Garmin 2002 Annual Report Download - page 50

Note 2. Summary of Significant Accounting Policies (continued)
Accounting for Stock-Based Compensation
At December 28, 2002, the company has two stock-based employee compensation plans, which are described more fully in Note
13. The company accounts for those plans under the recognition and measurement principles of APB Opinion No. 25, Accounting
for Stock Issued to Employees, and related Interpretations. No stock-based employee compensation cost is reflected in net
income, as all options granted under those plans had an exercise price equal to the market value of the underlying common
stock on the date of grant. The following table illustrates the effect on net income and earnings per share if the company had
applied the fair value recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation, to stock-based
employee compensation.
December 28, 2002 December 29, 2001 December 30, 2000
Net income as reported $142,797 $113,448 $105,663
Deduct: Total stock-based employee compensation expense
determined under fair-value based method for all awards,
net of tax effects (1,949) (1,298) (83)
Pro forma net income $140,848 $112,150 $105,580
Pro forma net income per share:
Basic $1.31 $1.04 $1.05
Diluted $1.30 $1.03 $1.05
Derivative Investments and Hedging Activities
The Company adopted SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, effective December 31, 2000,
the beginning of fiscal 2001. This statement requires the Company to recognize all derivatives on the balance sheet at fair value.
Derivatives not considered hedges must be adjusted to fair value through income.
If a derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the derivative will either be offset
against the change in fair value of the hedged asset, liability or firm commitment through earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative’s change in fair
value will be immediately recognized in earnings.
GII has entered into interest rate swap agreements to modify the interest characteristics of portions of its outstanding long-term
debt from a floating rate to a fixed rate basis. These agreements involve the receipt of floating rate amounts in exchange for
fixed rate interest payments over the life of the agreements without an exchange of the underlying principal amount. The
differential to be paid or received is accrued as interest rates change and recognized as an adjustment to interest expense
related to the debt. The related amount payable to or receivable from the counterparty is included in other liabilities or assets.
The Company’s agreements qualify for hedge accounting as permitted in SFAS No. 133, resulting in the agreement’s being
marked to market at each balance sheet date through other comprehensive income. Management assesses the effectiveness of
the hedge relationship on a periodic basis during the year. See Note 9.
Recent Pronouncements
In June 2002, the FASB issued 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.
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