual Obligations and Commercial Commitments
On March 23, 2000, Garmin International, Inc. completed a $20.0 million 20-year Taxable Industrial Revenue Bond issuance (the
“2000 Bonds”) for the expansion of its Olathe, Kansas facility. At December 28, 2002, outstanding principal under the 2000 Bonds
totaled $20.0 million. Interest on the 2000 Bonds is payable monthly at a variable interest rate (1.50% at December 28, 2002),
which is adjusted weekly to the current market rate as determined by the remarketing agent of the 2000 Bonds with principal
due upon maturity on April 15, 2020.
The 2000 Bonds are secured by an irrevocable letter of credit totaling $20.3 million with facility fees of 0.75%. This renewable
letter of credit initially expires on September 20, 2004. The bank has required a sinking fund be established with principal
payments on long-term debt beginning in 2004 of $4,002 with semiannual payments of $667 thereafter.
On January 1, 1995, Garmin International, Inc. completed a $9.5 million 30-year Tax-Exempt Industrial Revenue Bond issuance for
the construction of its new corporate headquarters located in Olathe, Kansas. Upon completion of the project in 1996, Garmin
International retired bonds totaling $0.2 million. During May of fiscal 2002, the remainder of the outstanding bonds were retired
by Garmin International, Inc. for a total of $9.4 million.
The reimbursement agreements entered into by Garmin International, Inc. in connection with the 2000 Bonds contain restrictive
covenants, which include, among other things, financial covenants requiring minimum cash flow leverage, maximum
capitalization, minimum tangible net worth, and other affirmative and negative covenants. We do not expect these limitations
to have a material effect on our business or results of operations. We are in compliance with all covenants contained in the
reimbursement agreements.
During 1999, Garmin Corporation borrowed $18.0 million to finance the purchase of land and a new manufacturing facility in
Shijr, Taiwan. The outstanding balance of $2.8 million at December 29, 2001, was paid in full in January 2002.
We utilize interest rate swap agreements to manage interest rate exposure. The principal objective of such financial derivative
contracts is to moderate the effect of fluctuations in interest rates. We, as a matter of policy, do not speculate in financial
markets and therefore do not hold these contracts for trading purposes. We utilize what are considered simple instruments, such
as non-leveraged interest rate swaps, to accomplish our objectives.
The Company has the option at any time to retire a portion or all of its long-term debt. The Company believes the funds
necessary to fulfill these debt obligations and commitments will be generated in the course of normal business operations.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Recent Accounting Pronouncements
In June 2002, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”)
No. 146, Accounting for Costs Associated with Exit or Disposal Activities, which addresses financial accounting and reporting for
costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, “Liability Recognition
for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring).” The provisions of this statement are effective for exit or disposal activities initiated after December 31, 2002. The
Company does not expect that the adoption of this statement will have a significant impact on the Company’s financial position
as no exit or disposal activities are currently planned.
In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation — Transition and Disclosure. This
statement requires all entities with stock-based employee compensation arrangements to provide additional disclosures in their
summary of significant accounting policies note. Since the Company uses the intrinsic value method of Accounting Principles
Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees, the accounting policies note will include a tabular
presentation of pro forma net income and earnings per share using the fair value method prescribed by SFAS No. 123,
Accounting for Stock-Based Compensation. Also, SFAS No. 148 permits entities changing to the fair value method of accounting
for employee stock compensation to choose from one of three transition methods — the prospective method, the modified
prospective method, or the retroactive restatement method. Finally, SFAS No. 148 will require the Company to make interim-
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