Garmin 2003 Annual Report Download

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2003 ANNUAL REPORT

Table of contents

  • Page 1
    2 0 0 3 A N N U A L R E P O R T

  • Page 2
    ... Letter to shareholders Products for an active world New products, new opportunities Growing Garmin's presence Investing in people and resources Measures of quality Growth initiatives for 2004 Stories from the front lines Stories from everyday people Financial summary Market for the company...

  • Page 3
    ...G H L I G H T S Delivered 16 new products Revenue of $573M, up 23% Net income of $178.6M, up 25% Joined the NASDAQ -100 Index ® Acquired UPS Aviation Technologies Inc., a leading avionics supplier Began major facility expansion in Olathe, Kansas G1000 ™ glass cockpit selected by leading aircraft...

  • Page 4
    ... $60-million dollar expansion will be completed in the fall of 2004 and includes an 8-story office building that will house engineering R&D and a customer call center. Amidst all the activity on our physical structures, we have been hard at work on the inside - designing new, innovative products and...

  • Page 5

  • Page 6
    P R O D U C T S F O R A N A C T I V E W O R L D 5

  • Page 7
    ... mobile electronics customers are the iQue™ 3600, the world's first Palm OS®-based PDA organizer with fully integrated GPS, and the Forerunner™ 201, a wearable personal training device targeting runners and other active people. Garmin designs, manufactures and markets navigation, communication...

  • Page 8
    N E W P R O D U C T S , N E W O P P O R T U N I T I E S 7

  • Page 9
    ... of Traffic Information Services (TIS) to the previously introduced GTX 330 transponder. Garmin was the first avionics manufacturer to receive FAA certification for a TIS-enabled product. The GTX 330 allows pilots to receive in-flight traffic updates giving them the location, direction and altitude...

  • Page 10
    ... the unit continues to provide position information even if the GPS signal is lost in areas with tall buildings and tunnels. Another new development in the automotive category was our introduction of the GVN 50 into the Asian market. The GVN 50 is a black box in-car navigation system driving onboard...

  • Page 11
    ... from customers, dealers and the tech industry in general, the iQue 3600 received several prestigious awards, including the "Best of Innovations" award in the mobile office category at the 2003 International Consumer Electronics Show. In this competition, iQue won acclaim for its form, function...

  • Page 12
    O P T I M U M D A T A T R A I N I N G G P S T O A N D P E R F O R M A N C E S P E E D , U S I N G C A L C U L A T E A N D P A C E D I S T A N C E 11

  • Page 13
    ... other accessories. Garmin released several new cartography products that provide additional mapping detail for our GPS navigators and chartplotters. Our new line of U.S. TOPO 24K CDs provides detailed topographic coverage of U.S. national parks. We've also continued to expand our offshore marine...

  • Page 14
    ... aircraft. These partners include Cessna, Cirrus Design, EADS Socata, Mooney Aircraft, New Piper Aircraft, Pilatus and Raytheon Aircraft. The avionics package installed on most of these planes is the Garmin "stack," which integrates VHF communications, instrument landing system (ILS), variable omni...

  • Page 15
    ..., USA Today and the New York Times and landed showings in broadcast tech reviews on Good Morning America, Tech TV, CNN and more. The iQue 3600 media plan included a significant national print ad campaign as well as television commercials on CNN and ESPN that aired during the holiday buying season...

  • Page 16
    ... dollar expansion of our Kansas facility in 2003. The expansion will triple our warehouse space and increase office space from the current 200,000 to nearly 650,000 square feet. Currently under construction, Garmin's new 8-story office building is being designed as a state-of-the-art R&D center...

  • Page 17
    ...our belief in developing superior products with lower cost of manufacturing and sufficient profits to support company growth. We believe that when Garmin succeeds, so will our customers, suppliers, distributors, employees and shareholders. Our adherence to this mission is evidenced by 13 consecutive...

  • Page 18
    ... better serve our customers, suppliers, distributors, employees and investors through aggressive introduction of new products in 2004. These product introductions will be supported through extensive national and international media advertising. In aviation, we believe that Garmin's G1000 is on the...

  • Page 19
    ...integrated highspeed marine network that's currently in development. The hub of the system is a waterproof Ethernet switch that allows users to network multiple chartplotters, video displays, sonar, weather and radar sensors and more. The network includes the GPSMAP 3000 series plotters, which offer...

  • Page 20
    ... with full-featured navigation for applications on and off the trail. Both units feature long battery life and 56 megabytes of internal memory for storing additional map detail. The 60CS has electronic compass and barometric altimeter features. We also announced the addition of the Rino 130 to our...

  • Page 21
    ... comes from customers who are putting Garmin units to the test every day. Our customers include military men and women who are serving in the Middle East with guidance by Garmin. We have received poignant testimonials from the field relating specific scenarios where a Garmin GPS provided an...

  • Page 22
    ...'s Web site. To read more customer stories, go to www.garmin.com. I recently returned from my tour in Iraq, and Garmin was with me every step of the way. The Army's version of a GPS is bulky, takes specific batteries, and weighs a ton, so we all bought civilian GPS systems. I really liked the Rino...

  • Page 23
    ... who sit and await a safe return. - D.F. I just returned from a 3-month tour in the Middle East, serving with the U.S. Marine Corps in Kuwait and also in Iraq. I purchased your Garmin Rino 120 just before leaving on the advice of a friend. Your product truly saved American lives and is an integral...

  • Page 24
    ...and Garmin GPS III as separate units for years, but really liked the idea of combining these two functions into one unit. On Friday, as I was driving home to Birmingham, I saw a two-vehicle wreck as it was happening. I immediately pulled over and went to assist. A young girl, about 12 years old, was...

  • Page 25
    ... device for one year and recently upgraded to a Garmin Forerunner 201. I run 4 days a week and, thanks to the accuracy of my Forerunner, I have been training with it now for several months. We just completed our first marathon together, and I was able to use it to assist me in keeping the pace I was...

  • Page 26
    ...178.6 10 percent return 150 142.8 100 in millions 5 50 0 1999 64.2 105.7 113.4 0 1999 2000 2001 2002 2003 2000 2001 2002 2003 25 Garmin, BlueChart, StreetPilot, eTrex, GPSMAP and MapSource are registered trademarks and Rino, Geko, Forerunner, Foretrex, iQue, G1000 and Virtual Partner are...

  • Page 27
    ... of Garmin Ltd. (the "Company") have traded on the Nasdaq National Market under the symbol "GRMN" since its initial public offering on December 8, 2000 (the "IPO"). As of March 1, 2004 there were 174 shareholders of record. The range of high and low closing sales prices of the Company's common...

  • Page 28
    ...1, 2003. There were no cash dividends issued during 2002 or 2001. Dividends paid in 2000 and 1999 are adjusted for the 1.12379256 for 1 stock split of our common shares, effected through a stock dividend on November 6, 2000. (5) Total debt consists of notes payable and long-term debt. (6) Net income...

  • Page 29
    ... portable GPS receivers and accessories for marine, recreation, land and automotive applications 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...

  • Page 30
    ... of sales basis and reviewed periodically. If market conditions were to decline, the Company may take actions to increase customer incentive offerings possibly resulting in an incremental reduction of revenue at the time the incentive is offered. Warranties The Company's products sold are generally...

  • Page 31
    ... of our practice of performing the design, manufacture and marketing of our products in-house, both our Shijr, Taiwan and Olathe, Kansas manufacturing plants have experienced relatively low costs of manufacturing, compared to our competition. In general, products manufactured in Taiwan have been our...

  • Page 32
    ... 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...

  • Page 33
    ...,544 35,114 18,863 53,977 130,567 4,292 $134,859 $114,470 43,958 70,512 10,339 13,300 23,639 46,873 1,002 $47,875 December 27, 2003 Consumer Aviation Net sales Cost of goods sold Gross profit Operating expenses: Selling, general and administrative Research and development Total operating expenses...

  • Page 34
    ... for the Company's consumer products is due to the emergence of the GPS market in general, and overall increased consumer awareness of the capabilities and applications of GPS. The increase in aviation sales for fiscal 2003 was primarily due to increased sales from panel mount products sold into the...

  • Page 35
    ...in employment generally across the organization (net increase of approximately 300 non-engineering employees), significantly increased advertising costs (up 32%) associated primarily with consumer products, ORACLE software implementation costs, and additional staffing in our customer call center. In...

  • Page 36
    ... total units sold were up 17.1%. It is management's belief that the continued demand for the Company's consumer products is due to the emergence of the GPS market in general, and overall increased consumer awareness of the capabilities and applications of GPS. The increase in aviation net sales for...

  • Page 37
    ... the OEM market, and a return to less restricted airspace for general aviation aircraft. The decrease in gross margin as a percentage of net revenues for the aviation segment is primarily attributed to product mix as we experienced a 19.4% increase in lower margin panel mount unit sales during 2002...

  • Page 38
    ...mount production equipment in both the Olathe, Kansas and Shijr, Taiwan facilities ($2.6 million). We have budgeted approximately $60 million of capital expenditures during fiscal 2004 to include construction costs related to the completion of our facilities expansion in Olathe, Kansas and purchases...

  • Page 39
    ...new corporate headquarters located in Olathe, Kansas. Upon completion of the project in 1996, Garmin International retired bonds totaling $0.1 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. We utilize...

  • Page 40
    ... 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 includes a tabular presentation of pro forma net...

  • Page 41
    .... The principal currency involved is the New Taiwan Dollar. Garmin Corporation, located 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...

  • Page 42
    Financial Statements CONSOLIDATED FINANCIAL STATEMENTS Garmin Ltd. and Subsidiaries Years Ended December 27, 2003, December...December 27, 2003, December 28, 2002, and December 29, 2001...45 Consolidated Statements of Cash Flows for the Years Ended December 27, 2003, December 28, 2002, and December 29...

  • Page 43
    ... 27, 2003 and December 28, 2002, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 27, 2003, in conformity with accounting principles generally accepted in the United States. Kansas City, Missouri January 30, 2004 42

  • Page 44
    ...109 $705,888 Liabilities and Stockholders' Equity Current liabilities: Accounts payable Salaries and benefits payable Accrued warranty costs Accrued sales program costs Other accrued expenses (Note 8) Income taxes payable Total current liabilities Long-term debt (Note 4) Deferred income taxes (Note...

  • Page 45
    Garmin Ltd. And Subsidiaries Consolidated Statements of Income (In Thousands, Except Per Share Information) Fiscal Year Ended December 27, 2003 December 28, 2002 December 29, 2001 Net sales Cost of goods sold Gross profit Selling, general and administrative expenses Research and development expense...

  • Page 46
    ... common stock through stock purchase plan Purchase and retirement of common stock Balance at December 29, 2001 Net income Translation adjustment Adjustment related to effective portion of cash flow hedges, net of income tax effects of $170 Adjustment related to unrealized gains on available-for-sale...

  • Page 47
    ... purchase plan Proceeds from issuance of common stock from exercise of stock options Principal payments on long-term debt Purchase of common stock Net cash used in financing activities Effect of exchange rate changes on cash and cash equivalents Net increase / (decrease) in cash and cash equivalents...

  • Page 48
    ... hedges and charge to accumulated other comprehensive loss Change in marketable securities related to unrealized appreciation Fair value of assets acquired (UPS Aviation Technologies) Liabilities assumed Less: cash acquired Net cash paid $38,266 $512 $534 $39,992 $ $1,325 $38,844 $ $2,011 - ($1,046...

  • Page 49
    ... 2000, Garmin Realty LLC was formed by GII to hold certain real estate. In December 2001, GII formed Garmin USA as a sales organization. During August 2003, GII acquired all the outstanding capital stock of UPS Aviation Technologies, Inc. for $38 million in cash and renamed the company Garmin AT...

  • Page 50
    ...of the exercise at the average market price of the Company's stock during the period the options were outstanding. See Note 12. 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...

  • Page 51
    ... and improvements Office furniture and equipment Manufacturing and engineering equipment Vehicles 8-55 years 3-8 years 3-8 years 3-8 years 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...

  • Page 52
    ...Revenue Recognition The Company recognizes revenue from product sales when the product is shipped to the customer and title has transferred. The Company assumes no remaining significant obligations associated with the product sale other than that related to its warranty programs discussed below. 51

  • Page 53
    ... with the exception of certain aviation products for which the warranty period is two years from the date of installation. Sales Programs The Company provides certain monthly and quarterly incentives for its dealers based on various factors including dealer purchasing volume and growth. Additionally...

  • Page 54
    ... to the debt. The related amount payable to or receivable from the counterparty is included in other liabilities or assets. The Company's agreements have previously qualified for hedge accounting as permitted in SFAS No. 133, resulting in the agreements' being marked to market at each balance sheet...

  • Page 55
    ...The Company invests in auction rate securities which effectively mature every 28 days. reinvested in the same security. 4. Long-Term Debt Upon maturity, the proceeds are During 1995, GII entered into an agreement with the City of Olathe, Kansas for the construction of a new corporate headquarters...

  • Page 56
    ... At December 27, 2003, the Company expects future costs of approximately $45,000 for the completion of its facility expansion in Olathe, Kansas. Certain cash balances of GEL are held as collateral by a bank securing payment of the United Kingdom value-added tax requirements. These amounted to $1,602...

  • Page 57
    ... from the amount computed by applying the statutory federal income tax rate to income before taxes. The sources and tax effects of... (3,260) 869 $38,587 The Company's income before income taxes attributable to non-U.S. operations was $202,390, $146,804, and $120,550, for the years ended December 27...

  • Page 58
    ... as follows: December 27, 2003 Deferred tax assets: Product warranty accruals Allowance for doubtful accounts Inventory carrying value Sales program allowances Vacation accrual Interest rate swaps Unrealized intercompany profit in inventory Other Deferred tax liabilities: Unrealized investment gain...

  • Page 59
    ... global positioning system (GPS) receivers and accessories for marine, recreation, land, and automotive use 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...

  • Page 60
    ... below: Fiscal Year Ended December 27, 2003 Consumer Aviation Total Net sales to external customers Allocated interest income Allocated interest expense Income before income taxes Assets: Accounts receivable Inventories $452,437 5,901 422 182,701 65,315 76,429 $120,552 1,572 112 43,242 17,403 20...

  • Page 61
    ... 16,200 $369,119 70,086 453,969 No single customer accounted for 10% or more of the Company's consolidated net sales in any period. Accounts receivable from one customer were approximately $7,891 as of December 27, 2003 representing 9.5% of total accounts receivable. 11. Stock Compensation Plans...

  • Page 62
    A summary of the Company's stock option activity and related information under the 2000 Equity Incentive Plan and the 2000 Non-employee Directors' Option Plan for the years ended December 27, 2003, December 28, 2002 and December 29, 2001 is provided below: Weighted-Average Exercise Price Number of ...

  • Page 63
    ... of the Company's common stock through December 31, 2002. Through December 28, 2002, the Company had purchased 595,200 shares at $9,834. The share repurchase authorization expired on December 31, 2002. 14. Shareholder Rights Plan On October 24, 2001, Garmin's Board of Directors adopted a shareholder...

  • Page 64
    ... capital stock of UPS Aviation Technologies, Inc. for $38 million in cash. UPS Aviation Technologies, headquartered in Salem, Oregon, designs and manufactures multiple lines of communications, navigation and surveillance products for general aviation and air transport customers. The purchase price...

  • Page 65
    ...might be achieved from combining the operations. 17. 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...

  • Page 66
    ... the Company are traded on the Nasdaq National Market under the symbol GRMN. Min H. Kao Co-Chairman and Chief Executive Officer Kevin S. Rauckman Chief Financial Officer and Treasurer Andrew R. Etkind General Counsel and Secretary Clifton A. Pemble Director of Engineering Garmin International, Inc...

  • Page 67
    ©2004 Garmin Ltd. Garmin Ltd. P.O. Box 30464 SMB 5th Floor, Harbour Place 103 South Church Street Grand Cayman, Cayman Islands (345) 946-5203 www.garmin.com M00-60096-01