As filed with the Securities and Exchange Commission on September 11, 2000
Registration No. 333-________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
GARMIN LTD.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
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<S> <C> <C>
CAYMAN ISLANDS 3812 98-0229227
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
QUEENSGATE HOUSE
P.O. BOX 30464SMB
113 SOUTH CHURCH STREET, GEORGE TOWN,
GRAND CAYMAN, CAYMAN ISLANDS
(345) 945-2187*
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
ANDREW R. ETKIND, ESQ.
C/O GARMIN INTERNATIONAL, INC.
1200 EAST 151ST STREET
OLATHE, KANSAS 66062
(913) 397-8200
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF AGENT FOR SERVICE)
*Garmin Ltd. maintains its registered office at Ugland House, South Church
Street, George Town, Grand Cayman, Cayman Islands, and its principal executive
offices at Queensgate House, P.O. Box 30464SMB, 113 South Church Street, George
Town, Grand Cayman, Cayman Islands. The executive offices of Garmin Ltd.'s
principal United States subsidiary are located at 1200 East 151st Street,
Olathe, Kansas 66062. The telephone number there is (913) 397-8200.
------------------------
COPIES TO:
JOHN F. MARVIN, ESQ. VINCENT PAGANO, JR., ESQ.
SONNENSCHEIN NATH & ROSENTHAL SIMPSON THACHER & BARTLETT
4520 MAIN STREET 425 LEXINGTON AVENUE
KANSAS CITY, MISSOURI 64111 NEW YORK, NEW YORK 10017-3954
APPROXIMATE DATE OF COMMENCEMENT OF SALE TO THE PUBLIC: As soon as
practicable after the effective date of this registration statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering.[ ] ________________
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ________________
<PAGE>
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] _____________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ] ________________
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CALCULATION OF REGISTRATION FEE
----------------------------------------------- ----------------------------- -------------------
PROPOSED
TITLE OF EACH CLASS OF MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PROCEEDS (1)(2) REGISTRATION FEE
----------------------------------------------- ----------------------------- -------------------
<S> <C> <C>
Common shares, par value US$0.01 per share..... US$230,000,000 US$60,720
----------------------------------------------- ----------------------------- -------------------
</TABLE>
(1) Includes $30,000,000 subject to the underwriters' over-allotment option.
(2) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(o) under the Securities Act of 1933.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
--------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED SEPTEMBER 11, 2000
PROSPECTUS
, 2000
[GARMIN LOGO]
__________________ COMMON SHARES
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<S> <C>
GARMIN LTD.: THE OFFERING:
o We are a leading provider of navigation, o We are offering common shares, and the
communications and information devices, most of selling shareholders are offering common
which are enabled by Global Positioning System shares.
technology. o The underwriters have an option to purchase an
additional common shares
o Garmin Ltd. from us to cover the underwriters'
Queensgate House over-allotment.
P.O. Box 30464SMB o This is the initial public offering of our
113 South Church Street, George Town, common shares. We anticipate that the initial
Grand Cayman, Cayman Islands public offering price will be between $
and $ per share.
o Closing: , 2000.
PROPOSED SYMBOL & MARKET:
o GRMN/Nasdaq National Market
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<TABLE>
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PER SHARE TOTAL
-------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Public offering price: $ $
Underwriting fees: $ $
Proceeds to us: $ $
PROCEEDS TO THE SELLING SHAREHOLDERS: $ $
-------------------------------------------------------------------------------------------------------------
</TABLE>
THIS INVESTMENT INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE 7.
--------------------------------------------------------------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
--------------------------------------------------------------------------------
JOINT BOOK-RUNNING MANAGERS
DONALDSON, LUFKIN & JENRETTE MERRILL LYNCH & CO.
-----------------
SALOMON SMITH BARNEY
<PAGE>
RED HERRING LEGEND
We will amend and complete the information in this prospectus. Although we are
permitted by US federal securities laws to offer these securities using this
prospectus, we may not sell them or accept your offer to buy them until the
documentation filed with the SEC relating to these securities has been declared
effective by the SEC. This prospectus is not an offer to sell these securities
or our solicitation of your offer to buy these securities in any jurisdiction
where that would not be permitted or legal.
<PAGE>
[Graphics on fold-out inside front cover page of prospectus.]
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C> <C> <C>
PAGE PAGE
Special Note Regarding Forward- Business................................. 34
Looking Statements.................... ii Management............................... 48
Prospectus Summary...................... 1 Certain Relationships and Related
Risk Factors............................ 7 Transactions............................ 54
Use of Proceeds......................... 18 Principal and Selling Shareholders....... 55
Dividend Policy......................... 18 Description of Share Capital............. 56
Dilution................................ 19 Shares Eligible for Future Sale.......... 60
Capitalization.......................... 20 Tax Considerations....................... 62
Selected Consolidated Financial and Underwriting............................. 67
Other Data............................ 21 Legal Matters............................ 69
Management's Discussion and Analysis Experts.................................. 70
of Financial Condition and Results of Enforceability of Civil Liabilities...... 70
Operations............................ 23 Additional Information................... 71
Reorganization.......................... 33 Index to Consolidated Financial
Statements............................. F-1
</TABLE>
---------------
GARMIN, the GARMIN logo, the GARMIN globe design, the GARMIN "swoosh"
design, STREETPILOT, TRACBACK, DCG, GPS II, GPS III, GPSCOM, PHASETRAC 12,
TRACPAK, G CHART, GPS 40, PERSONAL NAVIGATOR, GUIDANCE BY GARMIN, MULTITRAC 8,
AUTOLOCATE, QUICKFIX and SEE-THRU are registered trademarks of Garmin
Corporation, and EMAP, ETREX, ETREX SUMMIT and MAPSOURCE are trademarks of
Garmin Corporation. All other registered trademarks and tradenames referred to
in this prospectus are the property of their respective owners.
All references to Taiwan in this prospectus are to the Republic of
China. In this prospectus, references to "NT Dollars" or "New Taiwan Dollar(s)"
are to the currency of Taiwan and all references to "U.S. Dollar," "Dollars,"
"$" or "US$" are to the currency of the United States of America. Unless
otherwise indicated, the information contained in this prospectus:
o assumes that the underwriters do not exercise the option granted by us
to purchase additional shares in this offering to cover
over-allotments;
o assumes that no outstanding employee stock options are exercised;
o is presented as if Garmin Ltd., which was established in July 2000,
had been in existence for all periods presented; and
o is presented as if the exchange offer pursuant to which the holders of
shares of Garmin Corporation effectively exchanged their shares for
shares of Garmin Ltd. had taken place prior to the periods presented.
See note 1 of our consolidated financial statements and
"Reorganization."
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
AND CERTAIN OTHER INFORMATION
Some of the statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and elsewhere in this prospectus constitute
forward-looking statements. These statements relate to future events or our
future financial performance, and are identified by terminology such as "may,"
"might," "will," "should," "expect," "scheduled," "plan," "intend,"
"anticipate," "believe," "estimate," "potential," or "continue" or the negative
of such terms or other comparable terminology. These statements speak only as of
the date of this prospectus and are only predictions. Actual events or results
may differ materially. In evaluating these statements, you should specifically
consider various factors, including the risks outlined under "Risk Factors."
These factors, among others, may cause our actual results to differ materially
from any forward-looking statement.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Except as may be required by any
obligations imposed by applicable law, after the date of this prospectus, we do
not intend to update any of the forward-looking statements, whether as a result
of new information, future events or otherwise.
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS.
THIS SUMMARY IS NOT COMPLETE AND DOES NOT CONTAIN ALL OF THE INFORMATION YOU
SHOULD CONSIDER BEFORE BUYING SHARES IN THIS OFFERING. YOU SHOULD READ THE
ENTIRE PROSPECTUS CAREFULLY. UNLESS THE CONTEXT OTHERWISE REQUIRES, REFERENCES
TO THE "COMPANY," "WE," "US," "OUR" AND SIMILAR TERMS REFERS TO GARMIN LTD. AND
ITS SUBSIDIARIES.
GARMIN
We are a leading, worldwide provider of navigation, communications and
information devices, most of which are enabled by Global Positioning System
technology. The Global Positioning System, or GPS, first made available by the
U.S. government for commercial use in 1983, is a worldwide navigation system
which enables the precise determination of geographic location using established
satellite technology. We design, develop, manufacture and market under the
GARMIN brand a diverse family of hand-held, portable and fixed mount GPS-enabled
products and other navigation, communications and information products. Each of
our GPS products utilizes our proprietary integrated GPS chipsets and receiver
design to collect, calculate and display location, direction, speed and other
information in forms optimized for specific end-user applications.
The precise determination of location is a fundamental requirement in many
activities such as navigation, and is an increasingly attractive feature for
other recreational and business applications. According to a 1999 report by
Allied Business Intelligence, Inc., the worldwide commercial GPS market,
including the markets in which we participate, is projected to grow from an
estimated $4.9 billion in 1999 to $13.9 billion by 2005. On May 2, 2000, the
accuracy of GPS improved from approximately 100 meters to 10 meters or less as a
result of the U.S. government's removal of its intentional accuracy degradation,
known as Selective Availability. We believe that improved accuracy and
functionality of GPS devices as well as the continued convergence of GPS,
communications and information technologies will drive continued industry
growth.
We were founded in 1989 with a vision to be a leading supplier of
navigation, communications and information devices to customers around the
world. Our management team includes the original founders of our company in
addition to others with significant experience in our selected markets. Our
target markets currently consist of the consumer segment, which primarily
includes marine/recreational products, and the aviation segment, which consists
of panel mount and portable products for use in aircraft. We offer approximately
fifty navigation, communications and information products, including:
o small, handheld personal GPS navigation devices;
o award-winning, panel-mounted suites for general aviation aircraft,
which integrate cockpit communications, instrument landing system
receivers and GPS technology;
o portable automotive navigation systems with local street-level map
detail and business and address information;
o GPS-enabled and stand-alone sonar depth sounders (fishfinders) for
recreational boating and fishing; and
o the first integrated GPS-enabled mobile phone.
While the marine/recreational and aviation product lines will continue
to be the core of our business in the near-term, these product lines are only
the beginning for GPS-enabled products and services. GPS capabilities are
becoming increasingly commercially viable in a wide range of consumer products
and services, including automotive navigation systems and wireless consumer and
mobile information devices (such as phones and personal digital assistants, or
PDAs). Our vision is to leverage our brand and development experience to build
leadership positions in many of these potentially high-growth GPS
enabled/enhanced markets.
<PAGE>
We believe our emphasis on simplicity and ease of use, our rugged yet
elegant designs, and the introduction of innovative features across a range of
applications have been the foundation of our success to date. Our products have
won numerous awards and significant recognition, including an "Editor's Choice"
award in 1998 from FLYING magazine for our GNS 430 integrated avionics product
and the selection by POPULAR SCIENCE magazine of our NavTalk(TM) GPS-enabled
cellular telephone as one of the "Best of What's New" in 1998. More recently,
our eTrex(TM) product has garnered recognition and favorable reviews in
magazines such as MEN'S JOURNAL, OUTDOOR LIFE, POPULAR MECHANICS, SAIL and
VOGUE.
We have sold approximately three million devices and have sustained
consistent growth and profitability, despite significant competition. Our sales
have grown from $102 million in 1995 to $233 million in 1999, a compound annual
growth rate of 23%. Over the same period, our net income grew from $23 million
to $64 million, a compound annual growth rate of 29%. We estimate that in 1999
we had a market share by unit volume of approximately 50% in the North American
GPS marine and recreational market, based upon data from an independent market
report published by Frost and Sullivan. We estimate that in 1999 our market
share was 59% by unit volume of the U.S. general aviation retrofit market for
GPS-enabled panel mount applications, and that our market share was 76% by unit
volume of the U.S. market for portable aviation GPS devices, based upon data
from independent market reports published by the Aircraft Electronics
Association.
Our products are sold in approximately 100 countries through our global
network of approximately 2,500 independent dealers and distributors, as well as
through original equipment manufacturers, or OEMs, for certain product lines.
Major dealers and distributors for our consumer products include Bass Pro Shops,
Best Buy, Boat America/Boat U.S., Boater's World, Cabela's, Eastern Mountain
Sports, Office Depot, REI, West Marine and Wal-Mart. Our products are also
standard equipment on boats manufactured by Ranger Boats and Lund Boat Company
and optional equipment on boats manufactured by Cobalt Boats and Tuffy Boats by
Fiberdome. Major dealers and distributors for our aviation products include JA
Air Center, Sportsman's Market, Inc. (Sporty's Pilot Shop) and Tropic Aero, Inc.
In addition, our panel-mount aviation products are standard equipment on
airplanes from six manufacturers, including The New Piper Aircraft Company,
Raytheon Aircraft Company, Mooney Aircraft Corporation and Cirrus Design
Corporation.
Our track record of product innovations is maintained by our strong
emphasis on research and development and the close partnership between our
engineering and manufacturing teams. We have introduced 23 new products in the
last two years and expect to introduce approximately 25 new products in the next
12 months. As of August 22, 2000, we held 35 U.S. patents and have approximately
40 U.S. patent applications pending. Our products are created by our in-house
engineering and design staff of approximately 200 people worldwide. Our design
and manufacturing processes are certified to ISO 9001/2, an international
standard for superior quality and reliability. We have manufacturing facilities
in Shijr, Taiwan and Olathe, Kansas. As of June 30, 2000, we had 1,205 full-time
employees worldwide.
Our strategy is to expand our market leadership by designing,
producing, marketing and supporting innovative navigation, communications and
information products to customers around the world. The key elements of our
strategy include:
o MAINTAIN OUR CUSTOMER FOCUSED APPROACH TO PRODUCT DESIGN. Our
goal is to serve our customers' needs by designing products that
offer superior value, higher quality, and lower cost of ownership
than those of our competitors.
o EMPHASIZE CONTINUOUS PRODUCT INNOVATION. We intend to continue to
be a leader in innovation by capitalizing on the convergence of
information and location technologies as we expand the utility
of, and market for, our devices.
<PAGE>
o EXPAND AND BROADEN OUR PRODUCT LINE. Our goal is to offer a
comprehensive line of products within each of our current market
segments, and introduce an innovative line of convergence
devices, including mobile information appliances, which combine
GPS, communications and information capabilities.
o MAINTAIN AND SELECTIVELY EXPAND OUR DISTRIBUTION NETWORK. We plan
to maintain and expand on our close relationships with our global
network of existing and new dealers and OEMs to reach new
customers and introduce the utility of our products to new
markets.
o LEVERAGE VERTICAL INTEGRATION. We intend to continue integrating
vertically whenever superior results can be achieved.
----------------
We are incorporated in the Cayman Islands. Our registered office is
located at Ugland House, P.O. Box 309, South Church Street, George Town, Grand
Cayman, Cayman Islands. Our principal executive offices are located at
Queensgate House, P.O. Box 30464SMB, 113 South Church Street, George Town, Grand
Cayman, Cayman Islands, and our telephone number is (345) 945-2187. The
executive offices of our principal United States subsidiary are located at 1200
East 151st Street, Olathe, Kansas 66062. The telephone number there is (913)
397-8200. Our Web site address is www.garmin.com. The information on the Web
site is not part of this prospectus.
<PAGE>
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THE OFFERING
<S> <C>
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Common shares offered by us............. ______________ shares
---------------------------------------- ------------------------------------------------------
---------------------------------------- ------------------------------------------------------
Common shares offered by the
selling stockholders................. ______________ shares
---------------------------------------- ------------------------------------------------------
---------------------------------------- ------------------------------------------------------
Common shares to be outstanding after
the offering......................... ______________ shares
---------------------------------------- ------------------------------------------------------
---------------------------------------- ------------------------------------------------------
Use of proceeds......................... We plan to use the proceeds to us from this offering
for working capital and other general corporate
purposes, including possible acquisitions or strategic
partnerships and expansion into new products and
markets. We currently have no commitments to make any
material investments or acquisitions.
---------------------------------------- ------------------------------------------------------
---------------------------------------- ------------------------------------------------------
Proposed Nasdaq National Market symbol.. GRMN
---------------------------------------- ------------------------------------------------------
</TABLE>
The number of common shares to be outstanding after this offering is based
on our shares outstanding as of _____________, 2000. This number excludes:
o........__________________ common shares issuable upon exercise of options
granted to our employees and directors on _____________, 2000 under
our stock option plan
o _________________ shares subject to the underwriters' over-allotment
option.
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA
The following table presents summary consolidated financial data of
Garmin Ltd. for each of the five years in the period ended December 25, 1999 and
the six-month periods ended June 26, 1999 and June 24, 2000. We have derived the
historical data below from our audited consolidated financial statements except
for data for the six months ended June 26, 1999 and June 24, 2000, and as of
June 24, 2000, which was derived from our unaudited consolidated financial
statements.
You should read the following information in conjunction with
"Capitalization," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our audited consolidated financial statements and
the related notes, included elsewhere in this prospectus. The consolidated
financial statements for the five fiscal years ended December 25, 1999 have been
audited by Ernst & Young LLP, independent auditors.
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED(1) ENDED(1)
-------------------------------------------------------------- ------------------------
DEC. 31, DEC. 31, DEC. 31, DEC. 26, DEC. 25, JUNE 26, JUNE 24,
1995 1996 1997 1998 1999 1999 2000
----------- ---------- ------------- ----------- ---------- ---------- ------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENTS OF
INCOME DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales...................... $102,474 $135,874 $160,280 $169,030 $232,586 $106,395 $170,540
Cost of goods sold............. 55,446 77,616 93,620 82,787 105,654 50,443 78,602
---------- -------- --------- --------- --------- --------- ---------
Gross profit................... 47,028 58,258 66,660 86,243 126,932 55,952 91,938
Operating expenses:
Selling, general and
administrative.............. 13,935 17,720 17,102 24,680 27,063 12,434 15,075
Research and development..... 7,703 10,383 12,657 14,876 17,339 7,936 9,719
---------- --------- --------- --------- --------- --------- ---------
Total operating expenses....... 21,638 28,103 29,759 39,556 44,402 20,370 24,794
---------- --------- --------- --------- --------- --------- ---------
Operating income............... 25,390 30,155 36,901 46,687 82,530 35,582 67,144
Other income (expense)......... 558 818 11,971(2) 833 1,602 1,894 (2,009)
---------- --------- --------- --------- --------- --------- ---------
Income before income taxes..... 25,948 30,973 48,872 47,520 84,132 37,476 65,135
Provision for income taxes..... 2,869 7,943 12,780 12,354 19,965 8,893 15,375
---------- --------- --------- --------- --------- --------- ---------
Net income................... $ 23,079 $ 23,030 $ 36,092 $ 35,166 $ 64,167 $ 28,583 $ 49,760
========== ========= ========= ========= ========= ========= =========
Net income per share (basic
and diluted).............. $ 0.26 $ 0.26 $ 0.41 $ 0.40 $ 0.72 $ 0.32 $ 0.56
========== ========= ========= ========= ========= ========= =========
Weighted average common
shares outstanding (basic
and diluted).............. 87,984 87,984 87,984 88,650 88,984 88,984 88,984
========== ========= ========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 24, 2000
------------------------------------------
AS ADJUSTED FOR
ACTUAL THE OFFERING (3)
------ ----------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................................. $123,610
Total 327,058
assets...............................................
Total debt (4)............................................. 48,236
Total stockholders' equity................................. 220,608
</TABLE>
------------
<PAGE>
(1) Our fiscal quarters are 13-week quarters and do not always end on the
last day of the calendar quarter. Our fiscal year end is the last
Saturday of the calendar year and does not always fall on December 31.
Prior to 1998, our fiscal quarters were calendar quarters, and our
fiscal years ended on December 31.
(2) Includes a $10 million foreign currency gain.
(3) Reflects the issuance and sale of _________ common shares offered
hereby at an assumed initial public offering price of $_____ per share,
the mid-point of the estimated price range set forth on the prospectus
cover page after deduction of underwriting fees and offering expenses
payable by us.
(4) Total debt consists of notes payable and long-term debt.
<PAGE>
RISK FACTORS
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD CAREFULLY
CONSIDER THE FOLLOWING FACTORS AND OTHER INFORMATION IN THIS PROSPECTUS BEFORE
DECIDING TO INVEST IN OUR COMMON SHARES.
RISKS RELATED TO OUR COMPANY
OUR GPS PRODUCTS DEPEND UPON SATELLITES MAINTAINED BY THE UNITED STATES
DEPARTMENT OF DEFENSE. IF A SIGNIFICANT NUMBER OF THESE SATELLITES BECOME
INOPERABLE, UNAVAILABLE OR ARE NOT REPLACED OR IF THE POLICIES OF THE UNITED
STATES GOVERNMENT FOR THE USE OF GPS WITHOUT CHARGE ARE CHANGED, OUR BUSINESS
WILL SUFFER.
The Global Positioning System is a satellite-based navigation and
positioning system consisting of a constellation of orbiting satellites. The
satellites and their ground control and monitoring stations are maintained and
operated by the United States Department of Defense. The Department of Defense
does not currently charge users for access to the satellite signals. These
satellites and their ground support systems are complex electronic systems
subject to electronic and mechanical failures and possible sabotage. The
satellites were originally designed to have lives of 7.5 years and are subject
to damage by the hostile space environment in which they operate. However, of
the current deployment of satellites in place, the average age is 6 years and
some have been operating for more than 11 years.
If a significant number of satellites were to become inoperable,
unavailable or are not replaced, it would impair the current utility of our GPS
products and the growth of current and additional market opportunities. In
addition, there can be no assurance that the U.S. government will remain
committed to the operation and maintenance of GPS satellites over a long period,
or that the policies of the U.S. government that provide for the use of GPS
without charge and without accuracy degradation will remain unchanged. Because
of the increasing commercial applications of GPS, other U.S. government agencies
may become involved in the administration or the regulation of the use of GPS
signals. Any of the foregoing factors could affect the willingness of buyers of
our products to select GPS-based products instead of products based on competing
technologies.
INTERFERENCE WITH THE RECEPTION OF GPS SIGNALS COULD HARM OUR BUSINESS.
Our GPS technology is dependent on the use of radio frequency spectrum.
The assignment of spectrum is controlled by an international organization known
as the International Telecommunications Union ("ITU"). The Federal
Communications Commission ("FCC") is responsible for the assignment of spectrum
for non-government use in the United States in accordance with ITU regulations.
Any ITU or FCC reallocation of radio frequency spectrum, including frequency
band segmentation or sharing of spectrum, could cause interference with the
reception of GPS signals and may materially and adversely affect the utility and
reliability of our products, which would, in turn, cause a material adverse
effect on our operating results. In addition, emissions from mobile satellite
service and other equipment operating in adjacent frequency bands or inband may
materially and adversely affect the utility and reliability of our products,
which could result in a material adverse effect on our operating results.
On May 11, 2000, the FCC issued a Notice of Proposed Rulemaking that
proposes rules for the operation of Ultra-Wideband ("UWB") radio devices on an
unlicensed basis in the frequency bands allocated to GPS. If the FCC issues
final rules authorizing such operation, UWB devices might cause interference
with the reception of GPS signals. Such interference could reduce demand for GPS
products in the future. Any resulting change in market demand for GPS products
could have a material adverse effect on our financial results.
<PAGE>
IF WE ARE NOT SUCCESSFUL IN THE CONTINUED DEVELOPMENT, INTRODUCTION OR TIMELY
MANUFACTURE OF NEW PRODUCTS, DEMAND FOR OUR PRODUCTS COULD DECREASE.
We expect that a significant portion of our future revenue will
continue to be derived from sales of newly introduced products. The market for
our products is characterized by rapidly changing technology, evolving industry
standards and changes in customer needs. If we fail to modify or improve our
products in response to changes in technology, industry standards or customer
needs, our products could rapidly become less competitive or obsolete. We must
continue to make significant investments in research and development in order to
continue to develop new products, enhance existing products and achieve market
acceptance for such products. However, there can be no assurance that
development stage products will be successfully completed or, if developed, will
achieve significant customer acceptance.
If we are unable to successfully develop and introduce competitive new
products, and enhance our existing products, our future results of operations
would be adversely affected. Our pursuit of necessary technology may require
substantial time and expense. We may need to license new technologies to respond
to technological change. These licenses may not be available to us on terms that
we can accept. We may not succeed in adapting our products to new technologies
as they emerge. Development and manufacturing schedules for technology products
are difficult to predict, and there can be no assurance that we will achieve
timely initial customer shipments of new products. The timely availability of
these products in volume and their acceptance by customers are important to our
future success. We have previously experienced delays in shipping certain of our
products and any future delays, whether due to manufacturing delays, lack of
market acceptance, delays in regulatory approval, or otherwise, could have a
material adverse effect on our results of operations.
IF WE DO NOT CORRECTLY ANTICIPATE DEMAND FOR OUR PRODUCTS, WE MAY NOT BE ABLE TO
SECURE SUFFICIENT QUANTITIES OR COST-EFFECTIVE PRODUCTION OF OUR PRODUCTS OR WE
COULD HAVE COSTLY EXCESS PRODUCTION OR INVENTORIES.
Historically, we have experienced steady increases in demand for our
products and have generally been able to increase production to meet that
demand. However, the demand for our products depends on many factors and will be
difficult to forecast. We expect that it will become more difficult to forecast
demand as we introduce and support multiple products and as competition in the
market for our products intensifies. Significant unanticipated fluctuations in
demand could cause the following problems in our operations:
o If demand increases beyond what we forecast, we would have to rapidly
increase production. We would depend on suppliers to provide
additional volumes of components and those suppliers might not be able
to increase production rapidly enough to meet unexpected demand.
o Rapid increases in production levels to meet unanticipated demand
could result in higher costs for manufacturing and supply of
components and other expenses. These higher costs could lower our
profit margins. Further, if production is increased rapidly,
manufacturing quality could decline, which may also lower our margins.
o If forecasted demand does not develop, we could have excess production
resulting in higher inventories of finished products and components,
which would use cash and could lead to write-offs of some or all of
the excess inventories. Lower than forecasted demand could also result
in excess manufacturing capacity at our facilities, which could result
in lower margins.
<PAGE>
OUR PRODUCTS ARE COMPLEX AND ERRORS OR DEFECTS COULD RESULT IN THE REJECTION OF
OUR PRODUCTS AND DAMAGE TO OUR REPUTATION, AS WELL AS LOST REVENUES AND
INCREASED COSTS.
Our products are complex and must meet stringent user requirements.
Products as sophisticated as ours are likely to contain undetected errors or
defects, especially when first introduced or when new models or versions are
released. Our products may not be free from errors or defects after commercial
shipments have begun, which could result in the rejection of our products,
damage to our reputation, lost revenues, diverted development resources and
increased customer service and support costs and warranty claims. Any of these
results could harm our business.
WE MAY BECOME SUBJECT TO SIGNIFICANT PRODUCT LIABILITY COSTS.
We could become subject to significant product liability costs,
particularly with respect to errors or defects in, or misuse of, our products,
in the event of catastrophe, collision, property damage or personal injury. We
maintain insurance against accident-related risks involving our products.
However, there can be no assurance that such insurance would be sufficient to
cover the cost of damages to others or that such insurance will continue to be
available at commercially reasonable rates. If we are unable to maintain
sufficient insurance to cover product liability costs, our business could be
harmed.
WE DEPEND ON OUR SUPPLIERS, SOME OF WHICH ARE THE SOLE SOURCE FOR SPECIFIC
COMPONENTS OR MAPPING DATA, AND OUR PRODUCTION WOULD BE SERIOUSLY HARMED IF
THESE SUPPLIERS ARE NOT ABLE TO MEET OUR DEMAND AND ALTERNATIVE SOURCES ARE NOT
AVAILABLE, OR IF THE COSTS OF COMPONENTS RISE.
We are dependent on third party suppliers for various components used
in our current products. Some of the components that we procure from third party
suppliers include semiconductors and electroluminescent panels, liquid crystal
displays, memory chips and microprocessors. The cost, quality and availability
of components are essential to the successful production and sale of our
products. Some components come from our sole source suppliers. Alternative
sources may not be currently available for these sole source components.
In the past, we have experienced shortages, particularly involving
components that are also used in cellular phones. In addition, if there are
shortages in supply of components, the costs of such components may rise. If
suppliers are unable to meet our demand for components on a timely basis and if
we are unable to obtain an alternative source or if the price of the alternative
source is prohibitive, or if the costs of components rise, our ability to
maintain timely and cost-effective production of our products would be seriously
harmed.
We license mapping data for use in our products from various sources.
There are only a limited number of suppliers of mapping data for each
geographical region. If we are unable to continue licensing such mapping data
and are unable to obtain an alternative source, or if the price of the
alternative source is prohibitive, our ability to supply mapping data for use in
our products would be seriously harmed.
WE RELY ON INDEPENDENT DEALERS AND DISTRIBUTORS TO SELL OUR PRODUCTS, AND
DISRUPTION TO THESE CHANNELS WOULD HARM OUR BUSINESS.
Because we sell a majority of our products to independent dealers and
distributors, we are subject to many risks, including risks related to their
inventory levels and support for our products. In particular, our dealers and
distributors maintain significant levels of our products in their inventories.
If dealers and distributors attempt to reduce their levels of inventory or if
they do not maintain sufficient levels to meet customer demand, our sales could
be negatively impacted.
<PAGE>
Our dealers and distributors also sell products offered by our
competitors. If our competitors offer our dealers and distributors more
favorable terms, those dealers and distributors may de-emphasize or decline to
carry our products. In the future, we may not be able to retain or attract a
sufficient number of qualified dealers and distributors. If we are unable to
maintain successful relationships with dealers and distributors or to expand our
distribution channels, our business will suffer.
We believe our distributors are experiencing competition from
Internet-based suppliers that distribute directly to end-user customers. These
actions could cause conflict among our channels of distribution, which could
affect the effectiveness of our existing dealer channel and harm our revenues
and results of operations.
IF WE FAIL TO MANAGE OUR GROWTH AND EXPANSION EFFECTIVELY, WE MAY NOT BE ABLE TO
SUCCESSFULLY MANAGE OUR BUSINESS.
Our ability to successfully offer our products and implement our
business plan in a rapidly evolving market requires an effective planning and
management process. We continue to increase the scope of our operations
domestically and internationally and have grown our shipments and headcount
substantially. In addition, we plan to continue to hire a significant number of
employees within the next 12 months. This growth has placed, and our anticipated
growth in future operations will continue to place, a significant strain on our
management systems and resources.
OUR BUSINESS MAY SUFFER IF WE ARE NOT ABLE TO HIRE AND RETAIN SUFFICIENT
QUALIFIED PERSONNEL OR IF WE LOSE OUR KEY PERSONNEL.
Our future success depends partly on the continued contribution of our
key executive, engineering, sales, marketing, manufacturing and administrative
personnel. In particular, we rely on Min H. Kao and Gary Burrell, our
Co-Chairmen, Co-Chief Executive Officers and founders. We currently do not have
employment agreements with any of our key executive officers. We do not have key
man life insurance on any of our key executive officers and do not currently
intend to obtain such insurance. The loss of the services of any of our senior
level management, or other key employees, could harm our business. Recruiting
and retaining the skilled personnel we require to maintain our market position
may be difficult. For example, there is a nationwide shortage of qualified
electrical engineers and software engineers that are necessary for us to design
and develop new products and therefore, it may be challenging to recruit such
personnel. If we fail to hire and retain qualified employees, we may not be able
to maintain and expand our business.
OUR SALES AND GROSS MARGINS FOR OUR PRODUCTS MAY FLUCTUATE.
Our sales and gross margins for our products may fluctuate from period
to period due to a number of factors, including product mix, competition and
unit volumes. In particular, the average selling prices of a specific product
tend to decrease over that product's life. To offset such decreases, we intend
to rely primarily on obtaining yield improvements and corresponding cost
reductions in the manufacture of existing products and on introducing new
products that incorporate advanced features and therefore can be sold at higher
average selling prices. However, there can be no assurance that we will be able
to obtain any such yield improvements or cost reductions or introduce any such
new products in the future. To the extent that such cost reductions and new
product introductions do not occur in a timely manner or our customers' products
do not achieve market acceptance, our business, financial condition and results
of operations could be materially adversely affected.
<PAGE>
OUR QUARTERLY OPERATING RESULTS ARE SUBJECT TO FLUCTUATIONS AND SEASONALITY.
Our operating results are difficult to predict. Our future quarterly
operating results may fluctuate significantly. If this occurs, the price of our
stock would likely decline. As we expand our operations, our operating expenses,
particularly our sales, marketing and research and development costs, may
increase. If revenues decrease and we are unable to reduce those costs rapidly,
our operating results would be negatively affected.
Historically, our revenues have usually been weaker in the first and
third quarters of each fiscal year and have, from time to time, been lower than
the preceding quarter. Our devices are highly consumer-oriented, and consumer
buying is traditionally lower in these quarters. Sales of certain of our
consumer products tend to be higher in our second fiscal quarter due to
increased consumer spending for such products during the bass fishing season.
Sales of certain of our consumer products also tend to be higher in our fourth
fiscal quarter due to increased consumer spending patterns on electronic devices
during the holiday season. In addition, we attempt to time our new product
releases to coincide with relatively higher consumer spending in the second and
fourth fiscal quarters, which contributes to these seasonal variations.
WE MIGHT NEED ADDITIONAL CAPITAL IN THE FUTURE AND ADDITIONAL FINANCING MIGHT
NOT BE AVAILABLE.
Although we currently anticipate that our available cash resources,
combined with net proceeds from this offering, will be sufficient to meet our
anticipated working capital and capital expenditure requirements at least
through the end of 2001, our resources may prove to be insufficient for these
requirements. If that is the case, we may need to raise additional funds through
public or private debt or equity financing in order to:
o take advantage of opportunities, including the purchase of
technologies or acquisitions of complementary businesses;
o develop new products; or
o respond to competitive pressures.
Any additional financing we need may not be available on terms
acceptable to us, or at all. If adequate funds are not available or are not
available on acceptable terms, we might not be able to take advantage of
unanticipated opportunities, develop new products or otherwise respond to
unanticipated competitive pressures, and our business could be harmed.
BECAUSE OUR REPORTING CURRENCY IS IN U.S. DOLLARS AND THE FUNCTIONAL CURRENCIES
OF TWO OF OUR OPERATING SUBSIDIARIES ARE IN NT DOLLARS AND THE BRITISH POUND
STERLING, RESPECTIVELY, EXCHANGE RATE FLUCTUATIONS IMPACT THE FINANCIAL
STATEMENTS OF OUR OPERATING SUBSIDIARIES AND OUR CONSOLIDATED FINANCIAL
STATEMENTS.
Foreign exchange effects on our financial statements are complex
because our reporting currency is in U.S. Dollars while the functional
currencies of Garmin Corporation and Garmin (Europe) Ltd., two of our operating
subsidiaries, are in NT Dollars and the British Pound Sterling, respectively. We
are exposed to foreign exchange risks related to recurring foreign currency
payments, principally in U.S. Dollars. In addition, fluctuations in exchange
rates between the U.S. Dollar and the NT Dollar, and between the U.S. Dollar and
the British Pound Sterling, may have an adverse impact on the financial
statements of Garmin Corporation and Garmin (Europe) Ltd., respectively, and, as
a consequence, upon consolidation have an indirect adverse effect on our
consolidated financial statements.
<PAGE>
IF WE ARE UNABLE TO COMPETE EFFECTIVELY WITH EXISTING OR NEW COMPETITORS, OUR
RESULTING LOSS OF COMPETITIVE POSITION COULD RESULT IN PRICE REDUCTIONS, FEWER
CUSTOMER ORDERS, REDUCED MARGINS AND LOSS OF MARKET SHARE.
The markets for our products are highly competitive and we expect
competition to increase in the future. Some of our competitors or potential
competitors have significantly greater financial, technical and marketing
resources than we do. These competitors may be able to respond more rapidly to
new or emerging technologies or changes in customer requirements. They may also
be able to devote greater resources to the development, promotion and sale of
their products. Increased competition could result in price reductions, fewer
customer orders, reduced margins and loss of market share. Our failure to
compete successfully against current or future competitors could seriously harm
our business, financial condition and results of operations.
OUR INTELLECTUAL PROPERTY RIGHTS ARE IMPORTANT TO OUR OPERATIONS, AND WE COULD
SUFFER LOSS IF THEY INFRINGE UPON OTHER'S RIGHTS OR ARE INFRINGED UPON BY
OTHERS.
We rely on a combination of patents, copyrights, trademarks and trade
secrets, confidentiality provisions and licensing arrangements to establish and
protect our proprietary rights. To this end, we hold rights to a number of
patents and registered trademarks and regularly file applications to attempt to
protect our rights in new technology and trademarks. However, there is no
guarantee that our patent applications will become issued patents, or that our
trademark applications will become registered trademarks. Moreover, even if
approved, our patents or trademarks may thereafter be successfully challenged by
others or otherwise become invalidated for a variety of reasons. In addition,
the only patents we have obtained are U.S. patents. Thus, any patents or
trademarks we currently have or may later acquire may not provide us a
significant competitive advantage.
Third parties may claim that we are infringing their intellectual
property rights. Such claims could have a serious adverse effect on our business
and financial condition. Litigation concerning patents or other intellectual
property can be costly and time consuming. We may seek licenses from such
parties, but they could refuse to grant us a license or demand commercially
unreasonable terms. We might not have sufficient resources to pay for the
licenses. Such infringement claims could also cause us to incur substantial
liabilities and to suspend or permanently cease the use of critical technologies
or processes or the production or sale of major products.
FAILURE TO OBTAIN REQUIRED CERTIFICATIONS OF OUR PRODUCTS ON A TIMELY BASIS
COULD HARM OUR BUSINESS.
We have certain products, especially in our aviation segment, that are
subject to governmental and similar certifications before they can be sold. For
example, Federal Aviation Administration ("FAA") certification is required for
all of our aviation products that are intended for installation in type
certificated aircraft. To the extent that it is required, certification is an
expensive and time consuming process that requires significant focus and
resources. An inability to obtain, or excessive delay in obtaining, such
certifications could have an adverse effect on our ability to introduce new
products and, therefore, our operating results. In addition, we cannot assure
you that our certified products will not be decertified. Any such
decertification could have an adverse effect on our operating results.
OUR BUSINESS IS SUBJECT TO ECONOMIC, POLITICAL AND OTHER RISKS ASSOCIATED WITH
INTERNATIONAL SALES AND OPERATIONS.
Our business is subject to risks associated with doing business
internationally. We estimate that approximately 26% of our net sales in the
fiscal year ended December 25, 1999 represented products shipped to
international destinations. Accordingly, our future results could be harmed by a
variety of international factors, including:
<PAGE>
o changes in foreign currency exchange rates;
o changes in a specific country's or region's political or economic
conditions, particularly in emerging markets;
o trade protection measures and import or export licensing requirements;
o potentially negative consequences from changes in tax laws;
o difficulty in managing widespread sales and manufacturing operations;
and
o less effective protection of intellectual property.
WE MAY EXPERIENCE UNIQUE ECONOMIC AND POLITICAL RISKS ASSOCIATED WITH COMPANIES
THAT OPERATE IN TAIWAN.
Relations between Taiwan and the People's Republic of China, also
referred to as the PRC, and other factors affecting the political or economic
conditions of Taiwan in the future could affect our business and the market
price and the liquidity of our shares. Our principal manufacturing facilities
where we manufacture all of our products, except our panel-mounted aviation
products, are located in Taiwan.
Taiwan has a unique international political status. The PRC asserts
sovereignty over all of China, including Taiwan, certain other islands and all
of mainland China. The PRC government does not recognize the legitimacy of the
Taiwan government. Although significant economic and cultural relations have
been established during recent years between Taiwan and the PRC, the PRC
government has indicated that it may use military force to gain control over
Taiwan in certain circumstances, such as the declaration of independence by
Taiwan. Relations between Taiwan and the PRC have on occasion adversely affected
the market value of Taiwanese companies and could negatively affect our
operations in Taiwan in the future.
THERE IS UNCERTAINTY AS TO OUR SHAREHOLDERS' ABILITY TO ENFORCE CERTAIN FOREIGN
CIVIL LIABILITIES IN THE CAYMAN ISLANDS AND TAIWAN.
We are a Cayman Islands company and a substantial portion of our assets
are located outside the United States, particularly in Taiwan. As a result, it
may be difficult for you to effect service of process within the United States
upon us. In addition, there is uncertainty as to whether the courts of the
Cayman Islands and Taiwan would recognize or enforce judgments of United States
courts obtained against us predicated upon the civil liability provisions of the
securities laws of the United States or any state thereof, or be competent to
hear original actions brought in the Cayman Islands or Taiwan against us
predicated upon the securities laws of the United States or any state thereof.
OUR SHAREHOLDERS MAY FACE DIFFICULTIES IN PROTECTING THEIR INTERESTS BECAUSE WE
ARE INCORPORATED UNDER CAYMAN ISLANDS LAW.
Our corporate affairs are governed by our Memorandum and Articles of
Association and by the Companies Law (2000 Revision) and the common law of the
Cayman Islands. The rights of our shareholders and the fiduciary
responsibilities of our directors under Cayman Islands law are not as clearly
established as under statutes or judicial precedent in existence in
jurisdictions in the United States. Therefore, our public shareholders may have
more difficulty in protecting their interests in the face of actions by the
management, directors or our controlling shareholders than would shareholders of
a corporation incorporated in a jurisdiction in the United States, due to the
comparatively less developed nature of Cayman Islands law in this area.
<PAGE>
WE MAY PURSUE STRATEGIC ACQUISITIONS, INVESTMENTS, STRATEGIC PARTNERSHIPS OR
OTHER VENTURES, AND OUR BUSINESS COULD BE MATERIALLY HARMED IF WE FAIL TO
SUCCESSFULLY IDENTIFY, COMPLETE AND INTEGRATE SUCH TRANSACTIONS.
We intend to evaluate acquisition opportunities and opportunities to
make investments in complementary businesses, technologies, services or
products, or to enter into any strategic partnerships with parties who can
provide access to those assets, additional product or services offerings or
additional industry expertise. We currently have no commitments to make any
material investments or acquisitions, or to enter into strategic partnerships.
We may not identify suitable acquisition, investment or strategic partnership
candidates, or if we do identify suitable candidates, we may not complete those
transactions on commercially favorable terms, or at all.
Any future acquisition could result in difficulties assimilating
acquired operations and products, diversion of capital and management's
attention away from other business issues and opportunities and amortization of
acquired intangible assets. Integration of acquired companies may result in
problems related to integration of technology and inexperienced management
teams. In addition, the key personnel of the acquired company may decide not to
work for us. Our management has not had experience in assimilating acquired
organizations and products into our operations. We may not successfully
integrate any operations, personnel or products that we may acquire in the
future. If we fail to successfully integrate such transactions, our business
could be materially harmed.
WE HAVE BENEFITED IN THE PAST FROM TAIWAN GOVERNMENT TAX INCENTIVES OFFERED ON
CERTAIN HIGH TECHNOLOGY CAPITAL INVESTMENTS THAT MAY NOT ALWAYS BE AVAILABLE.
Our effective tax rate is lower than the U.S. Federal statutory rate,
because we have benefited from lower tax rates since our inception and from
incentives offered in Taiwan related to our high technology investments in
Taiwan. The loss of these tax benefits could have a significant effect on our
financial results in the future.
CHANGES IN OUR UNITED STATES FEDERAL INCOME TAX CLASSIFICATION OR IN APPLICABLE
TAX LAW COULD RESULT IN ADVERSE TAX CONSEQUENCES TO OUR SHAREHOLDERS.
We do not believe that we (or any of our non-United States
subsidiaries) are currently a "foreign personal holding company" or "passive
foreign investment company" for United States federal income tax purposes. We
would constitute a foreign personal holding company in any taxable year if (1)
60% (or 50% in any year following the year in which we first became a foreign
personal holding company) or more of our gross income were foreign personal
holding company income (which is generally income of a passive nature such as
dividends, interest and royalties) (the "income test") and (2) more than 50% of
the voting power or value of our equity were owned, directly or indirectly, by
five or fewer U.S. holders that are individuals (the "shareholder test"). If we
(or any of our non-United States subsidiaries) are classified as a foreign
personal holding company in any taxable year, then each shareholder that is a
United States person would be required to pay tax on its pro rata share of the
undistributed foreign personal holding income of such foreign personal holding
company. We currently satisfy the shareholder test for qualifying as a foreign
personal holding company but intend to manage our affairs so as to attempt to
avoid satisfaction of the income test for qualifying as a foreign personal
holding company, or minimize the impact to our shareholders if we satisfy the
income test, to the extent this management of our affairs would be consistent
with our business goals, although we cannot assure you in this regard. We do not
expect to become a passive foreign investment company. However, because the
passive foreign investment company determination is made annually on the basis
of facts and circumstances that may be beyond our control and because the
principles for applying the passive foreign investment company tests are not
entirely clear, we cannot assure you that we will not become a passive foreign
investment company. If we are a passive foreign investment company in any year,
<PAGE>
then any of our shareholders that is a United States person could be liable to
pay tax at ordinary income tax rates plus an interest charge upon some
distributions by us or when that shareholder sells our common shares at a gain.
Additional tax considerations would apply if we or any of our subsidiaries were
a controlled foreign corporation or a personal holding company.
RISKS RELATING TO OUR SHARES
WE HAVE BROAD DISCRETION TO USE THE OFFERING PROCEEDS, AND THE INVESTMENT OF
THESE PROCEEDS MAY NOT YIELD A FAVORABLE RETURN.
We have not committed the net proceeds of this offering to any
particular purpose. Our management will have significant flexibility in applying
the net proceeds of this offering. The proceeds may be invested in ways that do
not yield favorable returns. If we do not apply the funds we receive
effectively, we may adversely affect our financial performance and available
resources.
WE DO NOT PLAN TO PAY DIVIDENDS IN THE FORESEEABLE FUTURE.
We do not currently anticipate paying cash dividends going forward. In
addition, if in the future we determined to pay dividends on our shares, as a
holding company, we expect to be principally dependent on receipt of funds from
our operating subsidiaries. Our principal operating subsidiary is a Taiwan
company and dividends payable to us from that company would be subject to Taiwan
withholding tax, which is currently applicable at the rate of 20%.
OUR COMMON STOCK HAS NO PRIOR MARKET, AND YOU MAY HAVE DIFFICULTY RESELLING YOUR
SHARES IF NO LIQUID TRADING MARKET DEVELOPS.
Before this offering, there has not been a public market for our common
shares, and an active public market for our common shares may not develop or be
sustained after this offering. We have applied to list our shares on the Nasdaq
National Market. However, being listed on the Nasdaq National Market does not
guarantee that a liquid trading market will develop. If no liquid trading
develops, you may have difficulty reselling your shares.
THE PRICE OF OUR SHARES MAY BE VOLATILE AND YOU MAY NOT BE ABLE TO RESELL YOUR
SHARES AT OR ABOVE THE INITIAL PUBLIC OFFERING PRICE.
The initial public offering price will be determined by negotiations
between the representatives of the underwriters and us. The market price of our
common shares could be subject to significant fluctuations after this offering.
Among the factors that could affect our share price are:
o quarterly variations in our operating results;
o changes in revenue or earnings estimates or publication of research
reports by analysts;
o speculation in the press or investment community;
o strategic actions by us or our competitors, such as acquisitions or
restructurings;
o general market conditions; and
o domestic and international economic factors unrelated to our
performance.
The stock markets in general, and the markets for high technology
stocks in particular, have experienced extreme volatility that has often been
unrelated to the operating performance of the particular companies. These broad
market fluctuations may adversely affect the trading price of our common shares.
In particular, we cannot assure you that you will be able to resell your shares
at or above the initial public offering price.
<PAGE>
Securities class action litigation has often been brought against
companies that experience volatility in the market price of their securities.
Litigation brought against us could result in substantial costs to us in
defending against a lawsuit and management's attention could be diverted from
our business.
OUR OFFICERS AND DIRECTORS EXERT SUBSTANTIAL INFLUENCE OVER US.
Following the completion of this offering, members of our Board of
Directors and our executive officers, together with members of their families
and entities that may be deemed affiliates of or related to such persons or
entities, will beneficially own approximately [ ]% of our outstanding common
shares. Accordingly, these shareholders may be able to elect all members of our
Board of Directors and determine the outcome of corporate actions requiring
shareholder approval, such as mergers and acquisitions. This level of ownership
may have a significant effect in delaying, deferring or preventing a change in
control of the Company and may adversely affect the voting and other rights of
other holders of our common shares. In addition, in connection with the
reorganization whereby Garmin Ltd. became the holding company for Garmin
Corporation, shareholders of Garmin Corporation entered into a shareholders'
agreement whereby each shareholder party to the agreement agreed to take all
reasonable actions required to prevent the disposition by Garmin Ltd. of any
shares of Garmin Corporation or of substantially all of the assets of Garmin
Corporation until December 31, 2005 except upon approval of a majority in
interest of such shareholders who are U.S. citizens or residents. Certain of our
officers and directors own a substantial portion of these shares.
PROVISIONS IN OUR CHARTER DOCUMENTS MIGHT DETER, DELAY OR PREVENT A THIRD PARTY
FROM ACQUIRING US, WHICH COULD DECREASE THE VALUE OF OUR SHARES.
Our Board of Directors has the authority to issue up to 1,000,000
preferred shares and to determine the price, rights, preferences, privileges and
restrictions, including voting rights, of those shares without any further vote
or action by the shareholders. This could have an adverse impact on the market
price of our common shares. We have no present plans to issue any preferred
shares, but we may do so. The rights of the holders of common shares may be
subject to, and adversely affected by, the rights of the holders of any
preferred shares that may be issued in the future. In addition, we have adopted
a classified board of directors. Our shareholders are unable to remove any
director or the entire board of directors without a super majority vote. In
addition, a super majority vote is required to approve transactions with
interested shareholders. Shareholders do not have the right to call a
shareholders meeting. We intend to adopt a shareholders' rights plan which under
certain circumstances would significantly impair the ability of third parties to
acquire control of us without prior approval of our Board of Directors. This
shareholders' rights plan and the provisions in our charter documents could make
it more difficult for a third party to acquire us, even if doing so would
benefit our shareholders.
FUTURE SALES OF OUR SHARES TO THE PUBLIC MAY CAUSE OUR SHARE PRICE TO FALL.
Upon completion of the offering, we will have outstanding ___________
shares, assuming no exercise of the underwriters' over-allotment option. Of
these, ____________ shares will continue to be held by existing shareholders
following completion of the offering and may be sold at any time or in any
manner, subject to compliance with applicable securities laws and, in the case
of certain shareholders, observance of the lock-up period agreed with the
underwriters. If our shareholders sell substantial amounts of their shares in
the public market following the offering, the market price of our shares could
fall. Such sales also might make it more difficult for us to sell equity or
equity-related securities in the future at a time and price that we deem
appropriate.
AS A NEW INVESTOR, YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION IN THE
NET TANGIBLE BOOK VALUE OF THE SHARES.
The initial public offering price of the shares is substantially higher
than the net tangible book value per share of the outstanding common shares. As
a result, if you purchase the shares in this offering, you will suffer an
<PAGE>
immediate and substantial dilution of $_____ per share in the net tangible book
value per share based upon an initial public offering price of $_____ per share,
the midpoint of our estimated offering price range. In the event we issue
additional shares in the future pursuant to stock options or otherwise, you may
experience further dilution.
<PAGE>
USE OF PROCEEDS
The net proceeds to us from this offering, based on an assumed initial
public offering price of $_____ per share, the mid-point of the estimated price
range set forth on the prospectus cover page and after deducting underwriting
discounts and the estimated offering expenses payable by us, are estimated to be
approximately $_______ million, or $______ million if the underwriters'
over-allotment option is exercised in full. We will not receive any proceeds
from the sale of our shares by the selling shareholders in this offering. We
plan to use the proceeds to us from this offering for working capital and other
general corporate purposes, including possible acquisitions, strategic
partnerships and expansion into new products and markets. We currently have no
commitments to make any material investments or acquisitions and will retain
broad discretion in the allocation of net proceeds of this offering.
The amounts and timing of these expenditures will vary depending on a
number of factors, including competitive and technological developments, success
of our marketing efforts and the rate of growth, if any, of our business.
Because of these uncertainties, we cannot tell you with any reasonable certainty
how we plan to allocate the net proceeds.
DIVIDEND POLICY
We intend to retain any earnings for use in our business. We do not
intend to pay dividends on our common shares for the foreseeable future. Future
cash dividends, if any, will be declared by our board of directors and will
depend upon our future operations and earnings, capital requirements and
surplus, general financial condition, contractual restrictions and other factors
as our board of directors may deem relevant. Our Articles of Association provide
that dividends must be paid out of our profits and out of share premium, a
concept analogous to paid-in surplus in the United States, subject to a
statutory solvency test. We expect that any dividends we declare will be paid in
U.S. Dollars.
<PAGE>
DILUTION
Our net tangible book value as of June 24, 2000 was approximately
$217.9 million, or $2.45 per common share. Net tangible book value per share is
equal to our net tangible assets, less total liabilities, divided by the number
of common shares outstanding as of June 24, 2000. Net tangible book value
dilution per share to new investors represents the difference between the amount
per share paid by purchasers of common shares in this offering and the net
tangible book value per common share immediately after completion of this
offering. After giving effect to the sale of shares at an assumed public
offering price of $ per common share, the mid-point of the estimated price range
as set forth on the prospectus cover page, and the application of the net
proceeds from this offering, after deducting the estimated underwriting
discounts and commissions and offering expenses payable by us, our net tangible
adjusted book value as of June 24, 2000 would have been approximately $_______
million, or $______ per common share. This amount represents an immediate
increase in net tangible book value of $_____ per share to existing stockholders
and an immediate dilution in net tangible book value of $______ per share to new
investors. The following table illustrates this per share dilution:
<TABLE>
<CAPTION>
<S> <C> <C>
Assumed public offering price per share................................. $______
Net tangible book value per share as of June 24, 2000................ $2.45
in net tangible book value per share attributable to new investors... $______
Net tangible book value per share after the offering.................... ______
Dilution per share to new investors..................................... $======
</TABLE>
The following table summarizes the difference as of June 24, 2000, between
our existing stockholders and the new investors with respect to the number of
shares purchased from us, the total consideration paid and the average price per
share paid:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE PRICE
------------------------------ ------------------------------
NUMBER PERCENT AMOUNT PERCENT PER SHARE
<S> <C> <C> <C> <C> <C>
Existing shareholders........ % $ % $
New investors................
--------------- ------------- ---------------- ------------
Total..................... % $ %
--------------- ------------- ---------------- ------------
</TABLE>
The foregoing tables and calculations assume no exercise by the
underwriters of their over-allotment option and no exercise of outstanding
employee stock options. We expect to reserve ____________ common shares for
issuance under our stock option plan which we intend to adopt at or prior to the
completion of this offering. We expect to have options for approximately
__________ common shares outstanding at the completion of this offering, all of
which will have a per share exercise price equal to the initial public offering
price of the common shares in this offering. To the extent that the
over-allotment option or outstanding options are exercised, there may be further
dilution to new investors.
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of June 24, 2000.
Our capitalization is presented on an actual basis and on an as adjusted basis
to reflect the issuance and sale of ____________ common shares offered hereby at
an assumed initial public offering price of $______ per share, the mid-point of
the estimated price range set forth on the prospectus cover page after deduction
of underwriting fees and offering expenses payable by us.
You should read this table in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and our
consolidated financial statements and the notes thereto, included elsewhere in
this prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 24, 2000
AS ADJUSTED
FOR THE
ACTUAL OFFERING
------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents........................................ $123,610 $
======== =========
Short-term debt:
Notes payable................................................. $ 9 $ 9
======== =========
Long-term debt................................................... $ 48,227 $ 48,227
Stockholders' equity:
Preferred stock, $1.00 par value; 1,000,000 shares authorized;
no shares issued and outstanding............................ --- ---
Common stock, $0.01 par value; 500,000,000 shares authorized;
88,984,394 shares issued and outstanding actual;
__________ shares issued and outstanding as adjusted for
the offering................................................ 890
Additional paid-in capital.................................... 29,703
Retained earnings ............................................ 197,237 197,327
Accumulated other comprehensive loss............................. (7,222) (7,222)
--------- ---------
Total stockholders' equity.................................. 220,608
-------- ---------
Total capitalization........................................ $268,835 $
======== =========
</TABLE>
The information in the table above assumes no exercise by the underwriters
of their over-allotment option and no exercise of employee stock options. On
___________, 2000, we granted _____________ to our employees and directors under
our stock option plan.
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The following tables present our selected financial data. The information
set forth below should be read together with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and our historical
consolidated financial statements and notes to those statements included in this
prospectus. We have prepared the consolidated financial data below using the
consolidated financial statements of Garmin Ltd. for each of the five years in
the period ended December 25, 1999 and the six month periods ended June 26, 1999
and June 24, 2000. The consolidated financial statements for each of the five
fiscal years in the period ended December 25, 1999 have been audited by Ernst &
Young LLP, independent auditors.
The financial statements as of and for the six month periods ended June 26,
1999 and June 24, 2000 have not been audited, but in the opinion of management,
include all adjustments, consisting only of normal recurring accruals, that are
necessary for a fair presentation of our financial position and results of
operations for these periods. This data should be read together with our
consolidated financial statements and the notes to those statements included in
the prospectus. The results of operations for any interim period are not
necessarily indicative of the results of operations that may be expected for a
full fiscal year.
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED (1) ENDED (1)
------------------------------------------------------------ -------------------------
DEC. 31, DEC. 31, DEC. 31, DEC. 26, DEC. 25, JUNE 26, JUNE 24,
1995 1996 1997 1998 1999 1999 2000
---- ---- ---- ---- ---- ---- ----
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
INCOME DATA:
Net sales...................... $102,474 $135,874 $160,280 $169,030 $232,586 $106,395 $170,540
Cost of goods sold............. 55,446 77,616 93,620 82,787 105,654 50,443 78,602
--------- ---------- --------- --------- --------- ------- -------
Gross profit................... 47,028 58,258 66,660 86,243 126,932 55,952 91,938
Operating expenses:
Selling, general and
administrative............. 13,935 17,720 17,102 24,680 27,063 12,434 15,075
Research and development..... 7,703 10,383 12,657 14,876 17,339 7,936 9,719
--------- --------- --------- --------- --------- ------ ------
Total operating expenses....... 21,638 28,103 29,759 39,556 44,402 20,370 24,794
--------- --------- --------- --------- --------- ------ ------
Operating income............... 25,390 30,155 36,901 46,687 82,530 35,582 67,144
Other income (expense) (2)..... 558 818 11,971(3) 833 1,602 1,894 (2,009)
--------- --------- --------- --------- -------- ------ ------
Income before income taxes..... 25,948 30,973 48,872 47,520 84,132 37,476 65,135
Provision for income taxes..... 2,869 7,943 12,780 12,354 19,965 8,893 15,375
--------- --------- --------- --------- --------- ------ ------
Net income................... $ 23,079 $ 23,030 $ 36,092 $ 35,166 $ 64,167 $28,583 $49,760
========= ========= ========= ========= ========= ======= =======
Net income per share (basic
and diluted)............... $0.26 $0.26 $0.41 $0.40 $0.72 $0.32 $0.56
========= ========= ========= ========= ========= ===== =====
Weighted average common
shares outstanding (basic
and diluted)............... 87,984 87,984 87,984 88,650 88,984 88,984 88,984
========= ========= ========= ========= ========= ====== ======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AS OF (1) AS OF (1)
------------------------------------------------------------ -----------------------
DEC. 31, DEC. 31, DEC. 31, DEC. 26, DEC. 25, JUNE 26, JUNE 24,
1995 1996 1997 1998 1999 1999 2000
---- ---- ---- ---- ---- ---- ----
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents...... $18,097 $37,073 $64,243 $80,360 $104,079 $94,171 $123,610
Total assets................... 91,440 118,775 143,482 174,532 254,645 202,902 327,058
Total debt (4) ................ 14,533 14,275 15,823 9,708 27,720 9,345 48,236
Total stockholders' equity..... 63,981 86,047 104,204 135,940 194,599 159,746 220,608
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED (1) SIX MONTHS ENDED(1)
------------------------------------------------------------ -----------------------
DEC. 31, DEC. 31, DEC. 31, DEC. 26, DEC. 25, JUNE 26, JUNE 24,
1995 1996 1997 1998 1999 1999 2000
---- ---- ---- ---- ---- ---- ----
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Net cash provided by (used in):
Operating activities........... $ 9,565 $27,094 $39,868 $36,548 $44,342 $23,285 $34,391
Investing activities........... (11,709) (3,870) (2,615) (9,339) (32,302) (1,618) (14,678)
Financing activities........... 10,255 (4,182) (3,408) (12,126) 10,153 (7,829) (3,364)
..................
</TABLE>
(1) Our fiscal quarters are 13-week quarters and do not always end on the last
day of the calendar quarter. Our fiscal year-end is the last Saturday of
the calendar year and does not always fall on December 31. Prior to 1998,
our fiscal quarters were calendar quarters, and our fiscal years ended on
December 31.
(2) Other income (expense) mainly consists of interest income, interest expense
and foreign currency gain/(loss).
(3) Includes a $10 million foreign currency gain.
(4) Total debt consists of notes payable and long-term debt.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
RESULTS OF OPERATIONS IS BASED ON THE CONSOLIDATED FINANCIAL STATEMENTS INCLUDED
IN THIS PROSPECTUS WHICH WERE PREPARED TO REFLECT THE CONSOLIDATED FINANCIAL
POSITION, RESULTS OF OPERATIONS AND CASH FLOWS OF GARMIN LTD. AND SUBSIDIARIES.
THE CONSOLIDATED FINANCIAL STATEMENTS HAVE BEEN PREPARED IN ACCORDANCE WITH
ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES. THIS DISCUSSION
CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. OUR
ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE
FORWARD-LOOKING STATEMENTS AS A RESULT OF MANY FACTORS, INCLUDING BUT NOT
LIMITED TO, THOSE DESCRIBED UNDER "RISK FACTORS" AND ELSEWHERE IN THIS
PROSPECTUS. THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH OUR
CONSOLIDATED FINANCIAL STATEMENTS CONTAINED ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
We are a leading worldwide provider of navigation, communications and
information devices, most of which are enabled by Global Positioning System
technology. The Global Positioning System, or GPS, first made available by the
U.S. government for commercial use in 1983, is a worldwide navigation system
which enables the precise determination of geographic location using established
satellite technology. We design, develop, manufacture and market under the
GARMIN brand a diverse family of hand-held, portable and fixed mount GPS-enabled
products and other navigation, communications and information products. Each of
our GPS products utilizes our proprietary integrated GPS chipsets and receiver
design to collect, calculate and display location, direction, speed and other
information in forms optimized for specific end-user applications.
We were founded in 1989 with a vision to be a leading supplier of
navigation, communications and information devices to customers around the
world. With an initial staff of 10 individuals, we designed our first product,
the GPS100, and produced working prototypes within a year after we were formed.
By January of 1991, we established manufacturing facilities in Taiwan and began
producing the GPS 100. Initial product deliveries included units that served
Allied troops during the Gulf War. The GPS 100 provided customers in multiple
markets a lower cost, higher value alternative to other products and its success
was a key factor in developing the GARMIN brand, establishing worldwide
distribution and supporting our initial growth.
After delivering the GPS 100, we expanded our design, marketing, and
production capabilities in order to develop additional products for our chosen
markets. Today, we are producing approximately 50 different models, including
GPS-enabled devices, depth sounders/fishfinders, VHF communications, radios,
transponders and audio products at our production facilities in Shijr, Taiwan
and Olathe, Kansas. These products are sold through a network of approximately
2,500 dealers and distributors around the world. We have sold approximately 3
million devices across our product lines.
Since our first products were delivered in 1991, we have generated
positive income from operations each year and have funded our growth from these
profits. Our sales have increased at a compounded annual growth rate of 23%
since 1995 and our net income has increased at a compounded annual growth rate
of 29% since 1995. All of this growth has been organic; none has occurred as a
result of any acquisition or merger.
Since our principal locations are in the United States, Taiwan and the
U.K., we experience some foreign currency fluctuations in our operating results.
The functional currency of our European operations is the British Pound Sterling
and the functional currency of our Asian operations is the New Taiwan Dollar.
Other than in 1997, when we experienced a $10.0 million foreign currency gain
due to a strong U.S. Dollar, we generally have not been significantly affected
<PAGE>
by foreign currency fluctuations. To date, we have not entered into hedging
transactions with either the British Pound Sterling or the New Taiwan Dollar,
although we may utilize hedging transactions in the future.
NET SALES
Our net sales are generated through sales to our global dealer and
distributor network and to OEMs. We recognize sales when products are shipped.
Many of our total sales are of a consumer nature; therefore backlog levels are
not necessarily indicative of our future sales results. We aim to achieve a
quick turnaround on orders we receive, and we typically ship most orders within
72 hours of receipt.
Net sales are subject to some seasonal fluctuation. Typically, sales of
our consumer products are highest in the second quarter, due to increased demand
during the spring and summer marine season, and in the fourth quarter, due to
increased demand during the holiday buying season. Our aviation products do not
experience much seasonal variation, but are more influenced by the timing of the
release of new products when the initial demand is typically the strongest.
GROSS PROFIT
The most significant components of our cost of goods sold are raw
material, labor and depreciation. Raw material costs, which are our most
significant cost item, generally have not fluctuated materially as a percentage
of sales since early 1998, when we negotiated lower raw material costs with our
key suppliers. As a result, gross profit increased substantially as a percentage
of sales in 1998 from that realized in prior years.
Recently, we have experienced upward pricing pressures on our high
technology components, but have offset these with efficiencies in our
manufacturing processes. We believe that because of our vertical integration
philosophy, both the Taipei, 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 highest volume
products. Our manufacturing labor costs historically have been lower in Taiwan
than in Olathe.
Sales price variability has had and can be expected to have an effect
on our gross profit. In the past, prices of some of our handheld devices sold
into the consumer market have declined due to market pressures and introduction
of new products sold at lower price points. The average selling prices of our
aviation products have increased due to the introduction of more advanced and
innovative products. In conjunction with the effects of lower labor costs
experienced on Taiwan production, the effect of the sales price variability
inherent within the mix of GPS-enabled products sold could have a significant
impact on our gross profit.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Our selling, general and administrative expenses consist primarily of:
o salaries for sales and marketing personnel;
o salaries and related costs for executives and administrative
personnel;
o advertising, marketing, and other brand building costs; o accounting
and legal costs;
o information systems and infrastructure costs;
o travel and related costs; and
o occupancy and other overhead costs.
<PAGE>
Since we plan to increase market penetration in the future, we expect
selling, general and administrative expenses to continue to increase for the
foreseeable future. However, a majority of these expenses are relatively fixed
and would not be expected to increase as significantly as sales. We also intend
to increase advertising and marketing expenses in order to build increased brand
awareness in the consumer marketplace. We do not anticipate that these increased
expenses will significantly impact our financial results in 2000 and subsequent
periods.
RESEARCH AND DEVELOPMENT
The majority of our research and development costs represent salaries
for our engineers, costs for high technology components used in product and
prototype development, and costs of test equipment needed during product
development.
We have continued to grow our research and development capabilities
since our inception. Substantially all of the research and development of our
products is performed in the United States. We are committed to increasing the
level of innovative design and development of new products as we strive for
expanded ability to serve our existing consumer and aviation markets as well as
new markets for GPS-enabled devices. We continue to grow our research and
development budget on absolute terms and are experiencing accelerating returns
on our research and development investment as net sales increase.
CUSTOMERS
No customer accounted for greater than 10% of our sales in the year
ended December 25, 1999. Our top ten customers accounted for approximately 29%
of net sales. We have experienced average sales days in our customer accounts
receivable of 35 days since 1997.
INCOME TAX
We have experienced a relatively low effective tax rate in Taiwan due
to lower marginal tax rates and substantial tax incentives offered by the
Taiwanese government on certain high-technology capital investments. Therefore,
profits earned in Taiwan have been taxed at a lower rate than those in the
United States and Europe. As a result, our consolidated effective tax rate was
approximately 24% during 1999. We have taken advantage of this tax benefit in
Taiwan since our inception and we expect to continue to benefit from lower
effective tax rates at least through 2004.
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth our results of operations as a
percentage of net sales during the periods shown:
<TABLE>
<CAPTION>
FISCAL
FISCAL YEARS ENDED SIX MONTHS ENDED
-------------------------------------- -------------------------
DEC. 31, DEC. 26, DEC. 25, JUNE 26, JUNE 24,
1997 1998 1999 1999 2000
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 58.4% 49.0% 45.4% 47.4% 46.1%
----- ----- ----- ----- -----
Gross profit 41.6% 51.0% 54.6% 52.6% 53.9%
Operating expenses:
Selling, general and administrative 10.7% 14.6% 11.6% 11.7% 8.8%
Research and development 7.9% 8.8% 7.5% 7.5% 5.7%
---- ---- ---- ---- ----
Total operating expenses 18.6% 23.4% 19.1% 19.2% 14.5%
----- ----- ----- ----- -----
Operating income 23.0% 27.6% 35.5% 33.4% 39.4%
Other income (expense) 7.5% .5% .7% 1.8% (1.2%)
---- --- --- ---- ------
Income before income taxes 30.5% 28.1% 36.2% 35.2% 38.2%
Provision for income taxes 8.0% 7.3% 8.6% 8.3% 9.0%
---- ---- ---- ---- ----
Net income 22.5% 20.8% 27.6% 26.9% 29.2%
===== ===== ===== ===== =====
</TABLE>
SIX MONTHS ENDED JUNE 24, 2000 AND JUNE 26, 1999
NET SALES
Our net sales were $170.5 million in the six months ended June 24,
2000, a 60% increase over net sales of $106.4 million in the six months ended
June 26, 1999. The increase in sales during this period was driven by increased
demand across nearly all product lines which reflects the overall growth of the
GPS market. Sales from our consumer products accounted for 71.4% of net sales in
the six months ended June 24, 2000 compared to 74.7% of net sales in the six
months ended June 26, 1999. Sales from our aviation products accounted for 28.6%
of net sales in the six months ended June 24, 2000 compared to 25.3% of net
sales in the six months ended June 26, 1999. In May 2000, President Clinton
withdrew the prior government degradation placed on GPS accuracy. Although
difficult to quantify, management believes that the withdrawal of this
degradation has helped drive increased demand for consumer GPS devices. The
aviation sales growth was driven by new products introduced in early 2000 and
continued strong demand of our panel mount aviation products that were
introduced in early 1999.
GROSS PROFIT
Gross profit was $91.9 million in the six months ended June 24, 2000, a
64% increase over gross profit of $56.0 million in the six months ended June 26,
1999. Gross profit as a percent of net sales increased to 53.9% in the six
<PAGE>
months ended June 24, 2000 from 52.6% in the six months ended June 26, 1999 due
primarily to the effects of increased efficiencies from higher volume across all
products and a slight shift in the mix to higher margin aviation sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Despite a 60% increase in net sales, selling, general and
administrative expenses only increased 21%, to $15.1 million (8.8% of net sales)
in the first six months of 2000 from $12.4 million (11.7% of net sales) in the
first six months of 1999. The increase in expense reflects increased employment
generally across the organization but also specifically in the areas of customer
service and marketing, in support of our increased sales. We also experienced an
increase in our cooperative advertising costs, which is an ongoing program with
our key dealers and distributors. The selling, general and administrative
expenses are expected to increase at a significantly lower rate than sales due
to the effects of increased volume on these relatively fixed costs.
RESEARCH AND DEVELOPMENT EXPENSE
Research and development expense increased approximately 22% to $9.7
million (5.7% of net sales) in the first six months of 2000 from $7.9 million
(7.5% of net sales) in the first six months of 1999. The increase in expense was
due primarily to additional product development costs in our consumer and
aviation products as well as additional software development.
OTHER INCOME (EXPENSE)
Other income (expense) principally consists of interest income,
interest expense and foreign currency exchange gains and losses. Other income
(expense) for the first six months of 2000 amounted to ($2.0 million) compared
to $1.9 million in the first six months of 1999.
Interest income for the first six months of 2000 amounted to $2.5
million compared to $1.6 million in the first six months of 1999. Interest
expense increased to $1.5 million in the first six months of 2000 from $0.2
million in the first six months of 1999, due primarily to the additional
long-term debt required to finance the 1999 purchase of our new Taiwan facility
and further expand our Olathe, Kansas facility in 2000. We recognized a foreign
currency exchange loss of $3.0 million in the first six months of 2000 compared
to a $0.6 million gain in the first six months of 1999 due to a weakness of the
U.S. Dollar compared to the New Taiwan Dollar during the first six months of
2000.
INCOME TAX PROVISION
Income tax expense increased by $6.5 million, to $15.4 million, in the
first six months of 2000 from $8.9 million in the first six months of 1999, due
to our higher taxable income. The effective tax rate was 23.6% in the first six
months of 2000 versus 23.7% in the first six months of 1999.
FISCAL YEAR ENDED DECEMBER 25, 1999 COMPARED TO FISCAL YEAR ENDED DECEMBER
26, 1998
NET SALES
Our net sales increased 38%, to $232.6 million, in fiscal 1999, from
$169.0 million in fiscal 1998. The increase in net sales was driven by a $34
million increase in our consumer product sales and a $30 million increase in our
aviation product sales. Net sales from our consumer products accounted for 72.7%
of net sales in fiscal 1999 compared to 80.1% of net sales in fiscal 1998. Net
sales from our aviation products accounted for 27.3% of net sales in fiscal 1999
compared to 19.9% of net sales in fiscal 1998. The aviation sales growth was
driven by new products introduced in early 1998 and continued strong demand for
our panel mount aviation products that were introduced in early 1999.
<PAGE>
GROSS PROFIT
Gross profit increased 47%, to $126.9 million, in fiscal 1999, from
$86.2 million in fiscal 1998. Gross profit as a percent of net sales increased
to 54.6% in fiscal 1999, from 51.0% in fiscal 1998, due primarily to the effects
of increased manufacturing efficiencies due to higher volume and favorable
product mix associated with the incremental sales of aviation products.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Despite a 38% increase in net sales, selling, general and
administrative expenses increased only 10%, to $27.1 million (11.6% of net
sales), in fiscal 1999, from $24.7 million (14.6% of net sales) in fiscal 1998.
This increase was driven primarily by increased advertising costs and additional
marketing and administrative staff needed to support the increased sales during
1999.
RESEARCH AND DEVELOPMENT EXPENSE
Research and development expense increased approximately 17%, to $17.3
million (7.5% of net sales), in fiscal 1999, from $14.9 million (8.8% of net
sales) in fiscal 1998. The increase in expense was due primarily to additional
product development costs in our consumer and aviation products as well as
additional software development.
OTHER INCOME (EXPENSE)
Other income (expense) for fiscal 1999 amounted to $1.6 million,
compared to $0.8 million in fiscal 1998.
Interest income for 1999 amounted to $4.3 million, compared to $3.5
million in fiscal 1998. Interest expense increased to $0.6 million in fiscal
1999 from $0.5 million in fiscal 1998. No additional debt was undertaken during
fiscal 1998 and 1999, with the exception of a new facility purchased in Taiwan
late in fiscal 1999. We recognized a foreign currency exchange loss of $1.5
million in fiscal 1999, compared to $2.2 million loss in fiscal 1998, due to
weakness of the U.S. Dollar compared to the New Taiwan Dollar in both years. A
$0.7 million loss on sale of property and equipment was realized in fiscal 1999
with no corresponding charge in fiscal 1998.
INCOME TAX PROVISION
Income tax expense increased by $7.6 million, to $20.0 million, in
fiscal 1999, from $12.4 million in fiscal 1998, due to our higher taxable
income. The effective tax rate was 23.7% in fiscal 1999 versus 26.0% in fiscal
1998. This decrease was driven primarily by added tax incentives made available
by the Taiwanese government in 1999 and a higher portion of our income being
sourced in Taiwan in 1999, which is taxed at a lower rate.
FISCAL YEAR ENDED DECEMBER 26, 1998 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1997
NET SALES
Our net sales increased 5%, to $169.0 million, in fiscal 1998, from
$160.3 million in fiscal 1997. The increase in sales during this period was
driven by a $13.4 million increase in consumer product sales offset by a $4.7
million reduction in our aviation product sales. Net sales from our consumer
products accounted for 80.1% of net sales in fiscal 1998, compared to 76.1% of
<PAGE>
net sales in fiscal 1997. Net sales from our aviation products accounted for
19.9% of net sales in fiscal 1998, compared to 23.9% of net sales in fiscal
1997. The reduction in sales of our aviation products in fiscal 1998 was driven
by the tendency of our customers to postpone orders in anticipation of new
products which were announced during 1998 but not shipped until early 1999.
GROSS PROFIT
Gross profit increased 29%, to $86.2 million, in fiscal 1998, from
$66.7 million in fiscal 1997. Gross profit as a percent of net sales increased
to 51.0% in fiscal 1998, from 41.6% in fiscal 1997, due primarily to
significantly reduced material costs. Material cost reductions designed into
next generation products sold in 1998 drove additional margin improvement.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased 44%, to $24.7
million (14.6% of net sales), in fiscal 1998, from $17.1 million (10.7% of net
sales) in fiscal 1997. This increase was driven primarily by additional
investments in marketing and administrative staff added in anticipation of new
product shipments across all product lines that did not materialize until early
1999. During 1998, we incurred a $2.5 million charge pursuant to a dispute
resolution that also provided us a license on certain of our GPS-enabled
products.
RESEARCH AND DEVELOPMENT EXPENSE
Research and development expense increased approximately 18%, to $14.9
million (8.8% of net sales), in fiscal 1998, from $12.7 million (7.9% of net
sales) in fiscal 1997. The increases were due primarily to additional product
development costs in our consumer and aviation products as well as additional
software development.
OTHER INCOME (EXPENSE)
Other income (expense) for fiscal 1998 amounted to $0.8 million, compared
to $12.0 million in fiscal 1997.
Interest income for 1998 amounted to $3.5 million, compared to $2.6
million in fiscal 1997. Interest expense was $0.5 million in fiscal 1998,
compared to $0.9 million in fiscal 1997. No additional debt was undertaken
during fiscal 1997 and 1998. We recognized a foreign currency exchange loss of
$2.2 million in fiscal 1998 compared to a gain of $10.0 million in fiscal 1997
due to the significant strengthening of the U.S. Dollar compared to the New
Taiwan Dollar during 1997.
INCOME TAX PROVISION
Income tax expense decreased by $0.4 million to $12.4 million in fiscal
1998 from $12.8 million in fiscal 1997 reflecting the decreased taxable income
in 1998. The effective tax rate was 26.0% in fiscal 1998 versus 26.1% in fiscal
1997, a rate lower than the United States statutory rate, primarily due to lower
tax rates on Taiwan source income.
SELECTED QUARTERLY INFORMATION
The following tables present our operating results for each of the ten
fiscal quarters in the period ended June 24, 2000 in dollars. The information
for each of these quarters is unaudited and has been prepared on the same basis
as the audited annual consolidated financial statements included in this
prospectus. In the opinion of management, all necessary adjustments, which
<PAGE>
consist only of normal and recurring accruals, have been included to fairly
present the unaudited quarterly results. This data should be read together with
our consolidated financial statements and the notes to those statements included
in the prospectus.
The historical financial information may not be indicative of our
future performance. We expect that quarterly sales may fluctuate significantly.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 28, JUNE 27, SEPT.26, DEC.26, MARCH 27, JUNE 26, SEPT.25, DEC.25, MARCH 25, JUNE 24,
1998 1998 1998 1998 1999 1999 1999 1999 2000 2000
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS
OF INCOME:
Net sales $39,422 $48,641 $40,792 $40,175 $50,949 $55,446 $58,140 $68,051 $76,576 $93,964
Cost of goods sold 18,699 21,578 20,241 22,269 24,453 25,990 25,987 29,224 34,663 43,939
------- ------- ------- ------- ------- ------- ------ ------- ------- -------
Gross profit 20,723 27,063 20,551 17,906 26,496 29,456 32,153 38,827 41,913 50,025
------- ------- ------- ------- -------- -------- ------- ------- ------- -------
Operating Expenses:
Selling, general and
administrative 4,643 5,245 6,062 8,730 6,352 6,082 6,761 7,868 7,091 7,984
Research and development 3,373 3,582 3,643 4,278 3,806 4,130 4,540 4,863 4,706 5,013
------- ------- ------ -------- -------- ------ ------ ------ ------ ------
Total operating expenses 8,016 8,827 9,705 13,008 10,158 10,212 11,301 12,731 11,797 12,997
------- ------- ------- -------- ------- ------ ------ ------ ------ ------
Operating income 12,707 18,236 10,846 4,898 16,338 19,244 20,852 26,096 30,116 37,028
Other income (expense) 1,019 3,250 2,274 (5,710) 3,582 (1,688) (1,196) 904 (3,152) 1,143
------- ------- ------- ------- -------- ------- ------ ------- ------- ------
Income/(loss) before income
taxes 13,726 21,486 13,120 (812)(1) 19,920 17,556 19,656 27,000 26,964 38,171
Income tax provision 3,568 5,586 3,411 (211) 4,727 4,166 4,665 6,407 6,365 9,010
(benefit) ------ ------ ------ ------- ------- ------- ------- ------- ------ -------
Net income (loss) $10,158 $15,900 $9,709 $(601) $15,193 $13,390 $14,991 $20,593 $20,599 $29,161
======= ======= ======= ======= ======== ======= ======= ======= ======= =======
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</TABLE>
(1) Includes a $2.5 million selling, general and administrative charge pursuant
to a one-time legal settlement and a $6.6 million foreign currency loss due
to the weakness of the U.S. Dollar compared to the New Taiwan Dollar.
LIQUIDITY AND CAPITAL RESOURCES
Net cash generated by operating activities was $39.9 million, $36.5
million and $44.3 million in fiscal 1997, 1998 and 1999, respectively, and was
$23.3 million and $34.4 million during the first six months of 1999 and 2000,
respectively. 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 high enough 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 do not anticipate that our inventory management techniques
will have a negative impact on our financial results in the future.
During the first six months of 2000, our capital expenditures totaled
$13.0 million. In fiscal 1997, 1998 and 1999, our capital expenditures totaled
approximately $2.7 million, $8.3 million and $32.2 million, respectively. These
expenditures were incurred primarily to increase our manufacturing capacity both
in the United States and in Taiwan. A significant investment was made in 1999 in
our Taiwan facilities.
We financed these capital expenditures through net operating cash flow,
debt from outside financial institutions and capital leases. We also made use of
capital leases to finance part of our capital expenditures programs during 1997
and 1998.
<PAGE>
As a result of our continuing expansion plans, capital expenditures in
2000 are expected to be in line with 1999 capital expenditures. The 2000
expenditures are primarily for our Olathe, Kansas building and land expansion
project that is approximately 50% complete. We expect our needs for capital in
2001 to be less than in 2000 since the current expansions will be nearly
complete. We expect our future capital requirements to consist primarily of
purchases of production machinery and equipment to expand capacity. A portion
will also be used for conversion of available space in our Olathe, Kansas
building for assembly use and expansion of our testing operations using our
recently acquired facility in Shijr, Taiwan. We may use a portion of the net
proceeds from this offering to acquire targeted strategic businesses.
We believe that our existing cash balances, cash flow from operations
and the net proceeds from this offering will be sufficient to meet our projected
capital expenditures, working capital and other cash requirements at least
through the end of fiscal 2001.
Dividends paid to stockholders were $3.6 million, $6.0 million, $7.5
million and $11.6 million in fiscal 1997, 1998, 1999 and 2000, respectively. We
also declared dividends of $17.4 million during the first six months of 2000
that will be paid in the third quarter of 2000. These dividends were declared in
order to provide funds to shareholders to pay withholding taxes and stock
transfer taxes related to the reorganization of Garmin Corporation. We do not
anticipate paying additional dividends in the foreseeable future.
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
materials 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.
Although some fluctuations have occurred, particularly in 1997, we
generally have not been significantly affected by foreign exchange fluctuations
because the New Taiwan Dollar has proven to be relatively stable since the
fourth quarter of 1998. However, more volatile foreign exchange rate
fluctuations in the future could have a significant effect on our results of
operations.
As of June 24, 2000, we have interest rate risk in connection with our
industrial revenue bonds that bear interest at a floating rate. 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.
INFLATION
We do not believe that inflation has had a material effect on our
business, financial condition or results of operations. If our costs were to
become subject to significant inflationary pressures, we may not be able to
fully offset such higher costs through price increases. Our inability or failure
to do so could adversely affect our business, financial condition and results of
operations.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998 and June 1999, the Financial Accounting Standards Board,
or FASB, issued Statement of Financial Accounting Standards, or SFAS, No. 133,
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES and SFAS No. 137,
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES-DEFERRAL OF THE
<PAGE>
EFFECTIVE DATE OF FASB STATEMENT NO. 133. These statements require companies to
record derivatives on the balance sheet as assets or liabilities, measured at
fair value. Gains or losses resulting from changes in the values of those
derivatives would be accounted for depending on the use of the derivative and
whether it qualifies for hedge accounting. SFAS 133 will be effective for our
fiscal year ending December 29, 2001. The adoption of Statement No. 133 is not
expected to have a material impact on our financial condition or results of
operations.
In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44 ("FIN 44") ACCOUNTING FOR CERTAIN TRANSACTIONS INVOLVING
STOCK COMPENSATION, AND INTERPRETATION OF APB OPINION NO. 25. FIN 44 clarifies
the application of Opinion No. 25 for (a) the definition of employee for
purposes of applying Opinion No. 25, (b) the criteria for determining whether a
plan qualifies as a noncompensatory plan, (c) the accounting consequence of
various modifications to the terms of a previously fixed stock award, and (d)
the accounting for an exchange of stock compensation awards in a business
combination. FIN 44 is effective July 1, 2000, but certain conclusions cover
specific events that occur after either December 15, 1998 or January 12, 2000.
As of June 24, 2000, we have not issued any stock compensation awards.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, or "SAB 101", REVENUE RECOGNITION, which provides
guidance on the recognition, presentation, and disclosure of revenue in
financial statements filed with the SEC. SAB 101 outlines the basic criteria
that must be met to recognize revenue and provides guidance for disclosures
related to revenue recognition policies. Because our current revenue recognition
policies are basically consistent with SAB 101, implementation of SAB 101 is not
expected to have a material impact on our financial condition or results of
operations.
<PAGE>
REORGANIZATION
Garmin Corporation was formed in Taiwan, Republic of China, in January
1990. Prior to the reorganization described below, Garmin Corporation was the
parent corporation of the Garmin group. Garmin Corporation currently owns 100%
of Garmin International, Inc., a Kansas corporation. Garmin International, Inc.
currently owns 100% of Garmin (Europe) Ltd., a U.K. company, 100% of Garmin
Foreign Sales Corporation, a Barbados company, and 100% of Garmin Realty, LLC, a
Kansas company.
Under the current legal framework of Taiwan, Garmin Corporation is not
permitted to offer its shares in the United States except upon compliance with
cumbersome regulatory requirements in Taiwan. Therefore, in July 2000, we formed
Garmin Ltd. as a holding company for Garmin Corporation. As a result of that
reorganization, Garmin Ltd., a Cayman Islands corporation, owns approximately
100% of the capital stock of Garmin Corporation, except for six shares held of
record, but not beneficially, by nominees to satisfy the Taiwan requirement that
Garmin Corporation have at least seven shareholders, and 4,000 shares held by
two related shareholders. In connection with the reorganization, shareholders of
Garmin Corporation entered into a shareholders' agreement whereby each
shareholder party to the agreement agreed to take all reasonable actions
required to prevent the disposition by Garmin Ltd. of any shares of Garmin
Corporation or of substantially all of the assets of Garmin Corporation until
December 31, 2005 except upon approval of a majority in interest of such
shareholders who are U.S. citizens or residents.
As part of the reorganization, Garmin Ltd. will acquire 100% of Garmin
(Europe) Ltd. from Garmin International, Inc. and plans to acquire a direct
interest in Garmin International, Inc. after this offering. Garmin Ltd. will
also own directly or indirectly Garmin Foreign Sales Corporation and Garmin
Realty LLC.
<PAGE>
BUSINESS
COMPANY OVERVIEW
We are a leading, worldwide provider of navigation, communications and
information devices, most of which are enabled by GPS technology. We design,
develop, manufacture and market under the GARMIN brand a diverse family of
hand-held, portable and fixed mount GPS-enabled products and other navigation,
communications and information products. Each of our GPS products utilizes our
proprietary integrated GPS chipsets and receiver design to collect, calculate
and display location, direction, speed and other information in forms optimized
for specific end-user applications.
Our products cover a wide range of applications and price points,
ranging from an entry-level handheld GPS receiver that retails for approximately
$119 to an avionics instrument suite for general aviation aircraft that retails
for approximately $22,000. Based upon independent market surveys, we estimate
that in 1999 we had a market share by unit volume of approximately 50% in the
North American GPS marine and recreational market, a 59% market share by unit
volume of the U.S. general aviation retrofit market for GPS-enabled panel mount
applications, and a 76% market share by unit volume of the U.S. market for
portable aviation GPS devices. We believe that we have achieved our leading
market position by offering a broad range of products for a variety of
applications and by developing ergonomically designed and user friendly products
with innovative features.
We were founded in 1989 with a vision to be a leading supplier of
navigation, communications and information equipment to customers around the
world. With an initial staff of 10 individuals, we designed our first product,
the GPS 100, and produced working prototypes within a year after we were
founded. By January 1991, we established manufacturing facilities in Taiwan and
began producing the GPS 100. Initial product deliveries included units that
served Allied troops during the Gulf War.
At the time of its introduction in 1990, the GPS 100 was the most
versatile GPS product available for a broad range of customers and applications.
For example, the GPS 100 could be installed directly in the panel of an aircraft
and could interface with a variety of cockpit instruments such as an autopilot
or moving map display. The GPS 100 could also be mounted in a boat and interface
with a variety of marine electronics, such as an autopilot, chart plotter and
ship alarms. It included a battery pack which provided power for portable
operation or, if installed in a vehicle, for continued operation if vehicle
power was lost, providing life-saving guidance to an aircraft or vessel in
distress. By attaching a small antenna the GPS 100 could be operated in a
portable mode, providing navigation guidance to hunters, hikers, and other
outdoor enthusiasts.
After delivering the GPS 100, we expanded our design, marketing and
production capabilities to develop additional products for our target markets.
We currently produce approximately 50 different models, including GPS-enabled
devices, depth sounders/fishfinders, VHF communications transceivers, radios,
transponders and audio products at our production facilities in Shijr, Taiwan
and Olathe, Kansas. These products are sold through a network of approximately
2,500 dealers and distributors around the world.
Our management team still includes the original founders of our company
in addition to others with significant experience in our selected markets. We
believe this combination of experience and stability has been a key factor in
successfully serving our chosen markets and in anticipating the needs of
customers as we create new products.
<PAGE>
OVERVIEW OF THE GLOBAL POSITIONING SYSTEM
The Global Positioning System, or GPS, first made available by the U.S.
government for commercial use in 1983, is a proven worldwide navigation system
which enables the precise determination of geographic location using established
satellite technology. The system consists of a constellation of orbiting
satellites. The satellites and their ground control and monitoring stations are
maintained and operated by the United States Department of Defense, which
maintains an ongoing satellite replenishment program to ensure continuous global
system coverage. Access to the system is provided free of charge by the U.S.
government.
"WHERE AM I AND HOW CAN I GET TO WHERE I WANT TO GO?" The Global
Positioning System can provide an instant response to this question anywhere in
the world.
<PAGE>
[Graphic depiction of Global Positioning System
and electronic map]
o the satellites must be in view,
o four satellite signals required, and
o location determined by triangulation
Reception of GPS signals from the satellites requires line-of-sight
visibility between the satellites and the receiver. GPS receivers generally do
not work indoors and when a receiver is outside, buildings, hills and dense
foliage can block reception. GPS receivers can be very compact, and it is not
necessary to have a large dish antenna to receive GPS signals.
Prior to May 2000, the U.S. Department of Defense intentionally
degraded the accuracy of civilian GPS signals in a process known as Selective
Availability ("SA") for national security purposes. SA variably degraded GPS
position accuracy to a radius of 100 meters. On May 2, 2000, the U.S. Department
of Defense discontinued SA. With SA removed, a GPS receiver can calculate its
position to an accuracy of 10 meters or less, significantly enhancing the
utility of GPS for most applications.
The accuracy and utility of GPS can be enhanced even further through
augmentation techniques which compute any remaining errors in the signal and
broadcast these corrections to a GPS device. The FAA is developing a Wide Area
Augmentation System ("WAAS") comprising ground reference stations and additional
satellites which will improve the accuracy of GPS positioning available in the
United States and portions of Canada and Mexico to approximately 3 meters. WAAS
is intended to support the use of GPS as the primary means of enroute, terminal
and approach navigation for aviation in the United States. The increased
accuracy offered by WAAS will also enhance the utility of WAAS-enabled GPS
receivers for consumer applications. The FAA has stated that it expects the WAAS
system to have initial operating capability in 2002.
<PAGE>
MARKET OPPORTUNITY
The market for GPS-enabled products is projected to grow rapidly in the
next five years. We believe improved accuracy, primarily as a result of the U.S.
government's removal of SA, increased device functionality of GPS applications
and the continued convergence of navigation, communications and information
devices will drive projected industry growth. We believe that the removal of SA
will particularly benefit the consumer and general aviation markets in which we
currently maintain leading positions. Allied Business Intelligence, Inc. has
forecast in a 1999 report that the worldwide commercial GPS market, including
the markets in which we participate, will grow from an estimated $4.9 billion in
1999 to $13.9 billion by 2005, a 19% compound annual growth rate.
To date we have concentrated primarily on the marine, recreational, and
aviation markets because of the significant immediate market opportunity
available in these markets.
o MARINE - Recreational boaters, fisherman, and commercial vessels use
GPS receivers for worldwide navigation and locating favorite mooring
or fishing spots. According to data from the National Marine
Manufacturers Association published in the February 2000 issue of
BOATING INDUSTRY, there were 12,565,981 recreational boats in the
United States in 1999 and an additional 483,000 recreational boats
were produced in the United States in 1999.
o RECREATIONAL - Hikers, hunters, campers and bikers use GPS receivers
to navigate through rural and wilderness terrain. Frost & Sullivan
estimated that GPS recreational product sales in North America in 1999
were 738,600 units. Frost & Sullivan projects annual recreational GPS
product sales in North America alone to exceed 3 million units by
2006.
o AVIATION - GPS receivers can be used for en route navigation and
landing approaches. Today, FAA certified GPS receivers can be used for
non-precision approaches. When the FAA's WAAS system is fully
operational, GPS receivers certified in accordance with FAA technical
standards orders will be used for precision approaches and will become
the primary navigation means for aircraft in the United States.
According to the FAA's Aerospace Forecasts published in March 2000,
there were a total of 204,700 active general aviation aircraft in the
United States in 1998. The FAA's Aerospace Forecasts also state that
the U.S. general aviation fleet is projected to grow by about 2,100
aircraft annually through 2005.
While the consumer and aviation segments will continue to be the core
of our business in the near-term, these markets are only the beginning for
GPS-enabled products and services. GPS capabilities are becoming increasingly
commercially viable in a wide range of consumer products and services, including
automotive navigation systems, wireless consumer and information devices (such
as phones and personal digital assistants ("PDAs")), emergency locating
services, and tracking/anti-theft products. We intend to continue to be a leader
in innovation by capitalizing on the convergence of information and location
technologies as we expand the utility of, and market for, our devices. Our
vision is to leverage our brand and development experience to build leadership
positions in additional select high-growth GPS enabled/enhanced markets, such as
automotive and wireless applications. We currently have products under
development for launches into these markets in the next 12 to 24 months.
o AUTOMOTIVE - GPS receivers with detailed street map displays and "turn
by turn" guidance currently offer navigational assistance to drivers
around the world. We believe that GPS technology will be critical to
<PAGE>
delivering the next generation of automotive services including
telematics and emergency assistance. By linking a GPS receiver to a
cellular communications device, a vehicle's location can automatically
be transmitted to a base station or emergency service provider in the
event of a collision or air bag deployment, improving emergency
assistance response times. Telematics is the convergence of
communications, entertainment and information within the automotive
environment. Automobile manufacturers are increasingly focused on
developing telematic solutions/services to enhance the automotive
consumer's experience, comfort and safety. Telematic
solutions/services include remote system diagnostics to alert the
vehicle owner of maintenance issues, mobile commerce ("M-commerce")
and "concierge services" such as General Motors' OnStar service.
Vehicle location identification plays a meaningful role in delivery of
these services. According to J.D. Power-LMC, there are approximately
200 million cars and light trucks in the U.S. alone, out of an
estimated total of 621 million globally. J.D. Power-LMC predicts new
vehicle deliveries (cars and light trucks) of 17.3 million and 53.3
million by 2005 for North America and globally, respectively. While we
believe that telematics represents a significant growth opportunity
for us, we expect that near-term penetration of telematics will
represent only a small fraction of the total addressable market.
o WIRELESS - Demand for wireless services is expected to continue to
grow rapidly. International Data Corporation ("IDC") predicts that the
number of global wireless subscribers will increase from approximately
303 million subscribers in 1998 to 1.1 billion subscribers in 2003,
representing a compound annual growth rate of 29%. Increasingly,
wireless devices incorporate elements of voice, text messaging,
Internet access and navigation/location determination in a single
unit. We believe that one of the key attributes of the wireless
services markets will be the tailoring of services and content to the
specific location of the end-user and that this will be particularly
important to the emerging M-commerce industry. GPS is one of several
location identification technologies that may be incorporated into
wireless devices enabling delivery of location specific content and
services, including M-commerce offerings. Emergency assistance
mandates may also expand GPS wireless product opportunities. The FCC
has ordered that by October 2001 cellular telephone carriers be able
to identify an emergency 911 caller's location to within 125 meters.
In addition, the European Union is currently investigating similar
directives for a European emergency 112 system.
OUR VISION AND STRATEGY
Our vision is to continually expand our position as a leading supplier
of navigation, communications and information devices to customers around the
world. Our goal is to design, produce, market and support innovative products
that will expand our leadership in established markets and provide opportunity
to serve new markets. The key elements of our strategy include:
MAINTAIN OUR CUSTOMER FOCUSED APPROACH TO PRODUCT DESIGN. Our goal is
to serve our customers' needs by designing products that offer superior value,
higher quality and lower cost of ownership than our competitors offer. We
periodically meet with some of our major independent dealers to seek feedback on
our existing products and product concepts that are candidates for design. Our
product designers monitor feedback provided by customers through our sales and
customer service departments as well as the Internet. We encourage our staff to
evaluate product concepts relative to their own every-day life experience in
order to visualize how customers will respond to our products. We believe this
customer focused approach has been a key factor in developing our strong brand
recognition and loyal customer base to date.
EMPHASIZE CONTINUOUS PRODUCT INNOVATION. We have introduced
industry-leading innovations, ranging from small, low-cost, high performance
<PAGE>
GPS-enabled devices to products that integrate a broad range of navigation,
communications and information technologies. We continually improve our products
by adding innovative features and incorporating new technologies that offer
improved performance and lower cost. We intend to continue to be a leader in
innovation by capitalizing on the convergence of information and location
technologies as we expand the utility of, and market for, our devices.
EXPAND AND BROADEN OUR PRODUCT LINE. Our goal is to offer a
comprehensive line of navigation, communications and information products within
each market segment, and to offer a variety of products within each line to
appeal to a broad range of customer needs, price points and applications. This
strategy allows efficient use of resources and improves the economics of scale
within our organization. In addition, we expect to enter the new and rapidly
expanding market for convergence devices through the introduction of innovative
mobile information appliances, which combine GPS, communications and information
capabilities.
Within the consumer market we offer fixed mounted and portable
GPS-enabled devices, depth sounders/fishfinders, and VHF communication
transceivers. Within the aviation market we offer panel mounted and portable
GPS-enabled devices, omni-range and instrument landing receivers, audio panels
and digital transponders. We believe this breadth of market coverage provides
our customers a one-stop shopping opportunity and contributes to our strength
within our chosen markets.
Within each product line we generally offer multiple products that
allow our customers to choose the features and benefits that are most important
to them. This approach allows us to better serve the low-end markets with
cost-competitive products while our mid-range and high-end entries provide
improved profit margins and opportunities to sell accessories.
MAINTAIN AND SELECTIVELY EXPAND OUR DISTRIBUTION NETWORK. We intend to
expand our global network of approximately 2,500 independent dealers and
distributors by developing new dealers in selected markets who meet our
standards for sales volume and customer service. We also plan to pursue avenues
of distribution that will reach new customers and introduce the utility of our
products to new markets. We plan to maintain and expand on our close
relationships with our global network of dealers and OEMs who provide valuable
input to our engineering and marketing teams.
LEVERAGE VERTICAL INTEGRATION. Vertical integration has enabled us to
develop a broad set of core competencies that distinguish us from our
competition. Examples include:
o Our modern manufacturing facilities in Shijr, Taiwan and Olathe, Kansas,
which we own and operate, unlike many of our competitors who outsource; and
o Our proprietary GPS chipset designs, liquid crystal display modules and
software technologies which we believe offer superior performance with
higher quality and at lower cost.
We intend to continue integrating vertically whenever superior results
can be achieved. We continually evaluate technologies and processes and elect to
develop those that will differentiate our products from a potentially large
field of competitors. In some cases we may elect to partner with others that
offer significant technology components. For example, we have licensed
technologies from Qualcomm, Inc., a leading supplier of wireless technology, and
from Etak, Inc. and Navigation Technologies, Inc, the leading suppliers of
automotive mapping information.
PRODUCTS
We have achieved a leading market position and a record of growth in
revenues and profits by offering ergonomically designed, user friendly products
with innovative features and designs covering a broad range of applications and
price points.
<PAGE>
CONSUMER
We currently offer a wide range of consumer products, including
handheld GPS receivers, our StreetPilot(R) portable automotive navigation
devices and fixed-mount GPS/Sounder products, targeted toward the marine and
recreational market segments. Our consumer products are known for their value
leadership, high performance, innovation and ergonomics. Many of our products
are optimized for outdoor enthusiasts. For example, our popular eTrex(TM)
product, is the smallest, full-featured handheld GPS receiver which is
waterproof and rugged. Its unique design locates all control buttons on the side
of the unit so that it can be conveniently held and operated with one hand.
eTrex retails in the U.S. for approximately $119. Our exclusive TracBack(R)
feature, found on many of our GPS receivers, further enhances GPS functionality
as it automatically creates an "electronic breadcrumb" trail as you travel that
can lead you back to your starting place. Based on data from the 1999 Frost &
Sullivan report, we believe that we lead the North American marine and
recreational GPS market with approximately 50% unit volume share in the combined
market segments we serve.
In addition to our products, we offer a broad set of accessories from
which a customer can achieve even more value from our products. For instance,
our line of MapSource CDs, which can be loaded into selected GPS products
through a personal computer, provide detailed mapping information for the United
States as well as a number of European countries. With this information, our
StreetPilot, StreetPilot ColorMap and eMap(TM) products can provide the customer
with detailed information concerning business listings and points of interest. A
user can enter a street address or choose a business listing (e.g., restaurants,
hotels, and shops) and the unit will display the location of the destination on
a map along with the user's location and the distance from the user's location.
The table below includes a sampling of the innovative products that we
currently offer to consumers.
--------------------------------------------------------------------------------
HANDHELD AND PORTABLE CONSUMER PRODUCTS:
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eMap Pocket-size GPS with built-in basic map showing
highways and major streets for personal use and
business travel. MapSource compatibility allows street
level mapping, points of interest and address location
functionality. eMap introduces benefits of GPS to a new
class of consumers.
eTrex & eTrex Summit Ultra compact full feature handheld GPS
design for outdoor enthusiasts. Both models are
waterproof and have rugged designs. The eTrex Summit
also offers electronic compass and barometric altimeter
functions. This entry level recreational product is our
fastest growing product in unit sales.
StreetPilot GPS Portable automotive navigation systems with basic map
(2 models) and MapSource compatibility allowing street level
mapping, points of interest and address location
functionality. The ColorMap model features a color
display.
GPS 12 Rugged handhelds for serious outdoor enthusiasts.
(4 models) Capabilities and features available in different GPS
12 models include basic navigation, color graphics,
built-in point database, detailed built-in maps and
MapSource compatibility.
GPS 48 Handheld GPS with a built-in database of marine
navigation aids.
GPS III Portable GPS, with unique selectable vertical or
(2 models) horizontal displays. Capabilities and features
available in different GPS III models include built-in
basic maps and MapSource compatibility.
<PAGE>
GPSMAP 175 This portable GPS/Plotter is suitable for avid boaters,
providing fuel and planning functions, distance and
bearing calculations and inland and offshore digital
marine charts. The unit offers a large display and
the capability to access detailed marine charts from
G-Chart(R)cartridges.
--------------------------------------------------------------------------------
MARINE FIXED-MOUNT UNITS:
--------------------------------------------------------------------------------
GPS126 & 128 Low cost fixed-mount GPS's for boating with either a
built-in antenna or an external antenna for exposed
installations.
GPSMAP Marine GPS/plotter combinations for boating and
(5 models) fishing enthusiasts of different levels. Features
available on different models include a variety of
display sizes (ranging in size from 4.2" to 7.1"),
high-contrast LCD graphics, monochrome or 16-color
active matrix displays and the capability of
uploading current mapping data from a personal
computer with MapSource CD-ROM's.
GBR 21 & 23 These differential beacon receivers complement all
of our GPS receivers by providing boaters and
fisherman additional positioning accuracy to within
approximately 5 meters.
--------------------------------------------------------------------------------
SOUNDER PRODUCTS:
--------------------------------------------------------------------------------
FishFinders All fishfinders feature our exclusive DCG(R) and
3 models) See-Thru(R) technology, which aid fishermen in
defining the ocean/lake bottom and spotting fish in
hidden or obscured areas.
GPSMAP/Sounder The "all-in-one" product line with GPS, chartplotter
(3 models) and sonar functionality. These units come with
different display sizes (ranging in size from 4.2"
to 7.1") and the capability of uploading current
mapping data.
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CONSUMER COMMUNICATIONS PRODUCTS:
--------------------------------------------------------------------------------
NavTalk A waterproof handheld unit that combines a cellular
telephone and a full-featured GPS receiver with mapping
display. An optional feature offered includes
FirstAssist(TM) emergency service which, at the touch
of a button, connects the user to an emergency response
center and transmits the unit's location to the center.
VHF 720 & 725 Waterproof, portable handheld marine radios with
either 3-watt or 5-watt power output provide clear
VHF communication capabilities for all types of
boaters.
--------------------------------------------------------------------------------
AVIATION
Our panel mounted product line includes GPS-enabled navigation, VHF
transceivers, traditional omni-range, localizer, and glideslope navigation,
digital transponders, marker beacon receivers and audio panels. Our goal is to
supply every major electronic component in the cockpit, including weather
information and primary flight instruments that use the latest display
technologies.
<PAGE>
Our aviation products have won prestigious awards throughout the
industry for their innovative features and ease of use. We were the first
company to offer a GPS receiver, the GPS 155/165, which met the FAA's
requirements for certain kinds of instrument approaches and did so a full year
ahead of our competitors. The GPS 155/165 with its instrument approach
capability won FLYING Magazine's outstanding achievement award for 1994. The GNS
430/530 offers an unprecedented set of features and capabilities integrated into
a single product. This high level of integration has revolutionized the aviation
electronics industry by minimizing the use of precious space in the cockpit,
enhancing the quality and safety of flight through the use of modern designs and
components and reducing the cost of equipping an aircraft with modern
electronics. The GNS 430 was also recognized by Flying Magazine as the Editor's
Choice Product of the Year for 1998. In 1994 and again in 2000, we earned
recognition from the Aircraft Electronics Association for outstanding
contribution to the general aviation electronics industry.
According to dealer surveys conducted by the Aircraft Electronics
Association ("AEA") for 1999, we lead the U.S. industry, with a 59% share by
unit volume of the U.S. GPS panel-mount retrofit market, a 41% share by unit
volume of the U.S. audio panel retrofit market and a 76% share by unit volume of
portable GPS devices sold to the U.S. aviation market. In addition, AEA
estimates that our transponder product line, introduced in 1998, has captured
24% of the U.S. retrofit market share by unit volume.
Large portions of our sales come from the retrofit market where older
aircraft are fitted with the latest electronics from our broad product line. We
believe this market continues to have good growth potential as aircraft owners
elect to upgrade their existing aircraft at a cost that is lower than purchasing
a new aircraft.
We have also gained market share as an OEM supplier to leading airframe
manufacturers such as the New Piper Aircraft Company, Raytheon Aircraft Company,
Mooney Aircraft Corporation and Cirrus Design Corporation. We anticipate further
upside potential in the OEM market as our product offerings expand to include
weather information and primary flight instruments that use the latest display
technologies.
The table below includes a sampling of the innovative aviation products
that we currently offer.
<PAGE>
--------------------------------------------------------------------------------
HANDHELD AND PORTABLE AVIATION PRODUCTS:
--------------------------------------------------------------------------------
GPS 92 Value-priced unit for recreational pilots with built-
in Jeppesen(R)database. The Jeppesen database
includes airports, VOR beacons, controlled airspace,
runway data and final approach waypoints.
GPS III Pilot Aviation style GPS III, with built-in maps and
Jeppesen database.
PSMAP 195 Portable GPS receiver with 4.1" moving map display
and built-in aviation database.
GPSMAP 295 A high-end portable GPS receiver designed specifically
for the serious aviator. Features include a 16-color
display and built-in aviation database; it can
download MapSource CD-ROM information through a
personal computer for street level map details.
--------------------------------------------------------------------------------
PANEL-MOUNT AVIATION PRODUCTS:
--------------------------------------------------------------------------------
GNC 300XL TSO IFR certified product that combines a GPS receiver
with VHF radio and features moving map graphics.
400 Series The GNS 430 is the world's first "all-in-one" IFR
(3 models) certified GPS navigation receiver/VOR receiver/
instrument landing system receiver and VHF
communication transceiver. Features available in
different 400 series models include 4" color map
graphics, GPS, communication and navigation
capabilities.
GNS 530 This unit combines all of the features of the GNS 430
along with a larger 5" color display.
GI-102A & 106A Course deviation indicators (CDIs). The GI-106A
features a glideslope indicator to aid in landing.
GMA 340 A feature-rich audio panel with six-place stereo
intercom and independent pilot/co-pilot
communications capabilities.
<PAGE>
GTX 320 & 327 TSO-certified transponders featuring altitude
reporting capability and solid-state construction for
longer life. The GTX 327 offers a digital display
with unique timing functions.
--------------------------------------------------------------------------------
AVIATION COMMUNICATIONS PRODUCTS:
--------------------------------------------------------------------------------
NavTalk Pilot Similar to the original NavTalk, this
GPS-enabled cellular telephone, with built-in aviation
database, offers AirCell(R) airborne service so that
pilots can make and receive cellular telephone calls
while airborne.
GPSCOM 190 A GPS-enabled handheld with a VHF radio. This unit
combines a portable GPS receiver with an aviation
band communication transceiver for communication
with airports and air traffic controllers.
--------------------------------------------------------------------------------
SALES AND MARKETING
Our consumer products are sold through a worldwide network of
approximately 2,500 independent dealers and distributors in approximately 100
countries who meet our sales and customer service qualifications. We intend to
selectively grow our dealer network geographically and by product lines.
Marketing support is provided geographically from our offices in Olathe, Kansas
(North, South and Central America), Romsey, U.K. (Europe, Middle East and
Africa) and Shijr, Taiwan (Asia and Australasia). Our distribution strategy is
intended to increase our global penetration and presence while maintaining high
quality standards to ensure end-user satisfaction.
Our U.S. consumer segment marketing is handled through our dealers who
are serviced by a staff of regional sales managers and in-house sales
associates. Some of our largest consumer products dealers include:
o BASS PRO SHOPS - a freshwater sports specialist with a sophisticated
catalog sales effort and "super store" locations;
o BOAT AMERICA/BOAT U.S. - A major marine dealer featuring memberships for
special buying privileges;
o BOATERS WORLD - a leading off-shore marine retailer with multiple
locations;
o CABELA'S - a major catalogue retailer for the outdoor marine market;
o WAL-MART - the world's largest mass retailer with some 2,500 locations
nationwide; and
o WEST MARINE - the largest U.S. marine retailer specializing in offshore
boating equipment.
Our European consumer segment marketing is handled through in-country
distributors who resell to dealers. Working closely with our in-house sales and
marketing staff in Romsey, U.K., these distributors are responsible for
inventory levels and staff training requirements at each retail location. Our
Taiwan-based marketing team handles our Asia marketing effort with support from
our U.S. office.
Aviation marketing is handled through dealers around the world. Our
largest aviation dealers include Sportsmen's Market, Tropic Aero, JA Air Center,
Gulf Coast Avionics and Aircraft Spruce Avionics. All have the training,
equipment and certified staff required for the at-airport installation of our
most sophisticated Instrument Flight Rules ("IFR") avionics equipment. Visual
Flight Rules ("VFR") equipment including handheld GPS receivers, is sold through
dealers, usually at airport locations or through catalogs.
<PAGE>
In addition to the traditional distribution channels mentioned, we
enjoy significant market penetration with OEMs. In the consumer market, our
products are standard equipment on boats manufactured by Ranger Boats and Lund
Boat Company. In the aviation market, our avionics are standard equipment on
airplanes built by The New Piper Aircraft Company, Raytheon Aircraft Company,
Mooney Aircraft Corporation and Cirrus Design Corporation. The qualification
process associated with aviation OEM certification represents a significant
barrier to entry for our potential competitors in the aviation OEM sales
channel. Other airframe and boat manufacturers offer our products as optional
equipment.
We believe that customer word-of-mouth has been a significant driver of
our brand's success to date, at little cost to us. We expect that our reputation
for quality and innovative products and word-of-mouth support will continue to
play a significant role in our growth and success. In addition, we expect to
continue our investment in advertising and marketing to further build brand
awareness. We expect to maximize the returns on our advertising and marketing
budget by focusing on the most direct and cost-effective means to reach our
targeted customer base, which includes trade show appearances, event
sponsorships, packaging and in-store promotions, direct and dealer co-op
advertising, and media/press relations. We believe our significant in-house
experience designing campaigns, promotional materials, and media targeting is a
significant competitive advantage.
We also emphasize ongoing customer service and support. Customer
service representatives, some of whom are pilots and mariners themselves,
respond to thousands of support calls each day. Our web site, www.garmin.com, is
also playing an increasing role in supporting brand awareness, answering
customer questions and serving as a powerful showcase for our products. To avoid
distribution channel conflict, however, only product accessories are sold
directly through our site. Our site includes information on how to contact an
authorized dealer and even links to our dealers' e-commerce sites where
customers can directly purchase our products.
COMPETITION
The market for navigation, communications and information products is
highly competitive and we expect competition to increase. We believe the
principal competitive factors impacting the market for our products are
features, quality, design, customer service, brand, price, time-to-market and
availability. We believe that we generally compete favorably in these areas. In
1999, we had an estimated market share by unit volume of approximately 50% in
the North American marine and recreational market based upon data from an
independent market report published by Frost and Sullivan. In 1999, we estimate
that we had a 59% market share by unit volume of the U.S. general aviation
retrofit market for GPS-enabled panel mount applications and a 76% market share
by unit volume of the U.S. market for portable aviation GPS devices based upon
data from independent market reports published by the Aircraft Electronics
Association.
For our consumer GPS-enabled product lines, we consider our principal
competitors to be Magellan Corporation ("Magellan"), a subsidiary of Orbital
Sciences, Inc., Lowrance Electronics Inc. ("Lowrance"), Raytheon Marine Company
("Raytheon"), Furuno Electronic Company, MLR, Simrad AS ("Simrad"), the Cetrek
division of Teleflex, Inc., Japan Radio Company and Koden Electronics Co., Ltd.
For our fishfinder/depth sounder product lines, we consider our principal
competitors to be Lowrance and the Humminbird division of Techsonic Industries,
Inc. ("Humminbird"). For our marine VHF transceiver product lines, we consider
Standard Communications, Shakespeare Corporation, Humminbird, Raytheon, Uniden
Corporation, Simrad and Icom, Inc. to be our principal competitors. For our
general aviation product lines, we consider our principal competitors to be
Lowrance and Magellan, for portable GPS units, and UPS Aviation Technologies, a
subsidiary of United Parcel Service, Inc., Honeywell, Inc., Northstar
Technologies and Avidyne Corporation for panel-mount GPS and display units. For
our wireless product lines, we consider our principal competitors to be Nokia
Oy, Telefon AB LM Ericsson, Motorola, Inc. ("Motorola"), Benefon Oy, Siemens AG,
<PAGE>
Sony Corporation and Samsung. For our OEM product lines, we consider our
principal competitors to be Trimble Navigation, Ltd., Conexant, Inc., Magellan,
Motorola, Phillips N.V. ("Phillips") and SiRF Technology, Inc. For our
automotive product lines, we consider our principal competitors to be Magellan,
Alpine Electronics, Inc., Denso KK, Visteon, On-Star Division of General Motors
Corporation and Phillips.
RESEARCH AND DEVELOPMENT
We believe that our future success depends upon our ability to continue
to develop new products and enhancements to our existing products. We intend to
continue to employ a customer focused design approach by providing innovative
products that respond to and anticipate customer needs for functionality, design
and ease of use. We plan to introduce approximately 25 new products within the
next 12 months.
Our product innovations are driven by our strong emphasis on research
and development and the close partnership between our engineering and
manufacturing teams. Our products are created by our engineering and design
staff of approximately 200 people worldwide. Our manufacturing staff includes
manufacturing process engineers who work closely with our design engineers to
ensure manufacturability and manufacturing cost control for our products. Our
design staff includes industrial designers, as well as software engineers,
electrical engineers and mechanical engineers. We believe the industrial design
of our products has played an important role in our success. Once a development
project is initiated and approved, a multi-disciplinary team is created to
design the product and transition it into manufacturing. Despite intense
competition for engineering professionals, we have been successful in recruiting
and retaining a capable staff. We anticipate that our design staff will grow
significantly upon the completion of our facility expansion.
MANUFACTURING AND OPERATIONS
One of our core competencies is our manufacturing capability at both
our Shijr, Taiwan facility and our Olathe, Kansas facility. With the expansion
of our Olathe facility underway, we believe that we have sufficient
manufacturing capacity to meet current and near-term demand. Our vertically
integrated approach has offered us the following competitive advantages:
REDUCED TIME-TO-MARKET. Manufacturing a new product requires a close
relationship between the product designers and the manufacturing organization in
order to minimize the time required introducing a new design to production.
Utilizing concurrent engineering techniques, our products are introduced to
production at an early development stage and the feedback provided by
manufacturing is incorporated into the design before mass production begins. In
this manner, we can significantly reduce the time required to move a product
from its design phase to mass production deliveries, with improved quality and
yields. Reducing time to market has enabled us to offer several industry firsts,
such as the NavTalk GPS-enabled wireless phone and the GNC 430, which integrates
traditional aviation navigation and communications systems with GPS in a single
package.
DESIGN AND PROCESS OPTIMIZATION. Using our manufacturing resources, we
can rapidly prototype design concepts, products and processes in order to
achieve higher efficiency, lower cost and best value for the customer. Our
ability to fully explore product design and manufacturing process concepts has
enabled us to optimize our designs to minimize size and weight in a GPS device
that is fully functional, waterproof, and rugged.
LOGISTICAL AGILITY. Operating our own manufacturing facilities helps us
minimize problems common to the electronics industry, such as component
shortages and long component lead times. Many products can be re-engineered to
bypass component shortages or reduce cost and the new designs can quickly fill
<PAGE>
the distribution pipeline. We can react rapidly to changes in market demand by
maintaining a safety stock of long-lead components or by rescheduling components
from one product line to another. We pragmatically evaluate manufacturing
resources and can elect to sub-contract non-critical assemblies to others in
order to maintain our strategic focus.
Our design and manufacturing processes are certified to ISO 9001/2 for
superior quality. In addition our aviation panel-mount products are designed
according to processes which are approved and monitored by the FAA.
INTELLECTUAL PROPERTY
Our success and ability to compete is dependent in part on our
proprietary technology. We rely on a combination of patent, copyright, trademark
and trade secret laws, as well as confidentiality agreements, to establish and
protect our proprietary rights. As of August 22, 2000, we held 35 U.S. patents
and have approximately 40 U.S. patent applications pending. Our U.S. patents do
not create any patent rights in foreign countries. In addition, we often rely on
licenses of intellectual property for use in our business. For example, we
obtain licenses for digital cartography technology for use in our products from
various sources. Our registered U.S. trademarks include: GARMIN; the GARMIN
logo; the GARMIN globe design; the GARMIN "swoosh" design; STREETPILOT;
TRACBACK; DCG; PERSONAL NAVIGATOR; PERSONAL SURVEYOR; GPS II; GPS III; GUIDANCE
BY GARMIN; GPSCOM; PHASETRAC 12; TRACPAK; G CHART; GPS 40; MULTITRAC 8;
AUTOLOCATE; QUICKFIX AND SEE-THRU. Our mark GARMIN and certain other trademarks
have also been registered in selected other countries. Our trademarks include
EMAP, ETREX, ETREX SUMMIT, METROGUIDE AND MAPSOURCE. Our patents and our
registered trademarks and trademarks are owned by Garmin Corporation.
We believe that our continued success depends in large part on the
intellectual skills of our employees and their ability to continue to innovate.
We will continue to file and prosecute patent applications when appropriate to
attempt to protect our rights in our proprietary technologies. We will also
encourage our employees to continue to invent and innovate new technologies so
as to maintain our competitiveness in the marketplace.
It is possible that our current patents, or patents which we may later
acquire, may be successfully challenged or invalidated in whole or in part. It
is also possible that we may not obtain issued patents for inventions we seek to
protect. It is also possible that we may not develop proprietary products or
technologies in the future that are patentable, or that any patent issued to us
may not provide us with any competitive advantages, or that the patents of
others will harm or altogether preclude our ability to do business. Legal
protections afford only limited protection for our technology. Despite our
efforts to protect our proprietary rights, unauthorized parties may attempt to
copy aspects of our products or to obtain and use information that we regard as
proprietary. Litigation may be necessary in the future to enforce our
intellectual property rights, to protect our trade secrets, to determine the
validity and scope of the proprietary rights of others or to defend against
claims of infringement or invalidity. Any resulting litigation could result in
substantial costs and diversion of our resources. Our means of protecting our
proprietary rights may not be adequate and our competitors may independently
develop technology that is similar to ours.
REGULATIONS
Our aviation products that are intended for installation in type
certificated aircraft are required to be certified by the FAA, its European
counterpart, the Joint Aviation Authorities ("JAA"), and other comparable
organizations before they can be used in an aircraft. The telecommunications
<PAGE>
industry is highly regulated, and the regulatory environment in which we operate
is subject to change. In accordance with FCC rules and regulations, wireless
transceiver and cellular handset products are required to be certified by the
FCC and comparable authorities in foreign countries where they are sold. Our
products sold in Europe are required to comply with relevant directives of the
European Commission. A delay in receiving required certifications for new
products or enhancements to our products or losing certification for our
existing products could adversely affect our business.
Because Garmin Corporation, one of our principal subsidiaries, is
located in Taiwan, foreign exchange control laws and regulations of Taiwan with
respect to remittances into and out of Taiwan may have an impact on our
operations. The Taiwan Foreign Exchange Control Statute, and regulations
thereunder, provide that all foreign exchange transactions must be executed by
banks designated to handle such business by the Ministry of Finance of Taiwan
and by the Central Bank of China, also referred to as the CBC. Current
regulations favor trade-related foreign exchange transactions. Consequently,
foreign currency earned from exports of merchandise and services may now be
retained and used freely by exporters, while all foreign currency needed for the
import of merchandise and services may be purchased freely from the designated
foreign exchange banks. Aside from trade-related foreign exchange transactions,
Taiwan companies and residents may, without foreign exchange approval, remit
outside and into Taiwan foreign currencies of up to $50 million and $5 million
respectively, or their equivalent, each calendar year. Currency conversions
within the limits are processed by the designated banks and do not have to be
reviewed and approved by the CBC. The above limits apply to remittances
involving a conversion between NT Dollars and U.S. Dollars or other foreign
currencies. The CBC typically approves foreign exchange in excess of the limits
if a party applies with the CBC for review and presents legitimate business
reasons justifying the currency conversion. A requirement is also imposed on all
enterprises to register all medium and long-term foreign debt with the CBC.
EMPLOYEES
As of June 30, 2000, we had 1,205 full-time employees worldwide, of
whom 541 were in the United States, 635 were in Taiwan and 29 were in England.
Of the total full-time employees, 207 were engaged in engineering, 8 in
administration, 156 in marketing, sales and customer service, 593 in
manufacturing and production, 108 in materials purchasing, shipping and
receiving, 64 in quality control and assurance, and 69 in other corporate
functions. We believe that our relationship with our employees is good.
FACILITIES
Our principal executive offices are located in a 103,000 square foot
facility on 41 acres in Olathe, Kansas, where we produce all aviation
panel-mount products and warehouse, distribute, sell and support our products in
North and South America. An expansion of this facility to 240,000 square feet is
currently underway and construction is expected to be completed in the first
quarter of 2001. We recently purchased an additional 46 acres at this site. In
connection with the bond financings for our facility in Olathe and the expansion
of that facility, the City of Olathe holds the legal title to this property.
Upon the payment in full of the outstanding bonds, the City of Olathe is
obligated to transfer title to us for the aggregate sum of $200.
We own a 249,326 square foot facility in Shijr, Taipei County, Taiwan
where we manufacture all of our consumer and portable aviation products and
warehouse, market and support our products in Pacific Rim countries. We occupy
186,367 square feet at this facility and lease the remainder to third parties.
In addition, we own a 60,000 square foot facility in Hsin Tien, which is
currently under contract for sale.
We lease approximately 15,000 square feet in Romsey, England for
warehousing, marketing and supporting our products in Europe, Africa and the
Middle East. We also repair products at this facility. We also lease an
<PAGE>
aggregate of 2,090 square feet of office space in Tempe, Arizona for software
development, and Wichita, Kansas for support for our aviation OEM operations,
and 24,311 square feet in Lenexa, Kansas used as a temporary shipping facility
during construction of our expansion in Olathe.
LEGAL PROCEEDINGS
From time to time, we may be involved in litigation relating to claims
arising out of our operations. We currently are not a party to any material
legal proceedings.
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information about our executive officers
and directors as of ____________, 2000.
----------------- ----- -----------------------------------------------------
NAME AGE POSITION(S)
----------------- ----- -----------------------------------------------------
----------------- ----- -----------------------------------------------------
Min H. Kao, Ph.D. Co-Chairman of the Board; Co-Chief Executive Officer
----------------- ----- -----------------------------------------------------
----------------- ----- -----------------------------------------------------
Gary L. Burrell Co-Chairman of the Board; Co-Chief Executive Officer
----------------- ----- -----------------------------------------------------
----------------- ----- -----------------------------------------------------
Kevin Rauckman Chief Financial Officer and Treasurer
----------------- ----- -----------------------------------------------------
----------------- ----- -----------------------------------------------------
Andrew R. Etkind General Counsel and Secretary
----------------- ----- -----------------------------------------------------
----------------- ----- -----------------------------------------------------
Gary Kelley Director of Marketing - Garmin International, Inc.
----------------- ----- -----------------------------------------------------
----------------- ----- -----------------------------------------------------
Ruey-Jeng Kao Director
----------------- ----- -----------------------------------------------------
DR. MIN H. KAO has been Co-Chairman and Co-Chief Executive Officer of Garmin
Ltd. since August 2000. Dr. Kao is a founder of Garmin Corporation and has been
President of Garmin Corporation since January 1999. He has been Chairman and a
director of Garmin Corporation since January 1990. Dr. Kao has also been a
director of Garmin International, Inc. since August 1990 and a Vice President
since April 1991, a director of Garmin (Europe) Ltd. since 1992 and a director
of Garmin Foreign Sales Corporation since May 1998 and Vice President since July
1998. Dr. Kao holds Ph.D. and MS degrees in Electrical Engineering from the
University of Tennessee and a BS in Electrical Engineering from National Taiwan
University.
GARY BURRELL has been Co-Chairman and Co-Chief Executive Officer of
Garmin Ltd. since August 2000. He is a founder of Garmin Corporation and has
been a director of Garmin Corporation since January 1990. He served as President
of Garmin Corporation from January 1990 to December 1998. Mr. Burrell has also
been President and a director of Garmin International, Inc. since August 1990, a
director and Chairman of Garmin (Europe) Ltd. since 1992 and a director of
Garmin Foreign Sales Corporation since May 1998 and President since July 1998.
Mr. Burrell holds a BS degree in Electrical Engineering from Wichita State
University and a MS degree in Electrical Engineering from Rennsselaer
Polytechnic Institute.
KEVIN RAUCKMAN has been Chief Financial Officer and Treasurer of Garmin Ltd.
since August 2000. He has been Director of Finance and Treasurer of Garmin
International, Inc. since January 1999 and has been a director and Treasurer of
Garmin Foreign Sales Corporation since January 1999. Previously, Mr. Rauckman
served as Director of Finance and in other finance capacities for one of
AlliedSignal's (now known as Honeywell International, Inc.) Aerospace units from
<PAGE>
May 1996 to January 1999 and served as Finance Manager with Unisys Corporation,
a technology hardware and consulting services company, from June 1993 to April
1996. Mr. Rauckman holds BS and MBA degrees in Business from the University of
Kansas.
ANDREW R. ETKIND has been General Counsel and Secretary of Garmin Ltd. since
August 2000. He has been General Counsel of Garmin International, Inc. since
February 1998 and Secretary since October 1998. Previously, Mr. Etkind served as
Senior Attorney for Alumax Inc., a manufacturer of aluminum and aluminum
products, from March 1996 to January 1998 and was Vice President, General
Counsel and Secretary of Information Management Resources, Inc. (now known as
IMR Global, Inc.), a software systems development and consulting company, from
July 1993 to February 1996. Mr. Etkind holds BA, MA and LLM degrees from
Cambridge University, England and a JD degree from the University of Michigan
Law School.
GARY KELLEY has been Director of Marketing of Garmin International, Inc. since
1992 and has been a director of Garmin (Europe) Ltd. since 1993. Mr. Kelley
holds a BBA degree from Baker University. He also holds a commercial pilot
license with instrument and flight instructor ratings.
RUEY-JENG KAO has been a director of Garmin Ltd. since August 2000. He has been
a Supervisor of Garmin Corporation since January 1990. Elected by shareholders,
a Supervisor serves as an EX OFFICIO member of the board of directors,
attending, but not voting in, board meetings, and oversees actions of the board
of directors to protect the interests of all shareholders. Mr. Kao has been a
partner in Fortune Land Law Offices, Taipei, Taiwan, since January 2000. Prior
to founding Fortune Land Law Offices, Mr. Kao had his own law practice in
Taipei, Taiwan from 1967 to 1999. He was Chairman of the Taipei Bar Association
in 1996 and 1997. Mr. Kao holds LLB and LLM degrees from National Taiwan
University. Mr. Kao is Dr. Kao's brother.
BOARD OF DIRECTORS
The Articles of Association provide for not less than one nor more than ten
directors. The Board will consist of seven directors, at least three of which
shall be independent directors. The directors are to be elected or appointed at
the annual general meetings of our shareholders. The directors will be divided
into three classes of three, two and two directors, designated Class I, Class II
and Class III, respectively. The terms of office for each class are as follows:
o Class I terms of office shall expire at the annual general meeting in
2001.
o Class II terms of office shall expire at the general annual meeting in
2002.
o Class III terms of office shall expire at the annual general meeting in
2003.
At each general meeting held after the adoption of the Articles of
Association, directors are to be elected for a full three year term, to succeed
those whose terms expire. Each director shall hold office for the term for which
he or she is elected and until his or her successor is elected and qualified.
Vacancies on the Board can be filled by a majority of the directors present at a
Board meeting. Any director so appointed shall hold office only until the next
following annual general meeting of our shareholders and shall then be eligible
for re-election at that meeting. The shareholders may, by a 75% vote, remove for
cause any director before the expiration of his or her period of office.
COMMITTEES OF THE BOARD
AUDIT COMMITTEE
In accordance with our Articles of Association, we have established an
audit committee composed of three independent directors. The audit committee is
responsible for supervising corporate accounting and auditing, recommending our
independent auditor and verifying our compliance with applicable accounting
principles and rules. The audit committee is also responsible for reviewing
potential conflict of interest situations in material related party
transactions. The members of our Audit Committee are ________, ________ and
____________.
COMPENSATION COMMITTEE
Our board of directors has established a compensation committee
composed of three directors. The compensation committee is responsible for
reviewing and approving the compensation and benefits for our key executive
<PAGE>
officers, reviewing our employee benefit plans and making recommendations to our
board of directors regarding those matters. The members of our Compensation
Committee are ________ ___________, ___________________ and
____________________.
DUTIES OF DIRECTORS
Under Cayman Islands laws, the directors have a duty of loyalty and
must act honestly and in good faith and in our best interests. The directors
also have a duty to exercise the care, diligence and skills that a reasonably
prudent person would exercise in comparable circumstances. In fulfilling their
duties to us, the directors must ensure compliance with the Memorandum and
Articles of Association and the class rights vested thereunder in the holders of
the shares. A shareholder may in certain circumstances have rights to damages if
a duty owed by the directors is breached.
COMPENSATION OF DIRECTORS
Under Taiwan banking practice, the directors of a company are generally
required to personally guarantee the company's loans and mortgages. During
fiscal year 1999, Dr. Kao and Mr. Burrell, as directors of Garmin Corporation,
each received compensation from Garmin Corporation in the amount of $51,796 for
their personal guarantees of Garmin Corporation's obligations. As Supervisor of
Garmin Corporation, Mr. Ruey-Jeng Kao was also required to personally guarantee
Garmin Corporation's loans and mortgages and during fiscal year 1999 received
compensation from Garmin Corporation in the amount of $51,796 for such personal
guarantee.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Dr. Kao and Mr. Burrell determined executive officer compensation for the
last fiscal year and for prior years. Dr. Kao is the Co-Chairman and Co-Chief
Executive Officer of Garmin Ltd., the President, Chairman and a director of
Garmin Corporation, the Vice President and a director of Garmin International,
Inc., a director of Garmin (Europe) Ltd. and a director of Garmin Foreign Sales
Corporation. Mr. Burrell is the Co-Chairman and Co-Chief Executive Officer of
Garmin Ltd., a director of Garmin Corporation, the President and a director of
Garmin International, Inc., a director of Garmin (Europe) Ltd. and a director of
Garmin Foreign Sales Corporation.
EXECUTIVE COMPENSATION
The following table sets forth information about compensation earned in
the fiscal years ended December 31, 1999, 1998 and 1997 by our Chief Executive
Officer and our other executive officers (the "Named Executive Officers").
<PAGE>
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(1)
----------------------------------------------------------
NAME AND OTHER ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS ANNUAL COMPENSATION COMPENSATION
<S> <C> <C> <C> <C> <C>
Min H. Kao, Ph.D. 1999 $166,270 $14,330(2) $51,879(3) $18,091(4)
Co-Chairman of the Board 1998 163,800 203 50,747 17,116
1997 150,050 203 33,828 15,116
Gary L. Burrell 1999 166,270 14,330(2) 52,046(3) 18,101(5)
Co-Chairman of the Board 1998 163,800 203 50,914 17,036
1997 150,050 203 34,641 15,535
Andrew R. Etkind 1999 127,634 15,203 --- 15,821(8)
General Counsel and Secretary 1998 103,133(6) 10,203 24,000(7) 11,578
1997 N/A N/A --- N/A
Gary Kelley 1999 124,475 6,203 --- 13,462(9)
Director of Marketing, 1998 122,112 6,703 --- 13,293
Garmin International, Inc. 1997 112,362 1,703 --- 10,908
Kevin Rauckman 1999 111,650 5,203 --- 8,641(10)
Chief Financial Officer and 1998 N/A N/A --- N/A
Treasurer 1997 N/A N/A --- N/A
</TABLE>
(1) All compensation paid to the Named Executive Officers was paid by Garmin
International, Inc. to such Named Executive Officers in their capacities as
officers and employees of Garmin International, Inc., except that the other
annual compensation amounts for Dr. Kao and Mr. Burrell include
compensation to each from Garmin Corporation in the following amounts: 1999
- $51,796; 1998 - $50,747 and 1997 - $33,828. Under Taiwan law, the
directors of a company are required to personally guarantee the company's
loans and mortgages. These salaries from Garmin Corporation were paid as
compensation for the personal guarantees of Garmin Corporation's
obligations signed by Dr. Kao and Mr. Burrell.
(2) Includes a bonus payment equal to one month's salary payable to an employee
upon 10 years of service, in the amount of $14,127 for each of Dr. Kao and
Mr. Burrell, and a holiday bonus paid to all employees in a fixed amount of
$203.
(3) Includes $51,796 in compensation from Garmin Corporation, as described in
footnote (1) above and incentive payments for inventions for which patent
applications were filed in the amount of $83 to Dr. Kao and $250 to Mr.
Burrell.
(4) Includes a contribution to Dr. Kao's account under Garmin International,
Inc.'s 401(k) plan of $7,500, a contribution to his account under Garmin
International, Inc.'s pension plan of $10,405 and premiums on life
insurance of $186.
(5) Includes a contribution to Mr. Burrell's account under Garmin
International, Inc.'s 401(k) plan of $7,500, a contribution to his account
under Garmin International, Inc.'s pension plan of $10,415 and premiums on
life insurance of $186.
(6) Mr. Etkind joined Garmin International, Inc. in February 1998.
(7) Consists of reimbursements of relocation expenses.
(8) Includes a contribution to Mr. Etkind's account under Garmin International,
Inc.'s 401(k) plan of $7,500, a contribution to his account under Garmin
International, Inc.'s pension plan of $8,135 and premiums on life insurance
of $186.
(9) Includes a contribution to Mr. Kelley's account under Garmin International,
Inc.'s 401(k) plan of $5,871, a contribution to his account under Garmin
International, Inc.'s pension plan of $7,405 and premiums on life insurance
of $186.
(10) Includes a contribution to Mr. Rauckman's account under Garmin
International, Inc.'s 401(k) plan of $4,941, a contribution to his account
under Garmin International, Inc.'s pension plan of $3,529 and premiums on
life insurance of $171.
OPTION GRANTS AND EXERCISES DURING 1999
No options were granted to or exercised by the Named Executive Officers
during 1999.
<PAGE>
PENSION PLAN
Garmin International, Inc. sponsors a retirement plan called a "money
purchase pension plan" (the "Plan"). An employee of Garmin International, Inc.
automatically becomes a participant in the Plan as of the first January 1 or
July 1 after he or she attains age 21 and completes three months of service. All
contributions to this Plan are made by Garmin International, Inc. Garmin
International, Inc.'s contribution for each participant is equal to 3% of each
participant's eligible compensation up to 20% of the Social Security taxable
wage base, plus 6% of each participant's eligible compensation in excess of the
Social Security taxable wage base. For 2000, the Social Security taxable wage
base is $76,200, but this amount is increased from time to time by the Social
Security Administration. Participants become vested in their accounts gradually
over a seven-year period. Participants become fully vested if they reach age 65,
die or become disabled while they are still working for us. Garmin
International, Inc.'s contributions are invested by the participants of the
Plan. A participant's account is distributed when the participant terminates
employment, retires, dies, or becomes disabled. This Plan is also intended to be
a tax-qualified plan, so participants are not taxed on contributions or earnings
on those contributions until withdrawn from the Plan. The Named Executive
Officers, as employees of Garmin International, Inc., are covered by this Plan.
STOCK OPTION PLANS
We have adopted a stock option plan to provide for the availability of
_____________ of our common shares for the grant of awards to officers and
employees of Garmin Ltd. and our subsidiaries ("Employee Option Plan"). We have
also adopted a stock option plan for non-employee directors ("Director Option
Plan") of Garmin Ltd. The Employee Option Plan and the Director Option Plan were
adopted on _____________, 2000 and will automatically terminate on the tenth
anniversary thereof, unless earlier terminated by our Board of Directors. A
total of _____________ and ___________ common shares have been reserved for
issuance pursuant to the Employee Option Plan and the Director Option Plan,
respectively. As of __________, 2000, options to purchase _________ and
___________ common shares were outstanding under the Employee Option Plan and
Director Option Plan, respectively. These plans are administered by the
Compensation Committee of our Board of Directors. The Compensation Committee has
the power to determine the terms of the options granted, including the number of
shares subject to each option, the exercisability thereof, the form of
consideration payable upon such exercise, and certain other features described
under these plans. The exercise price of options under the plans must be at
least equal to the fair market value of the common shares on the date of grant.
The term of each option will be determined by the Compensation Committee except
that the term may not exceed ten years. Options granted under the plans are not
generally transferable by the optionee. The maximum annual grant to any employee
for any calendar year shall not exceed _________ shares.
Grants to directors shall be as follows: [specific details to be filed by
amendment].
EMPLOYEE STOCK PURCHASE PLAN
We have adopted an employee stock purchase plan to provide for eligible
employees to purchase our common shares through payroll deductions. The plan was
adopted on _____________, 2000 and will automatically terminate on the tenth
anniversary thereof, unless earlier terminated by our Board of Directors. A
total of ______________ common shares have been reserved for issuance under the
plan. The plan will be administered by the Compensation Committee of our Board
of Directors. All employees of Garmin Ltd. and participating subsidiaries will
be eligible to participate, except those whose customary employment is less than
20 hours per week or is five months or less per calendar year, or those who are
5% or greater stockholders of Garmin Ltd. Participation in the plan will be
<PAGE>
voluntary. Eligible employees may elect to have us deduct from their
compensation a percentage, not to exceed ____% of the employee's compensation,
or $________ annually, to be used to purchase our common shares. On the last
trading day of each _________ (the "Purchase Date"), the funds accumulated will
automatically be used to purchase our common shares at a purchase price equal to
the lesser of (i) ___% of the fair market value of our common shares that day,
or (ii) ___% of the fair market value of our common shares as of the enrollment
date. The plan is intended to qualify as an "employee stock purchase plan" under
Section 423 of the Internal Revenue Code.
SAVINGS AND PROFIT SHARING PLAN
Garmin International, Inc. sponsors a retirement plan which is
sometimes called a "401(k) plan" (the "401(k) Plan") because of the section of
the Internal Revenue Code which authorizes this type of plan. Every employee of
Garmin International, Inc. is eligible to participate in the 401(k) Plan as of
the first January 1 or July 1 after he or she attains age 21 and completes three
months of service. Participants can elect to make pre-tax contributions to the
401(k) Plan from their eligible compensation, up to the limits imposed by law.
Participants are always fully vested in their pre-tax contributions and earnings
on those contributions. In addition, Garmin International, Inc. makes a matching
contribution for each participant equal to 75% of his or her pre-tax
contributions up to 10% of the participant's eligible compensation. Garmin
International, Inc. may also make a profit sharing contribution which is divided
among participants based on their compensation. Participants become vested in
their matching and profit sharing contributions, and earnings on those
contributions, gradually over five years. Participants become fully vested
automatically if they reach age 65, die or become disabled while they are still
working for Garmin International, Inc. Participants are allowed to direct the
investment of their accounts in a menu of authorized investment alternatives.
Accounts are distributable when the participant terminates employment, retires,
dies, becomes disabled, reaches age 59 1/2 or suffers a financial hardship.
Participants may also be permitted to request a loan from their 401(k) Plan
accounts. The 401(k) Plan is intended to be a tax-qualified plan under the
Internal Revenue Code which means that participants are generally not taxed on
contributions to the 401(k) Plan or earnings on those contributions until they
are withdrawn from the 401(k) Plan. The Named Executive Officers, as employees
of Garmin International, Inc., are covered by this plan.
EMPLOYMENT AGREEMENTS
We do not have employment agreements with any of our key personnel.
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
REORGANIZATION
As part of the recent restructuring of our company, shareholders of Garmin
Corporation were offered common shares of Garmin Ltd. in exchange for their
shares of Garmin Corporation. Pursuant to this transaction, we acquired
approximately 100% of Garmin Corporation. We are a holding company and currently
intend to continue to conduct our principal business activities through Garmin
Corporation, Garmin International, Inc. and Garmin (Europe) Ltd. We intend to
acquire the shares of Garmin (Europe) Ltd. from Garmin International, Inc. after
this offering and intend to make an election to treat Garmin (Europe) Ltd. as a
branch of our company for United States federal income tax purposes. In
addition, we intend to purchase newly issued common shares of Garmin
International, Inc., upon completion of this offering.
Six shares of Garmin Corporation's stock are held by nominees under
nominee trusts in order to comply with Article 2 of the Company Law of Taiwan
which requires that, as a "company limited by stock," Garmin Corporation have at
least seven shareholders, and 4,000 shares are held by two related shareholders.
TRADEMARKS AND LICENSES
All of our U.S. and foreign trademarks and patents are currently held by
Garmin Corporation. Garmin Corporation licenses such trademarks to Garmin
International, Inc. and Garmin (Europe) Ltd., but no fee is paid for such
licenses.
CERTAIN RELATIONSHIPS
Ruey-Jeng Kao, a director of Garmin Ltd., is also a Supervisor of Garmin
Corporation. Mr. Kao's law firm, Ruey-Jeng Kao Law Office, received compensation
for legal services provided to Garmin Corporation during the 1999 fiscal year.
Mr. Kao is currently a partner in the Fortune Land Law Offices which has
received compensation from Garmin Corporation for legal services during the 2000
fiscal year and will receive additional compensation during fiscal year 2000 for
legal services rendered to us in connection with the reorganization and this
offering. Mr. Kao is Dr. Kao's brother.
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth information with respect to the
beneficial ownership of our common shares as of __________, 2000, on a
fully-diluted basis and as adjusted to reflect the sale of shares offered
hereby, by:
o each person known to us to own beneficially 5% or more of our
common shares;
o each selling shareholder;
o each of our directors;
o each of our executive officers named in the Summary Compensation
Table; and
o all of our directors and executive officers as a group.
For purposes of calculating the percentage beneficially owned, the
number of common shares deemed outstanding prior to this offering consists of
________ common shares outstanding as of _________, 2000. The number of common
shares deemed outstanding after this offering includes an additional _______
shares that are being offered for sale by us, and an additional ________ shares
that are being offered for sale by the selling shareholders, in this offering
(excluding the shares subject to the underwriters' over-allotment option).
<TABLE>
<CAPTION>
COMMON SHARES NUMBER OF COMMON SHARES
BENEFICIALLY OWNED SHARES TO BE BENEFICIALLY OWNED
BEFORE OFFERING(1)(2) SOLD IN THE AFTER OFFERING(1)(2)
--------------------------- --------------------------
NAME OF BENEFICIAL OWNER NUMBER % OFFERING NUMBER %
------------------------ ------ - -------- ------ -
<S> <C> <C> <C> <C> <C>
Min H. Kao (3) 20,352,803 (3) 22.87
Gary L. Burrell (4) 19,911,155 22.38
Ruey-Jeng Kao (5) 7,984,109 8.97
Jia-Fang Tsai (6) 6,687,445(6) 7.51
Kevin Rauckman -- N/A
Andrew R. Etkind -- N/A
Gary Kelley -- N/A
All directors and executive
officers as a group (__persons)
</TABLE>
------------------------
* Less than 1%
(1) Beneficial ownership is determined in accordance with the rules of the SEC.
In computing the number of shares beneficially owned by a person and the
percentage ownership of that person, shares of common stock subject to
options held by that person that are currently exercisable within 60 days
of __________, 2000 are deemed outstanding. Such shares, however, are not
deemed outstanding for the purpose of computing the percentage ownership of
each other person. Except as indicated in the footnotes to this table and
pursuant to applicable community property laws, each shareholder named in
the table has sole voting power and investment power with respect to the
shares set forth opposite such shareholder's name.
(2) Based on ________________ shares of common stock outstanding prior to the
offering and ___________ outstanding upon the completion of the offering.
(3) Dr. Kao's address is 1200 East 151st Street, Olathe, Kansas 66062. The
amount of common shares beneficially owned includes 844,398 shares held by
his children of which he disclaims beneficial ownership.
(4) Mr. Burrell's address is 1200 East 151st Street, Olathe, Kansas 66062.
(5) Mr. Kao's address is 8th Floor, 132, Hsinyi Road, Section 3, Taipei,
Taiwan, Republic of China.
(6) Ms. Tsai's address is 10FL. No. 48, Lane 177, BBC I, Tunhwa S. Rd., Taipei,
Taiwan, Republic of China. The amount of common shares beneficially
owned includes 3,297,796 shares held by members of her immediate family,
as to which Ms. Tsai disclaims beneficial ownership.
<PAGE>
DESCRIPTION OF SHARE CAPITAL
Our authorized share capital consists of 500,000,000 common shares with
a par value of $0.01 per share and 1,000,000 undesignated preferred shares, each
with a par value of $1.00 per share. As of the date hereof, there are
____________________ common shares issued and outstanding and no preferred
shares have been issued. There are no other authorized classes of common shares
other than our common shares.
We are a Cayman Islands company and our affairs are governed by our
Memorandum and Articles of Association and the Companies Law (2000 Revision) and
the common law of the Cayman Islands. The following are summaries of material
provisions of our Memorandum and Articles of Association and the Companies Law
insofar as they relate to the material terms of our common shares. We have filed
copies of our complete Memorandum and Articles of Association as exhibits to our
registration statement on Form S-1.
COMMON SHARES
GENERAL. All the outstanding common shares are fully paid and
nonassessable. Certificates representing the common shares are issued in
registered form. The common shares are issued when registered in the register of
shareholders of the Company. The common shares are not entitled to any sinking
fund or pre-emptive or redemption rights. Our shareholders may freely hold and
vote their shares.
VOTING RIGHTS. Each common share is entitled to one vote on all matters
upon which the common shares are entitled to vote, including the election of
directors. Voting at any meeting of shareholders is by a poll. The Articles of
Association does not provide for written consents of shareholders.
A quorum required for a meeting of shareholders consists of at least a
number of shareholders present or by proxy and entitled to vote representing the
holders of not less than a majority of our issued voting share capital.
Shareholders' meetings are held annually and may only be convened by the Board
of Directors. Advance notice of at least 10 days is required for the convening
of shareholders' meetings. Shareholders do not have the right to call a
shareholders' meeting.
Any ordinary resolution to be made by the shareholders requires the
affirmative vote of a simple majority of the votes attaching to the common
shares cast in a general meeting of the Company, while a special resolution
requires the affirmative vote of 75% of the votes cast attaching to the common
shares. A special resolution is required for matters such as a change of name,
amending the Memorandum and Articles of Association and removing directors.
Holders of common shares, which are currently the only shares carrying the right
to vote at our general meetings, have the power, among other things, to elect
directors, appoint auditors, and make changes in the amount of our authorized
share capital.
DIVIDENDS. The holders of our common shares are entitled to receive
such dividends as may be declared by the Board of Directors. Dividends may be
paid only out of profits, which include net earnings and retained earnings
undistributed in prior years, and out of share premium, a concept analogous to
paid-in surplus in the United States, subject to a statutory solvency test.
LIQUIDATION. If the Company is to be liquidated, the liquidator may,
with the approval of the shareholders, divide among the shareholders in cash or
in kind the whole or any part of our assets, may determine how such division
shall be carried out as between the shareholders or different classes of
shareholders, and may vest the whole or any part of such assets in trustees upon
such trusts for the benefit of the shareholders as the liquidator, with the
approval of the shareholders, thinks fit, provided that a shareholder shall not
be compelled to accept any shares or other assets which would subject such
shareholder to liability.
<PAGE>
MISCELLANEOUS. Share certificates registered in the names of two or
more persons are deliverable to any one of them named in the share register, and
if two or more such persons tender a vote, the vote of the person whose name
first appears in the share register will be accepted to the exclusion of any
other.
UNDESIGNATED PREFERRED SHARES
Pursuant to our Articles of Association, the Board of Directors has the
authority, without further action by the shareholders, to issue up to 1,000,000
preferred shares in one or more series and to fix the designations, powers,
preferences, privileges, and relative participating, optional or special rights
and the qualifications, limitations or restrictions thereof, including dividend
rights, conversion rights, voting rights, terms of redemption and liquidation
preferences, any or all of which may be greater than the rights of the common
shares. The Board of Directors, without shareholder approval, can issue
preferred shares with voting, conversion or other rights that could adversely
affect the voting power and other rights of holders of our common shares.
Subject to the directors' duty of acting in our best interest, preferred shares
can be issued quickly with terms calculated to delay or prevent a change in
control of the Company or make removal of management more difficult.
Additionally, the issuance of preferred shares may have the effect of decreasing
the market price of the common shares, and may adversely affect the voting and
other rights of the holders of common shares. No preferred shares have been
issued and we have no present plans to issue any preferred shares.
SHAREHOLDERS' RIGHTS PLAN
We contemplate adopting a shareholders rights plan ("Rights Plan"). In
connection with the Rights Plan, our Board of Directors would grant one right
("Right") for each outstanding common share as of the close of business on a
certain date (the "Rights Record Date"). Common shares issued after such date
(assuming no triggering event) would automatically receive these Rights upon
issuance. The Rights would not be exercisable or transferable separately from
the common shares until the end of a certain period of time following (1) a
public announcement that a person or group has acquired or obtained the right to
acquire beneficial ownership of a certain percentage or more of our outstanding
common shares, or (2) the commencement or announcement of an intention to make a
tender or exchange offer that would result in an acquiring person or group
beneficially owning a certain percentage or more of our outstanding common
shares (an "Acquiring Person"), unless our Board of Directors sets a later date
in either event (the earlier of (i) or (ii) being the "Rights Distribution
Date"). Under the Rights Plan, our Board of Directors would have the option to
redeem the Rights at a nominal cost or prevent the Rights from being triggered
by designating certain offers for all the outstanding common shares as a
Permitted Offer (as defined in the Rights Plan). The Rights would expire ten
years after the Rights Record Date unless earlier redeemed by us.
The Rights, when exercisable, would entitle their holders (other than
those held by an Acquiring Person, any Associate or Affiliate of such Acquiring
Person or certain transferees) to purchase a fraction of a preferred share or,
in certain instances, other securities of the Company, including common shares,
having a certain market value. In certain circumstances, if we are involved in a
merger or consolidation and are not the surviving entity or dispose of more than
50 percent of our assets or earnings power, the Rights also would entitle their
holders (other than an Acquiring Person or any Associate, Affiliate of such
Acquiring Person or certain transferees) to purchase the highest priority voting
shares in the surviving entity or its affiliates having a certain market value.
The Rights Plan is intended to encourage a potential Acquiring Person
to negotiate directly with the Board of Directors, but may have certain
antitakeover effects. The Rights Plan could significantly dilute the interests
in the Company of an Acquiring Person. The Rights Plan may therefore have the
effect of delaying, deterring or preventing a change in control of the Company.
<PAGE>
DIFFERENCES IN CORPORATE LAW
The Companies Law is modeled after that of England but does not follow
recent United Kingdom statutory enactments and differs from laws applicable to
United States corporations and their shareholders. Set forth below is a summary
of the significant differences between the provisions of the Companies Law
applicable to the Company and the laws applicable to companies incorporated in
the United States and their shareholders.
MERGERS AND SIMILAR ARRANGEMENTS. Cayman Islands law does not provide
for mergers as that expression is understood under United States corporate law.
However, there are statutory provisions that facilitate the reconstruction and
amalgamation of companies, provided that the arrangement in question is approved
by a majority in number of each class of shareholders and creditors with whom
the arrangement is to be made, and who must in addition represent three-fourths
in value of each such class of shareholders or creditors, as the case may be,
that are present and voting either in person or by proxy at a meeting, or
meetings convened for that purpose. The convening of the meetings and
subsequently the arrangement must be sanctioned by the Grand Court of the Cayman
Islands. While a dissenting shareholder would have the right to express to the
court the view that the transaction ought not to be approved, the court can be
expected to not approve the arrangement if it satisfies itself that:
o a company is acting or proposing to act illegally or ultra vires;
o the act complained of, although not ultra vires, could be
effected only if authorized by more than a simple majority vote
(which has not been obtained); or
o those who control the company are perpetrating a "fraud on the
minority."
INDEMNIFICATION
Cayman Islands law does not limit the extent to which a company's
articles of association may provide for indemnification of officers and
directors, except to the extent any such provision may be held by the Cayman
Islands courts to be contrary to public policy, such as to provide
indemnification against civil fraud or the consequences of committing a crime.
Our Articles of Association provide for indemnification, to the fullest extent
permitted by law, of officers and directors for expenses, judgments, fines and
amounts paid in settlement actually and reasonably incurred in their capacities
as such, and advancement of expenses of defending any such action, suit or
proceeding.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling the
registrant pursuant to the foregoing provisions, we have been informed that in
the opinion of the SEC such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable as a matter of
U.S. law.
INSPECTION OF BOOKS AND RECORDS
Holders of our shares will have no general right under Cayman Islands
law to inspect or obtain copies of our list of shareholders or our corporate
records. However, we will provide our shareholders with annual audited financial
statements. See "Additional Information."
TRANSFER AGENT
We have appointed______________________ as the transfer agent and
registrar for the common shares.
<PAGE>
LISTING
We intend to apply to list the shares on the Nasdaq National Market
under the symbol GRMN.
PROHIBITED SALE OF SECURITIES UNDER CAYMAN ISLANDS LAW
An exempted company such as the Company that is not listed on the
Cayman Islands Stock Exchange is prohibited from making any invitations to the
public in the Cayman Islands to subscribe for any of its securities.
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no U.S. public market for our
shares, and there can be no assurance that a significant public market for our
shares will develop or be sustained after this offering. We can make no
prediction as to the effect, if any, that market sales of common shares or the
availability of shares for sale will have on the market price prevailing from
time to time. Nevertheless, sales of significant numbers of common shares,
including shares issued upon exercise of outstanding options, in the public
market could adversely affect the market price of the common shares and could
impair our future ability to raise capital through an offering of our equity
securities.
Upon completion of this offering, we will have ______________ shares
outstanding assuming no exercise of the underwriting over-allotment option and
no exercise of outstanding options. Of these shares, the __________ shares sold
in this offering will be freely tradeable without restriction under the
Securities Act except for any shares purchased by our "affiliates" as that term
is defined in Rule 144 under the Securities Act. Substantially all of the
remaining ____________ shares are subject to lock-up agreements. These lock-up
agreements provide that, with some limited exceptions, the shareholder will not
offer, sell, contract to sell or otherwise dispose of our securities that are
substantially similar to our shares, including but not limited to any securities
that are convertible into or exchangeable for, or that represent the right to
receive, our shares for a period of 180 days after the date of this prospectus
without the prior written consent of Donaldson, Lufkin & Jenrette Securities
Corporation and Merrill Lynch, Pierce, Fenner & Smith Incorporated. Of these
remaining shares __________ are "restricted securities" as that term is defined
in Rule 144 under the Securities Act and will be eligible for sale in the public
market subject to limitations imposed by Rule 144 as summarized below,
commencing on the following dates, or such earlier dates as may be approved
pursuant to any no action letter request:
o ____________ shares commencing ________________;
o ____________ shares commencing ________________; and
o ____________ shares commencing ________________.
These shares will be freely tradeable without restriction under the
Securities Act one year following the respective dates set forth above, except
for any shares owned by our affiliates, which shares will continue to be subject
to Rule 144 limitations applicable to affiliates.
In addition, we have agreed that, without the prior consent of the
underwriters, we will not offer, sell or contract to sell, or otherwise dispose
of, directly or indirectly, or announce an offering of, any equity securities or
any securities which may be converted into or exchanged for any such equity
securities for a period of 180 days from the date of this prospectus, except
that:
o we may without such consent grant options, none of which will be
exercisable prior to ________________, and sell common
shares pursuant to our Stock Option Plan and,
o we may without consent issue equity shares in connection with any
BONA FIDE business acquisition of or by the Company (whether by
reconstruction or amalgamation, consolidation, sale of assets,
sale or exchange of stock or otherwise), PROVIDED that prior to
any such issuance, the recipients of such equity shares in such
transaction shall have agreed in writing that, unless they have
received the prior consent of Donaldson, Lufkin & Jenrette
Securities Corporation and Merrill Lynch, Pierce, Fenner & Smith
Incorporated, they will be bound by the lock-up restrictions
described above in this paragraph for the remainder of such
180-day period.
Donaldson, Lufkin & Jenrette Securities Corporation and Merrill Lynch,
Pierce, Fenner & Smith Incorporated may, in their sole discretion and at any
time without notice, release all or any portion of the securities subject to
lock-up agreements.
In general, under Rule 144 as currently in effect, if one year has
elapsed since the later of the date of acquisition of restricted common shares
from us or any affiliate of ours, the purchaser or subsequent holder of such
securities is entitled to sell within any three-month period a number of shares
that does not exceed the greater of:
o 1% of our then outstanding common shares; or
o the average weekly trading volume of our common shares on the
Nasdaq National Market during the four calendar weeks preceding
the date on which notice of the sale is filed with the Securities
and Exchange Commission.
Sales under Rule 144 are also subject to manner of sale provisions,
notice requirements and the availability of current public information about us.
If two years have elapsed since the later of the date of acquisition of
restricted shares from us or from any affiliate of ours and the purchaser or
subsequent holder thereof is deemed not to have been an affiliate of ours at any
time during the 90 days preceding a sale, such person would be entitled to sell
such shares in the public market under Rule 144(k) without regard to the volume
limitations, manner of sale provisions, notice requirements or public
information requirements.
We intend to file a registration statement on Form S-8 under the
Securities Act to register an aggregate of ___________ common shares reserved
for issuance under our Stock Option Plan. Accordingly, shares registered under
such registration statement will, subject to Rule 144 volume limitations
applicable to affiliates, be available for sale in the open market, unless such
shares are subject to vesting restrictions with us or the lock-up agreements
described above.
<PAGE>
TAX CONSIDERATIONS
A summary of the material United States federal income tax and general
Cayman Islands tax consequences of the beneficial ownership and disposition of
our common shares is set forth below. This summary is based on laws,
regulations, rulings, income tax conventions or treaties, administrative
practices and judicial decisions in effect at the date of this prospectus.
Subsequent legislative, judicial or administrative changes or interpretations
may be retroactive and could affect your tax consequences.
Your tax treatment as a holder of common shares may vary depending upon
your particular situation, and some holders may be subject to special rules not
discussed below. We do not discuss below any state, local or foreign tax
consequences of the beneficial ownership and disposition of the common shares
other than the Cayman Islands. This summary does not address all tax aspects
that may be important to you as a holder of common shares.
YOU ARE URGED TO CONSULT YOUR TAX ADVISOR AS TO YOUR PARTICULAR TAX
CONSEQUENCES OF THE OWNERSHIP AND DISPOSITION OF A COMMON SHARE, INCLUDING
WHETHER ANY STATE, LOCAL OR FOREIGN TAX LAWS APPLY TO YOU.
CAYMAN ISLANDS TAX CONSIDERATIONS
The Cayman Islands currently levy no taxes on individuals or
corporations based upon profits, income, gains or appreciation and there is no
taxation in the nature of the inheritance tax or estate duty. There are no other
taxes likely to be material to the Company levied by the Government of the
Cayman Islands except for stamp duties which may be applicable on instruments
executed in, or after execution brought within the jurisdiction of, the Cayman
Islands. The Cayman Islands are not party to any double tax treaties. There are
no exchange control regulations or currency restrictions in the Cayman Islands.
Under current Cayman Islands law, the Company will not be subject to
income, capital, transfer, sales or corporation tax in the Cayman Islands. The
Company has been incorporated under the laws of the Cayman Islands as an
exempted company and has received from the Governor in Council of the Cayman
Islands an Undertaking as to Tax Concessions pursuant to Section 6 of the Tax
Concessions Law (1999 Revision) providing that, for a period of 20 years from
the date of such Undertaking, no law subsequently enacted in the Cayman Islands
imposing any tax or withholding tax on profits, income, gains or appreciation
will apply to the Company or its operations.
Under the current law of the Cayman Islands, no Cayman Islands
withholding tax applies to distributions by the Company in respect of the
shares. Holders are not subject to any income, capital, transfer, sales or other
taxes in the Cayman Islands in respect of their purchase, holding or disposition
of the common shares.
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of the material United States
federal income tax considerations relevant to the acquisition, ownership and
disposition of the common shares. This summary is based on existing United
States federal income tax law, which is subject to change, possibly
retroactively. The discussion addresses only persons that hold common shares as
capital assets, which generally are properties held for investment, under the
United States Internal Revenue Code of 1986, as amended, and that use the U.S.
Dollar as their functional currency. The discussion does not consider the
circumstances of particular purchasers that may be subject to special tax rules,
such as banks, insurance companies, tax-exempt organizations, persons subject to
the alternative minimum tax, dealers, traders who elect to mark to market,
financial institutions, persons holding common shares as part of a hedge,
<PAGE>
straddle, integration, conversion or constructive sale transaction, persons that
have a functional currency other than the U.S. Dollar and persons treated as
owning 10% or more of the voting power of our shares.
For purposes of this discussion, "U.S. holder" means a beneficial owner
of common shares that is (1) an individual who is a citizen or resident of the
United States for United States federal income tax purposes; (2) a corporation,
partnership or other business entity organized in or under the laws of the
United States or any of its political subdivisions; (3) a trust (a) the
administration of which is subject to the primary supervision of a United States
court and one or more United States persons have the authority to control all
substantial decisions of the trust or (b) that was in existence on August 20,
1996, was treated as a United States person under the Internal Revenue Code on
the preceding day, and elected to continue to be so treated provided that it
satisfies certain conditions or (4) an estate the income of which is subject to
United States federal income tax regardless of its source. A "Non-U.S. holder"
means a beneficial owner of common shares that is not a U.S. holder.
We believe that neither we nor any of our subsidiaries are currently a
"foreign personal holding company", "personal holding company", "passive foreign
investment company", or "controlled foreign corporation" for United States
federal income tax purposes. Except as expressly noted below under the headings
"--Foreign Personal Holding Company," "-- Personal Holding Company," "--Passive
Foreign Investment Company" and "--Controlled Foreign Corporation," the
discussion below assumes that we will not be so treated. As discussed below
under "--Foreign Personal Holding Company", we currently satisfy the
"shareholder test" for purposes of qualifying as a foreign personal holding
company. We cannot assure you that we are not or will not become a foreign
personal holding company, personal holding company, passive foreign investment
company or controlled foreign corporation.
EACH PROSPECTIVE PURCHASER SHOULD CONSULT ITS OWN TAX ADVISOR WITH
RESPECT TO THE UNITED STATES FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES
OF ACQUIRING, OWNING OR DISPOSING OF COMMON SHARES.
DISTRIBUTIONS ON COMMON SHARES. To the extent that a cash distribution
on common shares is paid to a U.S. holder out of our current or accumulated
earnings and profits, as determined for United States federal income tax
purposes, such distribution will be includible in the U.S. holder's gross income
as foreign source dividend income in an amount equal to the U.S. Dollar value of
such distribution when received. Such dividends will not be eligible for the
dividends received deduction generally allowed to corporate U.S. holders. To the
extent that the amount of any distribution on common shares exceeds our current
and accumulated earnings and profits, as determined for United States federal
income tax purposes, the distribution will be treated (1) as a nontaxable return
of capital that would be applied against and would reduce the U.S. holder's tax
basis in its common shares until this tax basis is equal to zero and (2)
thereafter as capital gain. For foreign tax credit purposes, dividends on common
shares generally would constitute "passive income" or, in the case of some U.S.
holders, "financial services income."
Although we do not expect to pay dividends, we expect that any
dividends we declare will be paid in United States Dollars. However, the amount
of any distribution paid in a currency other than the U.S. Dollar will be the
U.S. Dollar value of the payment made, determined at the foreign exchange rate
on the date such payment is includible in the income of the U.S. holder,
regardless of whether the payment is in fact converted into U.S. Dollars. Any
gain or loss resulting from currency exchange fluctuations during the period
from the date the dividend payment is includible in income to the date such
payment is converted into U.S. Dollars will be treated as United States source
ordinary income or loss to the U.S. holder.
SALE, EXCHANGE OR OTHER DISPOSITION. A U.S. holder generally will recognize
gain or loss upon the sale or other taxable disposition of common shares in an
<PAGE>
amount equal to the difference between the United States Dollar value of the
amount realized on the sale or other taxable disposition and the U.S. holder's
adjusted tax basis in the common shares. Such gain or loss will generally be
capital gain or loss and, in the case of some non-corporate U.S. holders, may be
subject to United States federal income tax at a preferential rate where the
U.S. holder's holding period exceeds one year. Any gain recognized by a U.S.
holder on a sale or other taxable disposition of common shares will generally be
treated as United States source gain for foreign tax credit purposes. Any loss
recognized by a U.S. holder should be allocable to reduce U.S. source income for
U.S. foreign tax credit purposes, except for certain U.S. holders for whom
previous distributions with respect to the common shares qualified as "financial
services income" in which event any such recognized loss would be treated as
reducing foreign source income to the extent of the amount of such
distributions. A U.S. holder's ability to deduct capital losses in respect of
common shares is subject to limitations.
FOREIGN PERSONAL HOLDING COMPANY. We do not believe that we (nor any of
our non-United States subsidiaries) are a "foreign personal holding company." If
we (or any of our non-United States subsidiaries) are classified as a foreign
personal holding company in any taxable year, then each shareholder that is a
United States person would be required to pay tax on its pro rata share of the
undistributed foreign personal holding income of such foreign personal holding
company. We would constitute a foreign personal holding company in any taxable
year if (1) 60% (or 50% in any year following the year in which we first became
a foreign personal holding company) or more of our gross income were foreign
personal holding company income (which is generally income of a passive nature
such as dividends, interest and royalties) (the "income test") and (2) more than
50% of the voting power or value of our equity were owned, directly or
indirectly, by five or fewer U.S. holders that are individuals (the "shareholder
test").
We currently satisfy the shareholder test and based on our current
ownership, we expect that we will satisfy the shareholder test after the
offering of common shares hereunder. However, we intend to manage our affairs so
as to attempt to avoid the satisfaction of the income test, or minimize the
impact to our shareholders if we satisfy the income test, to the extent this
management of our affairs would be consistent with our business goals, although
we cannot assure you in this regard.
Our gross income for purposes of the income test is expected to
consist of any dividends paid from Garmin Corporation and Garmin International
and the gross income of Garmin (Europe) Ltd. because Garmin Ltd. will elect to
treat Garmin (Europe) Ltd. as a branch of Garmin, Ltd. for United States federal
income tax purposes. In addition, for purposes of determining whether we satisfy
the income test in any taxable year, to the extent that Garmin Corporation is
treated as a foreign personal holding company, we would be considered to have
received a dividend in an amount equal to the undistributed foreign personal
holding company income of Garmin Corporation. However, based on its current
income and operations, we do not expect that Garmin Corporation would be treated
as a foreign personal holding company. Because the gross income of Garmin
(Europe) Ltd. should not be treated as foreign personal holding company income
and because such gross income is expected to exceed 40% of the total gross
income of Garmin Ltd., we do not expect that we will satisfy the income test
after the offering of common shares hereunder.
If we (or any non-United States subsidiary) are or become a foreign
personal holding company, U.S. holders, whether or not such holders are
individuals, would be required to include in income, as a dividend, their pro
rata share of our taxable income whether or not we pay dividends. In addition,
if we are a foreign personal holding company, and your common shares are
acquired by inheritance, the beneficiary would not receive a "stepped-up" basis
in those common shares. Instead, the beneficiary would have a tax basis equal to
the lower of the fair market value of these common shares or your tax basis in
them. We intend to manage our affairs so as to attempt to minimize having income
<PAGE>
imputed to you under these rules, to the extent such management of our affairs
is consistent with our business goals, although there can be no assurance in
this regard. We urge you to consult your tax advisor regarding the consequences
of an investment in a foreign personal holding company before purchasing shares.
PERSONAL HOLDING COMPANY. We do not believe that we (or any of our
subsidiaries) are a "personal holding company" for United States federal income
tax purposes. We (or a subsidiary) would generally be classified as a personal
holding company if (1) at any time during the last half of our (or such
subsidiary's) taxable year, five or fewer individuals own, directly or
indirectly, more than 50% of our (or such subsidiary's) stock (by value) (the
"shareholder test") and (2) at least 60% of our (or such subsidiary's) gross
income for the taxable year, as adjusted, is personal holding company income
(which is generally income of a passive nature, such as dividends, interest and
royalties) and which, for a non-United States corporation, is either (1) derived
from United States sources or (2) effectively connected to a United States trade
or business (the "income test"). However, if we (or a subsidiary) constitute a
foreign personal holding company or a passive foreign investment company, we (or
such subsidiary) cannot constitute a personal holding company. If we (or a
subsidiary) were to constitute a personal holding company, we (or such
subsidiary) would be subject to a United States tax of 39.6% on our
undistributed personal holding company income. We (and our subsidiaries)
currently satisfy the shareholder test but do not expect to satisfy the income
test. We intend to manage our and our subsidiaries' affairs so as to attempt to
avoid the satisfaction of the income test, provided that such management would
be consistent with our goals, although we cannot assure you in this regard.
PASSIVE FOREIGN INVESTMENT COMPANY. We do not believe that we (or any
of our non-United States subsidiaries) are a "passive foreign investment
company" for United States federal income tax purposes. We would be treated as a
passive foreign investment company only if at least 75% of our gross income for
a taxable year is passive income or if the value of our assets during the
taxable year which produce passive income represents at least 50% of the value
of our total assets. In making this determination, our proportionate share of
the income and assets of entities in which we hold at least a 25% interest will
be included in our income and assets. Based upon our current and anticipated
income, assets and activities, we do not expect that we (or any of our
non-United States subsidiaries) will be classified as a passive foreign
investment company. However, because the passive foreign investment company
determination is made annually on the basis of facts and circumstances that may
be beyond our control, and because the principles for applying the passive
foreign investment company tests are not entirely clear, we cannot assure you
that we (or any of our non-United States subsidiaries) will not become a passive
foreign investment company.
If we are a passive foreign investment company for any taxable year
during a U.S. holder's holding period of the common shares, a U.S. holder would
be subject to additional tax on certain excess distributions received or gains
realized with respect to such shares. The excess distribution or gain would be
allocated ratably over such U.S. holder's holding period, the amount allocated
to the current taxable year and to any year prior to our treatment as a passive
foreign investment company would be subject to tax as ordinary income, and the
amount allocated to each other taxable year would be subject to tax at the
highest applicable marginal rate in effect for that year and an interest charge
is imposed to recover the deemed benefit from the deferred payment of the tax.
These rules would effectively prevent a U.S. holder from treating the gain
realized on the disposition of the common shares as capital gain. If we are
classified as a passive foreign investment company in any year in which a United
States person is a shareholder, we generally will continue to be treated as a
passive foreign investment company with respect to such shareholder in all
succeeding years, regardless of whether we continue to satisfy the income or
asset tests described above, subject to certain possible shareholder elections
that may apply in certain circumstances. A U.S. holder who owns common shares
during any year that we are a passive foreign investment company must file
<PAGE>
Internal Revenue Service Form 8621 (Return by a Shareholder of a Passive Foreign
Investment Company or Qualified Electing Fund). The passive foreign investment
company rules are extremely complex and U.S. holders should consult with their
own tax advisors regarding the application of the passive foreign investment
company rules to the common shares. We do not intend to notify any holder of
common shares as to whether we qualify as a passive foreign investment company
in any taxable year, nor do we intend to provide information that would enable a
holder of common shares to make a qualified electing fund election.
CONTROLLED FOREIGN CORPORATION. We do not believe that we (or any of
our non-United States subsidiaries) are a "controlled foreign corporation" for
United States federal income tax purposes. If we (or any of our non-United
States subsidiaries) are treated as a controlled foreign corporation, the U.S.
holders that own, directly or indirectly, at least 10% of the voting power of
the equity of such controlled foreign corporation, referred to as 10% U.S.
Shareholders, would be required to include in income their pro rata share of the
Subpart F income of the controlled foreign corporation (which generally is
income of a passive nature such as dividends and interest) whether or not we pay
dividends. In addition, if we are treated as a controlled foreign corporation,
10% U.S. Shareholders would be subject to special rules on disposition of common
shares that may treat all or a portion of any gain as ordinary dividend income.
It is not anticipated that a U.S. holder purchasing shares hereunder will be a
10% U.S. Shareholder and thus, there should be no adverse impact to such U.S.
holders if we (or any of our non-United States subsidiaries) become a controlled
foreign corporation.
TAXATION OF NON-U.S. HOLDERS. Distributions on common shares to a Non-U.S.
holder would not be subject to U.S. withholding tax or to United States federal
income tax unless such income is effectively connected with the conduct by such
Non-U.S. holder of a trade or business within the United States. Gain realized
by a Non-U.S. holder on the sale or other disposition of a common share
generally will not be subject to United States federal income tax unless (1) the
gain is effectively connected with the Non-U.S. holder's conduct of a trade or
business in the United States or (2) the Non-U.S. holder is an individual who
was present in the United States for at least 183 days in the taxable year of
the sale or other disposition and other conditions are met.
INFORMATION REPORTING AND BACKUP WITHHOLDING. United States backup
withholding tax and information reporting requirements generally apply to
certain payments to certain non-corporate holders. Information reporting will
apply to payments of dividends on, and to proceeds from the sale or redemption
of, common shares by a paying agent within the United States to a holder (other
than an "exempt recipient", including a corporation, a payee that is a Non-U.S.
holder that provides an appropriate certification and certain other persons). A
paying agent within the United States will be required to withhold 31% of any
such payment made within the United States to a holder (other than an "exempt
recipient", including a corporation, a payee that is a Non-U.S. holder that
provides an appropriate certification and certain other persons) if such holder
fails to furnish its correct taxpayer identification number or otherwise fails
to comply with such backup withholding requirements.
The Treasury Department issued new regulations (the "New Regulations")
which make certain modifications to the backup withholding and information
reporting rules. The New Regulations, which generally will be effective for
payments made after December 31, 2000, attempt to unify certification
requirements and modify reliance standards. Prospective investors are urged to
consult their own tax advisors regarding the New Regulations.
<PAGE>
UNDERWRITING
Subject to the terms and conditions of an underwriting agreement, dated
___________, 2000, the underwriters named below, who are represented by
Donaldson, Lufkin & Jenrette Securities Corporation and Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("Merrill Lynch") as joint book-running managers,
have severally agreed to purchase from us and the selling shareholders the
respective number of common shares set forth opposite their names below.
NUMBER OF
UNDERWRITERS: SHARES
Donaldson, Lufkin & Jenrette Securities Corporation...
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...............................
Salomon Smith Barney Inc..............................
Total...........................................
The underwriting agreement provides that the obligations of the several
underwriters to purchase and accept delivery of the common shares offered in
this offering are subject to approval of certain legal matters and to certain
other conditions. The underwriters are obligated to purchase and accept delivery
of all the shares, other than those shares covered by the over-allotment option
described below, if they purchase any of the shares.
The underwriters propose to initially offer some of the common shares
directly to the public at the initial public offering price set forth on the
cover page of this prospectus and some of the shares to dealers at the initial
public offering price less a concession not in excess of $_____ per share. The
underwriters may allow, and these dealers may re-allow, a concession not in
excess of $_____ per share on sales to other dealers. After the initial offering
of the shares to the public, the representatives may change the public offering
price and such concessions. The underwriters do not intend to confirm sales to
any accounts over which they exercise discretionary authority.
The following table shows the underwriting fees to be paid to the
underwriters by us and the selling shareholders in connection with this
offering. These amounts are shown assuming both no exercise and full exercise of
the underwriters' option to purchase additional common shares.
NO EXERCISE FULL EXERCISE
Per share by us.......................... $ $
Total by us.............................. $ $
Per share by the selling shareholders.... $ $
Total by the selling shareholders........ $ $
We will pay the offering expenses, estimated to be $ .
We have granted to the underwriters an option, exercisable for 30 days
after the date of the underwriting agreement, to purchase up to _____________
additional common shares at the initial public offering price less the
underwriting fees. The underwriters may exercise this option solely to cover
over-allotments, if any, made in connection with this offering. To the extent
that the underwriters exercise this option, each underwriter will become
obligated, subject to certain conditions, to purchase a number of additional
shares proportionate to such underwriter's initial purchase commitment.
<PAGE>
We and the selling shareholders have agreed to indemnify the
underwriters against various civil liabilities, including liabilities under the
Securities Act, or to contribute the payments that the underwriters may be
required to make in respect of these liabilities.
We, our executive officers and directors and the selling shareholders
have agreed and we expect that substantially all of our other shareholders will
agree, or are or will be contractually bound, for a period of 180 days after the
date of this prospectus, not to, without the prior written consent of Donaldson,
Lufkin & Jenrette Securities Corporation and Merrill Lynch:
o offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell,
grant any option, right or warrant to purchase or otherwise
transfer or dispose of, directly or indirectly, any shares of
common stock or any securities convertible into or exercisable or
exchangeable for common stock; or
o enter into any swap or other arrangement that transfers all or a
portion of the economic consequences associated with the
ownership of any common stock regardless of whether a covered
transaction is to be settled by the delivery of common stock or
such other securities, in cash or otherwise;
except that:
o we may without such consent grant options, none of which will be
exercisable prior to _________________, and sell common shares
pursuant to our Stock Option Plan; and
o we may without such consent issue equity shares in connection
with any BONA FIDE business acquisition of or by the Company
(whether by reconstruction or amalgamation, consolidation, sale
of assets, sale or exchange of stock or otherwise), PROVIDED that
prior to any such issuance, the recipients of such equity shares
in such transaction shall have agreed in writing that, unless
they have received the prior consent of the underwriters, they
will be bound by the lock-up restrictions described above in this
paragraph for the remainder of such 180-day period.
In addition, during this period, we have also agreed not to file any
registration statement (other than a registration statement on Form S-8) for,
and each of our executive officers, directors and several shareholders have
agreed not to make any demand for, or exercise any right of, the registration of
any common shares or any securities convertible into or exchangeable for common
shares without the prior written consent of Donaldson, Lufkin & Jenrette
Securities Corporation and Merrill Lynch.
At our request, the underwriters have reserved for sale at the initial
public offering price up to 10% of the common shares to be sold in this offering
for sale to our employees, friends and persons having relationships with us. The
number of shares available for sale to the general public will be reduced to the
extent that any reserved shares are purchased. Any reserved shares not so
purchased will be offered by the underwriters on the same basis as the other
shares offered through this prospectus.
Prior to the offering, there has been no established trading market for
our common shares. The initial public offering price for the common shares
offered by this prospectus will be determined by negotiations among us and the
representatives of the underwriters. The factors to be considered in determining
the initial public offering price include:
o the history of and the prospects for the industry in which we
compete;
o our past and present operations;
o our historical results of operations;
o our prospects for future earnings;
<PAGE>
o the recent market prices of securities of generally comparable
companies; and
o the general condition of the securities markets at the time of
the offering.
We intend to apply for quotation of our common shares on the Nasdaq
National Market under the symbol "GRMN."
Other than in the United States, no action has been taken by us or the
underwriters that would permit a public offering of the shares of common stock
included in this offering in any jurisdiction that requires action for that
purpose. The shares included in this offering may not be offered or sold,
directly or indirectly, nor may this prospectus or any other offering material
or advertisements in connection with the offer and sale of any of these shares
be distributed or published in any jurisdiction, except under circumstances that
will result in compliance with the applicable rules and regulations of that
jurisdiction. We advise persons who receive this prospectus to inform themselves
about and to observe any restrictions relating to the offering of the common
shares and the distribution of this prospectus. This prospectus is not an offer
to sell or a solicitation of an offer to buy any shares of our common shares
included in this offering in any jurisdiction where such an offer or a
solicitation would not be permitted or legal.
In connection with this offering, certain underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
common shares. Specifically, the underwriters may create a syndicate short
position by making short sales of our common shares and may purchase our common
shares on the open market to cover syndicate short positions created by short
sales. Short sales involve the sale by the underwriters of a greater number of
common shares than they are required to purchase in the offering. Short sales
can be either "covered" or "naked." "Covered" short sales are sales made in an
amount not greater than the underwriters' over-allotment option to purchase
additional shares in the offering from us through the over-allotment option.
"Naked" short sales are sales in excess of the over-allotment option. A naked
short position is more likely to be created if the underwriters are concerned
that there may be downward pressure on the price of the common shares in the
open market after pricing that could adversely affect investors who purchase in
the offering. The underwriters may close out any covered short position by
either exercising their over-allotment option to purchase additional shares from
us or purchasing shares in the open market. The underwriters must close out any
naked short position by purchasing shares in the open market. In determining the
source of shares to close out the covered short position, the underwriters will
consider, among other things, the price of shares available for purchase in the
open market as compared to the price at which they may purchase shares from us
through the over-allotment option. The underwriting syndicate may reclaim
selling concessions if the syndicate repurchases previously distributed common
shares in syndicate covering transactions, in stabilization transactions or in
some other way or if Donaldson, Lufkin & Jenrette Securities Corporation and/or
Merrill Lynch receives a report that indicates clients of such syndicate members
have "flipped" the common shares. Similar to other purchase activities, these
activities may have the effect of raising or maintaining the market price of our
common shares or preventing or retarding a decline in the market price of our
common shares. As a result, the price of our common shares may be higher than
the price that might otherwise exist in the open market. The underwriters are
not required to engage in these activities, and may end any of these activities
at any time.
LEGAL MATTERS
Legal matters relating to the offering as to Cayman Islands and Taiwan
law will be passed on for us by Maples and Calder, George Town, Grand Cayman,
Cayman Islands, and Fortune Land Law Offices, Taipei, Taiwan, respectively.
Legal matters relating to the offering as to Taiwan law will be passed on for
the underwriters by Lee & Li, Taipei, Taiwan. The validity of the common shares
offered hereby and the principal tax consequences for holders who are not
resident in Cayman Islands will be passed upon by Maples and Calder, George
<PAGE>
Town, Grand Cayman, Cayman Islands, our Cayman Islands counsel. Legal matters as
to United States law will be passed upon for us by Sonnenschein Nath & Rosenthal
and for the underwriters by Simpson Thacher & Bartlett.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements at December 25, 1999 and December 26, 1998, and for each of
the three years in the period ended December 25, 1999, as set forth in their
report. We have included our financial statements in the prospectus and
elsewhere in the registration statement in reliance on Ernst & Young LLP's
report, given on their authority as experts in accounting and auditing.
ENFORCEABILITY OF CIVIL LIABILITIES
We are a Cayman Islands holding company. We are incorporated in the
Cayman Islands because of the following benefits associated with being a Cayman
Islands corporation:
o political and economic stability;
o an effective judicial system;
o a favorable tax system; o the absence of exchange control or
currency restrictions; and
o the availability of professional and support services.
However, the Cayman Islands has a less developed body of securities
laws as compared to the United States and provides protections for investors to
a significantly lesser extent. In addition, Cayman Islands companies do not have
standing to sue before the federal courts of the United States.
A substantial majority of our assets are located outside the United
States. As a result, it may be difficult for you to effect service of process
within the United States upon us or to enforce against us, judgments obtained in
the United States courts, including judgments predicated upon the civil
liability provisions of the securities laws of the United States or any state
thereof. We have appointed Andrew R. Etkind, c/o Garmin International, Inc., as
our agent for service of process in the United States.
Maples and Calder, our counsel as to Cayman Islands law, and Fortune
Land Law Offices, our counsel as to Taiwan law, have advised us that there is
uncertainty as to whether the courts of the Cayman Islands and Taiwan,
respectively, would (1) recognize or enforce judgments of United States courts
obtained against us predicated upon the civil liability provisions of the
securities laws of the United States or any state thereof, or (2) to be
competent to hear original actions brought in each respective jurisdiction,
against us predicated upon the securities laws of the United States or any state
thereof.
Maples and Calder has further advised us that a final and conclusive
judgment in federal or state courts of the United States under which a sum of
money is payable, other than a sum payable in respect of taxes, fines, penalties
or similar charges, may be subject to enforcement proceedings as a debt in the
Courts of the Cayman Islands under the common law doctrine of obligation.
<PAGE>
ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form S-1, which
includes amendments, exhibits, schedules and supplements, under the Securities
Act of 1933, as amended, and the rules and regulations of the SEC, for the
registration of the common shares offered by this prospectus. Although this
prospectus, which forms a part of the registration statement, contains all
material information included in the registration statement, part of the
registration statement has been omitted from this prospectus as permitted by the
rules and regulations of the SEC. For further information with respect to our
company and the common shares offered by this prospectus, please refer to the
registration statement. Although this prospectus contains all material terms of
the contracts or other documents referred to in this prospectus, the
descriptions of these contracts or other documents contained in this prospectus
are not necessarily complete.
Upon consummation of this offering, we will be subject to the
information requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). As a result, we will be required to file reports, proxy
statements and other information with the other information with the Securities
and Exchange Commission. You may read and copy all or any portion of the
registration statement, these reports, proxy statements and any other
information that we file at the public reference facilities maintained by the
SEC at:
o Judiciary Plaza
450 Fifth Street, N.W.
Room 1024
Washington, D.C. 20549;
o Seven World Trade Center
13th Floor
New York, New York 10048; and
o Northwestern Atrium Center
500 West Madison Street
Suite 1400
Chicago, Illinois 60661-2511.
Copies of these materials can also be obtained from the Public
Reference Section of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates.
Upon approval of our common shares for quotation on the Nasdaq National
Market, our periodic reports and other information may also be inspected at the
offices of Nasdaq Operations, 1735 K Street, N.W., Washington, D.C. 20006.
The SEC maintains a Web site at WWW.SEC.GOV that contains reports,
proxy and information statements, and other information regarding registrants
that make electronic filings with the SEC using its EDGAR system.
<PAGE>
<TABLE>
<CAPTION>
GARMIN LTD. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<S> <C>
Report of Independent Auditors.........................................................................F-2
Consolidated Balance Sheets at December 26, 1998, December 25, 1999 and
June 24, 2000 (unaudited)...........................................................................F-3
Consolidated Statements of Income for the years ended December 31, 1997, December 26, 1998
and December 25, 1999 and for the six-month periods ended June 26, 1999 and
June 24, 2000 (unaudited)...........................................................................F-4
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1997,
December 26, 1998 and December 25, 1999 and for the six-month period ended
June 24, 2000 (unaudited)...........................................................................F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1997, December 26, 1998
and December 25, 1999 and for the six-month periods ended June 26, 1999 and
June 24, 2000 (unaudited)...........................................................................F-6
Notes to Consolidated Financial Statements.............................................................F-8
</TABLE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Garmin Ltd. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Garmin Ltd. and
subsidiaries (the Company) as of December 26, 1998 and December 25, 1999, and
the related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended December 25, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the 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 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 consolidated financial position of Garmin Ltd. and
subsidiaries at December 26, 1998 and December 25, 1999, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 25, 1999, in conformity with accounting principles
generally accepted in the United States.
Ernst & Young LLP
Kansas City, Missouri
February 26, 2000, except for Note 1
as to which the date is _____________
The foregoing report is in the form that will be signed upon the completion
of the Company's reorganization described in Note 1 to the
consolidated financial statements.
/s/ Ernst & Young LLP
Ernst & Young LLP
Kansas City, Missouri
September 8, 2000
<PAGE>
<TABLE>
<CAPTION>
GARMIN LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share information)
December 26, December 25,
1998 1999 June 24, 2000
-------------------------------------------------
ASSETS (unaudited)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 80,360 $104,079 $123,610
Marketable securities 2,176 - -
Accounts receivable, less allowance for
doubtful accounts of $618 in 1998, $1,116 in 17,560 35,908 45,676
1999 and $1,470 in 2000
Inventories 37,974 51,248 69,441
Deferred income taxes (Note 8) 6,570 5,883 6,259
Prepaid expenses and other current assets (Note 3) 704 864 1,087
-------------------------------------------------
Total current assets 145,344 197,982 246,073
Property and equipment (Notes 3 and 5):
Land and improvements 7,520 22,548 27,098
Building and improvements 7,810 19,324 25,489
Office furniture and equipment 6,594 7,575 8,147
Manufacturing equipment 12,235 15,313 16,109
Engineering equipment 4,466 5,116 6,773
Vehicles 209 230 238
-------------------------------------------------
38,834 70,106 83,854
Accumulated depreciation and amortization 10,083 14,255 17,369
-------------------------------------------------
28,751 55,851 66,485
Deferred income taxes (Note 8) 223 75 57
Restricted cash (Note 5) - - 11,762
Intangible assets 214 737 2,681
-------------------------------------------------
Total assets $174,532 $254,645 $327,058
=================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 9,334 $ 15,402 $ 20,312
Salaries and benefits payable 2,904 2,928 2,886
Accrued warranty costs 3,114 4,429 6,928
Accrued sales program costs 662 2,330 2,348
Litigation settlement (Note 12) 2,500 - -
Dividends payable - - 17,352
Other accrued expenses 1,872 2,567 1,198
Income taxes payable 8,498 4,580 7,092
Notes payable (Note 3) 363 5 9
-------------------------------------------------
Total current liabilities 29,247 32,241 58,125
Long-term debt (Note 5) 9,345 27,715 48,227
Other liabilities - 90 98
Stockholders' equity:
Preferred stock, $1.00 par value, 1,000,000
shares authorized, none issued - - -
Common stock, $0.01 par value, 500,000,000 shares
authorized:
Shares issued and outstanding - 49,435,774
in 1998 and 88,984,394 in 1999 and 2000 494 890 890
Additional paid-in capital 17,646 29,703 29,703
Retained earnings (Notes 5 and 6) 132,247 176,431 197,237
Accumulated other comprehensive loss (14,447) (12,425) (7,222)
-------------------------------------------------
Total stockholders' equity 135,940 194,599 220,608
-------------------------------------------------
Total liabilities and stockholders' equity $174,532 $254,645 $327,058
=================================================
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
<CAPTION>
GARMIN LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share information)
Year ended Six months ended
-------------------------------------------------------------------------
December 31, December 26, December 25, June 26, June 24,
1997 1998 1999 1999 2000
-------------------------------------------------------------------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Net sales $160,280 $169,030 $232,586 $106,395 $170,540
Cost of goods sold 93,620 82,787 105,654 50,443 78,602
-------------------------------------------------------------------------
Gross profit 66,660 86,243 126,932 55,952 91,938
Selling, general and
administrative expenses 17,102 24,680 27,063 12,434 15,075
Research and development 12,657 14,876 17,339 7,936 9,719
expense
-------------------------------------------------------------------------
29,759 39,556 44,402 20,370 24,794
-------------------------------------------------------------------------
Operating income 36,901 46,687 82,530 35,582 67,144
Other income (expense):
Interest income 2,598 3,512 4,327 1,607 2,534
Interest expense (897) (545) (577) (223) (1,462)
Foreign currency 9,967 (2,171) (1,469) 638 (3,029)
Other 303 37 (679) (128) (52)
-------------------------------------------------------------------------
11,971 833 1,602 1,894 (2,009)
-------------------------------------------------------------------------
Income before income taxes 48,872 47,520 84,132 37,476 65,135
Income tax provision (benefit):
Current 12,841 16,608 19,130 6,611 15,733
Deferred (61) (4,254) 835 2,282 (358)
-------------------------------------------------------------------------
12,780 12,354 19,965 8,893 15,375
-----------------------------------------------------------------------
Net income $ 36,092 $ 35,166 $ 64,167 $ 28,583 $ 49,760
=========================================================================
Basic and diluted net income $ 0.41 $ 0.40 $ 0.72 $ 0.32 $ 0.56
per share
=========================================================================
Weighted-average common
shares outstanding 87,984 88,650 88,984 88,984 88,984
=========================================================================
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
<CAPTION>
GARMIN LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except per share data)
Accumulated
Additional Other
Common Stock Paid-In Retained Comprehensive
-----------------------
Shares Dollars Capital Earnings Income (Loss) Total
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 35,097 $351 $13,027 $ 75,071 $ (2,403) $ 86,046
1996
Net income - - - 36,092 - 36,092
Translation adjustment - - - - (14,305) (14,305)
-------------
Comprehensive income 21,787
Cash dividend ($0.10 - - - (3,629) - (3,629)
per share)
20% stock dividend 7,020 70 2,468 (2,538) - -
----------------------------------------------------------------------------
Balance at December 31, 42,117 421 15,495 104,996 (16,708) 104,204
1997
Net income - - - 35,166 - 35,166
Translation adjustment - - - - 2,261 2,261
-------------
Comprehensive income 37,427
Cash dividend ($0.14 - - - (6,000) - (6,000)
per share)
15% stock dividend 6,318 63 1,852 (1,915) - -
Issuance of common stock 1,000 10 299 - - 309
----------------------------------------------------------------------------
Balance at December 26, 49,435 494 17,646 132,247 (14,447) 135,940
1998
Net income - - - 64,167 - 64,167
Translation adjustment - - - - 2,022 2,022
-------------
Comprehensive income 66,189
Cash dividend ($0.15 - - - (7,530) - (7,530)
per share)
80% stock dividend 39,549 396 12,057 (12,453) - -
----------------------------------------------------------------------------
Balance at December 25, 88,984 890 29,703 176,431 (12,425) 194,599
1999
Net income (unaudited) - - - 49,760 - 49,760
Translation adjustment
(unaudited) - - - - 5,203 5,203
-------------
Comprehensive
income (unaudited) 54,963
Cash dividend ($0.33
per share) (unaudited) - - - (28,954) - (28,954)
----------------------------------------------------------------------------
Balance at June 24,
2000 (unaudited) 88,984 $890 $29,703 $197,237 $ (7,222) $220,608
============================================================================
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
<CAPTION>
GARMIN LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year ended Six months ended
---------------------------------------------------------------
December 31, December 26, December 25, June 26, June 24,
1997 1998 1999 1999 2000
---------------------------------------------------------------
(unaudited)(unaudited)
<S> <C> <C> <C> <C> <C>
Operating Activities
Net income $36,092 $35,166 $ 64,167 $28,583 $ 49,760
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation 3,225 4,308 5,554 2,641 3,367
Amortization 53 30 18 15 15
Loss on disposal of property and 5 80 136 7 -
equipment
Provision for doubtful accounts 287 414 825 132 155
Deferred income taxes (61) (4,254) 835 2,282 (358)
Net sale (purchase) of trading (1,034) (1,236) 2,173 2,162 -
securities
Changes in operating assets and liabilities:
Accounts receivable (6,173) 1,054 (19,212) (5,078) (9,751)
Inventories 2,729 (2,905) (12,917) (1,606) (16,030)
Prepaid expenses and other (512) 1,481 (508) (969) (425)
current assets
Accounts payable 4,001 (611) 5,888 2,326 4,675
Accrued expenses (191) 1,057 1,278 (642) 396
Income taxes payable 1,447 1,964 (3,895) (6,568) 2,587
---------------------------------------------------------------
Net cash provided by operating activities 39,868 36,548 44,342 23,285 34,391
Investing activities
Purchases of property and equipment (2,667) (8,280) (32,195) (2,059) (12,956)
Proceeds from sale of property and 1 44 69 18 20
equipment
Payment of lease termination fee - (1,179) - - -
Other 51 76 (176) 423 (1,742)
---------------------------------------------------------------
Net cash used in investing activities (2,615) (9,339) (32,302) (1,618) (14,678)
Financing activities
Dividends (3,629) (6,000) (7,530) (7,530) (11,602)
Principal payments on capital lease (987) (5,166) - - -
obligations
Proceeds from issuance of notes
payable and long-term debt 1,208 - 18,040 - -
Proceeds from issuance of common stock - 309 - - -
Principal payments on notes payable - (1,269) (357) (299) -
Proceeds from issuance of Industrial
Revenue Bonds expended on property - - - - 8,238
and equipment
---------------------------------------------------------------
Net cash provided by (used in) financing (3,408) (12,126) 10,153 (7,829) (3,364)
activities
Effect of exchange rate changes on cash (6,675) 1,034 1,526 (27) 3,182
---------------------------------------------------------------
Net increase in cash and cash equivalents 27,170 16,117 23,719 13,811 19,531
Cash and cash equivalents at beginning 37,073 64,243 80,360 80,360 104,079
of period
----------------------------------------------------------------
Cash and cash equivalents at end of $64,243 $80,360 $104,079 $94,171 $123,610
period
===============================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GARMIN LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(In thousands)
Year ended Six months ended
---------------------------------------------------------------
December 31, December 26, December 25, June 26, June 24,
1997 1998 1999 1999 2000
---------------------------------------------------------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Supplemental disclosures of cash flow
information
Cash paid during the period for income $12,865 $15,048 $ 28,733 $11,368 $11,977
taxes
===============================================================
Cash received during the period from
income tax refunds $ 1,464 $ 399 $ - $ - $ -
===============================================================
Cash paid during the period for $ 921 $ 565 $ 558 $ 267 $ 1,477
interest
===============================================================
Supplemental disclosures of noncash
investing and financing activities
Additions to property and equipment
through the issuance of capital $ 1,563 $ 305 $ - $ - $ -
lease obligations
===============================================================
Issuance of stock dividends $ 2,538 $ 1,915 $ 12,453 $ - $ -
===============================================================
Accrual of cash dividends declared $ - $ - $ - $ - $17,352
===============================================================
Accrual of stock dividends declared $ - $ - $ - $ 12,453 $ -
===============================================================
Proceeds from issuance of Industrial
Revenue Bonds deposited in restricted $ - $ - $ - $ - $11,762
cash account (Note 5) ===============================================================
See accompanying notes.
</TABLE>
<PAGE>
GARMIN LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information pertaining to the six months ended June 26, 1999
and June 24, 2000 is unaudited)
(Dollars in Thousands)
DECEMBER 26, 1998 and DECEMBER 25, 1999
1. Organization
On July 24, 2000, the stockholders of Garmin Corporation (GARMIN) incorporated
Garmin Ltd. under the laws of the Cayman Islands. Subsequently, the stockholders
of GARMIN executed a Shareholders Agreement to transfer to Garmin Ltd. their
investments in 88,984,394 common shares of stock of GARMIN. These shares, which
represented approximately 100% of the issued and outstanding common stock of
GARMIN as of July 24, 2000, were used by the stockholders to pay for their
subscriptions to 88,984,394 common shares of Garmin Ltd. at a par value of $0.01
or an aggregate value of $890. In addition to the shares of GARMIN owned by
Garmin Ltd., one share of GARMIN is held by each of six shareholders pursuant to
the requirement of Taiwan law that a company have at least seven shareholders
and 4,000 shares are owned by two related stockholders who have not agreed to
convert GARMIN shares to shares of the Company. These 4,006 shares are not
reported as or considered to be held by minority interests in the accompanying
consolidated financial statements due to immateriality. As a result, GARMIN is
considered herein to be a wholly-owned subsidiary of Garmin Ltd.
2. Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States.
Accordingly, the accompanying consolidated financial statements reflect the
accounts of Garmin Ltd. and its wholly-owned subsidiaries as if the
reorganization described in Note 1 was effective prior to January 1, 1997. All
significant intercompany balances and transactions have been eliminated.
Nature of Business
Garmin Ltd. and subsidiaries (together, the Company) manufacture, market and
distribute global positioning systems and related products. GARMIN was
incorporated in Taiwan, Republic of China on January 16, 1990. GARMIN is
primarily responsible for the manufacturing and distribution of the Company's
products to Garmin International, Inc. and Garmin (Europe) Limited and, to a
lesser extent, new product development and sales and marketing of the Company's
products in Asia and the Far East. In April 1990, a 100%-owned subsidiary,
Garmin International, Inc. (GII) was incorporated in the United States. GII is
primarily responsible for sales and marketing of the Company's products in many
international markets and in the United States as well as research and new
product development. During June 1992, GII formed Garmin (Europe) Limited (GEL),
a wholly-owned subsidiary in the United Kingdom, to sell its products
principally within the European market. During the six months ended June 24,
2000, Garmin Realty LLC was incorporated to hold certain real estate.
<PAGE>
GARMIN LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Information pertaining to the six months ended June 26, 1999
and June 24, 2000 is unaudited)
(Dollars in Thousands)
2. Summary of Significant Accounting Policies (continued)
Fiscal Year
Prior to 1998, GARMIN's fiscal year end was based on a calendar year. However,
both GII and GEL reported on a 52-53-week period ending on the last Saturday of
the calendar year. As a result, the December 31, 1997 consolidated financial
statements include operations of GARMIN from January 1, 1997 to December 31,
1997 and GII and GEL from December 28, 1996 to December 27, 1997. In 1998,
GARMIN elected to change its fiscal year to a 52-53-week period consistent with
GII and GEL. As a result, fiscal 1998 includes the operations of GARMIN from
January 1, 1998 through December 26, 1998 and the operations of GII and GEL from
December 28, 1997 through December 26, 1998.
Also, due to the fact that there are not exactly 52 weeks in a calendar year and
there is slightly more than one additional day per year (not including the
effects of leap year) in each calendar year as compared to a 52-week fiscal
year, the Company will have a fiscal year comprising 53 weeks in certain fiscal
years, as determined by when the last Saturday of the calendar year occurs in
consecutive calendar years.
In those resulting fiscal years that have 53 weeks, the Company will record an
extra week of sales, costs and related financial activity. Therefore, the
financial results of those fiscal years, and the associated 14-week quarter,
will not be exactly comparable to the prior and subsequent 52-week fiscal years
and the associated quarters having only 13 weeks. Fiscal 1997, 1998 and 1999
were all comprised of 52 weeks with the exception of the operations of GARMIN
for the period from December 28, 1997 through December 31, 1997 recorded in
fiscal 1997. This did not significantly impact the 1998 consolidated financial
statements.
Unaudited Financial Information
The financial information as of June 24, 2000 and for the six-month periods
ended June 26, 1999 and
June 24, 2000 contained herein is unaudited. The Company believes this
information has been prepared in accordance with accounting principles generally
accepted in the United States for interim financial information and Article 10
of Regulation S-X. The Company also believes this information includes all
adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the financial position, results of operations and cash flows for
the periods then ended. The results of operations for the six-month period ended
June 24, 2000 are not necessarily indicative of the results of operations that
may be expected for the entire year.
<PAGE>
GARMIN LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Information pertaining to the six months ended June 26, 1999
and June 24, 2000 is unaudited)
(Dollars in Thousands)
2. Summary of Significant Accounting Policies (continued)
Foreign Currency Translation
GARMIN utilizes the New Taiwan Dollar as its functional currency. GEL utilizes
the British pound sterling as its functional currency. In accordance with
Statement of Financial Accounting Standards (SFAS) No. 52, "Foreign Currency
Translation," the financial statements of both GARMIN and GEL have been
translated into United States dollars, the functional currency of Garmin Ltd.
and GII and the reporting currency herein, for purposes of consolidation at
rates prevailing during the year for sales, costs and expenses and at
end-of-year rates for all assets and liabilities. The effect of this translation
is recorded in a separate component of stockholders' equity.
Transactions in foreign currencies are recorded at the approximate rate of
exchange at the transaction date. Assets and liabilities resulting from these
transactions are translated at the rate of exchange in effect at the balance
sheet date. All differences are recorded in results of operations and amounted
to exchange gains (losses) of approximately $9,967, $(2,171) and $(1,469) for
the years ended December 31, 1997, December 26, 1998 and December 25, 1999,
respectively, and $638 and $(3,029) for the six months ended June 26, 1999 and
June 24, 2000, respectively. These gains (losses) are included in other income
(expense) in the accompanying consolidated statements of income.
Earnings per Share
Basic and diluted earnings per share are computed by dividing net income by the
weighted-average number of common shares outstanding during the periods
presented. There are no dilutive securities outstanding during any of the
periods. All references in the consolidated financial statements to
weighted-average common shares outstanding and related per share amounts have
been restated retroactively to reflect stock dividends declared during the
periods presented herein.
Common Stock
The amount of retained earnings capitalized in connection with the stock
dividends previously issued by the Company has been based upon the par value of
the underlying GARMIN common stock, which was the United States dollar
equivalent of ten New Taiwan Dollars. In addition, the common stock issuance in
1998 was made on a pro rata basis to each stockholder of GARMIN based on the
number of shares held at the time. As such, this issuance of shares, to qualify
the Company for certain Taiwan tax incentives, was recorded at the amount of
cash received, which was equal to par value.
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 maturities of
three months or less when purchased. The carrying amount of cash and cash
equivalents approximates fair value given the short maturity of those
instruments.
<PAGE>
GARMIN LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Information pertaining to the six months ended June 26, 1999
and June 24, 2000 is unaudited)
(Dollars in Thousands)
2. Summary of Significant Accounting Policies (continued)
Inventories
Inventories are stated at the lower of cost or market. Cost is determined using
the weighted-average method (which approximates the first-in, first-out (FIFO)
method) by GARMIN and the FIFO method by GII and GEL. Inventories consisted of
the following:
December 26, December 25, June 24,
1998 1999 2000
----------------------------------------------------
(unaudited)
Raw materials $18,663 $30,492 $35,803
Work-in-process 4,264 3,710 14,108
Finished goods 16,908 18,773 21,167
Inventory reserves (1,861) (1,727) (1,637)
----------------------------------------------------
$37,974 $51,248 $69,441
====================================================
Marketable Securities
Marketable securities are considered trading securities pursuant to SFAS No. 115
and are held for resale in anticipation of short-term market movements. These
investments are carried at fair value with gains and losses, both realized and
unrealized, recognized in income. At December 26, 1998, the cost of such
securities was $2,162. These securities were sold in 1999, and the related gains
were reported in other income. The cost of securities sold is based on the
specific identification method. Interest and dividends on securities are
included in investment income.
Property and Equipment
Property and equipment are recorded at cost and depreciated using the
straight-line method over the following estimated useful lives:
Buildings and improvements 8-55 years
Office furniture and equipment 3-8 years
Manufacturing and engineering equipment 3-8 years
Vehicles 3 years
<PAGE>
GARMIN LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Information pertaining to the six months ended June 26, 1999
and June 24, 2000 is unaudited)
(Dollars in Thousands)
2. Summary of Significant Accounting Policies (continued)
Long-Lived Assets
In accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and Long-Lived Assets to be Disposed Of," the Company reviews long-lived
assets for impairment whenever events or changes in circumstances indicate the
carrying amount of an asset may not be fully recoverable. SFAS No. 121 has not
had an impact on the Company's consolidated financial statements.
Intangible Assets
Intangible assets principally consist of costs incurred with certain licensing
agreements, which are being amortized over the lives of the related license
agreements, which are generally three years.
Financial Instruments
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. 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
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 fair value of the swap agreement is not recognized in
the consolidated financial statements. See Note 9.
Income Taxes
The Company accounts for income taxes using the liability method in accordance
with SFAS No. 109, "Accounting for Income Taxes." The liability method provides
that deferred tax assets and liabilities are recorded based on the difference
between the tax bases of assets and liabilities and their carrying amount for
financial reporting purposes as measured by the enacted tax rates and laws that
will be in effect when the differences are expected to reverse. Income taxes
have not been accrued at the GARMIN level for the unremitted earnings of GII or
GEL totaling approximately $28,728, $46,502 and $62,412 at December 26, 1998,
December 25, 1999 and June 24, 2000, respectively, because such earnings are
intended to be reinvested in these subsidiaries indefinitely.
<PAGE>
GARMIN LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Information pertaining to the six months ended June 26, 1999
and June 24, 2000 is unaudited)
(Dollars in Thousands)
2. Summary of Significant Accounting Policies (continued)
Use of Estimates
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts reported in
the consolidated financial statements and accompanying notes. Actual results
could differ from those estimates.
Concentration of Credit Risk
The Company grants credit to certain customers who meet the Company's
preestablished credit requirements. Generally, the Company does not require
security when trade credit is granted to customers. Credit losses are provided
for in the Company's consolidated financial statements and consistently have
been within management's expectations.
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.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101 (SAB 101). SAB 101 summarizes certain areas of the staff's
views in applying generally accepted accounting principles to revenue
recognition in the consolidated financial statements. The Company plans to adopt
SAB 101 no later than the fourth quarter of fiscal 2000 but does not expect it
will have a material effect on the Company's consolidated financial position or
results of operations.
Product Warranty
The Company provides for estimated warranty costs at the time of sale. The
warranty period is generally for one year from date of shipment with the
exception of certain aviation products for which the warranty period is two
years from the date of shipment.
<PAGE>
GARMIN LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Information pertaining to the six months ended June 26, 1999
and June 24, 2000 is unaudited)
(Dollars in Thousands)
2. Summary of Significant Accounting Policies (continued)
Sales Programs
The Company provides certain monthly and quarterly incentives for its dealers
based on various factors including dealer purchasing volume and growth.
Additionally, the Company provides rebates to end users on certain products.
Estimated rebates and incentives payable to distributors are regularly reviewed
and recorded as accrued expenses on a monthly basis.
Advertising Costs
The Company expenses advertising costs as incurred. Advertising expense charged
to operations amounted to approximately $5,348, $7,245 and $8,574 for the years
ended December 31, 1997, December 26, 1998 and December 25, 1999, respectively,
and $3,974 and $6,103 for the six months ended June 26, 1999 and June 24, 2000,
respectively.
Research and Development
Substantially all research and development is performed by GII in the United
States. Research and development costs, which are expensed as incurred, amounted
to approximately $12,657, $14,876 and $17,339 for the years ended December 31,
1997, December 26, 1998 and December 25, 1999, respectively, and $7,936 and
$9,719 for the six months ended June 26, 1999 and June 24, 2000, respectively.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which is
required to be adopted in years beginning after June 15, 2000. The statement
permits early adoption as of the beginning of any fiscal quarter after its
issuance. The Company expects to adopt the new statement effective December 31,
2000, the beginning of fiscal 2001. The statement will require 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. The Company does not anticipate the adoption of SFAS No.
133 will have a significant effect on its results of operations or financial
position.
<PAGE>
GARMIN LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Information pertaining to the six months ended June 26, 1999
and June 24, 2000 is unaudited)
(Dollars in Thousands)
3. Notes Payable
The Company has certain promissory notes totaling $363 and $5 at December 26,
1998 and December 25, 1999, respectively. These notes are secured by
certificates of deposit, included in prepaid expenses and other current assets,
totaling approximately $311 and $158 at December 26, 1998 and December 25, 1999,
respectively. In addition, the Company had pledged, as additional security, land
and buildings with book values totaling approximately $2,550 as of December 26,
1998.
4. Line of Credit
During November 1998, the Company renewed a line of credit agreement with a bank
providing for maximum borrowings of $3,500 less indirect borrowings under
certain standby letters of credit which totaled approximately $500 at December
25, 1999. There were no standby letters of credit at December 26, 1998, and
there were no direct borrowings outstanding under the line of credit as of
December 26, 1998, December 25, 1999 and June 24, 2000. The line of credit,
which bears interest at the bank's prime rate less 1% or LIBOR plus 1.5%,
expires June 30, 2000 and is unsecured.
5. Long-Term Debt
During 1995, GII entered into an agreement with the City of Olathe, Kansas for
the construction of a new corporate headquarters (the project) which was
financed through issuance of Series 1995 Industrial Revenue Bonds (the Bonds)
totaling $9,500. Upon completion of the project in 1996, GII retired bonds
totaling $155. At December 26, 1998, December 25, 1999 and June 24, 2000,
outstanding principal under the Bonds totaled $9,345. Interest on the Bonds is
payable monthly at a variable interest rate (4.15% and 4.80% at December 26,
1998 and December 25, 1999, respectively), which is adjusted weekly to the
current market rate as determined by the remarketing agent for the Bonds, with
principal due upon maturity on January 1, 2025. See Note 9.
The Bonds are secured by an irrevocable letter of credit totaling $9,650, with
facility fees of 1.05% annually, through February 2001, renewable on an annual
basis thereafter. The bank has the option of requiring GII to establish a
sinking fund related to the principal balance outstanding on the Bonds, which it
had not exercised through December 25, 1999. The letter of credit is secured by
a mortgage on all assets financed with the proceeds of the Bonds and is
guaranteed by GARMIN.
In connection with the letter of credit agreement entered into with the bank,
GII is required to comply with various covenants, including minimum tangible net
worth requirements of both GARMIN and GII and various financial performance
ratios. In addition, under the agreement entered into with the City of Olathe,
Kansas, GII was restricted from making capital expenditures, as defined by the
agreement, for facilities located in Olathe, Kansas in excess of $10,000 for the
period from February 28, 1992 to February 28, 1998.
<PAGE>
GARMIN LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Information pertaining to the six months ended June 26, 1999
and June 24, 2000 is unaudited)
(Dollars in Thousands)
5. Long-Term Debt (continued)
During 1999, GARMIN borrowed $18,040 to finance the purchase of land and a new
manufacturing facility in Taiwan. The outstanding balance ($18,370 at December
25, 1999 and $18,882 at June 24, 2000, based on period end exchange rates) is
due in 60 equal payments of principal plus interest beginning November 2001. In
addition, GARMIN has pledged, as additional security, land and buildings with
book values totaling approximately $24,640 as of December 25, 1999. Interest
only on the note is payable monthly through November 2001 at a fixed rate of
6.155%. Subsequent to November 2001, interest is adjustable based on the
Republic of China's government's preferential rate on term deposits plus 0.18%.
The aggregate amounts of principal to be paid on long-term debt outstanding at
December 25, 1999 during each of the next five years and thereafter are as
follows:
2000 $ -
2001 262
2002 3,254
2003 3,460
2004 3,679
Thereafter 17,060
-------------------
$27,715
===================
During the six months ended June 24, 2000, GII entered into another agreement
with the City of Olathe, Kansas to finance the Company's expansion of its
manufacturing facilities through the issuance of Series 2000 Industrial Revenue
Bonds (the 2000 Bonds) totaling $20,000. The proceeds from the issuance of the
2000 Bonds were placed in an interest-bearing restricted cash account controlled
by a trustee appointed by the issuer. Disbursements from the account are
restricted to purchases of equipment and construction related to the project and
amounted to $8,238 during the six-months ended June 24, 2000. Unexpended bond
proceeds in this restricted cash account amounted to $11,762 at June 24, 2000.
At June 24, 2000, outstanding principal under the 2000 Bonds totaled $20,000.
Interest on the 2000 Bonds is payable monthly at a variable interest rate (6.73%
at June 24, 2000), which is adjusted weekly to the current market rate as
determined by the remarketing agent of the 2000 Bonds, with principal due upon
maturity at April 15, 2020. See Note 9.
The 2000 Bonds are secured by an irrevocable letter of credit totaling $20,288
with facility fees of 1.43%. This renewable letter of credit initially expires
on September 20, 2004. The bank has required a sinking fund be established with
semiannual payments of $667 beginning April 2002.
<PAGE>
GARMIN LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Information pertaining to the six months ended June 26, 1999
and June 24, 2000 is unaudited)
(Dollars in Thousands)
6. Leases and Other Commitments
In December 1995, GII entered into several sale-leaseback transactions with a
bank pursuant to a master lease agreement. The master lease was accounted for as
a capital lease and provided GII an option to purchase the leased property and
equipment at the expiration of the lease term, or earlier upon remittance of
satisfactory termination payments, for its then fair market value. Additionally,
the bank agreed to purchase and concurrently lease to GII up to $7,000 of
property and equipment under the master lease agreement through March 31, 1998.
All leases under the master lease agreement were accounted for as capital
leases.
In March 1998, GII exercised its option and purchased the property and equipment
by paying the outstanding balance of its capital lease obligation and a
termination payment of $1,179. In accordance with SFAS No. 13, "Accounting for
Leases," GII capitalized the termination payment as property and equipment.
GII leases office and warehouse space under noncancelable operating lease
agreements expiring through 2006. GEL also leases office space under an
operating lease which it may, at its option, extend for up to 14 additional
years. Noncancelable future minimum lease payments at December 25, 1999 are as
follows:
2000 $ 140
2001 140
2002 140
2003 140
2004 140
Thereafter 356
-----------------
Total minimum lease payments $1,056
=================
Rental expense amounted to $92, $94 and $140 for the years ended December 31,
1997, December 26, 1998 and December 25, 1999, respectively.
At December 25, 1999, standby letters of credit amounting to $500 were issued by
banks, on behalf of GII, for the interest rate swap agreement discussed in Note
9. No standby letters of credit were issued on behalf of GII at December 26,
1998. At December 26, 1998 and December 25, 1999, standby letters of credit
amounting to $235 and $443, respectively, were issued by banks on behalf of
GARMIN. Additionally, at December 25, 1999, approximately $21,000 of GARMIN's
retained earnings are indefinitely restricted from distribution to stockholders
pursuant to the law of Taiwan.
Substantially all of the assets of GEL are held as collateral by a bank securing
payment of the United Kingdom value-added tax requirements.
<PAGE>
GARMIN LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Information pertaining to the six months ended June 26, 1999
and June 24, 2000 is unaudited)
(Dollars in Thousands)
7. Employee Benefit Plans
GII has an employee savings plan under which its employees may contribute up to
10% of their annual compensation subject to Internal Revenue Code maximum
limitations. Additionally, GEL has a defined contribution plan under which its
employees may contribute up to 5% of their annual compensation. Both GII and GEL
contribute an amount determined annually at the discretion of the Board of
Directors. During the years ended December 31, 1997, December 26, 1998 and
December 25, 1999, expense related to these plans of $585, $762 and $930,
respectively, was charged to operations.
Additionally, GII has a defined contribution money purchase plan (the Plan)
which covers substantially all employees. GII contributes a specified percentage
of each participant's annual compensation up to certain limits as defined in the
Plan. During the years ended December 31, 1997, December 26, 1998 and December
25, 1999, GII recorded expense related to the Plan of $502, $659 and $721,
respectively.
8. Income Taxes
The Company's income tax provision consists of the following:
<TABLE>
<CAPTION>
Year Ended Six Months Ended
-----------------------------------------------------------------------------------------
December 31, December 26, December 25, June 26, June 24,
1997 1998 1999 1999 2000
-----------------------------------------------------------------------------------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Federal:
Current $ 2,187 $ 2,635 $ 8,883 $3,333 $ 7,877
Deferred (365) (555) (710) (363) (912)
-----------------------------------------------------------------------------------------
1,822 2,080 8,173 2,970 6,965
State:
Current 297 304 1,332 429 1,284
Deferred (15) (63) (85) (41) (104)
-----------------------------------------------------------------------------------------
282 241 1,247 388 1,180
Foreign:
Current 10,357 13,669 8,915 2,849 6,572
Deferred 319 (3,636) 1,630 2,686 658
-----------------------------------------------------------------------------------------
10,676 10,033 10,545 5,535 7,230
-----------------------------------------------------------------------------------------
Total $12,780 $12,354 $19,965 $8,893 $15,375
=========================================================================================
</TABLE>
The income tax provision differs from the amount computed by applying the
statutory federal income tax rate to income before taxes. The sources and tax
effects of the differences are as follows:
<PAGE>
GARMIN LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Information pertaining to the six months ended June 26, 1999
and June 24, 2000 is unaudited)
(Dollars in Thousands)
8. Income Taxes (continued)
<TABLE>
<CAPTION>
Year Ended Six Months Ended
-------------------------------------------------------------------------------------
December 31, December 26, December 25, June 26, June 24,
1997 1998 1999 1999 2000
-------------------------------------------------------------------------------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Federal income tax
expense at U.S.
statutory rate $17,105 $16,632 $29,446 $13,117 $22,797
State income tax
expense, net of
federal tax effect 183 157 810 252 767
Foreign tax rate
differential (4,104) (3,853) (5,604) (2,711) (4,086)
Taiwan tax incentives
and credits
(224) (1,405) (3,817) (1,665) (3,311)
Other, net (180) 823 (870) (100) (792)
-------------------------------------------------------------------------------------
Income tax expense $12,780 $12,354 $19,965 $ 8,893 $15,375
=====================================================================================
</TABLE>
The Company's income before income taxes attributable to foreign operations was
$42,171, $39,692 and $58,467 for the years ended December 31, 1997, December 26,
1998 and December 25, 1999, respectively, and $29,093 and $43,730 for the six
months ended June 26, 1999 and June 24, 2000, respectively.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities are as follows:
<PAGE>
GARMIN LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Information pertaining to the six months ended June 26, 1999
and June 24, 2000 is unaudited)
(Dollars in Thousands)
8. Income Taxes (continued)
<TABLE>
<CAPTION>
December 26, December 25, June 24,
1998 1999 2000
------------------------------------------------------
(unaudited)
<S> <C> <C> <C>
Deferred tax assets:
Product warranty accruals $ 953 $1,464 $2,388
Allowance for doubtful accounts 237 411 513
Inventory carrying value 4,613 3,606 2,974
Vacation accrual 295 335 335
Depreciation 321 75 57
Unrealized foreign currency losses 432 28 29
Other 10 57 37
------------------------------------------------------
6,861 5,976 6,333
Deferred tax liabilities:
Unrealized foreign currency gains 18 18 17
Other 50 - -
------------------------------------------------------
68 18 17
------------------------------------------------------
Net deferred tax assets $6,793 $5,958 $6,316
======================================================
</TABLE>
9. Interest Rate Risk Management
During June 1996, GII entered into an interest rate swap agreement to
effectively convert a portion of its floating rate long-term debt to a fixed
rate basis, thus reducing the impact of interest rate changes on future income.
Pursuant to this "pay-fixed" swap agreement, GII agreed to exchange, at
specified intervals, the difference between the fixed and the floating interest
amounts calculated on the notional amount of the swap agreement totaling $5,000
at December 26, 1998 and December 25, 1999. GII's fixed interest rate under the
swap agreement is 5.1%. The counterparty's floating rate is based on the
nontaxable PSA Municipal Swap Index and amounted to 4.15%, 4.80% and 4.77% at
December 26, 1998, December 25, 1999 and June 24, 2000, respectively. Notional
amounts do not quantify risk or represent assets and liabilities of the Company,
but are used in the determination of cash settlements under the agreement. The
Company is exposed to credit losses from counterparty nonperformance but does
not anticipate any losses from its agreement, which is with a major financial
institution.
During the six months ended June 24, 2000, GII entered into an additional swap
agreement to effectively convert a portion of additional floating rate long-term
debt associated with the 2000 Bonds to a fixed rate basis. Pursuant to this
"pay-fixed" swap agreement, GII agreed to exchange, at specified intervals, the
difference between the fixed and the floating interest amounts calculated on the
notional amount of the swap agreement totaling $10,000 at June 24, 2000. GII's
fixed interest rate under the swap agreement is 7.26% at June 24, 2000 compared
to the counterparty's floating rate of 6.73% at the same date. The
counterparty's floating rate is based on the bank's Taxable Low Floater Rate.
<PAGE>
GARMIN LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Information pertaining to the six months ended June 26, 1999
and June 24, 2000 is unaudited)
(Dollars in Thousands)
10. Fair Value of Financial Instruments
In accordance with SFAS No. 107, "Disclosures about Fair Value of Financial
Instruments", the following summarizes required information about the fair value
of certain financial instruments for which it is currently practicable to
estimate such value. None of the financial instruments are held or issued for
trading purposes. They carrying amounts and fair values of the Company's
financial instruments are as follows:
<TABLE>
<CAPTION>
December 26, 1998 December 25, 1999 June 24, 2000
--------------------------------------------------------------------------------
Carrying Carrying Carrying
Amount Fair Value Amount Fair Value Amount Fair Value
--------------------------------------------------------------------------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents $80,360 $80,360 $104,079 $104,079 $123,610 $123,610
Restricted cash - - - - 11,762 11,762
Notes payable 363 363 5 5 9 9
Long-term debt:
Term loan - - 18,370 18,370 18,882 18,179
Series 1995 Bonds 9,345 9,682 9,345 9,555 9,345 9,501
Series 2000 Bonds - - - - 20,000 20,000
</TABLE>
The carrying value of cash and cash equivalents, restricted cash and notes
payable approximates their fair value. The fair values of the Company's
long-term debt have been estimated using discounted cash flow analyses, based on
an estimate of the interest rate the Company would have to pay on the issuance
of debt with a similar maturity and terms. The fair values of long-term debt as
reported, are not necessarily the amounts the Company would currently have to
pay to extinguish any of this debt.
11. Segment Information
The Company operates within its targeted markets through two reportable
segments, those being related to products sold into the consumer and aviation
markets. Both of the Company's reportable segments offer products through the
Company's 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. The Company's consumer segment
includes portable global positioning system (GPS) receivers and accessories for
marine, recreation, land and automotive use sold primarily to retail outlets.
The Company's aviation products are portable and panel mount avionics for Visual
Flight Rules and Instrument Flight Rules navigation and are sold primarily to
retain outlets and certain aircraft manufacturers.
<PAGE>
GARMIN LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Information pertaining to the six months ended June 26, 1999
and June 24, 2000 is unaudited)
(Dollars in Thousands)
11. Segment Information (continued)
The Company's co-Chief Executive Officers have been identified as the Chief
Operating Decision Maker (CODM). The CODM evaluates performance and allocates
resources based on income before income taxes of each segment. Income before
income taxes represents net sales less operating expenses including certain
allocated general and administrative costs, interest income and expense, foreign
currency adjustments, and other nonoperating corporate expenses. The accounting
policies of the reportable segments are the same as those described in the
summary of significant accounting policies. There are no intersegment sales or
transfers.
The identifiable assets associated with each reportable segment reviewed by CODM
include accounts receivable and inventories. The Company does not report
property and equipment, depreciation and amortization or capital expenditures by
segment to the CODM.
Revenues, interest income and interest expense, income before income taxes and
identifiable assets for each of the Company's reportable segments are presented
below:
<TABLE>
<CAPTION>
Year ended December 31, 1997
-----------------------------------------------------
Consumer Aviation Total
-----------------------------------------------------
<S> <C> <C> <C>
Sales to external customers $122,025 $38,255 $160,280
Allocated interest income 1,984 614 2,598
Allocated interest expense 685 212 897
Income before income taxes 39,162 9,710 48,872
Assets:
Accounts receivable 13,863 4,291 18,154
Inventory 24,375 7,545 31,920
</TABLE>
<PAGE>
GARMIN LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Information pertaining to the six months ended June 26, 1999
and June 24, 2000 is unaudited)
(Dollars in Thousands)
11. Segment Information (continued)
<TABLE>
<CAPTION>
Year ended December 26, 1998
-----------------------------------------------------
Consumer Aviation Total
-----------------------------------------------------
<S> <C> <C> <C>
Sales to external customers $135,446 $33,584 $169,030
Allocated interest income 2,814 698 3,512
Allocated interest expense 437 108 545
Income before income taxes 43,327 4,193 47,520
Assets:
Accounts receivable 14,071 3,489 17,560
Inventory 25,528 12,446 37,974
</TABLE>
<TABLE>
<CAPTION>
Year ended December 25, 1999
-----------------------------------------------------
Consumer Aviation Total
-----------------------------------------------------
<S> <C> <C> <C>
Sales to external customers $169,164 $63,422 $232,586
Allocated interest income 3,147 1,180 4,327
Allocated interest expense 420 157 577
Income before income taxes 59,773 24,359 84,132
Assets:
Accounts receivable 26,117 9,791 35,908
Inventory 31,093 20,155 51,248
</TABLE>
<TABLE>
<CAPTION>
Six months ended June 26, 1999
-----------------------------------------------------
Consumer Aviation Total
-----------------------------------------------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C>
Sales to external customers $79,442 $26,953 $106,395
Income before income taxes 28,203 9,273 37,476
Assets:
Accounts receivable 16,611 5,688 22,299
Inventory 29,618 10,143 39,761
</TABLE>
<PAGE>
GARMIN LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Information pertaining to the six months ended June 26, 1999
and June 24, 2000 is unaudited)
(Dollars in Thousands)
11. Segment Information (continued)
<TABLE>
<CAPTION>
Six months ended June 24, 2000
-----------------------------------------------------
Consumer Aviation Total
-----------------------------------------------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C>
Sales to external customers $121,766 $48,774 $170,540
Income before income taxes 51,182 13,953 65,135
Assets:
Accounts receivable 30,841 14,835 45,676
Inventory 46,581 22,860 69,441
</TABLE>
Net sales, including intercompany sales or transfers and long-lived assets
(property and equipment), prior to intercompany eliminations, by geographic
area, are as follows for the years ended December 31, 1997, December 26, 1998
and December 25, 1999:
<TABLE>
<CAPTION>
North America Asia Europe Total
-----------------------------------------------------------------------
December 31, 1997
<S> <C> <C> <C> <C>
Sales to external customers $110,591 $ 9,112 $40,577 $160,280
Long-lived assets 12,326 10,717 204 23,247
</TABLE>
<TABLE>
<CAPTION>
North America Asia Europe Total
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
December 26, 1998
Sales to external customers $116,629 $ 9,609 $42,792 $169,030
Long-lived assets 15,445 13,138 168 28,751
</TABLE>
<TABLE>
<CAPTION>
North America Asia Europe Total
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
December 25, 1999
Sales to external customers $172,742 $11,146 $48,698 $232,586
Long-lived assets 17,433 38,228 190 55,851
</TABLE>
Sales to one customer in the consumer segment represented approximately $26,400
of the Company's consolidated net sales in 1998. No single customer accounted
for 10% or more of the Company's consolidated net sales in 1997 or 1999.
12. Litigation Settlement
In May 1998, a lawsuit was filed against the Company alleging patent
infringement in prior years for unspecified damages. The Company settled the
lawsuit through dispute resolution in May 1999 for $2,500. The related liability
and expense were reflected in the December 26, 1998 consolidated financial
statements.
<PAGE>
[Graphics on inside back cover page of prospectus]
<PAGE>
, 2000
[Garmin Logo]
________________ COMMON SHARES
__________________
PROSPECTUS
__________________
DONALDSON, LUFKIN & JENRETTE
MERRILL LYNCH & CO.
__________________
SALOMON SMITH BARNEY
_______________________________________________________________________________
You should rely only on the information contained in this document or to which
we have referred you. We have not, and the underwriters have not, authorized any
dealer, sales person or other person to provide you with written information
other than that contained in this prospectus or to make representations as to
matters not stated in this prospectus. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriters are not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus is accurate as of the date on the
front cover of this prospectus only. Our business, financial condition, results
of operations and prospects may have changed since that date.
_______________________________________________________________________________
<PAGE>
Until ____________, 2000 (the 25th day after the date of this
prospectus), all dealers that effect transactions in these securities, whether
or not participating in this offering, may be required to deliver a prospectus.
This is in addition to the dealers' obligation to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
_______________________________________________________________________________
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses, other than the
underwriting discounts and commissions, payable by the registrant in connection
with the offering described in the Registration Statement (all amounts are
estimated except the SEC registration fee):
Securities and Exchange Commission registration fee......... $ 60,720
NASD filing fee............................................. *
Nasdaq National Market listing fee.......................... *
Printing and engraving expenses............................. *
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Transfer agent fees......................................... *
Miscellaneous............................................... *
---------
Total.................................................. $ *
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Cayman Islands law does not limit the extent to which a company's articles
of association may provide for indemnification of officers and directors, except
to the extent any such provision may be held by the Cayman Islands courts to be
contrary to public policy, such as to provide indemnification against civil
fraud or the consequences of committing a crime. Article 152 of our Articles of
Association provides for indemnification, to the fullest extent permitted by
law, of officers and directors for expenses, judgments, fines and amounts paid
in settlement actually and reasonably incurred in their capacities as such, and
advancement of expenses of defending any such action, suit or proceeding.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
As part of the restructuring of the registrant, on ____________, 2000,
shareholders of Garmin Corporation exchanged their common shares of Garmin
Corporation for _____________ shares of the registrant. These shares were not
registered under the Securities Act of 1933, as amended. Certain of these shares
were issued to U.S. shareholders pursuant to an exemption from the registration
requirements of the Securities Act of 1933, as amended, pursuant to Section 4(2)
of, and Regulation D under, the Securities Act of 1933, as amended. The
remainder of the shares were offered and issued outside the United States to
individuals who are not citizens or residents of the United States. Accordingly,
the offering and issuance of these shares were not subject to the registration
requirements of the Securities Act of 1933, as amended, pursuant to Regulation S
under the Securities Act of 1933, as amended.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS DESCRIPTION
1.1* Form of Underwriting Agreement.
3.1 Memorandum of Association.
3.2 Articles of Association.
4.1* Specimen share certificate.
<PAGE>
4.2* Shareholders' Rights Plan.
5.1* Form of opinion of Maples and Calder, Cayman Islands
counsel to the Issuer, as to the legality of the shares.
8.1* Opinion of Sonnenschein Nath & Rosenthal regarding United
States tax matters.
8.2* Opinion of Maples and Calder regarding Cayman Islands tax
matters.
10.1* Stock Option Plan.
11.1* Statement regarding computation of per share earnings.
21.1 List of Subsidiaries.
23.1 Consent of Ernst & Young LLP.
23.2* Consent of Maples and Calder (included in Exhibits 5.1
and 8.2).
23.3* Consent of Sonnenschein Nath & Rosenthal (included in
Exhibit 8.1).
24.1 Powers of Attorney (included on signature page).
27.1 Financial Data Schedule.
* To be filed by supplemental submission
(B) FINANCIAL STATEMENT SCHEDULES
Schedule II Valuation and qualifying accounts
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore have been omitted.
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting agreement,
certificates in such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the registrant pursuant to the provisions described in item 14, or otherwise,
we have been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933, as amended, and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
payment by a registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933, as amended, and will be governed by the final
adjudication of such issue.
(c) The undersigned registrant hereby undertakes that:
(i) For purposes of determining any liability under the
Securities Act of 1933, as amended, the information omitted from the form of
prospectus filed as part of this registration statement in reliance upon Rule
430A and contained in a form of prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act of 1933, as amended,
shall be deemed to be part of this registration statement as of the time it was
declared effective.
<PAGE>
(ii) For the purposes of determining any liability under the
Securities Act of 1933, as amended, each post-effective amendment that contains
a form of prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial BONA FIDE offering thereof.
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THE REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS
ALL THE REQUIREMENTS FOR FILING ON FORM S-1 AND HAS DULY CAUSED THIS
REGISTRATION STATEMENT OR AMENDMENT THERETO TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF OLATHE, COUNTY OF
JOHNSON, STATE OF KANSAS ON SEPTEMBER 11, 2000.
GARMIN LTD.
By: /s/ MIN H. KAO
----------------------------
Min H. Kao
Co-Chief Executive Officer
POWER OF ATTORNEY
We, the undersigned directors and officers of Garmin Ltd., do hereby
constitute and appoint Min H. Kao, Gary L. Burrell and Andrew R. Etkind, and
each of them, our true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution in each of them, to do any and all acts and
things in our respective names and on our respective behalves in the capacities
indicated below that Min H. Kao, Gary L. Burrell and Andrew R. Etkind, or any of
them, may deem necessary or advisable to enable Garmin Ltd. to comply with the
Securities Act of 1933, as amended, and any rules, regulations and requirements
of the Securities and Exchange Commission, in connection with this registration
statement or any registration statement for registering additional securities of
the same class as is included in this registration statement for the same
offering pursuant to Rule 462(b) under the Securities Act of 1933, as amended,
including specifically, but not limited to, power and authority to sign for us
in our respective names in the capacities indicated below any and all such
registration statements and amendments (including post-effective amendments) and
to file the same, with all exhibits thereto and other documents therewith, with
the Securities and Exchange Commission; and we do hereby ratify and confirm all
that Min H. Kao, Gary L. Burrell and Andrew R. Etkind, or any one of them, shall
do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED ON SEPTEMBER 11, 2000 BY THE
FOLLOWING PERSONS IN THE CAPACITIES INDICATED:
SIGNATURE TITLE
/s/ MIN H. KAO Co-Chairman; Co-Chief Executive Officer
----------------------------------
Min H. Kao (Co-Principal Executive Officer)
/s/ GARY L. BURRELL Co-Chairman; Co-Chief Executive Officer
----------------------------------
Gary L. Burrell (Co-Principal Executive Officer)
/s/ KEVIN RAUCKMAN Chief Financial Officer
----------------------------------
Kevin Rauckman (Principal Financial Officer and Principal
Accounting Officer)
<PAGE>
/s/ RUEY-JENG KAO Director
----------------------------------
Ruey-Jeng Kao
<PAGE>
GARMIN INTERNATIONAL, INC. Authorized Representative in the U.S.
By: /s/ GARY L. BURRELL
---------------------------------
Gary L. Burrell, Its President
<PAGE>
GARMIN LTD. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENT SCHEDULE
Garmin Ltd. Financial Statement Schedule for the years ended December 31, 1997,
December 26, 1998 and December 25, 1999.
Report of Independent Auditors........................................ S-2
Schedule II - Valuation and qualifying accounts....................... S-3
<PAGE>
REPORT OF INDEPENDENT AUDITORS
We have audited the consolidated financial statements of Garmin Ltd. and
subsidiaries as of December 26, 1998 and December 25, 1999, and for each of the
three years in the period ended December 25, 1999, and have issued our report
thereon dated February 26, 2000 (except for Note 1, as to which the date is
___________), included elsewhere in this Registration Statement. Our audits also
included thex financial statement schedule listed in Item 16(b) of this
Registration Statement. This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
Ernst & Young LLP
Kansas City, Missouri
February 26, 2000, except for Note 1
as to which the date is ______________
The foregoing report is in the form that will be signed upon the completion
of the Company's reorganization described in NOTE 1 to the consolidated
financial statements.
/s/ Ernst & Young LLP
Ernst & Young LLP
Kansas City, Missouri
September 8, 2000
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Garmin Ltd. and Subsidiaries
Additions
---------------------------------------
Balance at Charged to Charted to Balance at
Beginning Costs and Other End of
Description of Period Expenses Accounts Deductions Period
------------------------------------------------------ ---------------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1997:
Deducted from asset accounts:
Allowance for doubtful accounts $ 392 $ 287 $ - $ (45)(1) $ 634
Inventory reserve $ 1,864 $ 1,657 $ - $(1,441)(2) $ 2,080
Total $ 2,256 $ 1,944 $ - $(1,486) $ 2,714
============= ================ ============ ============== ============
Year Ended December 26, 1998:
Deducted from asset accounts:
Allowance for doubtful accounts $ 634 $ 414 $ - $ (430)(1) $ 618
Inventory reserve $ 2,080 $ 2,165 $ - $(2,384)(2) $ 1,861
------------- ---------------- ------------ -------------- ------------
Total $ 2,714 $ 2,579 $ - $(2,814) $ 2,479
============= ================ ============ ============== ============
Year Ended December 25, 1999:
Deducted from asset accounts:
Allowance for doubtful accounts $ 618 $ 825 $ - $ (327)(1) $ 1,116
Inventory reserve $ 1,861 $ 1,202 $ - $(1,336)(2) $ 1,727
------------- ---------------- ------------ -------------- ------------
Total $ 2,479 $ 2,027 $ - $(1,663) $ 2,843
============= ================ ============ ============== ============
</TABLE>
(1) Uncollectible accounts written off, net of recoveries.
(2) Obsolete inventory dispositions and shrinkage.
<PAGE>
EXHIBIT INDEX
EXHIBITS DESCRIPTION
1.1* Form of Underwriting Agreement.
3.1 Memorandum of Association.
3.2 Articles of Association.
4.1* Specimen share certificate.
4.2* Shareholders' Rights Plan.
5.1* Form of opinion of Maples and Calder, Cayman Islands counsel
to the Issuer, as to the legality
of the shares.
8.1* Opinion of Sonnenschein Nath & Rosenthal regarding United
States tax matters.
8.2* Opinion of Maples and Calder regarding Cayman Islands tax matters.
10.1* Stock Option Plan.
11.1* Statement regarding computation of per share earnings.
21.1 List of Subsidiaries.
23.1 Consent of Ernst & Young LLP.
23.2* Consent of Maples and Calder (included in Exhibits 5.1 and 8.2).
23.3* Consent of Sonnenschein Nath & Rosenthal (included in Exhibit 8.1).
24.1 Powers of Attorney (included on signature page).
27.1 Financial Data Schedule.
* To be filed by supplemental submission
