United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
--
Commission file number 0-31983
----------------
GARMIN LTD.
(Exact name of Company as specified in its charter)
Cayman Islands 98-0229227
(State or other jurisdiction (I.R.S. Employer identification no.)
of incorporation or organization)
P.O. Box 30464SMB, N/A
113 South Church Street (Zip Code)
George Town, Grand Cayman, Cayman Islands
(Address of principal executive offices)
Company's telephone number, including area code: (345) 946-5203*
No Changes
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the Company (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Company was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [x] NO [ ]
Number of shares outstanding of the Company's common shares
as of August 13, 2001:
Common Shares, $.01 par value - 108,242,111
*The executive offices of the Registrant's principal United States subsidiary
are located at 1200 East 151st Street, Olathe, Kansas 66062. The telephone
number there is (913) 397-8200.
Garmin Ltd.
Form 10-Q
Quarter Ended June 30, 2001
Table of Contents
Part I - Financial Information Page
Item 1. Condensed Consolidated Financial Statements (unaudited)
Introductory Comments 3
Condensed Consolidated Balance Sheets at June 30, 2001
and December 30, 2000. 4
Condensed Consolidated Statements of Income for the 13
and 26-weeks ended June 30, 2001 and June 24, 2000. 5
Condensed Consolidated Statements of Cash Flows for the
26-weeks ended June 30, 2001 and June 24, 2000. 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 16
Part II - Other Information
Item 1. Legal Proceedings 18
Item 2. Changes in Securities 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
Signature Page 19
The Company's registered trademarks include, without limitation, eTrex and GPS
III and the Company's trademarks include, without limitation, GNS 430 and GNS
530 referred to in this Report.
Garmin Ltd.
Form 10-Q
Quarter Ended June 30, 2001
Part I - Financial Information
Item 1. Condensed Consolidated Financial Statements (unaudited)
Introductory Comments
The Condensed Consolidated Financial Statements of Garmin Ltd. ("Garmin" or
the "Company") included herein have been prepared by the Company, without audit,
pursuant to the rules and regulations of the United States Securities and
Exchange Commission. Certain information and note disclosures normally included
in financial statements prepared in accordance with accounting principles
generally accepted in the United States of America have been condensed or
omitted pursuant to such rules and regulations, although the Company believes
that the disclosures are adequate to enable a reasonable understanding of the
information presented. These Condensed Consolidated Financial Statements should
be read in conjunction with the audited financial statements and the notes
thereto for the year ended December 31, 2000. Additionally, the Condensed
Consolidated Financial Statements should be read in conjunction with Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations included in this Form 10-Q.
The results of operations for the 13 and 26-week periods ended June 30,
2001 are not necessarily indicative of the results to be expected for the full
year 2001.
Garmin Ltd. And Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except per share information)
---------------------------------
---------------------------------
(Unaudited)
June 30, December 30,
2001 2000
---------------------------------
Assets
Current Assets:
Cash and cash equivalents $278,777 $251,731
Accounts receivable, net 54,444 32,719
Inventories 73,347 89,855
Deferred income taxes 11,722 12,293
Prepaid expenses and other current assets 5,059 1,423
-------- --------
-------- --------
Total current assets 423,349 388,021
Property and equipment, net 68,541 64,704
Other assets, net 6,614 10,622
-------- --------
-------- --------
Total assets $498,504 $463,347
======== ========
======== ========
Liabilities and Stockholder's Equity
Current liabilities:
Accounts payable $13,466 $22,496
Other accrued expenses 14,111 13,163
Income taxes payable 10,265 5,795
Current portion of long-term debt - 587
-------- --------
-------- --------
Total current liabilities 37,842 42,041
Long-term debt, less current portion 37,867 46,359
Deferred income taxes 8,221 9,616
Other liabilities 575 92
Stockholders' equity:
Preferred stock, $1.00 par value,
1,000,000 authorized, none issued - -
Common stock, $0.01 par value,
500,000,000, share authorized:
Issued and outstanding shares-108,242,111 1,082 1,082
Additional paid-in capital 133,925 133,925
Retained earnings 313,542 253,140
Accumulated other comprehensive loss (34,550) (22,908)
-------- --------
-------- --------
Total stockholders' equity 413,999 365,239
-------- --------
-------- --------
Total liabilities and stockholders' equity $498,504 $463,347
======== ========
======== ========
The accompanying notes are an integral part of these financial statements.
Garmin Ltd. And Subsidiaries
Condensed Consolidated Statements of Income (Unaudited)
(In thousands, except per share information)
13-Weeks Ended 26-Weeks Ended
----------------------------- -------------------------------
----------------------------- -------------------------------
June 30, June 24, June 30, June 24,
2001 2000 2001 2000
----------------------------- -------------------------------
----------------------------- -------------------------------
Net sales $103,634 $93,964 $189,168 $170,540
Cost of goods sold 48,584 43,939 88,200 78,602
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
Gross profit 55,050 50,025 100,968 91,938
Selling, general and
administrative expenses 9,801 7,984 19,060 15,075
Research and development
expense 6,765 5,013 13,061 9,719
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
16,566 12,997 32,121 24,794
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
Operating income 38,484 37,028 68,847 67,144
Other income (expense):
Interest income 2,644 1,599 5,930 2,534
Interest expense (459) (979) (1,227) (1,462)
Foreign currency 8,419 669 7,316 (3,029)
Other (22) (146) 101 (52)
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
10,582 1,143 12,120 (2,009)
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
Income before income taxes 49,066 38,171 80,967 65,135
Income tax provision 12,463 9,010 20,565 15,375
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
Net income $36,603 $29,161 $60,402 $49,760
=========== =========== ============ ============
=========== =========== ============ ============
Net income per share
Basic $0.34 $0.29 $0.56 $0.50
Diluted $0.34 $0.29 $0.56 $0.50
Weighted average common
shares outstanding:
Basic 108,242 100,000 108,242 100,000
Diluted 108,648 100,000 108,629 100,000
The accompanying notes are an integral part of these financial statements.
Garmin Ltd. And Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
26-Weeks Ended
-------------------------------------
-------------------------------------
June 30, June 24,
2001 2000
-------------------------------------
Operating Activities:
Net income $60,402 $49,760
Depreciation & amortization 5,038 3,382
Provision for doubtful accounts 148 155
Deferred income taxes (685) (357)
Foreign currency transaction (gains) losses (4,550) 932
Change in operating assets and liabilities:
Accounts receivable (22,398) (9,751)
Inventories 15,451 (16,030)
Other current assets (3,086) (425)
Accounts payable (9,122) 4,675
Other current liabilities 1,083 400
Income taxes payable 5,774 2,587
---------- ----------
---------- ----------
Net cash provided by operating activities 48,055 35,328
Investing activities:
Purchases of property and equipment (8,842) (12,956)
Proceeds from asset sale - 20
Change in restricted cash 5,471 (11,762)
Other (3,158) (1,742)
---------- ----------
---------- ----------
Net cash used in investing activities (6,529) (26,440)
Financing activities:
Proceeds from issuance of long term debt - 20,000
Payments on long term debt (8,617) -
Dividends - (11,602)
---------- ----------
---------- ----------
Net cash provided by (used in) financing activities (8,617) 8,398
Effect of exchange rate changes on cash (5,863) 2,426
Net increase in cash 27,046 19,712
Cash at beginning of period 251,731 104,237
---------- ----------
---------- ----------
Cash at end of period $278,777 $123,949
========== ==========
========== ==========
The accompanying notes are an integral part of these financial statements.
Garmin Ltd.
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2001
(In thousands, except share information)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the 13 and 26-week periods ended June 30,
2001 are not necessarily indicative of the results that may be expected for the
year ended December 29, 2001.
The condensed consolidated balance sheet at December 30, 2000 has been derived
from the audited financial statements at that date but does not include all of
the information and footnotes required by generally accepted accounting
principles for completed financial statements. For further information, refer to
the consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 30,
2000.
The Company's fiscal year is based on a 52-53 week period ending on the last
Saturday of the calendar year. Therefore the financial results of certain fiscal
years, and the associated 14-week quarters, will not be exactly comparable to
the prior and subsequent 52-week fiscal years and the associated quarters having
only 13 weeks. The quarters ended June 30, 2001 and June 24, 2000 both contain
operating results for 13 weeks.
2. Inventories
The components of inventory consist of the following:
June 30, 2001 December 30, 2000
----------------------------------------------
Raw materials $35,296 $39,914
Work-in-process 4,097 8,116
Finished goods 37,165 41,825
------ ------
Inventory, net of reserves $73,347 $89,855
======= =======
----------------------------------------------
3. Initial Public Offering
On December 8, 2000, the Company completed an underwritten initial public
offering of 12,075,000 shares (including shares sold pursuant to the
underwriters' over-allotment option) of its common shares, of which 8,242,111
shares were offered by the Company and 3,832,889 were offered by selling
shareholders (the Offering) at an offering price of $14.00 per share. Prior to,
but in connection with the Offering, the Board of Directors approved a
1.12379256-for-1 stock split of the Company's common shares, effected through a
stock dividend on November 6, 2000. All share and per share information included
in the accompanying condensed consolidated financial statements has been
adjusted to give retroactive effect to the common stock split.
4. Earnings Per Share
The following table sets forth the computation of basic and diluted net income
per share (in thousands, except per share information):
13-weeks Ended
------------------------------------
------------------------------------
June 30, June 24,
2001 2000
------------------------------------
------------------------------------
Numerator:
Numerator for basic and diluted net income
per share - net income $36,603 $29,161
====================================
====================================
Denominator:
Denominator for basic net income per share -
weighted-average common shares 108,242 100,000
Effect of dilutive securities - employee
stock options 406 -
------------------------------------
Denominator for diluted net income per
share - adjusted weighted-average common
shares 108,648 100,000
====================================
====================================
Basic net income per share $0.34 $0.29
====================================
====================================
Diluted net income per share $0.34 $0.29
====================================
26-weeks Ended
------------------------------------
------------------------------------
June 30, June 24,
2001 2000
------------------------------------
------------------------------------
Numerator:
Numerator for basic and diluted net income
per share - net income $60,402 $49,760
====================================
====================================
Denominator:
Denominator for basic net income per share -
weighted-average common shares 108,242 100,000
Effect of dilutive securities - employee
stock options 387 -
------------------------------------
Denominator for diluted net income per
share - adjusted weighted-average common
shares 108,629 100,000
====================================
====================================
Basic net income per share $0.56 $0.50
====================================
====================================
Diluted net income per share $0.56 $0.50
====================================
5. Comprehensive Income
Comprehensive income is comprised of the following:
26-weeks Ended
----------------------------------------------
June 30, 2001 June 24, 2000
----------------------------------------------
(in thousands)
Net income $60,402 $49,760
Foreign currency
translation adjustment (11,642) 5,203
-------- -----
Comprehensive income $48,760 $54,963
======= =======
----------------------------------------------
6. Segment Information
Revenues and income before income taxes for each of the Company's reportable
segments are presented below:
13-weeks Ended
----------------------------------------------------------
June 30, 2001 June 24, 2000
----------------------------------------------------------
Consumer Aviation Consumer Aviation
(in thousands)
Sales to external
customers $70,827 $32,807 $64,247 $29,717
Income before
income taxes $31,729 $17,337 $24,615 $13,556
----------------------------------------------------------
26-weeks Ended
----------------------------------------------------------
June 30, 2001 June 24, 2000
----------------------------------------------------------
Consumer Aviation Consumer Aviation
(in thousands)
Sales to external
customers $129,351 $59,817 $114,399 $56,141
Income before
income taxes $51,735 $29,232 $41,005 $24,130
----------------------------------------------------------
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The discussion set forth below, as well as other portions of this Quarterly
Report, contains statements concerning potential future events. Such
forward-looking statements are based upon assumptions by our management, as of
the date of this Quarterly Report, including assumptions about risks and
uncertainties faced by the Company. Readers can identify these forward-looking
statements by their use of such verbs as expects, anticipates, believes or
similar verbs or conjugations of such verbs. If any of our assumptions prove
incorrect or should unanticipated circumstances arise, our actual results could
materially differ from those anticipated by such forward-looking statements. The
differences could be caused by a number of factors or combination of factors
including, but not limited to, those factors identified in the Company's Annual
Report on Form 10-K for the year ended December 30, 2000. This report has been
filed with the Securities and Exchange Commission (the "SEC" or the
"Commission") in Washington, D.C. and can be obtained by contacting the SEC's
public reference operations or obtaining it through the SEC's web site on the
World Wide Web at http://www.sec.gov. Readers are strongly encouraged to
consider those factors when evaluating any forward-looking statement concerning
the Company. The Company will not update any forward-looking statements in this
Quarterly Report to reflect future events or developments.
The information contained in this Management's Discussion and Analysis of
Financial Condition and Results of Operations should be read in conjunction with
the Condensed Consolidated Financial Statements and Notes thereto included in
this Form 10-Q and the audited financial statements and notes thereto in the
Company's Annual Report on Form 10-K for the year ended December 30, 2000.
The Company is a leading worldwide provider of navigation, communications
and information devices, most of which are enabled by Global Positioning System,
or GPS, technology. We operate in two business segments, the consumer and
aviation markets. Both of our segments offer products through our network of
independent dealers and distributors. However, the nature of products and types
of customers for the two segments vary significantly. As such, the segments are
managed separately. Our consumer segment includes portable GPS receivers and
accessories for marine, recreation, land and automotive use 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 certain aircraft manufacturers.
Results of Operations
The following table sets forth our results of operations as a percentage of
net sales during the periods shown:
13-weeks Ended
------------------------------------
June 30, 2001 June 24, 2000
------------------------------------
Net sales 100.0% 100.0%
Cost of goods sold 46.9% 46.8%
----- -----
Gross profit 53.1% 53.2%
Selling, general and
administrative expenses 9.5% 8.5%
Research and development expenses 6.5% 5.3%
---- ----
Total operating expenses 16.0% 13.8%
----- -----
Operating income 37.1% 39.4%
Other income, net 10.2% 1.2%
----- ----
Income before income taxes 47.3% 40.6%
Provision for income taxes 12.0% 9.6%
----- ----
Net income 35.3% 31.0%
===== =====
------------------------------------
26-weeks Ended
------------------------------------
June 30, 2001 June 24, 2000
------------------------------------
Net sales 100.0% 100.0%
Cost of goods sold 46.6% 46.1%
----- -----
Gross profit 53.4% 53.9%
Selling, general and
administrative expenses 10.1% 8.8%
Research and development expenses 6.9% 5.7%
---- ----
Total operating expenses 17.0% 14.5%
----- -----
Operating income 36.4% 39.4%
Other income, net 6.4% (1.2%)
---- ------
Income before income taxes 42.8% 38.2%
Provision for income taxes 10.9% 9.0%
----- ----
Net income 31.9% 29.2%
===== =====
------------------------------------
The following table sets forth our results of operations for each of our
two segments through income before income taxes during the periods shown. For
each line item in the table, the total of the consumer and aviation segments'
amounts equals the amount in the consolidated statements of income included in
Item 1.
13-weeks Ended
----------------------------------------------------------
June 30, 2001 June 24, 2000
----------------------------------------------------------
Consumer Aviation Consumer Aviation
(in thousands)
Net sales $70,827 $32,807 $64,247 $29,717
Cost of goods sold 36,714 11,870 31,456 12,483
------ ------ ------ ------
Gross profit 34,113 20,937 32,791 17,234
Operating expenses:
Selling, general and
administrative 7,080 2,721 5,855 2,129
Research and
development 4,374 2,391 3,317 1,696
----- ----- ----- -----
Total operating expenses 11,454 5,112 9,172 3,825
------ ----- ----- -----
Operating income 22,659 15,825 23,619 13,409
Other income (expense), net 9,070 1,512 996 147
----- ----- --- ---
Income before
income taxes $31,729 $17,337 $24,615 $13,556
======= ======= ======= =======
26-weeks Ended
----------------------------------------------------------
June 30, 2001 June 24, 2000
----------------------------------------------------------
Consumer Aviation Consumer Aviation
(in thousands)
Net sales $129,351 $59,817 $114,399 $56,141
Cost of goods sold 65,265 22,935 55,085 23,517
------ ------ ------ ------
Gross profit 64,086 36,882 59,314 32,624
Operating expenses:
Selling, general and
administrative 13,737 5,324 10,984 4,091
Research and 8,609 4,452 6,094 3,625
development ----- ----- ----- -----
Total operating expenses 22,346 9,776 17,078 7,716
------ ----- ------ -----
Operating income 41,740 27,106 42,236 24,908
Other income (expense),net 9,995 2,126 (1,231) (778)
------- ------- ------- -----
Income before
income taxes $51,735 $29,232 $41,005 $24,130
======= ======= ======= =======
Comparison of 13-Weeks Ended June 30, 2001 and June 24, 2000
Net Sales
Net sales increased $9.6 million, or 10.3%, to $103.6 million for the
13-week period ended June 30, 2001, from $94.0 million for the 13-week period
ended June 24, 2000. The increase for the 13-week period ended June 30, 2001 was
primarily due to the introduction of several new products and the increase in
overall demand for our GPS products. Sales from our consumer products accounted
for 68.3% of net sales for the second quarter of 2001 compared to 68.4% during
the second quarter of 2000. Sales from our aviation products accounted for 31.7%
for the second quarter of 2001 compared to 31.6% during the second quarter of
2000. Both consumer and aviation segments drove sales growth as total units were
up 11% to 357,000 in 2001 from 321,000 in 2000.
Net sales for the consumer segment increased $6.6 million, or 10.2%, to
$70.8 million for the 13-week period ended June 30, 2001, from $64.2 million for
the 13-week period ended June 24, 2000. The increase for the 13-week period
ended June 30, 2001 was primarily due to the 17 new products introduced in the
first half of 2001 and overall demand for our consumer products as total units
were up 11%.
Net sales for the aviation segment increased $3.1 million, or 10.4%, to
$32.8 million for the 13-week period ended June 30, 2001, from $29.7 million for
the 13-week period ended June 24, 2000. The increase for the 13-week period
ended June 30, 2001 was primarily due to strong sales of our panel-mount
aviation products as total units were up 15%.
Gross Profit
Gross profit increased $5.1 million, or 10.2%, to $55.1 million for the
13-week period ended June 30, 2001, from $50.0 million for the 13-week period
ended June 24, 2000. This increase was primarily attributable to revenue growth
associated with increased unit volumes. Gross profit as a percentage of net
sales remained flat at 53.1% for the 13-week period ended June 30, 2001 compared
to 53.2% for the 13-week period ended June 24, 2000.
Gross profit for the consumer segment increased $1.3 million, or 4.0%, to
$34.1 million for the 13-week period ended June 30, 2001, from $32.8 million for
the 13-week period ended June 24, 2000. Gross profit as a percentage of net
sales decreased to 48.2% for the 13-week period ended June 30, 2001 from 51.0%
for the 13-week period ended June 24, 2000 due to a shift in product mix as we
sold more entry level eTrex(R) units. As we develop new product lines, the
overall margin levels may be lower than the existing product line that is
replaced. For example, our eTrex product line overall has a lower margin than
the GPS III(R) predecessor product line. Additionally, we did not fully benefit
from the incremental sales generated from our new higher margin product
introductions that occurred late in the quarter.
Gross profit for the aviation segment increased $3.7 million, or 21.5%, to
$20.9 million for the 13-week period ended June 30, 2001, from $17.2 million for
the 13-week period ended June 24, 2000. Gross profit as a percentage of net
sales increased to 63.8% for the 13-week period ended June 30, 2001 from 58.0%
for the 13-week period ended June 24, 2000. This increase as a percentage of net
sales was primarily attributed to both volume, as panel-mount aviation unit
sales increased 38%, as well as product mix. We experienced a greater increase
in sales of our higher margin GNS 530 product compared to our GNS 430 product.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $1.8 million, or
22.8%, to $9.8 million (9.5% of net sales) for the 13-week period ended June 30,
2001, from $8.0 million (8.5% of net sales) for the 13-week period ended June
24, 2000. Selling, general and administrative expenses increased $1.2 million,
or 20.9%, in the consumer segment and $0.6 million, or 27.8%, in the aviation
segment. The increase in expense was primarily attributable to increases in
employment generally across the organization (net increase of 33 new employees),
increased advertising costs (up 16%) associated with new product releases, and
increased insurance premiums. Overall, selling, general and administrative
expenses increased at a higher rate than revenues due to the need to gear-up for
the release of new products. As a result, expenses are incurred before we
experience the benefit of incremental revenue growth from new products.
Research and Development Expense
Research and development expenses increased $1.8 million, or 34.9%, to $6.8
million (6.5% of net sales) for the 13-week period ended June 30, 2001, from
$5.0 million (5.3% of net sales) for the 13-week period ended June 24, 2000.
Research and development expenses increased $1.1 million, or 31.9%, in the
consumer segment and $0.7 million, or 41.0%, in the aviation segment. The
increase in expense was primarily due to the release of ten new recently-
developed products within our consumer segment and the addition of 25 new
engineers to our engineering staff as a result of our continued emphasis on
innovation.
Operating Income
Operating income for the 13-week period ended June 30, 2001 increased to
$38.5 million, or 3.9% from $37.0 million for the 13-week period ended June 24,
2000. Operating income as a percentage of net sales decreased to 37.1% for the
13-week period ended June 30, 2001, from 39.4% for the 13-week period ended June
24, 2000 as a result of the factors discussed above.
Other Income (Expense)
Other income (expense) principally consists of interest income, interest
expense and foreign currency exchange gains and losses. Other income for the
13-week period ended June 30, 2001 amounted to $10.6 million compared to other
income of $1.1 million for the 13-week period ended June 24, 2000. Interest
income for the 13-week period ended June 30, 2001 amounted to $2.6 million
compared to $1.6 million for the 13-week period ended June 24, 2000, the
increase being attributable to the growth of the Company's cash and cash
equivalents during the period on which interest income is earned. Interest
expense decreased to $0.5 million for the 13-week period ended June 30, 2001
from $1.0 million for the 13-week period ended June 24, 2000, due primarily to
the reduction of debt and a lower interest rate environment during fiscal 2001.
We recognized a foreign currency exchange gain of $8.4 million for the
13-week period ended June 30, 2001 compared to a gain of $0.7 million for the
13-week period ended June 24, 2000. The $8.4 million gain was due to the
significantly increased strength of the U.S. Dollar compared to the New Taiwan
Dollar during the second quarter of fiscal 2001, when the exchange rate
increased to 34.50 NTD/USD at June 30, 2001 from 32.84 NTD/USD at
March 31, 2001. The $0.7 million gain was due to the relative stability of the
U.S. Dollar compared to the New Taiwan Dollar during the second quarter of
fiscal 2000, when the exchange rate increased only slightly.
Income Tax Provision
Income tax expense increased by $3.5 million, to $12.5 million, for the 13-
week period ended June 30, 2001 from $9.0 million for the 13-week period ended
June 24, 2000 due to our higher taxable income. The effective tax rate was 25.4%
for the 13-week period ended June 30, 2001 versus 23.6% for the 13-week period
ended June 24, 2000. The increase is attributable to the effects of a surtax on
undistributed earnings in Taiwan that the Company will pay in the following
year, among other things. The tax cost of distributing earnings from Garmin
Corporation, the Company's Taiwan subsidiary, to the Company significantly
exceeds the amount of the surtax.
Net Income
As a result of the above, net income increased 25.5% for the 13-week period
ended June 30, 2001 to $36.6 million compared to $29.2 million for the 13-week
period ended June 24, 2000.
Comparison of 26-Weeks Ended June 30, 2001 and June 24, 2000
Net Sales
Net sales increased $18.7 million, or 10.9%, to $189.2 million for the
26-week period ended June 30, 2001, from $170.5 million for the 26-week period
ended June 24, 2000. The increase for the 26-week period ended June 30, 2001 was
primarily due to the introduction of 17 new products and the increase in overall
demand for our GPS products. Sales from our consumer products accounted for
68.4% of net sales for the first half of 2001 compared to 67.1% during the first
half of 2000. Sales from our aviation products accounted for 31.6% for the first
half of 2001 compared to 32.9% during the first half of 2000. Both consumer and
aviation segments drove sales growth as total units were up 17% to 682,000 in
2001 from 584,000 in 2000.
Net sales for the consumer segment increased $15.0 million, or 13.1%, to
$129.4 million for the 26-week period ended June 30, 2001, from $114.4 million
for the 26-week period ended June 24, 2000. The increase for the 26-week period
ended June 30, 2001 was primarily due to new product introductions during fiscal
2001 and overall demand for our consumer products as total units increased 18%.
Net sales for the aviation segment increased $3.7 million, or 6.6%, to
$59.8 million for the 26-week period ended June 30, 2001, from $56.1 million for
the 26-week period ended June 24, 2000. The increase for the 26-week period
ended June 30, 2001 was primarily due to stable sales of both our panel-mount
and handheld aviation products as total units were up 2%.
Gross Profit
Gross profit increased $9.1 million, or 9.8%, to $101.0 million for the
26-week period ended June 30, 2001, from $91.9 million for the 26-week period
ended June 24, 2000. This increase was primarily attributable to revenue growth
associated with increased unit volumes. Gross profit as a percentage of net
sales decreased to 53.4% for the 26-week period ended June 30, 2001 compared to
53.9% for the 26-week period ended June 24, 2000. This decrease as a percentage
of net sales was primarily attributed to a shift in product mix within the
consumer segment, lower margin new product lines replacing higher margin
existing product lines within the consumer segment, and the fact that we did not
benefit from the incremental sales generated from our new high margin product
introductions that occurred late in the second quarter of fiscal 2001.
Gross profit for the consumer segment increased $4.8 million, or 8.0%, to
$64.1 million for the 26-week period ended June 30, 2001, from $59.3 million for
the 26-week period ended June 24, 2000. Gross profit as a percentage of net
sales decreased to 49.5% for the 26-week period ended June 30, 2001 from 51.8%
for the 26-week period ended June 24, 2000 due to a shift in product mix as we
sold more entry level eTrex(R) units and a shift to lower margin product lines.
Additionally, we did not fully benefit from the incremental sales generated from
our new higher margin product introductions that occurred late in the second
quarter of fiscal 2001.
Gross profit for the aviation segment increased $4.3 million, or 13.1%, to
$36.9 million for the 26-week period ended June 30, 2001, from $32.6 million for
the 26-week period ended June 24, 2000. Gross profit as a percentage of net
sales increased to 61.7% for the 26-week period ended June 30, 2001 from 58.1%
for the 26-week period ended June 24, 2000. This increase as a percentage of net
sales was primarily attributed to both volume, as panel-mount aviation unit
sales increased 38%, as well as product mix. We experienced a greater increase
in sales of our GNS 530 product compared to our GNS 430 product due to its
increased capabilities and larger display.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $4.0 million, or
26.4%, to $19.1 million (10.1% of net sales) for the 26-week period ended June
30, 2001, from $15.1 million (8.8% of net sales) for the 26-week period ended
June 24, 2000. Selling, general and administrative expenses increased $2.8
million, or 25.1%, in the consumer segment and $1.2 million, or 30.1%, in the
aviation segment. The increase in expense was primarily attributable to
increases in employment generally across the organization, increased advertising
costs associated with new product releases, additional costs associated with
being a public company, and increases in insurance premiums. Overall, selling,
general and adminstrative expenses increased at a higher rate than revenues
due to the need to gear-up for the release of new products. As a result,
expenses are incurred before we experience the benefit of incremental revenue
growth from new products.
Research and Development Expense
Research and development expenses increased $3.4 million, or 34.4%, to
$13.1 million (6.9% of net sales) for the 26-week period ended June 30, 2001,
from $9.7 million (5.7% of net sales) for the 26-week period ended June 24,
2000. Research and development expenses increased $2.5 million, or 41.3%, in the
consumer segment and $0.9 million, or 22.8%, in the aviation segment. The
increase in expense was primarily due to the release of 17 new recently-
developed products within our consumer segment and the addition of 30 new
engineers to our engineering staff as a result of our continued emphasis on
research and development expansion and innovation.
Operating Income
Operating income for the 26-week period ended June 30, 2001 increased to
$68.8 million, or 2.5% from $67.1 million for the 26-week period ended June 24,
2000. Operating income as a percentage of net sales decreased to 36.4% for the
26-week period ended June 30, 2001, from 39.4% for the 26-week period ended June
24, 2000 as a result of the factors discussed above.
Other Income (Expense)
Other income (expense) principally consists of interest income, interest
expense and foreign currency exchange gains and losses. Other income for the
26-week period ended June 30, 2001 amounted to $12.1 million compared to other
expense of $2.0 million for the 26-week period ended June 24, 2000. Interest
income for the 26-week period ended June 30, 2001 amounted to $5.9 million
compared to $2.5 million for the 26-week period ended June 24, 2000, the
increase being attributable to the growth of the Company's cash and cash
equivalents during the period on which interest income is earned. Interest
expense decreased to $1.2 million for the 26-week period ended June 30, 2001
from $1.5 million for the 26-week period ended June 24, 2000, due primarily to
the reduction of debt and a lower interest rate environment during fiscal 2001.
We recognized a foreign currency exchange gain of $7.3 million for the
26-week period ended June 30, 2001 compared to a loss of $3.0 million for the
26-week period ended June 24, 2000. The $7.3 million gain was due to the
significantly increased strength of the U.S. Dollar compared to the New Taiwan
Dollar during the first half of fiscal 2001, when the exchange rate increased to
34.50 NTD/USD at June 30, 2001 from 33.01 NTD/USD at December 30, 2000. The $3.0
million loss was due to the weakening of the U.S. Dollar compared to the New
Taiwan Dollar during the first half of fiscal 2000, when the exchange rate
decreased to 30.77 NTD/USD at June 24, 2000 from 31.65 NTD/USD at December 25,
1999.
Income Tax Provision
Income tax expense increased by $5.2 million, to $20.6 million, for the
26-week period ended June 30, 2001 from $15.4 million for the 26-week period
ended June 24, 2000 due to our higher taxable income. The effective tax rate was
25.4% for the 26-week period ended June 30, 2001 versus 23.6% for the 26-week
period ended June 24, 2000. The increase is attributable to the effects of a
surtax on undistributed earnings in Taiwan that the Company will pay in the
following year, among other things. The tax cost of distributing earnings from
Garmin Corporation, the Company's Taiwan subsidiary, to the Company
significantly exceeds the amount of the surtax.
Net Income
As a result of the above, net income increased 21.4% for the 26-week period
ended June 30, 2001 to $60.4 million compared to $49.8 million for the 26-week
period ended June 24, 2000.
Liquidity and Capital Resources
Net cash generated by operating activities was $48.0 million for the
26-week period ended June 30, 2001 compared to $35.3 million for the 26-week
period ended June 24, 2000. 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 adequate 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 did experience a $16.5 million reduction in
inventory at June 30, 2001 when compared to fiscal year-end December 30, 2000 as
we began shipments of 17 new products. Due to the timing of these new product
introductions during the period, our accounts receivable balance increased $21.7
million to $54.4 million at June 30, 2001 from $32.7 million at December 30,
2000. We do not anticipate that the timing of new product introductions will
have a negative impact on our financial results in the future.
During the 26-week period ended June 30, 2001, our capital expenditures
totaled $8.8 million compared to $13.0 million for the 26-week period ended June
24, 2000. The capital expenditures were incurred primarily for the continued
expansion of our Olathe, Kansas facility. Cash flow from financing activities
during the quarter were $8.6 million use of cash due to the reduction of debt in
Taiwan compared to a source of cash of $8.4 million in the prior year. The
source of cash in the prior year was attributed to the net effect of the
issuance of long-term debt ($20.0 million) to finance the expansion of our
Olathe, Kansas facility and to pay dividends ($11.6 million).
We believe that our existing cash balances and cash flow from operations
will continue to be sufficient to meet our expected capital and liquidity needs
for the foreseeable future.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Market Sensitivity
We have market risk primarily in connection with the pricing of our
products and services and the purchase of raw materials. Product pricing and raw
material costs are both significantly influenced by semiconductor market
conditions. Historically, during cyclical industry downturns, we have been able
to offset pricing declines for our products through a combination of improved
product mix and success in obtaining price reductions in raw material costs.
Foreign Currency Exchange Rate Risk
The operation of the Company's subsidiaries in international markets
results in exposure to movements in currency exchange rates. We generally have
not been significantly affected by foreign exchange fluctuations because, until
recently, the New Taiwan Dollar has proven to be relatively stable. However,
within the last year we have experienced significant foreign currency gains due
to the strengthening of the U.S. dollar. The potential of volatile foreign
exchange rate fluctuations in the future could have a significant effect on our
results of operations.
The principal currencies involved are the New Taiwan Dollar and the British
Pound Sterling. The Company's international subsidiaries use 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. In order to minimize the effect of the currency exchange fluctuations
on our operations, we have elected to retain most of our cash at our Taiwan
subsidiary in U.S. dollars. As such, even when a significant gain or loss occurs
as a result of more volatile foreign exchange rate fluctuations, the actual
impact on our operations is of a lesser extent.
Interest Rate Risk
As of June 30, 2001, we have interest rate risk in connection with our
industrial revenue bonds that bear interest at a floating rate. The Company's
subsidiary, Garmin International, Inc. entered into an interest rate swap
agreement to modify the characteristics of $15 million of its outstanding
long-term debt from a floating rate to a fixed rate basis. This agreement
involves the receipt of floating rate amounts in exchange for fixed rate
interest payments over the life of the agreement without an exchange of the
underlying principal amount. The gain or loss on interest rate swap agreements
is immaterial.
Part II - Other Information
Item 1. Legal Proceedings
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From time to time the Company may be involved in litigation
arising in the course of its operations. As of August 13, 2001, the
Company was not a party to any material legal proceedings.
Item 2. Changes in Securities and Use of Proceeds
- -----------------------------------------
None
Item 3. Defaults Upon Senior Securities
- -----------------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders
- -----------------------------------------
The Company held its Annual General Meeting of Shareholders on June 8,
2001. Proxies for the meeting were solicited pursuant to Regulation
14A. There was no solicitation in opposition to the Board of
Directors' nominees for election as directors as listed in the Proxy
Statement and all such nominees were elected. Listed below is each
matter voted on at the Company's Annual General Meeting. All such
matters were approved. A total of 106,105,063 common shares or
approximately 98% of the common shares outstanding on the record date,
were present in person or by proxy at the Annual General Meeting.
These shares were voted as follows:
1) Election of Three Directors of the Company:
Nominee For Withheld
Gene M. Betts 106,089,949 15,114
Donald H. Eller 106,091,974 13,089
Thomas A. McDonnell 106,091,824 13,239
The terms of office of Directors Donald H. Eller and Ruey-Jeng Kao will
continue until the Annual General Meeting of Shareholders in 2002. The
terms of office of Directors Gary L. Burrell and Min H. Kao will
continue until the Annual General Meeting of Shareholders in 2003. The
terms of office of Directors Gene M. Betts and Thomas A. McDonnell will
continue until the Annual General Meeting of Shareholders in 2004.
2) Appointment of Ernst & Young LLP as Independent Auditors
for the 2001 Fiscal Year at Remuneration to be Approved
by the Board of Directors:
For Against Abstain Broker non-votes
106,068,902 28,733 7,428 N/A
Item 5. Other Information
- -----------------------------------------
Not applicable
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
Not applicable
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
GARMIN LTD.
By /s/ Kevin Rauckman
Kevin Rauckman
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
Dated: August 13, 2001