Garmin International, Inc. Retirement
Plan
We have audited the accompanying statement
of net assets available for benefits of the Garmin International, Inc. Retirement Plan (the Plan) as of December 31, 2016 and
2015 and the related statement of changes in net assets available for benefits for the years then ended. These financial statements
are the responsibility of the Plan’s management. Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate
in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Plan’s internal control
over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements
referred to above present fairly, in all material respects, the net assets available for benefits of the Plan as of December 31,
2016 and 2015, and the changes in net assets available for benefits for the years then ended, in conformity with accounting principles
generally accepted in the United States of America.
The supplemental information in the accompanying
schedule of assets (held at end of year) as of December 31, 2016 has been subjected to audit procedures performed in conjunction
with the audit of the Plan’s financial statements. The supplemental information is presented for the purpose of additional
analysis and is not a required part of the financial statements but includes supplemental information required by the Department
of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974.
The supplemental information is the responsibility of the Plan’s management. Our audit procedures included determining whether
the supplemental information reconciles to the financial statements or the underlying accounting and other records, as applicable,
and performing procedures to test the completeness and accuracy of the information presented in the supplemental information.
In forming our opinion on the supplemental information in the accompanying schedule, we evaluated whether the supplemental information,
including its form and content, is presented in conformity with the Department of Labor’s Rules and Regulations for Reporting
and Disclosure under the Employee Retirement Income Security Act of 1974. In our opinion, the supplemental information in the
accompanying schedule is fairly stated in all material respects in relation to the financial statements as a whole.
NOTES TO FINANCIAL STATEMENTS
1. Description of the Plan
The Garmin International,
Inc. Retirement Plan (the Plan) is a contributory defined contribution plan available to full-time employees of Garmin International,
Inc. (the Company), a wholly owned subsidiary of Garmin Ltd. The adopting employers of the Plan are Garmin AT, Inc., Digital Cyclone,
Inc., Garmin North America, Inc., and Garmin USA, Inc. (Employers). Garmin Ltd. and international subsidiary employees are excluded
from participating in the Plan. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA).
The Plan is administered
by Garmin International, Inc. The Company has overall responsibility for the operation and administration of the Plan. The Company
determines the Plan’s investment offerings, monitors investment performance and reports to the Board of Directors of Garmin
Ltd.
The Plan was amended October 1, 2016 to
eliminate any age or service requirements to participate in the Plan. Prior to October 1, 2016 employees had to be 21 years of
age or older and had to be credited with at least a 60-day period of service to be eligible to make deferral contributions to
the Plan and receive the employer match and base contributions. Employees will receive the employer match and base contributions
on the first day of the payroll period that coincides with or next follows the date that the requirements were satisfied. Associates
in the internship program are excluded from participating in the Plan.
Eligible employees may contribute up to
50% of their annual compensation subject to Internal Revenue Service (IRS) maximum limitations. Participants are allowed to designate
contributions as traditional (pre-tax) or Roth (after tax) contributions. The Company matches 75% of each participant’s
contributions up to 10% of the employee’s eligible compensation. Additional discretionary contributions may be made to all
eligible employees of the Company.
Participants become fully vested in employer
matching contributions after five years of continuous service. The vesting percentages are as follows: 0% through one year of
service, 20% after one year, 40% after two years, 60% after three years, 80% after four years, and 100% after five years of continuous
service. Participants will have a 100% vested interest in their account upon reaching normal retirement age, upon death while
still a participant in the Plan, or upon suffering a qualifying disability while still a participant in the Plan.
For the years ended December 31, 2016
and December 31, 2015, the non-safe harbor discretionary base contribution was equal to 2% of each participant’s eligible
compensation. Participants become fully vested in non-safe harbor discretionary base contributions and any other discretionary
profit-sharing contributions after five years of continuous service. The vesting percentages are as follows: 0% through one year
of service, 20% after one year, 40% after two years, 60% after three years, 80% after four years, and 100% after five years of
continuous service.
Participants do not need to be enrolled
in the Plan to receive safe harbor and non-safe harbor discretionary base contributions.
GARMIN INTERNATIONAL, INC.
RETIREMENT PLAN
NOTES TO FINANCIAL STATEMENTS
1. Description of the Plan (continued)
The Employers made additional discretionary
contributions (Safe Harbor base contributions) to the Plan during the 2016 and 2015 plan years. For any plan year in which the
Employers elect to make this type of contribution it will be equal to at least 3% of each eligible participant’s compensation
and will be 100% vested at all times. Participants will be notified before the beginning of each Plan year that this type of contribution
will be made. Eligible employees will receive Safe Harbor contributions on the first day of the payroll period that coincides
with or next follows the date of employment.
The nonvested balance of terminated participants’ account
balances is forfeited, and such forfeitures serve to reduce future Employer contributions and pay Plan administrative fees. The
Plan used $571,004 and $502,497 in forfeiture funds to reduce Employer contributions in 2016 and 2015, respectively. The Plan
did not use any forfeitures to pay administrative fees in 2016 or 2015. The Plan retained $10,956 and $31,721 in forfeitures as
of December 31, 2016 and 2015, respectively.
Any other discretionary Employer contributions to the Plan
would be at the sole discretion of the Company.
Each participant’s account is credited
with the participant’s contribution and allocations of (a) the employer contribution and, (b) Plan earnings, and charged
with an allocation of administrative expenses. Allocations are based on participant earnings or account balances, as defined.
The benefit to which a participant is entitled is the benefit that can be provided from the participant’s vested account.
Under provisions of the Plan, participants
direct the investment of their contributions into one or more of the investment accounts available.
Participants may borrow from the Plan
in the form of a participant note receivable, which is limited to the amount the participant may borrow without being treated
as a taxable distribution. The note receivable and any outstanding balance may not exceed 50% of the participant’s vested
account balance, not including discretionary profit-sharing contributions or merged Garmin International, Inc. base contribution
balances, or $50,000, whichever is less. Principal and interest are paid ratably each pay period through deductions from the participant’s
payroll. The vested account balance provides the security for the note receivable, and the participant’s account may not
be used as security for a note receivable outside of the Plan. Additionally, notes receivable must be repaid with interest within
five years from the inception date unless the note receivable is used to acquire the participant’s principal residence.
The note receivable may be repaid before it is due.
Upon termination of employment with the
Company, participants have various distribution options for receiving their benefits. If the participant’s balance is greater
than $5,000 the participant may choose between a lump sum distribution or to receive payment in installments (monthly, quarterly,
semi-annual or annual payments). If the participant’s balance is less than $5,000 a lump sum distribution is required. A
lump sum distribution may be made in the form of a rollover IRA or cash. If the participant’s balance is less than $1,000
the lump sum distribution must be in cash.
GARMIN INTERNATIONAL, INC.
RETIREMENT PLAN
NOTES TO FINANCIAL STATEMENTS
1. Description of the Plan (continued)
In 2016, the Plan Sponsor acquired DeLorme
Publishing Company, Inc. Those employees of DeLorme Publishing Company, Inc. that became employees of the Plan Sponsor were able
to roll their balances from the DeLorme Publishing Company, Inc. 401(k) Plan to the Plan. DeLorme Publishing Company,
Inc. employees were granted credit for prior service and immediately eligible to participate in the Plan per the eligibility requirements
at the date of acquisition. During 2016, these participants rolled a total of $6,390,522 into the Plan.
Although the Company has not expressed
any intent to do so, it has the right under the Plan provisions to terminate the Plan subject to the provisions of ERISA. In the
event of Plan termination, participants will become fully vested in their benefits. Additional information about the Plan and
its vesting and withdrawal provisions is contained in the Summary Plan Description,
Garmin International, Inc. Retirement Plan.
2. Summary of Significant Accounting
Policies
The following is a summary of significant
accounting policies of the Plan.
Basis of Accounting
The financial statements are prepared
using the accrual method of accounting.
Investment Valuation and Income Recognition
Investments are reported at fair value.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. See note 3 for discussion of fair value measurements.
In May 2015, the Financial
Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2015-07, Fair Value Measurement (Topic 820)
– Disclosures for Investments in Certain Entities That Calculate Net Asset Value Per Share (or Its Equivalent). The ASU
removes the requirement to include within the fair value hierarchy leveling table those investments that measure fair value
using the practical expedient available for investments that calculate a net asset value per share (or NAV equivalent for
example member units or an ownership interest in partners’ capital to which a proportionate share of net assets is
attributed). Even though these investments are removed from the fair value hierarchy, plans should provide or disclose the
total amount of investments measured using the net asset value per share (or its equivalent) practical expedient in order to
permit reconciliation of fair value of investments included in the fair value hierarchy to the line items presented in the
statement of net asset available for benefits. The ASU is effective for fiscal years beginning after December 15, 2016, with
early adoption permitted. The ASU is to be applied retrospectively. Management elected to adopt ASU 2015-07 during 2015.
GARMIN INTERNATIONAL, INC.
RETIREMENT PLAN
NOTES TO FINANCIAL STATEMENTS
2. Summary of Significant Accounting
Policies (continued)
Individual
participant accounts for the common collective trust funds are maintained on a unit value basis. Participants do not have beneficial
ownership in the specific underlying securities or other assets in the funds of the trust, but do have an interest therein represented
by units valued daily. The common collective trusts earn dividends and interest which are automatically reinvested in additional
units
.
Generally, contributions to and withdrawals from
each common collective trust are converted to units by dividing the amounts of such transactions by the unit values as last determined,
and the participants' accounts are charged or credited with the number of units properly attributable to each participant.
Purchases and sales of investments are
recorded on a trade date basis. Dividends are recorded on the ex-dividend date. Interest income is recorded on the accrual basis.
Net appreciation (depreciation) includes the Plan’s gains and losses on investments bought and sold, as well as held during
the year.
Use of Estimates
The preparation of financial statements
in conformity with accounting principles generally accepted in the United States of America requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ
from those estimates.
Payment of Benefits
Benefits are recorded when paid.
Notes Receivable From Participants
Notes receivable from participants are
measured at their unpaid principal balance plus accrued but unpaid interest. Interest income is recorded on the accrual basis.
Related fees are recorded as administrative expenses when they are incurred. No allowance for credit losses has been recorded
as of December 31, 2016 or 2015. If a participant ceases to make loan repayments and the Plan administrator deems the participant
loan to be in default, the participant loan balance is reduced and a benefit payment is recorded.
Administrative Expenses
Certain expenses of the Plan are paid
by the Company and are not included in the statements of changes in net assets available for benefits. Fees related to the administration
of notes receivable from participants are charged directly to the participant’s account and are included in administrative
expenses. Certain investment management and administration expenses paid to T. Rowe Price are included as a reduction of the net
appreciation in fair value of investments. The Plan used $116,226 and $151,709 of proceeds from a revenue sharing arrangement
to pay administrative fees in 2016 and 2015, respectively.
GARMIN INTERNATIONAL, INC.
RETIREMENT PLAN
NOTES TO FINANCIAL STATEMENTS
3. Fair Value Measurements
FASB ASC 820 establishes a fair value
hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority
to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority
to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under FASB ASC 820 are described below:
|
Level 1
|
Inputs to the valuation methodology
are unadjusted quoted prices for identical assets or liabilities in active markets that the Plan has the ability to access.
|
|
|
|
|
Level 2
|
Inputs to the valuation methodology include quoted prices for similar assets
and liabilities in active markets; quoted prices for identical or similar assets and liabilities in inactive markets; inputs
other than quoted market prices that are observable for the asset or liability inputs that are derived principally from or
corroborated by observable market data by correlation or other means. If the asset or liability has a specified
(contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability.
|
|
|
|
|
Level 3
|
One or more inputs to the valuation methodology are unobservable and significant
to the fair value measurement.
|
A financial instrument’s level within
the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation
techniques maximize the use of relevant observable inputs and minimize the use of unobservable inputs.
The Plan’s investments are stated
at fair value. Following is a description of the valuation methodologies used:
Mutual funds:
Valued at the daily
closing price as reported by the fund. Mutual funds held by the Plan are open-end mutual funds that are registered with the Securities
and Exchange Commission. These funds are required to publish their daily NAV and to transact at that price. The mutual funds held
by the Plan are deemed to be actively traded.
Common stock:
Valued at the closing
price reported on the active market on which the individual securities are traded.
Self-directed brokerage accounts:
Valued
at either closing price reported on the active market on which the individual securities are traded or using pricing models maximizing
the use of observable inputs for similar securities. This includes basing value on yields currently available on comparable securities
of issuers with similar credit ratings.
GARMIN INTERNATIONAL, INC.
RETIREMENT PLAN
NOTES TO FINANCIAL STATEMENTS
3. Fair Value Measurements (continued)
Common collective trust funds:
Valued at the NAV of units of a bank collective trust or its equivalent. The NAV, as provided by T. Rowe Price, is used as a practical
expedient to estimating fair value. The NAV is based on the fair value of the underlying investments held by the respective trust
less its liabilities. This practical expedient is not used when it is determined to be probable that the Plan will sell the investment
for an amount different than the reported NAV. Participant transactions (purchases and sales) may occur daily. Were the Plan to
initiate a full redemption of a collective trust, the investment advisor generally reserves the right to temporarily delay withdrawal
from the trust in order to ensure that securities liquidations will be carried out in an orderly business manner.
The following tables set forth by level,
within the fair value hierarchy, the Plan’s investments at fair value as of December 31, 2016 and 2015.
|
|
|
Investments at Fair Value as of December 31, 2016
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Mutual Funds
|
|
$
|
206,670,195
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
206,670,195
|
|
|
Self Directed Brokerage Accounts
|
|
|
18,499,411
|
|
|
|
94,636
|
|
|
|
-
|
|
|
|
18,594,047
|
|
|
Garmin Ltd. Common Stock
|
|
|
26,821,786
|
|
|
|
-
|
|
|
|
-
|
|
|
|
26,821,786
|
|
|
Total assets in the fair value hierarchy
|
|
|
251,991,392
|
|
|
|
94,636
|
|
|
|
-
|
|
|
|
252,086,028
|
|
|
Investments measured at net asset value {a}:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
383,536,433
|
|
|
Total investments at fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
635,622,461
|
|
|
|
|
Investments at Fair Value as of December 31, 2015
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Mutual Funds
|
|
$
|
165,754,495
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
165,754,495
|
|
|
Self Directed Brokerage Accounts
|
|
|
14,645,366
|
|
|
|
107,555
|
|
|
|
-
|
|
|
|
14,752,921
|
|
|
Garmin Ltd. Common Stock
|
|
|
20,418,198
|
|
|
|
-
|
|
|
|
-
|
|
|
|
20,418,198
|
|
|
Total assets in the fair value hierarchy
|
|
|
200,818,059
|
|
|
|
107,555
|
|
|
|
-
|
|
|
|
200,925,614
|
|
|
Investments measured at net asset value {a}:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
330,662,864
|
|
|
Total investments at fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
531,588,478
|
|
GARMIN INTERNATIONAL, INC.
RETIREMENT PLAN
NOTES TO FINANCIAL STATEMENTS
3. Fair Value Measurements (continued)
|
|
{a}
|
Certain investments that are measured
at fair value using the net asset value per share/unit (or its equivalent) practical
expedient have not been classified in the fair value hierarchy. The fair value amounts
presented in this table are intended to permit reconciliation of the fair value hierarchy
to the amounts presented in the statements of net assets available for benefits.
|
There have been no changes in the methodologies
used at December 31, 2016 or 2015.
4. Income Tax Status
The underlying volume submitter plan has received an opinion
letter from the IRS dated March 31, 2014, stating that the form of the Plan is qualified under Section 401 of the Code, and therefore,
the related trust is tax-exempt. In accordance with Revenue Procedure 2015-6 and Announcement 2011-49, Garmin International, Inc.
has determined that it is eligible to and has chosen to rely on the current IRS volume submitter opinion letter. Once qualified,
the Plan is required to operate in conformity with the Code to maintain its qualification. The Plan Administrator believes the
Plan is being operated in compliance with the applicable requirements of the Code with the exception of certain immaterial operational
errors that are being corrected in compliance with applicable programs of the IRS and DOL. As such, the Plan Administrator believes
that the Plan is qualified and the related trust is tax-exempt.
The Plan believes it has maintained its tax status and has
not identified any tax positions which are considered to be uncertain. The Plan files income tax returns in the U.S. federal jurisdiction
and is no longer subject to income tax examinations by tax authorities for years before 2013.
5. Related Party Transactions and Parties-in-interest Transactions
Certain Plan investments are shares of
mutual funds and common collective trusts managed by T. Rowe Price. T. Rowe Price is the trustee as defined by the Plan and therefore,
these transactions qualify as party-in-interest transactions. Investment management and shareholder servicing fees paid on these
funds and all other funds to T. Rowe Price are recorded as a reduction of net appreciation (depreciation) in fair value of investments,
as they are paid through a revenue sharing arrangement, rather than a direct payment. For the years ended December 31, 2016 and
2015, the Plan received amounts totaling $41,835 and $245,092 under the revenue sharing arrangement. At December 31, 2016 and
2015, the Plan had balances available in the amount of $19,581 and $193,965 to pay future administrative expenses or to allocate
to participants as a result of the revenue sharing arrangement. The Plan made direct payments to the third party administrator
of $22,587 and $23,779 for the years ended December 31, 2016 and 2015, respectively. The Company pays directly any other fees
related to the Plan’s operations.
Certain Plan investments are shares of
Garmin Ltd. common stock. Garmin International, Inc. is the Plan sponsor; therefore, these transactions are considered party-in-interest
transactions. Certain receivables are loans to participant employees of the Company, and therefore these transactions are considered
party-in-interest transactions.
GARMIN INTERNATIONAL, INC.
RETIREMENT PLAN
NOTES TO FINANCIAL STATEMENTS
5. Related Party Transactions and Parties-in-interest Transactions
(continued)
These transactions qualify as exempt party-in-interest
transactions.
6. Risks and Uncertainties
The Plan invests in various investment
securities. Investment securities are exposed to various risks such as interest rate, market, and credit risks. Due to the level
of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment
securities will occur in the near term and that such changes could materially affect participants’ account balances and
the amounts reported in the statements of net assets available for benefits.
7. Reconciliation of Financial Statements to Schedule H
of Form 5500
The following is a reconciliation of net assets available for
benefits as reflected in the financial statements to the Form 5500:
|
|
|
December 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
Net assets available for benefits per the financial statements
|
|
$
|
642,078,614
|
|
|
$
|
537,610,243
|
|
|
Adjustment from contract value to fair value reporting utilized by certain common collective trusts
|
|
|
(122,802
|
)
|
|
|
15,614
|
|
|
Net assets available for benefits per Schedule H of the Form 5500
|
|
$
|
641,955,812
|
|
|
$
|
537,625,857
|
|
The following is a reconciliation of net increase as reflected
in the financial statements to the Form 5500:
|
|
|
Years Ended December 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
Net increase per financial statements
|
|
$
|
104,468,371
|
|
|
$
|
26,504,041
|
|
|
Change in adjustment from contract value to fair value reporting utilized by certain common collective trusts
|
|
|
(138,416
|
)
|
|
|
(261,896
|
)
|
|
Net income per Schedule H of the Form 5500
|
|
$
|
104,329,955
|
|
|
$
|
26,242,145
|
|
Supplemental
Information
GARMIN INTERNATIONAL, INC. RETIREMENT
PLAN
SCHEDULE H, LINE 4i – SCHEDULE
OF ASSETS
Held at End of Year
December 31, 2016
(1) Cost information was omitted for Plan assets which are
participant directed.