<PAGE>
Filed Pursuant to Rule 424(B)(4)
Registration No. 333-45514
10,500,000 Shares
[GARMIN LOGO]
Common Shares
8,925,000 common shares are initially being offered in the United States and
Canada by the U.S. underwriters and 1,575,000 common shares are initially being
concurrently offered outside the United States and Canada by the international
managers. The offering price and underwriting discounts and commissions for
both offerings are identical.
We are selling 7,875,000 common shares and the selling shareholders are
selling 2,625,000 common shares.
Prior to this offering, there has been no public market for our common
shares. The initial public offering price of our common shares is $14.00 per
share. Our common shares have been approved for listing on The Nasdaq Stock
Market's National Market under the symbol "GRMN."
Investing in the common shares involves risks that are described in the "Risk
Factors" section beginning on page 7 of this prospectus.
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Public offering price................................... $14.00 $147,000,000
Underwriting discount................................... $ 0.98 $ 10,290,000
Proceeds, before expenses, to Garmin Ltd. .............. $13.02 $102,532,500
Proceeds, before expenses, to the selling shareholders.. $13.02 $ 34,177,500
</TABLE>
The U.S. underwriters may also purchase up to an additional 312,044 shares
from Garmin Ltd., and up to an additional 1,026,706 shares from the selling
shareholders, at the public offering price, less the underwriting discount,
within 30 days from the date of this prospectus to cover over-allotments. The
international managers may similarly purchase up to an additional 55,067 shares
from Garmin Ltd. and up to an additional 181,183 shares from the selling
shareholders.
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.
The shares will be ready for delivery on or about December 13, 2000.
Credit Suisse First Boston Merrill Lynch & Co.
----------------
Salomon Smith Barney
The date of this prospectus is December 8, 2000
<PAGE>
[Graphics on inside front cover page of prospectus.]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Special Note Regarding Forward-
Looking Statements and Certain
Other Information................. ii
Prospectus Summary................... 1
Risk Factors......................... 7
Conventions.......................... 18
Use of Proceeds...................... 19
Dividend Policy...................... 19
Dilution............................. 20
Capitalization....................... 21
Selected Consolidated Financial and
Other Data........................ 22
Management's Discussion and Analysis
of Financial Condition and Results
of Operations..................... 24
Reorganization....................... 36
</TABLE>
<TABLE>
<CAPTION>
Page
<S> <C>
Business............................. 37
Management........................... 53
Certain Relationships and Related
Transactions...................... 61
Principal and Selling Shareholders... 62
Description of Share Capital......... 65
Shares Eligible for Future Sale...... 69
Tax Considerations................... 71
Underwriting......................... 78
Notice to Canadian Residents......... 83
Legal Matters........................ 84
Experts.............................. 84
Enforceability of Civil Liabilities.. 84
Additional Information............... 85
Index to Consolidated Financial
Statements........................ F-1
</TABLE>
----------------
GARMIN, the GARMIN logo, the GARMIN globe design, the GARMIN "swoosh"
design, STREETPILOT, ETREX, TRACBACK, DCG, GPS II, GPS III, GPSCOM, PHASETRAC
12, TRACPAK, G CHART, GPS 40, PERSONAL NAVIGATOR, GUIDANCE BY GARMIN, MULTITRAC
8, AUTOLOCATE, QUICKFIX, NAVTALK and SEE-THRU are registered trademarks of
Garmin Corporation, and EMAP, 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.
i
<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.
ii
<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.
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, 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 Global
Positioning System-enabled products and other navigation, communications and
information products. Each of our Global Positioning System products utilizes
our proprietary integrated circuit and receiver designs to collect, calculate
and display location, direction, speed and other information in forms optimized
for specific consumer uses.
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 2000 report by
Frost & Sullivan, the combined North American marine/recreational and aviation
Global Positioning System markets, which we currently serve, are projected to
grow from an estimated $726 million in 1999 to $1.4 billion in 2005. According
to a 1999 report by Allied Business Intelligence, Inc., the worldwide
commercial Global Positioning System market, which also includes markets in
which we do not currently 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
the Global Positioning System 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 Global Positioning System devices as well as the
continued integration of Global Positioning System, communications and
information technologies into unified products will drive continued industry
growth.
We were founded in 1989 with a goal 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:
. small, handheld personal Global Positioning System navigation devices;
. award-winning avionics which integrate cockpit communications,
instrument landing system receivers and Global Positioning System
technology;
1
<PAGE>
. portable automotive navigation systems with local street-level map
detail and business and address information;
. Global Positioning System-enabled and stand-alone sonar depth sounders
(fishfinders) for recreational boating and fishing; and
. the first Global Positioning System-enabled hand-held cellular phone.
While the marine/recreational and aviation product lines will continue to
be the core of our business in the near-term, Global Positioning System
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). Our goal is to take advantage of our brand name and our
product development experience to expand our product line in many of these
potentially high-growth Global Positioning System markets.
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(R) Global
Positioning System-enabled cellular telephone as one of the "Best of What's
New" in 1998. More recently, our eTrex(R) 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 3.6 million devices and have sustained
consistent growth and profitability, despite significant competition. In 1999,
our net sales were $233 million and our net income was $64 million. From 1998
to 1999, our net sales grew $63.6 million, or 37.6%, and our net income grew
$29 million, or 82.5%. We estimate that in 1999 we had a market share by unit
volume of approximately 50% in the North American Global Positioning System
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
Global Positioning System-enabled panel mount applications, and that our market
share was 76% by unit volume of the U.S. market for portable aviation Global
Positioning System 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 for certain product lines. Dealers and
distributors for our consumer products include national mass market retail
chains, national consumer electronics retail chains, national and regional
sporting goods and outdoors specialty retailers, national marine specialty
retailers and catalog retailers. Our products are also standard equipment or
optional equipment on various models of recreational boats. In addition, our
panel-mount aviation products are installed as standard equipment by several
general aviation aircraft manufacturers.
2
<PAGE>
Our track record of product innovations is a result of 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 November 7, 2000, we held 38 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 1,212 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:
. 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.
. Emphasize Continuous Innovation. We intend to continue to be a leader
in innovation 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 products within each of our current market
segments, and introduce an innovative line of devices, including mobile
information appliances, which combine Global Positioning System,
communications and information technologies in an integrated device.
. 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 original equipment manufacturers to
reach new customers and introduce the utility of our products to new
markets.
. Continue Our Practice of Vertical Integration. We intend to continue to
perform in-house each of the design, manufacturing and marketing
functions in providing our products 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) 946-5203. 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.
3
<PAGE>
The Offering
<TABLE>
<S> <C>
Common shares offered by us........ 7,875,000 shares
Common shares offered by the
selling shareholders............ 2,625,000 shares
Common shares to be outstanding
after
the offering.................... 107,875,000 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. We currently have no specific
plan for allocating those proceeds among
working capital and other general corporate
purposes. We currently have no commitments
to make any material investments or
acquisitions.
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 October 27, 2000 and reflects a 1.12379256 for
1 stock split of our common shares, effected through a stock dividend on
November 6, 2000. This number excludes:
. 1,200,000 common shares issuable upon exercise of options which we
expect to grant to our employees under our 2000 Equity Incentive Plan
immediately prior to the offering.
. 367,111 shares which may be sold by us subject to the underwriters'
over-allotment option.
4
<PAGE>
Summary Consolidated Financial and Other Data
The following table presents summary consolidated financial data of Garmin
Ltd. for each of the five fiscal years in the period ended December 25, 1999
and the nine-month periods ended September 25, 1999 and September 23, 2000. We
have derived the historical data below from our audited consolidated financial
statements except for data for the nine months ended September 25, 1999 and
September 23, 2000, and as of September 23, 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 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>
Nine Months
Years Ended(1) Ended(1)
----------------------------------------------- -------------------
Dec. 31, Dec. 31, Dec. 31, Dec. 26, Dec. 25, Sept. 25, Sept. 23,
1995 1996 1997 1998 1999 1999 2000
-------- -------- -------- -------- -------- --------- ---------
(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 $164,536 $260,079
Cost of goods sold.... 55,446 77,616 93,620 82,787 105,654 76,430 119,110
-------- -------- -------- -------- -------- -------- --------
Gross profit.......... 47,028 58,258 66,660 86,243 126,932 88,106 140,969
Operating expenses:
Selling, general and
administrative.... 13,935 17,720 17,102 24,680 27,063 19,195 23,678
Research and
development....... 7,703 10,383 12,657 14,876 17,339 12,476 15,474
-------- -------- -------- -------- -------- -------- --------
Total operating
expenses........... 21,638 28,103 29,759 39,556 44,402 31,671 39,152
-------- -------- -------- -------- -------- -------- --------
Operating income...... 25,390 30,155 36,901 46,687 82,530 56,435 101,817
Other income, net..... 558 818 11,971(2) 833 1,602 698 351
-------- -------- -------- -------- -------- -------- --------
Income before income
taxes.............. 25,948 30,973 48,872 47,520 84,132 57,133 102,168
Provision for income
taxes.............. 2,869 7,943 12,780 12,354 19,965 13,558 24,116
-------- -------- -------- -------- -------- -------- --------
Net income........... $ 23,079 $ 23,030 $ 36,092 $ 35,166 $ 64,167 $ 43,575 $ 78,052
======== ======== ======== ======== ======== ======== ========
Net income per share
(basic and
diluted).......... $ 0.23 $ 0.23 $ 0.37 $ 0.35 $ 0.64 $ 0.44 $ 0.78
======== ======== ======== ======== ======== ======== ========
Weighted average
common shares
outstanding (basic
and diluted)...... 98,876 98,876 98,876 99,624 100,000 100,000 100,000
======== ======== ======== ======== ======== ======== ========
Cash dividends per
share(3)........... $ 0.04 $ 0.03 $ 0.09 $ 0.12 $ 0.13 $ 0.13 $ 0.29
======== ======== ======== ======== ======== ======== ========
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
As of September 23, 2000
------------------------
As Adjusted for
Actual the Offering(4)
-------- ---------------
(In thousands)
<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents............................ $135,968 $237,801
Total assets......................................... 340,104 441,937
Long-term debt....................................... 47,907 47,907
Total stockholders' equity........................... 245,895 347,728
</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) Includes a $10 million foreign currency gain.
(3) Represents cash dividends per share based on the actual number of shares
outstanding at the time of the dividend, as adjusted for the 1.12379256 for
1 stock split of our common shares, effected through a stock dividend on
November 6, 2000.
(4) Reflects the issuance and sale of 7,875,000 common shares offered hereby at
an initial public offering price of $14.00 per share, after deduction of
underwriting fees and offering expenses payable by us.
6
<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 Global Positioning System 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 the Global Positioning
System 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
Global Positioning System 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 Global
Positioning System satellites over a long period, or that the policies of the
U.S. government that provide for the use of the Global Positioning System
without charge and without accuracy degradation will remain unchanged. Because
of the increasing commercial applications of the Global Positioning System,
other U.S. government agencies may become involved in the administration or the
regulation of the use of Global Positioning System signals. Any of the
foregoing factors could affect the willingness of buyers of our products to
select Global Positioning System-based products instead of products based on
competing technologies.
Any reallocation of radio frequency spectrum could cause interference with the
reception of Global Positioning System signals. This interference could harm
our business.
Our Global Positioning System 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 Global Positioning System 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.
7
<PAGE>
Ultra-Wideband radio devices could cause interference with the reception of
Global Positioning System signals. This intereference could harm our business.
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 the Global Positioning
System. If the FCC issues final rules authorizing such operation, UWB devices
might cause interference with the reception of Global Positioning System
signals. Such interference could reduce demand for Global Positioning System
products in the future. Any resulting change in market demand for Global
Positioning System products could have a material adverse effect on our
financial results.
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:
. 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
8
<PAGE>
and those suppliers might not be able to increase production rapidly
enough to meet unexpected demand.
. 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.
. 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.
We may become subject to significant product liability costs.
If our aviation products malfunction or contain errors or defects,
airplane collisions or crashes could occur resulting in property damage,
personal injury or death. Malfunctions or errors or defects in our marine
navigational products could cause boats to run aground or cause other wreckage,
personal injury or death. If any of these events occurs, we could be subject to
significant liability for personal injury and property damage. 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, 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. International
Business Machines Corporation, NEC Electronics, Inc. and Texas Instruments
Taiwan Ltd. are each the sole source supplier to us of certain application-
specific integrated circuits incorporating our proprietary designs which they
manufacture for us. Intel Corporation is the sole source supplier of certain
microprocessors used in some of our products. 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. In the last twelve months, we have experienced upward
pricing pressures on our high technology components. We continue to search for
9
<PAGE>
alternate sources or redesign components for less expensive parts. However, if
we are unable to find alternate sources or are not able to effectively redesign
components, our business, financial condition and results of operations could
be materially adversely affected.
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.
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 mayde-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.
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
10
<PAGE>
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.
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.
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 can be material
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.
11
<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. We plan to enter the wireless market and
will be competing against Telefon AB LM Ericsson, Motorola, Inc. and Nokia Oy
with certain products. These competitors, as well as some of our existing
competitors or potential competitors, such as Honeywell International, Inc. and
UPS Aviation Technologies, 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
12
<PAGE>
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 28% 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:
. changes in foreign currency exchange rates;
. changes in a specific country's or region's political or economic
conditions, particularly in emerging markets;
. trade protection measures and import or export licensing requirements;
. potentially negative consequences from changes in tax laws;
. difficulty in managing widespread sales and manufacturing operations;
and
. 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.
13
<PAGE>
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.
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
14
<PAGE>
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, 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. Further, 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. 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 to us from this offering to any
specific purpose other than to use generally for working capital and other
general corporate purposes, including possible acquisitions, strategic
partnerships and expansion into new products and markets. 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%.
15
<PAGE>
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 markets for high technology stocks have experienced extreme volatility and
you may not be able to resell your shares at or above the initial public
offering price.
The markets for high technology stocks 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.
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 56.2% 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 Garmin Ltd. and may adversely affect the voting and other rights of
other holders of our common shares.
Prior to 2006, without the approval of a majority of certain of our
shareholders, we may not dispose of our shares of Garmin Corporation or its
assets, even if it would benefit all of our shareholders.
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 after 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
16
<PAGE>
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 after our independent directors have been
placed on our Board of Directors 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 107,875,000
shares, assuming no exercise of the underwriters' over-allotment option. Of
these, 97,375,000 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
of September 23, 2000. As a result, if you purchase the shares in this
offering, you will suffer an immediate and substantial dilution of $10.81 per
share in the net tangible book value per share based upon an initial public
offering price of $14.00 per share. In the event we issue additional shares in
the future pursuant to stock options or otherwise, you may experience further
dilution.
17
<PAGE>
CONVENTIONS
All references to Taiwan in this prospectus are to the Republic of China.
In this prospectus, references to "NT Dollars" or "New Taiwan Dollar(s)" are to
the currency of Taiwan and all references to "U.S. Dollar," "Dollars," "$" or
"US$" are to the currency of the United States of America. Unless otherwise
indicated, the information contained in this prospectus:
. assumes that the underwriters do not exercise the option granted by us
and the selling shareholders to purchase additional shares in this
offering to cover over-allotments;
. assumes that no outstanding employee stock options are exercised;
. is presented as if Garmin Ltd., which was established in July 2000, had
been in existence for all periods presented;
. is presented as if the 1.12379256 for 1 stock split of Garmin Ltd. common
shares, effected through a stock dividend on November 6, 2000, had taken
place prior to the periods presented; and
. 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."
18
<PAGE>
USE OF PROCEEDS
The net proceeds to us from this offering, based on an initial public
offering price of $14.00 per share, and after deducting underwriting discounts
and the estimated offering expenses payable by us, are estimated to be
approximately $101.8 million, or $106.7 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 or strategic partnerships.
We currently have no specific plan for allocating those proceeds among working
capital and other general corporate purposes. 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. Although we have
historically declared cash dividends, 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.
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<PAGE>
DILUTION
Our net tangible book value as of September 23, 2000 was approximately
$242.2 million, or $2.42 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 September 23, 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 a public offering price
of $14.00 per common share, 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
September 23, 2000 would have been approximately $344.0 million, or $3.19 per
common share. This amount represents an immediate increase in net tangible book
value of $0.77 per share to existing shareholders and an immediate dilution in
net tangible book value of $10.81 per share to new investors. The following
table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Initial public offering price per share........................... $14.00
Net tangible book value per share as of September 23, 2000...... $2.42
Increase in net tangible book value per share attributable to
new investors................................................ 0.77
-----
Net tangible book value per share after the offering.............. 3.19
------
Dilution per share to new investors............................... $10.81
======
</TABLE>
The following table summarizes the difference as of September 23, 2000,
between our existing shareholders 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... 100,000,000 92.7% $ 5,009,000 4.3% $ 0.05
New investors........... 7,875,000 7.3 110,250,000 95.7 14.00
----------- ----- ------------ -----
Total................. 107,875,000 100.0% $115,259,000 100.0%
=========== ===== ============ =====
</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 have reserved 3,500,000 common shares for issuance
under our 2000 Equity Incentive Plan and 50,000 common shares for issuance
under our 2000 Non-Employee Directors' Option Plan. We expect to have options
for approximately 1,200,000 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. In
addition, we have reserved 1,000,000 common shares for issuance under our
Employee Stock Purchase Plan. Immediately following this offering, a company
stock fund will be added to Garmin International, Inc.'s Savings and Profit
Sharing Plan. We expect to reserve 500,000 common shares for issuance under
that Plan. To the extent that the over-allotment option or outstanding options
are exercised, there may be further dilution to new investors.
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<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of September 23,
2000. Our capitalization is presented on an actual basis and on an as adjusted
basis to reflect the issuance and sale of 7,875,000 common shares offered by
Garmin Ltd. at an initial public offering price of $14.00 per share, 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
September 23, 2000
---------------------
As
Adjusted
for the
Actual Offering
--------- ----------
(Dollars in
thousands)
<S> <C> <C>
Cash and cash equivalents................................ $ 135,968 $ 237,801
========= =========
Long-term debt........................................... $ 47,907 $ 47,907
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; 100,000,000 shares issued and
outstanding actual; 107,875,000 shares issued and
outstanding as adjusted for the offering............ 1,000 1,079
Additional paid-in capital............................. 29,593 131,347
Retained earnings...................................... 225,529 225,529
Accumulated other comprehensive loss................... (10,227) (10,227)
--------- ---------
Total stockholders' equity........................... 245,895 347,728
--------- ---------
Total capitalization................................. $ 293,802 $ 395,635
========= =========
</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. We
expect to grant options for a total of 1,200,000 common shares to our employees
under our 2000 Equity Incentive Plan immediately prior to the offering.
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<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
fiscal years in the period ended December 25, 1999 and the nine month periods
ended September 25, 1999 and September 23, 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 nine month periods ended
September 25, 1999 and September 23, 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>
Nine Months
Years Ended (1) Ended (1)
----------------------------------------------- -----------------
Sept. Sept.
Dec. 31, Dec. 31, Dec. 31, Dec. 26, Dec. 25, 25, 23,
1995 1996 1997 1998 1999 1999 2000
-------- -------- -------- -------- -------- -------- --------
(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 $164,536 $260,079
Cost of goods sold.... 55,446 77,616 93,620 82,787 105,654 76,430 119,110
-------- -------- -------- -------- -------- -------- --------
Gross profit.......... 47,028 58,258 66,660 86,243 126,932 88,106 140,969
Operating expenses:
Selling, general and
administrative.... 13,935 17,720 17,102 24,680 27,063 19,195 23,678
Research and
development....... 7,703 10,383 12,657 14,876 17,339 12,476 15,474
-------- -------- -------- -------- -------- -------- --------
Total operating
expenses........... 21,638 28,103 29,759 39,556 44,402 31,671 39,152
-------- -------- -------- -------- -------- -------- --------
Operating income...... 25,390 30,155 36,901 46,687 82,530 56,435 101,817
Other income, net
(2)................ 558 818 11,971(3) 833 1,602 698 351
-------- -------- -------- -------- -------- -------- --------
Income before income
taxes.............. 25,948 30,973 48,872 47,520 84,132 57,133 102,168
Provision for income
taxes.............. 2,869 7,943 12,780 12,354 19,965 13,558 24,116
-------- -------- -------- -------- -------- -------- --------
Net income........... $ 23,079 $ 23,030 $ 36,092 $ 35,166 $ 64,167 $ 43,575 $ 78,052
======== ======== ======== ======== ======== ======== ========
Net income per share
(basic
and diluted)...... $ 0.23 $ 0.23 $ 0.37 $ 0.35 $ 0.64 $ 0.44 $ 0.78
======== ======== ======== ======== ======== ======== ========
Weighted average
common shares
outstanding (basic
and diluted)...... 98,876 98,876 98,876 99,624 100,000 100,000 100,000
======== ======== ======== ======== ======== ======== ========
Cash dividends per
share (4).......... $ 0.04 $ 0.03 $ 0.09 $ 0.12 $ 0.13 $ 0.13 $ 0.29
======== ======== ======== ======== ======== ======== ========
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
As of (1) As of (1)
------------------------------------------------ ------------------
Sept. Sept.
Dec. 31, Dec. 31, Dec. 31, Dec. 26, Dec. 25, 25, 23,
1995 1996 1997 1998 1999 1999 2000
-------- -------- -------- -------- -------- -------- --------
(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 $ 94,644 $135,968
Total assets.......... 91,440 118,775 143,482 174,532 254,645 216,518 340,104
Total debt(5)......... 14,533 14,275 15,823 9,708 27,720 9,345 47,907
Total stockholders'
equity............. 63,981 86,047 104,204 135,940 194,599 167,925 245,895
<CAPTION>
Nine Months
Years Ended (1) Ended (1)
------------------------------------------------ ------------------
Sept. Sept.
Dec. 31, Dec. 31, Dec. 31, Dec. 26, Dec. 25, 25, 23,
1995 1996 1997 1998 1999 1999 2000
-------- -------- -------- -------- -------- -------- --------
(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 $ 34,040 $ 61,665
Investing activities.. (11,709) (3,870) (2,615) (9,339) (32,302) (10,387) (23,036)
Financing activities.. 10,255 (4,182) (3,408) (12,126) 10,153 (7,864) (8,959)
</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, net mainly consists of interest income, interest expense and
foreign currency gain/(loss).
(3) Includes a $10 million foreign currency gain.
(4) Represents cash dividends per share based on the actual number of shares
outstanding at the time of the dividend, as adjusted for the 1.12379256 for
1 stock split of our common shares, effected through a stock dividend on
November 6, 2000.
(5) Total debt consists of notes payable and long-term debt.
23
<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, or
GPS, technology. We operate in two business segments, the consumer and aviation
markets. Both of our segments offer products through our network of independent
dealers and distributors. However, the nature of products and types of
customers for the two segments vary significantly. As such, the segments are
managed separately. Our consumer segment includes portable GPS receivers and
accessories for marine, recreation, land and automotive use sold primarily to
retail outlets. Our aviation products are portable and panel-mount avionics for
Visual Flight Rules and Instrument Flight Rules navigation and are sold
primarily to retail outlets and certain aircraft manufacturers.
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 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 original equipment manufacturers. We recognize sales
when products are shipped. Our sales are largely 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.
24
<PAGE>
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.
In the last twelve months, we have experienced upward pricing pressures on
our high technology components, but have offset these with efficiencies in our
manufacturing processes. Our existing practice of performing in-house the
design and manufacture of our products has enabled us to utilize alternative
lower cost components from different suppliers and, where necessary, to
redesign our products to permit us to use these lower cost components. We
believe that because of our practice of performing in-house the design,
manufacture and marketing of our products, 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:
. salaries for sales and marketing personnel;
. salaries and related costs for executives and administrative personnel;
. advertising, marketing, and other brand building costs;
. accounting and legal costs;
. information systems and infrastructure costs;
. travel and related costs; and
. occupancy and other overhead costs.
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
25
<PAGE>
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 Taxes
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. The current Taiwan tax incentives
terminate at the end of 2004. Additional incentives could be available after
2004 depending on whether or not the Taiwan government chooses to continue
their current tax incentive policies. However, there can be no assurance that
such tax incentives will be available after 2004.
26
<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 Nine Months Ended
-------------------------- -------------------
Dec. 31, Dec. 26, Dec. 25, Sept. 25, Sept. 23,
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% 46.5% 45.8%
----- ----- ----- ----- -----
Gross profit................... 41.6% 51.0% 54.6% 53.5% 54.2%
Operating expenses:
Selling, general and
administrative............... 10.7% 14.6% 11.6% 11.6% 9.1%
Research and development....... 7.9% 8.8% 7.5% 7.6% 6.0%
----- ----- ----- ----- -----
Total operating expenses....... 18.6% 23.4% 19.1% 19.2% 15.1%
----- ----- ----- ----- -----
Operating income............... 23.0% 27.6% 35.5% 34.3% 39.1%
Other income, net.............. 7.5% 0.5% 0.7% 0.4% 0.2%
----- ----- ----- ----- -----
Income before income taxes..... 30.5% 28.1% 36.2% 34.7% 39.3%
Provision for income taxes..... 8.0% 7.3% 8.6% 8.2% 9.3%
----- ----- ----- ----- -----
Net income..................... 22.5% 20.8% 27.6% 26.5% 30.0%
===== ===== ===== ===== =====
</TABLE>
The following table sets forth our results of operations for each of our
two segments through income before income taxes during the periods shown. For
each line item in the table, the total of the consumer and aviation segments'
amounts equals the amount in the consolidated statements of income included in
this prospectus.
<TABLE>
<CAPTION>
Fiscal Years Ended Fiscal Nine Months Ended
----------------------------------------------------- -----------------------------------
Dec. 31, 1997 Dec. 26, 1998 Dec. 25, 1999 Sept. 25, 1999 Sept. 23, 2000
----------------- ----------------- ----------------- ----------------- -----------------
Consumer Aviation Consumer Aviation Consumer Aviation Consumer Aviation Consumer Aviation
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $122,025 $38,255 $135,446 $33,584 $169,164 $63,422 $121,125 $43,411 $173,322 $86,757
Cost of goods sold...... 76,271 17,349 68,787 14,000 78,088 27,566 58,715 17,715 83,102 36,008
-------- ------- -------- ------- -------- ------- -------- ------- -------- -------
Gross profit............ 45,754 20,906 66,659 19,584 91,076 35,856 62,410 25,696 90,220 50,749
Operating expenses:
Selling, general and
administrative........ 13,063 4,039 20,047 4,633 20,486 6,577 14,689 4,506 17,385 6,293
Research and
development........... 7,808 4,849 9,177 5,699 11,431 5,908 8,097 4,379 9,708 5,766
-------- ------- -------- ------- -------- ------- -------- ------- -------- -------
Total operating
expenses.............. 20,871 8,888 29,224 10,332 31,917 12,485 22,786 8,885 27,093 12,059
-------- ------- -------- ------- -------- ------- -------- ------- -------- -------
Operating income........ 24,883 12,018 37,435 9,252 59,159 23,371 39,624 16,811 63,127 38,690
Other income (expense).. 9,114 2,857 500 333 1,291 311 564 134 718 (367)
-------- ------- -------- ------- -------- ------- -------- ------- -------- -------
Income before income
taxes................. $ 33,997 $14,875 $ 37,935 $ 9,585 $ 60,450 $23,682 $ 40,188 $16,945 $ 63,845 $38,323
======== ======= ======== ======= ======== ======= ======== ======= ======== =======
</TABLE>
27
<PAGE>
Nine Months Ended September 23, 2000 and September 25, 1999
Net Sales
Our net sales were $260.1 million in the nine months ended September 23,
2000, a 58% increase over net sales of $164.5 million in the nine months ended
September 25, 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 66.6%
of net sales in the nine months ended September 23, 2000 compared to 73.6% of
net sales in the nine months ended September 25, 1999. Sales from our aviation
products accounted for 33.4% of net sales in the nine months ended September
23, 2000 compared to 26.4% of net sales in the nine months ended September 25,
1999. Net sales increased $52.2 million, or 43%, in the consumer segment and
$43.3 million, or 100%, in the aviation segment. 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 and sales of consumer GPS
devices in 2000. 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 $141.0 million in the nine months ended September 23,
2000, a 60% increase over gross profit of $88.1 million in the nine months
ended September 25, 1999. Gross profit as a percent of net sales increased to
54.2% in the nine months ended September 23, 2000 from 53.5% in the nine months
ended September 25, 1999 due primarily to the effects of increased efficiencies
from higher volume across all products and the 7.0 percentage point shift in
the mix to higher margin aviation sales. Gross profit increased $27.8 million,
or 45%, in the consumer segment and $25.1 million, or 97%, in the aviation
segment. The percentage increase in gross profits for each segment is
comparable to the percentage increase in that segment's net sales.
Selling, General and Administrative Expenses
Despite a 58% increase in net sales, selling, general and administrative
expenses only increased 23%, to $23.7 million (9.1% of net sales) in the first
nine months of 2000 from $19.2 million (11.6% of net sales) in the first nine
months of 1999. Selling, general and administrative expenses increased $2.7
million, or 18%, in the consumer segment and $1.8 million, or 40%, in the
aviation segment. 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 in both
segments. The percentage increase was higher in the aviation segment than in
the consumer segment due to the significant increase in aviation net sales as
compared to consumer sales growth. We also experienced an increase in our
cooperative advertising costs, which is an ongoing program with our key dealers
and distributors in both segments. The selling, general and administrative
expenses are expected to increase at a significantly lower rate than sales in
both segments due to the effects of increased volume on these relatively fixed
costs.
Research and Development Expense
Research and development expense increased approximately 24% to $15.5
million (6.0% of net sales) in the first nine months of 2000 from $12.5 million
(7.6% of net sales) in the first nine months of 1999. Research and development
expense increased $1.6 million, or 20%, in the consumer
28
<PAGE>
segment and $1.4 million, or 32%, in the aviation segment. The increase in
expense was due primarily to additional product development costs in both
consumer and aviation segments as well as additional software development in
the consumer segment. The percentage increase was higher in the aviation
segment due to the increasing demand for additional features and functionality
in the panel mount and other aviation product lines.
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 nine months of 2000 amounted to $0.4 million compared to $0.7
million in the first nine months of 1999. Interest income for the first nine
months of 2000 amounted to $4.4 million compared to $2.7 million in the first
nine months of 1999. Interest expense increased to $2.3 million in the first
nine months of 2000 from $0.4 million in the first nine 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 $1.4
million in the first nine months of 2000 compared to a $1.1 million loss in the
first nine months of 1999 due to a weakness of the U.S. Dollar compared to the
New Taiwan Dollar during the first nine months of 2000.
Income Tax Provision
Income tax expense increased by $10.5 million, to $24.1 million, in the
first nine months of 2000 from $13.6 million in the first nine months of 1999,
due to our higher taxable income. The effective tax rate was 23.6% in the first
nine months of 2000 versus 23.7% in the first nine months of 1999.
Net Income
As a result of the above, net income in the nine months ended September
23, 2000 was $78.1 million compared to $43.6 million in the nine months ended
September 25, 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. 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. Net sales increased
$33.7 million, or 25%, in the consumer segment and $29.8 million, or 89%, in
the aviation segment. The aviation sales growth was driven by continued strong
demand for new products introduced in early 1998 and significant demand for our
panel mount aviation products that were introduced in early 1999. The consumer
products sales growth was driven by new handheld products introduced in 1999.
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
29
<PAGE>
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. Gross profit increased $24.4 million, or 37%, in
the consumer segment and $16.3 million, or 83%, in the aviation segment. Gross
profit as a percentage of consumer net sales increased to 53.8% in fiscal 1999
from 49.2% in fiscal 1998 due to increased sales of higher margin recreational
products introduced in 1999. Gross profit as a percentage of aviation net sales
decreased to 56.5% in fiscal 1999 from 58.3% in fiscal 1998 due to a slight
shift in the aviation sales mix in 1999 to panel mount products, which sell at
slightly lower margins than portable 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. Selling, general
and administrative expenses increased $0.4 million, or 2%, in the consumer
segment and $1.9 million, or 42%, in the aviation segment. The increase in
expense was driven primarily by increased advertising costs and additional
marketing and administrative staff needed to support the increased sales during
1999, particularly in the aviation segment. The percentage increase was much
higher in the aviation segment than in the consumer segment due to the
significant increase in aviation net sales. Again, the selling, general and
administrative expenses increased at a lower rate than sales in both segments,
as expected, due to the effects of increased volume on relatively fixed costs.
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. Research and development expense increased $2.3 million,
or 25%, in the consumer segment and $0.2 million, or 4%, in the aviation
segment. The increase in expense was due primarily to additional product
development costs in the consumer segment related to increases in the
engineering staff dedicated to new product development initiatives in this
segment. Research and development expense in the aviation development segment
experienced little change in 1999 as development of the new family of panel
mount aviation products was completed in late 1998 and required less continuing
development effort in 1999.
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.
30
<PAGE>
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.
Net Income
As a result of the above, net income in fiscal 1999 was $64.2 million
compared to $35.2 million in fiscal 1998.
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. Net sales from our consumer products accounted for
80.1% of net sales in fiscal 1998, compared to 76.1% of 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. Net sales increased
$13.4 million, or 11%, in the consumer segment and decreased $4.7 million, or
12% in the aviation segment. The increase in consumer products sales was driven
by key introductions of new recreational and marine products during 1998. 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. Gross profit
increased $20.9 million, or 46%, in the consumer segment and decreased $1.3
million, or 6%, in the aviation segment. Gross profit as a percentage of
consumer net sales increased to 49.2% in fiscal 1998 from 37.5% in fiscal 1997
due primarily to the material cost reductions negotiated with certain key
suppliers. Gross profit as a percentage of aviation net sales increased to
58.3% in fiscal 1998 from 54.6% in fiscal 1997, despite the decline in net
sales, due to a reduction in sales of certain lower margin aviation panel mount
products as a percentage of total aviation sales.
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. Selling, general and administrative expenses increased
$7.0 million, or 53%, in the consumer segment and $0.6 million or 15% in the
aviation segment. The increase in expense was driven primarily by additional
investments in marketing and administrative staff in anticipation of new
product shipments across all product lines that did not materialize until early
1999. During 1998, we also incurred a $2.5 million charge
31
<PAGE>
pursuant to a dispute resolution that also provided us a license on certain of
our consumer segment GPS-enabled products. As a result, selling, general and
administrative expenses as a percentage of net sales increased to 14.8% in
fiscal 1998 from 10.7% in fiscal 1997 in the consumer segment and increased to
13.8% in fiscal 1998 from 10.6% in fiscal 1997 in the aviation segment.
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. Research and development expense increased $1.4 million,
or 18%, in the consumer segment and $0.9 million, or 18%, in the aviation
segment. The increases were due primarily to additional product development
costs in both consumer and aviation segments 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 strength of the U.S. Dollar
compared to the New Taiwan Dollar during 1997. Other income (expense) decreased
$8.6 million, or 95%, in the consumer segment and $2.5 million, or 88%, in the
aviation segment, due primarily to the effects of the foreign currency loss
experienced in 1998 compared to the significant foreign currency gain
experienced in 1997 in both segments.
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.
Net Income
As a result of the above, net income in fiscal 1998 was $35.2 million
compared to $36.1 million in fiscal 1997.
Selected Quarterly Information
The following tables present our operating results for each of the ten
fiscal quarters in the period ended September 23, 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 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.
32
<PAGE>
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
---------------------------------------------------------------------------------------------------
June 27, Sept. 26, Dec. 26, March 27, June 26, Sept. 25, Dec. 25, March 25, June 24, Sept. 23,
1998 1998 1998 1999 1999 1999 1999 2000 2000 2000
-------- --------- -------- --------- -------- --------- -------- --------- -------- ---------
(unaudited)
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statements
of Income:
Net sales.............. $48,641 $40,792 $40,175 $50,949 $55,446 $58,141 $68,050 $76,576 $93,964 $89,539
Cost of goods sold..... 21,578 20,241 22,269 24,453 25,990 25,987 29,224 34,663 43,939 40,508
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Gross profit........... 27,063 20,551 17,906 26,496 29,456 32,154 38,826 41,913 50,025 49,031
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Operating expenses:
Selling, general and
administrative..... 5,245 6,062 8,730 6,352 6,082 6,761 7,868 7,091 7,984 8,603
Research and
development. 3,582 3,643 4,278 3,806 4,130 4,540 4,863 4,706 5,013 5,755
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses............. 8,827 9,705 13,008 10,158 10,212 11,301 12,731 11,797 12,997 14,358
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Operating income....... 18,236 10,846 4,898 16,338 19,244 20,853 26,095 30,116 37,028 34,673
Other income
(expense)............ 3,250 2,274 (5,710) 3,582 (1,688) (1,196) 904 (3,152) 1,143 2,360
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before
income taxes......... 21,486 13,120 (812)(1) 19,920 17,556 19,657 26,999 26,964 38,171 37,033
Income tax provision
(benefit)............ 5,586 3,411 (211) 4,727 4,166 4,665 6,407 6,365 9,010 8,741
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net income (loss).... $15,900 $ 9,709 $ (601) $15,193 $13,390 $14,992 $20,592 $20,599 $29,161 $28,292
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
---------------------
(1) Includes the effects of 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
$34.0 million and $61.7 million during the first nine 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 nine months of 2000, our capital expenditures totaled
$16.4 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.
33
<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 55% 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.
Cash dividends paid to stockholders were $3.6 million, $6.0 million, $7.5
million and $29.0 million in fiscal 1997, 1998, 1999 and 2000, respectively.
Included in cash dividends for fiscal 2000 was a special one-time dividend of
$17.4 million that was paid 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 September 23, 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.
The gain or loss on interest rate swap agreements is immaterial.
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
34
<PAGE>
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
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.
35
<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, on July 24, 2000, we
formed Garmin Ltd. as a holding company for Garmin Corporation in order to
facilitate the listing of our common shares in the United States. Subsequently,
the stockholders of Garmin Corporation executed a shareholders agreement to
transfer to Garmin Ltd. their investments in 88,984,394 common shares of stock
of Garmin Corporation. These shares, which represented approximately 100% of
the issued and outstanding common stock of Garmin Corporation as of July 24,
2000, were used by the stockholders to pay for their subscriptions to
100,000,000 common shares (post-split) of Garmin Ltd. with a per share par
value of $0.01.
As a result of that reorganization, Garmin Ltd., a Cayman Islands
corporation, owns 100% of the capital stock of Garmin Corporation, except for
one share of Garmin held of record, but not beneficially, by each of six
shareholders as nominees to satisfy the Taiwan requirement that Garmin
Corporation have at least seven shareholders, and 4,000 shares held by two
related shareholders who did not convert their Garmin Corporation shares to
shares of Garmin Ltd. These 4,006 shares represent approximately 0.004% of the
outstanding shares of Garmin Corporation. In addition, under the shareholders'
agreement, shareholders of Garmin Corporation 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 after December 31, 2005 except upon approval of a
majority in interest of such shareholders who are U.S. citizens or residents.
As a result of this reorganization, Garmin Ltd. owns, directly or
indirectly, each of Garmin Corporation, Garmin International, Inc., Garmin
(Europe) Ltd., Garmin Foreign Sales Corporation and Garmin Realty, LLC. On
November 30, 2000, Garmin Ltd. purchased from Garmin International, Inc. all of
the issued and outstanding shares of capital stock of Garmin (Europe) Ltd.
The diagrams set forth below illustrate the Garmin organization both prior
to and after the reorganization discussed above.
Prior to Reorganization in September Post Reorganization
2000
--------------- ----------------
Garmin Garmin Ltd.
Corporation (Cayman Islands)
(Taiwan) ----------------
--------------- |
| --------------
--------------- | |
Garmin ----------- -----------
International, Garmin Garmin
Inc. Corporation (Europe)
(Kansas) (Taiwan) Ltd. (U.K.)
--------------- ----------- -----------
| |
-------------------------- -------
| | | |
----------- -------- ----------- ---------------------
Garmin Garmin Garmin International,
Garmin (Europe) Foreign Inc. (Kansas)
Realty, LLC Ltd. Sales ---------------------
(Kansas) (U.K.) Corporation |
(Barbados) ----------------------
| |
-------------- -----------------
Garmin Realty, Garmin Foreign
LLC Sales Corporation
(Kansas) (Barbados)
-------------- -----------------
36
<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 circuit and receiver designs to collect, calculate and
display location, direction, speed and other information in forms optimized for
specific consumer uses.
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 goal 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, we believe 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 transmitters/receivers,
radios, transponders (which transmit either an aircraft's altitude or its
flight identification number in response to requests transmitted by ground-
based air traffic control radar systems or air traffic avoidance devices on
other aircraft) 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.
37
<PAGE>
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.
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 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. The diagram below illustrates the use of GPS.
. the satellites must be in
view,
[GRAPHIC]
. a minimum of four satellite
signals required, and
. 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.
38
<PAGE>
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.
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 trend toward combining navigation,
communications and information technologies in an integrated device 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. According to a 2000 report by Frost & Sullivan, the
combined North American marine/recreational and aviation GPS market segments,
which we currently serve, are projected to grow from an estimated $726 million
in 1999 to $1.4 billion in 2005. Allied Business Intelligence, Inc. has
forecast in a 1999 report that the worldwide commercial GPS market, which also
includes markets in which we do not currently 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.
. 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 483,600 recreational boats were produced in the
United States in 1999.
. 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.
. 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.
39
<PAGE>
These segments will continue to be the core of our business in the near-
term. However, 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), emergency locating services, and
tracking/anti-theft products. We intend to continue to be a leader in
innovation by capitalizing on the increasing integration of information and
location technologies as we expand the utility of, and market for, our devices.
We intend to take advantage of our brand name and our product development
experience to expand our product line in new GPS markets which we expect to
experience significant growth, such as automotive and wireless applications. We
currently have products under development for launches into these markets in
the next 12 to 24 months.
. 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
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 combination 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.
. 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
40
<PAGE>
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 we have strong brand recognition and a loyal customer base and that
our customer focused approach has been a key factor in developing these to
date.
Emphasize Continuous Innovation. We have introduced industry-leading
innovations, ranging from small, low-cost, high performance 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
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 devices combining different technologies 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
transmitters/receivers. Within the aviation market we offer panel mounted and
portable GPS-enabled devices, traditional VHF navigation receivers, instrument
landing receivers, marker beacon receivers, audio panels and digital
transponders (which transmit altitude or identification information in
response to requests transmitted by ground-based air traffic control radar
systems or air traffic avoidance devices on other aircraft). 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.
41
<PAGE>
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 original equipment
manufacturers who provide valuable input to our engineering and marketing
teams.
Continue Our Practice of Vertical Integration. Performing in-house the
design, manufacturing and marketing functions in providing our products, also
known as vertical integration, has enabled us to develop a broad set of core
competencies that distinguish us from our competition. Examples include:
. Our modern manufacturing facilities in Shijr, Taiwan and Olathe, Kansas,
which we own and operate, unlike many of our competitors who outsource; and
. 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., 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.
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. We believe 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(R)
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.
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In addition to our products, we offer a broad set of accessories from
which we believe 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:
--------------------------------------------------------------------------------
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 and
(2 models) 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
database of cities, detailed built-in maps and MapSource
compatibility.
GPS 48 Handheld GPS with a built-in database of marine
navigation aids.
GPS III(2 models) Portable GPS, with unique selectable vertical or
horizontal displays. Capabilities and features available
in different GPS III models include built-in basic maps
and MapSource compatibility.
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.
--------------------------------------------------------------------------------
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--------------------------------------------------------------------------------
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 (5 models) Marine GPS/plotter combinations for boating and 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 See-
(3 models) 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 and
(3 models) 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.
--------------------------------------------------------------------------------
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
communications transmitters/receivers, traditional VHF navigation receivers,
instrument landing receivers, digital transponders (which transmit either an
aircraft's altitude or its flight identification number in response to requests
transmitted by ground-based air traffic control radar systems or air traffic
avoidance devices on other aircraft), 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.
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<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 original equipment manufacturer
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 growth in our sales to original
equipment manufacturers 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.
--------------------------------------------------------------------------------
Handheld and portable aviation products:
--------------------------------------------------------------------------------
GPS 92 Value-priced unit for recreational pilots with built-in
Jeppesen(R) database. The Jeppesen database includes
airports, navigation beacons, controlled airspace, runway
data and final approach waypoints.
GPS III Pilot Aviation style GPS III, with built-in maps and Jeppesen
database.
GPSMAP 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.
--------------------------------------------------------------------------------
45
<PAGE>
--------------------------------------------------------------------------------
Panel-mount aviation products:
--------------------------------------------------------------------------------
GNC 300XL TSO Instrument Flight Rules ("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/traditional VHF
navigation receiver/instrument landing systems receiver
and VHF communication transmitter/receiver. 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
an instrument landing system receiver to aid in landing.
GMA 340 A feature-rich audio panel with six-place stereo intercom
and independent pilot/co-pilot communications
capabilities.
GTX 320 & 327 FAA-certified transponders which transmit altitude or
flight information to air traffic control radar systems
or other aircraft's air traffic avoidance devices and
feature 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 transmitter/receiver 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.
46
<PAGE>
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:
. Bass Pro Shops--a freshwater sports specialist with a sophisticated
catalog sales effort and "super store" locations;
. Boat America/Boat U.S.--A major marine dealer featuring memberships for
special buying privileges;
. Boaters World--a leading off-shore marine retailer with multiple
locations;
. Cabela's--a major catalogue retailer for the outdoor marine market;
. Wal-Mart--one of the world's largest mass retailers; and
. West Marine--one of the largest U.S. marine retailers specializing in
offshore boating equipment.
None of these dealers for our consumer products individually accounted for
10% or more of our total sales during 1999.
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 and JA Air
Center. 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.
None of these dealers for our aviation products individually accounted for
10% or more of our total sales during 1999. In the aggregate the above named
dealers for our consumer products and for our aviation products accounted for
approximately 32% of our total sales during 1999.
In addition to the traditional distribution channels mentioned, we enjoy
significant market penetration with original equipment manufacturers. 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 original
equipment manufacturer certification represents a significant barrier to entry
for our potential competitors in the aviation original equipment manufacturer
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,
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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, Sony Corporation and Samsung. For our original equipment manufacturer
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.
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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
the distribution pipeline. We can react rapidly to changes in market demand
49
<PAGE>
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 November 7, 2000, we held 38 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; ETREX;
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, NAVTALK and SEE-THRU. Our mark GARMIN and certain other
trademarks have also been registered in selected other countries. Our
trademarks include EMAP, 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.
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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
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 1,212 full-time employees worldwide, of whom
542 were in the United States, 643 were in Taiwan and 27 were in England. 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
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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.
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
aggregate of 3,233 square feet of office space in Tempe, Arizona for software
development, and Wichita, Kansas for support for our aviation original
equipment manufacturer 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.
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MANAGEMENT
Directors and Executive Officers
The following table sets forth information about our executive officers
and directors as of December 8, 2000.
<TABLE>
<CAPTION>
Name Age Position(s)
---- --- -----------
<S> <C> <C>
Min H. Kao, Ph.D. 51 Co-Chairman of the Board; Co-Chief Executive Officer
Gary L. Burrell 63 Co-Chairman of the Board; Co-Chief Executive Officer
Kevin Rauckman 38 Chief Financial Officer and Treasurer
Andrew R. Etkind 45 General Counsel and Secretary
Gary Kelley 54 Director of Marketing--Garmin International, Inc.
Ruey-Jeng Kao 63 Director
</TABLE>
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 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
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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 six directors, at least three of which
shall be independent directors. We currently anticipate that our independent
directors will be appointed within 90 days after the effective date of this
registration statement. The directors are to be elected or appointed at the
annual general meetings of our shareholders. The directors will be divided
equally into three classes, designated Class I, Class II and Class III,
respectively. The terms of office for each class are as follows:
. Class I terms of office shall expire at the annual general meeting in
2001.
. Class II terms of office shall expire at the general annual meeting in
2002.
. 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 will establish an audit
committee composed of three independent directors. The audit committee will be
responsible for supervising
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corporate accounting and auditing, recommending our independent auditor and
verifying our compliance with applicable accounting principles and rules. The
audit committee will also be responsible for reviewing potential conflict of
interest situations in material related party transactions. The members of our
Audit Committee will be appointed after this offering.
Compensation Committee
Our board of directors intends to establish a compensation committee
composed of three directors. The compensation committee will be responsible for
reviewing and approving the compensation and benefits for our key executive
officers, reviewing our employee benefit plans and making recommendations to
our board of directors regarding those matters. The members of our Compensation
Committee will be appointed after this offering.
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 $52,021 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 similar to Dr. Kao and Mr. Burrell 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 25, 1999, December 26, 1998 and December 31,
1997 by our Chief Executive Officer and our other executive officers (the
"Named Executive Officers").
55
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<TABLE>
<CAPTION>
Annual Compensation(1)
-----------------------------------
Other
Name and Annual All Other
Principal Position Year Salary Bonus Compensation Compensation
------------------ ---- ------ ----- ------------ ------------
<S> <C> <C> <C> <C> <C>
Min H. Kao, Ph.D. 1999 $166,270 $14,330(2) $52,104(3) $18,091(4)
Co-Chairman of the 1998 163,800 203 50,747 17,116
Board; Co-Chief 1997 150,050 203 33,828 15,116
Executive Officer
Gary L. Burrell 1999 166,270 14,330(2) 52,271(3) 18,101(5)
Co-Chairman of the 1998 163,800 203 50,914 17,036
Board; Co-Chief 1997 150,050 203 34,641 15,535
Executive Officer
Andrew R. Etkind 1999 127,634 15,203 -- 15,821(8)
General Counsel and 1998 103,133(6) 10,203 24,000(7) 11,578
Secretary 1997 N/A N/A -- N/A
Gary Kelley 1999 124,475 6,203 -- 13,462(9)
Director of 1998 122,112 6,703 -- 13,293
Marketing, Garmin 1997 112,362 1,703 -- 10,908
International,
Inc.
Kevin Rauckman 1999 111,650 5,203 -- 8,641(10)
Chief Financial 1998 N/A N/A -- N/A
Officer and 1997 N/A N/A -- N/A
Treasurer
</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--$52,021; 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 $52,021 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.
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<PAGE>
Option Grants and Exercises During 1999
No options were granted to or exercised by the Named Executive Officers
during 1999.
Pension Plan
Effective January 1, 1990, we established a retirement plan called a
"money purchase pension plan" (the "Pension Plan"). An employee of Garmin
International, Inc. automatically becomes a participant in the Pension Plan as
of the first January 1 or July 1 after he or she reaches age 21 and completes
three months of service. All contributions to the Pension 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 20% 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. Participants are allowed to
direct the investment of their accounts in a menu of authorized investment
alternatives. A participant's account is distributable when the participant
terminates employment, retires, dies, or becomes disabled. The Pension Plan is
intended to qualify under Section 401 of the Internal Revenue Code, so that
participants are not taxed on contributions or earnings on those contributions
until withdrawn from the Pension Plan, and so that contributions by Garmin
International, Inc. are tax deductible when made. The Named Executive Officers,
as employees of Garmin International, Inc., are covered by the Pension Plan.
Equity Incentive Plan
Our 2000 Equity Incentive Plan, which was approved by our shareholders on
October 24, 2000, provides for grants of non-qualified stock options and
incentive stock options. The 2000 Equity Incentive Plan also provides for
grants of restricted shares, bonus shares, deferred shares, stock appreciation
rights, performance units and performance shares. The objectives of the plan
are to strengthen key employees' commitment to the success of Garmin Ltd., to
stimulate employee efforts on behalf of Garmin Ltd., and to help us attract new
employees with skills which are in high demand and retain existing key
employees. The 2000 Equity Incentive Plan is administered by the board of
directors or a committee of the board. The 2000 Equity Incentive Plan provides
for up to 3,500,000 common shares to be used for awards. The shares may be
newly issued shares, and any awards that lapse or are forfeited, or used for
tax withholding, may be used again. The number is subject to adjustment for
changes in capitalization, reorganizations, mergers, stock splits, and other
corporate transactions as the board or the committee determines to require an
equitable adjustment.
Employees of Garmin Ltd. or any majority owned subsidiary are eligible for
awards. The 2000 Equity Plan will remain in effect until all the shares
available have been used to pay awards, subject to the right of the board of
directors to amend or terminate the 2000 Equity Incentive Plan at any time.
The board or the committee will select the grantees and set the term of
each award, which may not be more than ten years. The board of directors or the
committee has the power to determine the terms of the awards granted, including
the number of shares subject to each award, the form of consideration payable
upon exercise, the period in which the award may be exercised after
57
<PAGE>
termination of employment, and all other matters. The exercise price of an
option and the strike price of a stock appreciation right must be at least the
fair market value of a share as of the grant date, unless the award is
replacing an award granted by an entity that is acquired by Garmin Ltd. or a
subsidiary. The board of directors or the committee will also set the vesting
conditions of the award, except that vesting will be accelerated if Garmin Ltd.
terminates the grantee's employment (other than for death, disability or cause)
or the grantee terminates employment because of a diminution in compensation or
status or a required move of over 50 miles, within 1 year after a change of
control of Garmin Ltd. Awards granted under the 2000 Equity Incentive Plan are
not generally transferable by the grantee. No grantee may be granted awards in
any five-year period that, on exercise, would yield more than 700,000 shares,
and no grantee may be granted SARs, Performance Units or Performance Shares in
any five-year period relating to more than 100,000 shares.
Director Option Plan
We have adopted, and on October 24, 2000 our shareholders approved, the
2000 Non-Employee Directors' Option Plan ("Directors Plan"), effective November
1, 2000. The Directors Plan makes 50,000 common shares available for payment to
non-employee directors. The shares may be newly issued shares, and any awards
that lapse or are forfeited, or used for tax withholding may be used again. The
number is subject to adjustment for changes in capitalization, reorganizations,
mergers, stock splits, and other corporate transactions as the board or the
committee determines to require an equitable adjustment. The Directors Plan
will automatically terminate on the tenth anniversary of the effective date,
unless sooner terminated by the board of directors, or because all the
available shares have been paid under the Directors Plan.
The objectives of the Directors Plan are to strengthen non-employee
directors' commitment to the success of Garmin Ltd., to align their interests
with the interests of shareholders and to help us attract and retain
experienced and knowledgeable individuals to serve as directors. Only directors
who are not officers and not otherwise employed by Garmin Ltd. or a subsidiary
are eligible to participate in the Directors Plan. The Directors' Plan is
administered by the board of directors or a committee of the board.
The Directors Plan provides for an automatic annual option grant.
Each year at the annual meeting, each eligible director will automatically
be granted an option for a number of shares equal to four times the annual
retainer (currently expected to be $10,000) divided by the fair market value of
a share on the grant date. If an eligible director first joins the board at a
time other than the annual meeting, he or she will receive a pro-rata grant for
that year. The per-share option price will be 100% of the fair market value of
a share on the grant date. The option will vest in equal installments over
three years, subject to acceleration in the event the director terminates his
or her directorship on account of death, disability or an involuntary
termination within one year after a change of control of Garmin Ltd. These
options will have a term of 10 years, subject to earlier termination on certain
terminations of the director's service on the board of directors.
Employee Stock Purchase Plan
We have adopted an employee stock purchase plan ("ESPP") to provide for
eligible employees to purchase our common shares through payroll deductions.
The ESPP was adopted on
58
<PAGE>
October 20, 2000 and was approved by our shareholders on October 24, 2000. The
ESPP may be amended or terminated at any time by our Board of Directors. A
total of 1,000,000 common shares have been reserved for delivery under the
ESPP. The shares may be newly issued shares. The number is subject to
adjustment for changes in capitalization, reorganizations, mergers, stock
splits, and other corporate transactions which occur after the effective date
of this prospectus as the board or the committee determines to require an
equitable adjustment.
The plan will be administered by a committee appointed by our Board of
Directors which will have full and exclusive authority to interpret the terms
of the plan and determine eligibility. 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 shareholders of Garmin Ltd.
In addition, no employee may be granted an option to purchase shares under the
plan to the extent that the person's right to purchase shares under the plan
accrues at a rate that exceeds $25,000 worth of shares for each calendar year.
Participation in the plan will be voluntary.
The ESPP generally contains 12-month offering periods. The offering
periods generally start on each January 1, except for the first offering
period, which commences on the date of this offering and ends on December 31,
2001. Eligible employees will automatically be enrolled in the plan, and may
elect to have us deduct up to 10% of their base earnings to be used to purchase
our common shares, subject to the calendar year limitation described above. On
the last trading day of each year after 2000 (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) 85% of the fair market value of our
common shares that day, or (ii) 85% of the fair market value of our common
shares as of the enrollment date (or the date of this registration statement,
in the case of the first offering period).
Participants may end their participation at any time during an offering
period and will be paid their payroll deductions to date. Participation ends
automatically upon termination of employment with us. Rights granted under the
ESPP are generally not transferable by a participant other than by will, the
laws of descent and distribution. 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 reaches 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,
59
<PAGE>
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. It is
anticipated that participants will be given an opportunity to direct the
investment of their accounts up to 100% in Garmin Ltd. common shares effective
within 30 days after the effective date of this registration statement.
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, and that contributions by Garmin
International, Inc. are tax deductible when made. 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.
60
<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.
One share of Garmin Corporation's stock is held by each of six
shareholders as 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. See "Reorganization."
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.
61
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth information with respect to the beneficial
ownership of our common shares as of December 8, 2000, on a fully-diluted basis
and as adjusted to reflect the sale of shares offered hereby, by:
. each person known to us to own beneficially 5% or more of our common
shares;
. each selling shareholder;
. each of our directors;
. each of our executive officers named in the Summary Compensation Table;
and
. 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
100,000,000 common shares outstanding as of December 8, 2000. The number of
common shares deemed outstanding after this offering includes an additional
7,875,000 shares that are being offered for sale by us, and 2,625,000 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 Common Shares
Beneficially Owned Number of Beneficially Owned
Before Offering(1)(2) Shares to be After Offering(1)(2)
------------------------- Sold in --------------------
Name of Beneficial Owner Number % the Offering Number %
------------------------ ------------- -------- ------------ ------------ -------
<S> <C> <C> <C> <C> <C>
Min H. Kao(3)..... 22,872,328(3) 22.87 N/A 22,872,328 21.20
Gary L.
Burrell(4)..... 22,376,007 22.38 N/A 22,376,007 20.74
Ruey-Jeng Kao(5).. 8,972,481 8.97 N/A 8,972,481 8.32
Jia-Fang Tsai(6).. 7,337,440(6) 7.34 N/A 7,337,440 6.80
Kevin Rauckman.... -- N/A N/A N/A N/A
Andrew R. Etkind.. -- N/A N/A N/A N/A
Gary Kelley....... -- N/A N/A N/A N/A
Shu-Fen Hsu Lin... 977,794 * 157,922 819,872 *
Yu-Yen Chang...... 250,011 * 63,168 186,843 *
Sen-Shuh Chiou.... 466,689 * 24,592 442,097 *
Min-Shia C. Chau.. 500,023 * 31,585 468,438 *
Yin-An Hsieh...... 250,011 * 77,289 172,722 *
Gender Industrial
Corp........... 1,920,672 1.92 703,192 1,217,480 1.13
Chi-Min Wang...... 188,797 * 132,654 56,143 *
Hsing-Yung Chung.. 1,805,645 1.81 197,401 1,608,244 1.49
Fan-Min Huang..... 183,200 * 31,584 151,616 *
Gene-Wen Su....... 648,746 * 39,347 609,399 *
Ching-Yao Su...... 476,806 * 35,131 441,675 *
Ha-Na Wu.......... 500,023 * 21,095 478,928 *
</TABLE>
62
<PAGE>
<TABLE>
<CAPTION>
Common Shares Common Shares
Beneficially Owned Number of Beneficially Owned
Before Offering(1)(2) Shares to be After Offering(1)(2)
---------------------- Sold in --------------------
Name of Beneficial Owner Number % the Offering Number %
------------------------ ------------- -------- ------------ ------------ -------
<S> <C> <C> <C> <C> <C>
Wen-Jen Hung......... 83,336 * 7,896 75,440 *
Mei-Hsueh Lin........ 153,498 * 63,236 90,262 *
Kuo-Cheng Kao........ 1,849,721 1.85 84,315 1,765,406 1.64
Chao-Chung Wu........ 800,276 * 42,158 758,118 *
Tsung-Te Ho.......... 718,828 * 84,069 634,759 *
An-Hsiung Tseng...... 1,866,905 1.87 148,406 1,718,499 1.59
Tsai-Sheng Liu....... 551,959 * 90,015 461,944 *
Chiu-Chieh Lai....... 321,528 * 11,054 310,474 *
Li-Yun Peng.......... 102,570 * 3,513 99,057 *
I-Mao Kuan........... 136,541 * 22,481 114,060 *
Yueh-Roei Tseng...... 239,123 * 16,582 222,541 *
Tzay-Nong Tseng...... 238,617 * 16,582 222,035 *
Hui-Ching Chen....... 203,941 * 17,766 186,175 *
Hui-Min Chen......... 254,512 * 17,371 237,141 *
Jin-Lien Huang....... 384,633 * 53,693 330,940 *
Tsai-Wie Tseng....... 379,280 * 65,537 313,743 *
Donald H. Eller(7)... 2,000,090 2.00 210,788 1,789,302 1.66
Paul K. Shumaker..... 2,500,113 2.50 154,578 2,345,535 2.17
All directors and
executive
officers as a
group (6
persons).......... 54,220,816 54.22 N/A 54,220,816 50.26
</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 December 8, 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 100,000,000 shares of common stock outstanding prior to the
offering and 107,875,000 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 8,990,341 shares held
by the Min-Hwan Kao 2000 Grantor Retained Annuity Trust and 3,942,718
shares held by the Min-Hwan Kao Revocable Trust 9/28/95. The amount of
common shares beneficially owned also includes 948,928 shares held by his
children, and 8,990,341 shares held by the Yu-Fan C. Kao 2000 Grantor
Retained Annuity Trust, of which he disclaims beneficial ownership. Yu-Fan
C. Kao is Dr. Kao's wife.
(4) Mr. Burrell's address is 1200 East 151st Street, Olathe, Kansas 66062. The
amount of common shares beneficially owned includes 3,000,135 shares held
by the Gary L. Burrell 2000 Grantor Retained Annuity Trust. The amount also
includes 3,000,135 shares held by the Judith M. Burrell 2000 Grantor
Retained Annuity Trust, as to which Mr. Burrell disclaims beneficial
ownership. Mr. Burrell's son acts as trustee of both of these trusts, and
as trustee, has sole voting power and investment power with respect to the
shares held in such trusts.
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<PAGE>
(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 3,809,262 shares held by her husband, as to which Ms. Tsai
disclaims beneficial ownership.
(7) Does not include 17,980,682 shares held by the Min-Hwan Kao 2000 Grantor
Retained Annuity Trust (8,990,341 shares) and the Yu-Fan C. Kao 2000
Grantor Retained Annuity Trust (8,990,341 shares), for which Mr. Eller acts
as the trustee with sole voting power and investment power over such
shares, and which are included in the number of shares beneficially owned
by Dr. Kao. See footnote (3) above.
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<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
100,000,000 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 Garmin Ltd. 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 Garmin Ltd., 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.
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<PAGE>
Liquidation. If Garmin Ltd. 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.
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 the best interest of Garmin Ltd.,
preferred shares can be issued quickly with terms calculated to delay or
prevent a change in control of Garmin Ltd. 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") after
our independent directors have been placed on our Board of Directors. 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
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<PAGE>
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 Garmin Ltd., 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 Garmin Ltd. of an Acquiring Person. The Rights Plan may therefore have the
effect of delaying, deterring or preventing a change in control of Garmin Ltd.
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 Garmin Ltd. 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:
. a company is acting or proposing to act illegally, or beyond the scope
of the company's powers as defined in its charter or the laws of its
jurisdiction of organization (also known as ultra vires);
. 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
. those who control the company are perpetrating a "fraud on the
minority."
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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 UMB Bank, N.A. as the transfer agent and registrar for
the common shares.
Listing
Our common shares have been approved for listing on the Nasdaq National
Market under the symbol "GRMN".
Prohibited Sale of Securities Under Cayman Islands Law
An exempted company such as Garmin Ltd. 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.
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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 107,875,000 shares
outstanding assuming no exercise of the underwriting over-allotment option and
no exercise of outstanding options. Of these shares, the 10,500,000 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. The remaining 97,375,000
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 Credit Suisse First Boston Corporation and Merrill
Lynch, Pierce, Fenner & Smith Incorporated. All of these remaining shares are
also "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, upon expiration of the
180-day lock-up period.
These shares are treated as if they were acquired at the same time as the
Garmin Corporation shares for which they were exchanged, and will be freely
tradeable in the public market without restriction in accordance with Rule
144(k) under the Securities Act upon expiration of the 180-day lock-up period,
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:
. we may without such consent grant options, none of which will be
exercisable prior to 180 days after the date of this prospectus, and
sell common shares pursuant to our 2000 Equity Incentive Plan, our
Directors Plan, our Employee Stock Purchase Plan and Garmin
International, Inc.'s Savings and Profit Sharing Plan and,
. we may without consent issue equity shares in connection with any bona
fide business acquisition of or by Garmin Ltd. (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 Credit Suisse First Boston 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.
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Credit Suisse First Boston 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:
. 1% of our then outstanding common shares; or
. 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 registration statements on Form S-8 under the Securities
Act to register an aggregate of 3,500,000 and 50,000 common shares reserved for
issuance under our 2000 Equity Incentive Plan and our Directors Plan,
respectively. In addition, we intend to file registration statements on Form S-
8 under the Securities Act to register an aggregate of 1,000,000 shares for
issuance under our Employee Stock Purchase Plan and 500,000 shares for issuance
under our 401(k) 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.
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TAX CONSIDERATIONS
In the opinion of Sonnenschein Nath & Rosenthal with respect to United
States federal income tax and in the opinion of Maples and Calder with respect
to general Cayman Islands tax, the following are the material United States
federal income tax and general Cayman Islands tax consequences, respectively,
of the beneficial ownership and disposition of our common shares. 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
In the opinion of Maples and Calder, the following are the material
general Cayman Islands tax considerations relevant to the acquisition,
ownership and disposition of the common shares.
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 Garmin Ltd. 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, Garmin Ltd. will not be subject to
income, capital, transfer, sales or corporation tax in the Cayman Islands.
Garmin Ltd. has been incorporated under the laws of the Cayman Islands as an
exempted company. Garmin Ltd. 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). The Undertaking provides 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 Garmin Ltd. or its operations.
Under the current law of the Cayman Islands, no Cayman Islands withholding
tax applies to distributions by Garmin Ltd. 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.
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United States Federal Income Tax Considerations
In the opinion of Sonnenschein Nath & Rosenthal, the following are the
material United States federal income tax considerations relevant to the
acquisition, ownership and disposition of the common shares. This 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, 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, 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, a "U.S. holder" is a beneficial owner of
common shares that is:
. an individual who is a citizen or resident of the United States for
United States federal income tax purposes;
. a corporation, partnership or other business entity organized in or
under the laws of the United States or any of its political
subdivisions;
. a trust (1) 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 (2) 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
. an estate the income of which is subject to United States federal
income tax regardless of its source.
A "Non-U.S. holder" is 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, 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. A distribution on common shares will be
treated as foreign source dividend income to a U.S. holder to the extent paid
out of our current or accumulated
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earnings and profits, as determined for United States federal income tax
purposes. The amount of such dividend will be the U.S. Dollar value of such
dividend when received. Such dividend 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:
. first, 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
. 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. The U.S. Dollar value of the payment made
will be 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 amount equal to the difference between (1) the United States
Dollar value of the amount realized on the sale or other taxable disposition
and (2) the U.S. holder's adjusted tax basis in the common shares. Such gain or
loss will generally be capital gain or loss. In the case of some non-corporate
U.S. holders, any gain may be subject to United States federal income tax at a
preferential rate where the U.S. holder's holding period exceeds one year.
Further, 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 that
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:
. 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
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income (which is generally income of a passive nature such as dividends,
interest and royalties) (the "income test"); and
. 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. Based on our current ownership,
we expect that we will satisfy the shareholder test after this offering.
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
(1) any dividends paid from Garmin Corporation and Garmin International, Inc.,
upon a proposed acquisition of a direct interest in Garmin International, Inc.
by Garmin Ltd. and (2) the gross income of Garmin (Europe) Ltd. because Garmin
Ltd. will 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 this offering.
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 basis in those
common shares equal to their fair market value on the date of death. 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 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:
. 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
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. 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:
. derived from United States sources; or
. 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
. 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. In such case, a U.S. holder would be
subject to the following adverse tax consequences:
. 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;
. 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 would be imposed to recover the deemed benefit from
the deferred payment of such tax.
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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. A U.S. holder who owns common shares during any
year that we are a passive foreign investment company must file 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 in this offering will be a 10% U.S. Shareholder. As a result, 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
either:
. the gain is effectively connected with the Non-U.S. holder's conduct of
a trade or business in the United States; or
. 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
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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 which make certain
modifications to the backup withholding and information reporting rules. These
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 these new regulations.
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UNDERWRITING
We intend to offer the common shares in the U.S. and Canada through the
U.S. underwriters and elsewhere through the international managers. Subject to
the terms and conditions of a U.S. purchase agreement, dated December 8, 2000,
the U.S. underwriters named below, who are represented by Credit Suisse First
Boston Corporation ("CSFB") and Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") as joint book-running managers, and concurrently
with the sale of 1,575,000 shares to the international managers, have severally
agreed to purchase from us and the selling shareholders the respective number
of common shares set forth opposite their names below.
<TABLE>
<CAPTION>
Number of
Shares
<S> <C>
U.S. Underwriters:
Credit Suisse First Boston Corporation............................. 3,151,227
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.............................................. 3,151,227
Salomon Smith Barney Inc........................................... 1,742,546
Banc of America Securities LLC..................................... 75,000
CIBC World Markets Corp. .......................................... 75,000
Goldman, Sachs & Co. .............................................. 75,000
ING Barings LLC.................................................... 75,000
Invemed Associates, Inc. .......................................... 75,000
Prudential Securities Incorporated................................. 75,000
UBS Warburg LLC.................................................... 75,000
Wit SoundView Corporation.......................................... 75,000
Robert W. Baird & Co. Incorporated................................. 35,000
Edward D. Jones & Co., L.P. ....................................... 35,000
Legg Mason Wood Walker, Incorporated............................... 35,000
McDonald Investments Inc., A KeyCorp Company....................... 35,000
Sanders Morris Harris.............................................. 35,000
C.E. Unterberg, Towbin............................................. 35,000
Utendahl Capital Partners, L.P. ................................... 35,000
H. C. Wainwright & Co., Inc. ...................................... 35,000
---------
Total............................................................ 8,925,000
=========
</TABLE>
We and the selling shareholders have also entered into an international
purchase agreement with the international managers for sale of the common
shares outside the U.S. and Canada for whom Credit Suisse First Boston (Europe)
Limited and Merrill Lynch International are acting as joint book-running
managers. Subject to the terms and conditions in the international purchase
agreement, and concurrently with the sale of 8,925,000 shares to the U.S.
underwriters pursuant to the U.S. purchase agreement, we and the selling
shareholders have agreed to sell to the international managers, and the
international managers severally have agreed to purchase, 1,575,000 shares from
us and the selling shareholders. The initial public offering price per common
share and the total underwriting discount per common share are identical under
the U.S. purchase agreement and the international purchase agreement.
78
<PAGE>
The U.S. underwriters and the international managers have agreed to
purchase all of the common shares sold under the U.S. and international
purchase agreements if any of these common shares are purchased. If an
underwriter defaults, the U.S. and international purchase agreements provide
that the purchase commitments of the nondefaulting underwriters may be
increased or the purchase agreements may be terminated. The closings for the
sale of common shares to be purchased by the U.S. underwriters and the
international managers are conditioned on one another.
The U.S. purchase agreement provides that the obligations of the several
U.S. 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 U.S. underwriters are obligated to purchase and
accept delivery of all the common shares, other than those common shares
covered by the over-allotment option described below, if they purchase any of
the common shares.
We and the selling shareholders have agreed to indemnify the U.S.
underwriters and the international managers against certain liabilities,
including liabilities under the Securities Act, and to contribute to payments
that the U.S. underwriters and the international managers may be required to
make in respect of those liabilities.
The underwriters are offering the common shares, subject to prior sale,
when, as and if issued to and accepted by them, subject to approval of legal
matters by their counsel, including the validity of the common shares, and
other conditions contained in the purchase agreements, such as the receipt by
the underwriters of officer's certificates and legal opinions. The underwriters
reserve the right to withdraw, cancel or modify offers to the public and to
reject orders in whole or in part.
Commissions and Discounts
The U.S. 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 common shares to dealers at the
initial public offering price less a concession not in excess of $0.58 per
share. The U.S. underwriters may allow, and these dealers may re-allow, a
concession not in excess of $0.10 per share on sales to other dealers. After
the initial offering of the common shares to the public, the U.S.
representatives may change the public offering price and such concessions.
The following table shows the public offering price, underwriting discount
and proceeds before expenses to us and the selling shareholders. The
information assumes either no exercise or full exercise by the U.S.
underwriters and the international managers of their over-allotment options.
<TABLE>
<CAPTION>
Per Share Without Option With Option
--------- -------------- ------------
<S> <C> <C> <C>
Public offering price................... $14.00 $147,000,000 $169,050,000
Underwriting discount................... $ 0.98 $ 10,290,000 $ 11,833,500
Proceeds, before expenses, to Garmin
Ltd.................................. $13.02 $102,532,500 $107,312,285
Proceeds, before expenses, to the
selling shareholders................. $13.02 $ 34,177,500 $ 49,904,215
</TABLE>
The expenses of the offering, not including the underwriting discount, are
estimated at $0.7 million and are payable by us. The underwriters have agreed
to pay certain of our expenses.
79
<PAGE>
Over-allotment Option
We and the selling shareholders have granted to the U.S. underwriters an
option, exercisable for 30 days from the date of this prospectus, to purchase
up to 1,338,750 additional common shares at the initial public offering price
less the underwriting fees. The U.S. underwriters may exercise this option
solely to cover over-allotments, if any, made in connection with this offering.
To the extent that the U.S. underwriters exercise this option, each U.S.
underwriter will become obligated, subject to certain conditions, to purchase a
number of additional shares proportionate to such U.S. underwriter's initial
purchase commitment.
We and the selling shareholders have also granted options to the
international managers, exercisable for 30 days from the date of this
prospectus, to purchase up to 236,250 additional common shares to cover any
over-allotments on terms similar to those granted to the U.S. underwriters.
Intersyndicate Agreement
The U.S. underwriters and the international managers have entered into an
intersyndicate agreement that provides for the coordination of their
activities. Under the intersyndicate agreement, the U.S. underwriters and the
international managers may sell common shares to each other for purposes of
resale at the initial public offering price, less an amount not greater than
the selling concession. Under the intersyndicate agreement, the U.S.
underwriters and any dealer to whom they sell shares will not offer to sell or
sell shares to persons who are non-U.S. or non-Canadian persons or to persons
they believe intend to resell to persons who are non-U.S. or non-Canadian
persons, except in the case of transactions under the intersyndicate agreement.
Similarly, the international managers and any dealer to whom they sell shares
will not offer to sell or sell shares to U.S. persons or Canadian persons or to
persons they believe intend to resell to U.S. or Canadian persons, except in
the case of transactions under the intersyndicate agreement.
No Sales of Similar Securities
We, our executive officers and directors, the selling shareholders and all
of our other shareholders have agreed, and are contractually bound, for a
period of 180 days after the date of this prospectus, not to, without the prior
written consent of CSFB and Merrill Lynch:
. 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 common shares or any securities convertible
into or exercisable or exchangeable for common shares; or
. enter into any swap or other arrangement that transfers all or a
portion of the economic consequences associated with the ownership of
any common shares regardless of whether a covered transaction is to be
settled by the delivery of common shares or such other securities, in
cash or otherwise;
except that:
. we may without such consent grant options, none of which will be
exercisable prior to 180 days after the date of this prospectus, and
sell common shares pursuant to our 2000 Equity Incentive Plan, our
Directors Plan, our Employee Stock Purchase Plan and Garmin
International, Inc.'s Savings and Profit Sharing Plan;
80
<PAGE>
. we may without such consent issue equity shares in connection with any
bona fide business acquisition of or by Garmin Ltd. (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 CSFB and Merrill Lynch, they will be bound by the lock-up
restrictions described above in this paragraph for the remainder of
such 180-day period; and
. our executive officers and directors, the selling shareholders and our
other shareholders may offer, sell, assign or otherwise transfer common
shares to family trusts provided those trusts agree to be bound by the
lock-up restrictions described above.
In addition, during this period, we have also agreed not to file any
registration statement (other than registration statements 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 CSFB and Merrill Lynch.
Reserved Shares
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.
Quotation on the Nasdaq National Market
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 U.S. underwriters. The factors to be considered in
determining the initial public offering price include:
. the history of and the prospects for the industry in which we compete;
. our past and present operations;
. our historical results of operations;
. our prospects for future earnings;
. the recent market prices of securities of generally comparable
companies; and
. the general condition of the securities markets at the time of the
offering.
An active trading market for the common shares may not develop. It is also
possible that after the offering the common shares will not trade in the public
market at or above the initial public offering price.
81
<PAGE>
Our common shares have been approved for listing on the Nasdaq National
Market under the symbol "GRMN."
The U.S. underwriters have informed us that they do not expect
discretionary sales to exceed 5% of the common shares being offered.
Price Stabilization, Short Positions and Penalty Bids
In connection with this offering, certain U.S. underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
common shares. Specifically, the U.S. 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 U.S. 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 U.S. underwriters' over-allotment option
to purchase additional common 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 U.S.
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 U.S. underwriters may close out any
covered short position by either exercising their over-allotment option to
purchase additional shares from us or purchasing common shares in the open
market. The U.S. underwriters must close out any naked short position by
purchasing common shares in the open market. In determining the source of
common shares to close out the covered short position, the U.S. underwriters
will consider, among other things, the price of common shares available for
purchase in the open market as compared to the price at which they may purchase
common shares from us through the over-allotment option. The U.S. 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 CSFB 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 U.S.
underwriters are not required to engage in these activities, and may end any of
these activities at any time.
82
<PAGE>
NOTICE TO CANADIAN RESIDENTS
Resale Restrictions
The distribution of the common shares in Canada is being made only on a
private placement basis exempt from the requirement that we and the selling
shareholders prepare and file a prospectus with the securities regulatory
authorities in each province where trades of common shares are made. Any resale
of the common shares in Canada must be made under applicable securities laws
which will vary depending on the relevant jurisdiction, and which may require
resales to be made under available statutory exemptions or under a
discretionary exemption granted by the applicable Canadian securities
regulatory authority. Purchasers are advised to seek legal advice prior to any
resale of the common shares.
Representations of Purchasers
By purchasing common shares in Canada and accepting a purchase
confirmation a purchaser is representing to us, the selling shareholders and
the dealer from whom the purchase confirmation is received that
. the purchaser is entitled under applicable provincial securities laws
to purchase the common shares without the benefit of a prospectus
qualified under those securities laws,
. where required by law, that the purchaser is purchasing as principal
and not as agent, and
. the purchaser has reviewed the text above under Resale Restrictions.
Rights of Action (Ontario Purchasers)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
Enforcement of Legal Rights
All of the issuer's directors and officers as well as the experts named
herein and the selling shareholders may be located outside of Canada and, as a
result, it may not be possible for Canadian purchasers to effect service of
process within Canada upon the issuer or such persons. All or a substantial
portion of the assets of the issuer and such persons may be located outside
Canada and, as a result, it may not be possible to satisfy a judgment against
the issuer or such persons in Canada or to enforce a judgment obtained in
Canadian courts against such issuer or persons outside of Canada.
Notice to British Columbia Residents
A purchaser of common shares to whom the Securities Act (British Columbia)
applies is advised that the purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common shares acquired by the purchaser pursuant to this offering. The report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from us. Only one report must
be filed for common shares acquired on the same date and under the same
prospectus exemption.
83
<PAGE>
Taxation and Eligibility for Investment
Canadian purchasers of common shares should consult their own legal and
tax advisors with respect to the tax consequences of an investment in the
common shares in their particular circumstances and about the eligibility of
the common shares for investment by the purchaser under relevant Canadian
legislation.
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 the Cayman Islands will be passed upon by Maples and Calder, George
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:
. political and economic stability;
. an effective judicial system;
. a favorable tax system;
. the absence of exchange control or currency restrictions; and
. 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.
84
<PAGE>
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.
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 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 (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:
. Judiciary Plaza
450 Fifth Street, N.W.
Room 1024
Washington, D.C. 20549;
. Seven World Trade Center
13th Floor
New York, New York 10048; and
. Northwestern Atrium Center
500 West Madison Street
Suite 1400
Chicago, Illinois 60661-2511.
85
<PAGE>
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.
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.
86
<PAGE>
GARMIN LTD. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Auditors............................................. F-2
Consolidated Balance Sheets at December 26, 1998, December 25, 1999 and
September 23, 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 nine-month periods
ended September 25, 1999 and September 23, 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
nine-month period ended September 23, 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 nine-month
periods ended September 25, 1999 and September 23, 2000 (unaudited)..... F-6
Notes to Consolidated Financial Statements................................. F-8
</TABLE>
F-1
<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.
/s/ Ernst & Young LLP
Ernst & Young LLP
Kansas City, Missouri
February 26, 2000, except for Note 1,
as to which the date is September 22, 2000,
and Note 13, as to which the date is November 6, 2000.
F-2
<PAGE>
GARMIN LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share information)
<TABLE>
<CAPTION>
December 26, December 25, September 23,
1998 1999 2000
------------ ------------ -------------
(unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents............ $ 80,360 $104,079 $135,968
Marketable securities................ 2,176 -- --
Accounts receivable, less allowance
for doubtful accounts of $618 in
1998, $1,116 in 1999 and $1,470 in
2000.............................. 17,560 35,908 41,742
Inventories.......................... 37,974 51,248 79,578
Deferred income taxes (Note 8)....... 6,570 5,883 6,868
Prepaid expenses and other current
assets (Note 3)................... 704 864 2,251
-------- -------- --------
Total current assets................ 145,344 197,982 266,407
Property and equipment (Notes 3 and 5):
Land and improvements................ 7,520 22,548 21,909
Building and improvements............ 7,810 19,324 24,958
Office furniture and equipment....... 6,594 7,575 8,626
Manufacturing equipment.............. 12,235 15,313 14,197
Engineering equipment................ 4,466 5,116 9,157
Vehicles............................. 209 230 249
-------- -------- --------
38,834 70,106 79,096
Accumulated depreciation and
amortization...................... 10,083 14,255 18,225
-------- -------- --------
28,751 55,851 60,871
Deferred income taxes (Note 8)......... 223 75 57
Restricted cash (Note 5)............... -- -- 9,085
Intangible assets...................... 214 737 3,684
-------- -------- --------
Total assets......................... $174,532 $254,645 $340,104
======== ======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable..................... $ 9,334 $ 15,402 $ 23,014
Salaries and benefits payable........ 2,904 2,928 3,195
Accrued warranty costs............... 3,114 4,429 6,950
Accrued sales program costs.......... 662 2,330 1,628
Litigation settlement (Note 12)...... 2,500 -- --
Other accrued expenses............... 1,872 2,567 1,985
Income taxes payable................. 8,498 4,580 9,433
Notes payable (Note 3)............... 363 5 --
-------- -------- --------
Total current liabilities........... 29,247 32,241 46,205
Long-term debt (Note 5)................ 9,345 27,715 47,907
Other liabilities...................... -- 90 97
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--
55,555,555 in 1998 and 100,000,000
in 1999 and 2000.................. 555 1,000 1,000
Additional paid-in capital........... 17,585 29,593 29,593
Retained earnings (Notes 5 and 6).... 132,247 176,431 225,529
Accumulated other comprehensive
loss.............................. (14,447) (12,425) (10,227)
-------- -------- --------
Total stockholders' equity.......... 135,940 194,599 245,895
-------- -------- --------
Total liabilities and stockholders'
equity........................... $174,532 $254,645 $340,104
======== ======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE>
GARMIN LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share information)
<TABLE>
<CAPTION>
Year ended Nine months ended
-------------------------------------- ---------------------------
December 31, December 26, December 25, September 25, September 23,
1997 1998 1999 1999 2000
------------ ------------ ------------ ------------- -------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Net sales............... $160,280 $169,030 $232,586 $164,536 $260,079
Cost of goods sold...... 93,620 82,787 105,654 76,430 119,110
-------- -------- -------- -------- --------
Gross profit............ 66,660 86,243 126,932 88,106 140,969
Selling, general and
administrative
expenses............. 17,102 24,680 27,063 19,195 23,678
Research and development
expense.............. 12,657 14,876 17,339 12,476 15,474
-------- -------- -------- -------- --------
29,759 39,556 44,402 31,671 39,152
-------- -------- -------- -------- --------
Operating income........ 36,901 46,687 82,530 56,435 101,817
Other income (expense):
Interest income....... 2,598 3,512 4,327 2,692 4,427
Interest expense...... (897) (545) (577) (431) (2,325)
Foreign currency...... 9,967 (2,171) (1,469) (1,138) (1,398)
Other................. 303 37 (679) (425) (353)
-------- -------- -------- -------- --------
11,971 833 1,602 698 351
-------- -------- -------- -------- --------
Income before income
taxes................ 48,872 47,520 84,132 57,133 102,168
Income tax provision
(benefit):
Current............... 12,841 16,608 19,130 11,400 25,083
Deferred.............. (61) (4,254) 835 2,158 (967)
-------- -------- -------- -------- --------
12,780 12,354 19,965 13,558 24,116
-------- -------- -------- -------- --------
Net income.............. $ 36,092 $ 35,166 $ 64,167 $ 43,575 $ 78,052
======== ======== ======== ======== ========
Basic and diluted net
income per share..... $ 0.37 $ 0.35 $ 0.64 $ 0.44 $ 0.78
======== ======== ======== ======== ========
Weighted-average common
shares outstanding... 98,876 99,624 100,000 100,000 100,000
======== ======== ======== ======== ========
</TABLE>
See accompanying notes.
F-4
<PAGE>
GARMIN LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except per share data)
<TABLE>
<CAPTION>
Accumulated
Common Stock Additional Other
--------------- Paid-In Retained Comprehensive
Shares Dollars Capital Earnings Income (Loss) Total
------- ------- ---------- -------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1996................. 39,442 $ 394 $12,984 $ 75,071 $ (2,403) $ 86,046
Net income............ -- -- -- 36,092 -- 36,092
Translation
adjustment......... -- -- -- -- (14,305) (14,305)
--------
Comprehensive
income............ 21,787
Cash dividend ($0.09
per share)......... -- -- -- (3,629) -- (3,629)
20% stock dividend.... 7,889 79 2,459 (2,538) -- --
------- ------ ------- -------- -------- --------
Balance at December 31,
1997................. 47,331 473 15,443 104,996 (16,708) 104,204
Net income............ -- -- -- 35,166 -- 35,166
Translation
adjustment......... -- -- -- -- 2,261 2,261
--------
Comprehensive
income............ 37,427
Cash dividend ($0.12
per share)......... -- -- -- (6,000) -- (6,000)
15% stock dividend.... 7,100 71 1,844 (1,915) -- --
Issuance of common
stock.............. 1,124 11 298 -- -- 309
------- ------ ------- -------- -------- --------
Balance at December 26,
1998................. 55,555 555 17,585 132,247 (14,447) 135,940
Net income............ -- -- -- 64,167 -- 64,167
Translation
adjustment......... -- -- -- -- 2,022 2,022
--------
Comprehensive
income............ 66,189
Cash dividend ($0.13
per share)......... -- -- -- (7,530) -- (7,530)
80% stock dividend.... 44,445 445 12,008 (12,453) -- --
------- ------ ------- -------- -------- --------
Balance at December 25,
1999................. 100,000 1,000 29,593 176,431 (12,425) 194,599
Net income
(unaudited)........ -- -- -- 78,052 -- 78,052
Translation adjustment
(unaudited)........ -- -- -- -- 2,198 2,198
--------
Comprehensive income
(unaudited)....... 80,250
Cash dividend ($0.29
per share)
(unaudited)........ -- -- -- (28,954) -- (28,954)
------- ------ ------- -------- -------- --------
Balance at September 23,
2000................. 100,000 $1,000 $29,593 $225,529 $(10,227) $245,895
======= ====== ======= ======== ======== ========
</TABLE>
See accompanying notes.
F-5
<PAGE>
GARMIN LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year ended Nine months ended
-------------------------------------- ---------------------------
December 31, December 26, December 25, September 25, September 23,
1997 1998 1999 1999 2000
------------ ------------ ------------ ------------- -------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Operating Activities
Net income.............. $36,092 $35,166 $ 64,167 $43,575 $ 78,052
Adjustments to reconcile
net income to net
cash provided by
operating activities:
Depreciation.......... 3,225 4,308 5,554 4,020 5,194
Amortization.......... 53 30 18 15 15
Loss on disposal of
property and
equipment.......... 5 80 136 4 709
Provision for doubtful
accounts........... 287 414 825 171 241
Deferred income
taxes.............. (61) (4,254) 835 2,158 (967)
Net sale (purchase) of
trading
securities......... (1,034) (1,236) 2,173 2,156 --
Changes in operating
assets and
liabilities:
Accounts receivable.. (6,173) 1,054 (19,212) (9,590) (6,665)
Inventories.......... 2,729 (2,905) (12,917) 574 (27,942)
Prepaid expenses and
other current
assets............ (512) 1,481 (508) (904) (933)
Accounts payable..... 4,001 (611) 5,888 5,167 7,504
Accrued expenses..... (191) 1,057 1,278 (2,237) 1,603
Income taxes
payable........... 1,447 1,964 (3,895) (11,069) 4,854
------- ------- -------- ------- --------
Net cash provided by
operating
activities........... 39,868 36,548 44,342 34,040 61,665
Investing activities
Purchases of property
and equipment........ (2,667) (8,280) (32,195) (11,048) (16,408)
Proceeds from sale of
property and
equipment............ 1 44 69 64 5,854
Payment of lease
termination fee...... -- (1,179) -- -- --
Increase in restricted
cash................. -- -- -- -- (9,085)
Other................... 51 76 (176) 597 (3,397)
------- ------- -------- ------- --------
Net cash used in
investing
activities........... (2,615) (9,339) (32,302) (10,387) (23,036)
Financing activities
Dividends............... (3,629) (6,000) (7,530) (7,530) (28,954)
Principal payments on
capital lease
obligations.......... (987) (5,166) -- -- --
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) (334) (5)
Proceeds from issuance
of Industrial Revenue
Bonds ............... -- -- -- -- 20,000
------- ------- -------- ------- --------
Net cash provided by
(used in) financing
activities........... (3,408) (12,126) 10,153 (7,864) (8,959)
Effect of exchange rate
changes on cash...... (6,675) 1,034 1,526 (1,505) 2,219
------- ------- -------- ------- --------
Net increase in cash and
cash equivalents..... 27,170 16,117 23,719 14,284 31,889
Cash and cash
equivalents at
beginning of period.. 37,073 64,243 80,360 80,360 104,079
------- ------- -------- ------- --------
Cash and cash
equivalents at end of
period............... $64,243 $80,360 $104,079 $94,644 $135,968
======= ======= ======== ======= ========
</TABLE>
F-6
<PAGE>
GARMIN LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In thousands)
<TABLE>
<CAPTION>
Year ended Nine months ended
-------------------------------------- ---------------------------
December 31, December 26, December 25, September 25, September 23,
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
taxes................ $12,865 $15,048 $28,733 $21,934 $15,035
======= ======= ======= ======= =======
Cash received during the
period from income
tax refunds.......... $ 1,464 $ 399 $ -- $ -- $ 12
======= ======= ======= ======= =======
Cash paid during the
period for interest.. $ 921 $ 565 $ 558 $ 267 $ 1,477
======= ======= ======= ======= =======
Supplemental disclosures
of noncash investing
and financing
activities
Additions to property
and equipment through
the issuance of
capital lease
obligations.......... $ 1,563 $ 305 $ -- $ -- $ --
======= ======= ======= ======= =======
Issuance of stock
dividends............ $ 2,538 $ 1,915 $12,453 $12,453 $ --
======= ======= ======= ======= =======
</TABLE>
See accompanying notes.
F-7
<PAGE>
GARMIN LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information pertaining to the nine months ended September 25, 1999 and
September 23, 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 100,000,000 common shares of
Garmin Ltd. at a par value of $0.01 or an aggregate value of $1,000. As such,
the exchange of shares in this reorganization between GARMIN and the newly
formed holding company, Garmin Ltd., completed on September 22, 2000, has been
accounted for at historical cost similar to that in pooling-of-interests
accounting. 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 did not 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 System-enabled products and other 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 nine
months ended September 23, 2000, Garmin Realty LLC was incorporated to hold
certain real estate.
F-8
<PAGE>
GARMIN LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information pertaining to the nine months ended September 25, 1999 and
September 23, 2000 is unaudited)
(Dollars in Thousands)
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 September 23, 2000 and for the nine-month
periods ended September 25, 1999 and September 23, 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 nine-month period ended September 23, 2000 are
not necessarily indicative of the results of operations that may be expected
for the entire year.
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.
F-9
<PAGE>
GARMIN LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information pertaining to the nine months ended September 25, 1999 and
September 23, 2000 is unaudited)
(Dollars in Thousands)
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 $(1,138) and $(1,398) for the nine months ended September 25,
1999 and September 23, 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.
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:
<TABLE>
<CAPTION>
December 26, December 25, September 23,
1998 1999 2000
------------ ------------ -------------
(unaudited)
<S> <C> <C> <C>
Raw materials........................... $18,663 $30,492 $38,418
Work-in-process......................... 4,264 3,710 12,048
Finished goods.......................... 16,908 18,773 31,169
Inventory reserves...................... (1,861) (1,727) (2,057)
------- ------- -------
$37,974 $51,248 $79,578
======= ======= =======
</TABLE>
F-10
<PAGE>
GARMIN LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information pertaining to the nine months ended September 25, 1999 and
September 23, 2000 is unaudited)
(Dollars in Thousands)
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:
<TABLE>
<S> <C>
Buildings and improvement.................................... 8-55 years
Office furniture and equipment............................... 3-8 years
Manufacturing and engineering equipment...................... 3-8 years
Vehicles..................................................... 3 years
</TABLE>
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.
F-11
<PAGE>
GARMIN LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information pertaining to the nine months ended September 25, 1999 and
September 23, 2000 is unaudited)
(Dollars in Thousands)
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
$81,130 at December 26, 1998, December 25, 1999 and September 23, 2000,
respectively, because such earnings are intended to be reinvested in these
subsidiaries indefinitely.
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.
F-12
<PAGE>
GARMIN LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information pertaining to the nine months ended September 25, 1999 and
September 23, 2000 is unaudited)
(Dollars in Thousands)
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. These rebates and
incentives are recorded as reductions to net sales in the accompanying
consolidated statements of income.
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 $6,307 and $9,562 for the nine months ended September 25,
1999 and September 23, 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
$12,476 and $15,474 for the nine months ended September 25, 1999 and September
23, 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.
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
F-13
<PAGE>
GARMIN LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information pertaining to the nine months ended September 25, 1999 and
September 23, 2000 is unaudited)
(Dollars in Thousands)
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 and December 25, 1999. 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 September 23, 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.
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 $18,562 at September 23, 2000, based on period end
exchange rates) is due in 60 equal payments of
F-14
<PAGE>
GARMIN LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information pertaining to the nine months ended September 25, 1999 and
September 23, 2000 is unaudited)
(Dollars in Thousands)
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:
<TABLE>
<S> <C>
2000............................................................ $ --
2001............................................................ 262
2002............................................................ 3,254
2003............................................................ 3,460
2004............................................................ 3,679
Thereafter...................................................... 17,060
-------
$27,715
=======
</TABLE>
During the nine months ended September 23, 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 $10,915 during the nine-months ended September 23,
2000. Unexpended bond proceeds in this restricted cash account amounted to
$9,085 at September 23, 2000.
At September 23, 2000, outstanding principal under the 2000 Bonds totaled
$20,000. Interest on the 2000 Bonds is payable monthly at a variable interest
rate (6.59% at September 23, 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.
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.
F-15
<PAGE>
GARMIN LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information pertaining to the nine months ended September 25, 1999 and
September 23, 2000 is unaudited)
(Dollars in Thousands)
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:
<TABLE>
<S> <C>
2000............................................................ $ 140
2001............................................................ 140
2002............................................................ 140
2003............................................................ 140
2004............................................................ 140
Thereafter...................................................... 356
------
Total minimum lease payments.................................. $1,056
======
</TABLE>
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.
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.
F-16
<PAGE>
GARMIN LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information pertaining to the nine months ended September 25, 1999 and
September 23, 2000 is unaudited)
(Dollars in Thousands)
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 Nine Months Ended
-------------------------------------- ---------------------------
December 31, December 26, December 25, September 25, September 23,
1997 1998 1999 1999 2000
------------ ------------ ------------ ------------- -------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Federal:
Current... $ 2,187 $ 2,635 $ 8,883 $ 6,286 $10,907
Deferred.. (365) (555) (710) (329) (1,348)
------- ------- ------- ------- -------
1,822 2,080 8,173 5,957 9,559
State:
Current... 297 304 1,332 1,033 2,032
Deferred.. (15) (63) (85) (75) (277)
------- ------- ------- ------- -------
282 241 1,247 958 1,755
Foreign:
Current... 10,357 13,669 8,915 4,081 12,144
Deferred.. 319 (3,636) 1,630 2,562 658
------- ------- ------- ------- -------
10,676 10,033 10,545 6,643 12,802
------- ------- ------- ------- -------
Total... $12,780 $12,354 $19,965 $13,558 $24,116
======= ======= ======= ======= =======
</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:
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
-------------------------------------- ---------------------------
December 31, December 26, December 25, September 25, September 23,
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 $19,997 $35,759
State income tax
expense, net of
federal tax effect... 183 157 810 644 1,253
Foreign tax rate
differential......... (4,104) (3,853) (5,604) (3,592) (6,620)
Taiwan tax incentives
and credits.......... (224) (1,405) (3,817) (2,648) (6,139)
Other, net.............. (180) 823 (870) (843) (137)
------- ------- ------- ------- -------
Income tax expense...... $12,780 $12,354 $19,965 $13,558 $24,116
======= ======= ======= ======= =======
</TABLE>
F-17
<PAGE>
GARMIN LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information pertaining to the nine months ended September 25, 1999 and
September 23, 2000 is unaudited)
(Dollars in Thousands)
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 $38,161 and
$69,248 for the nine months ended September 25, 1999 and September 23, 2000,
respectively. The tax incentives and credits received from Taiwan included in
the table above reflect $0.00, $0.01 and $0.04 per weighted average common
share outstanding for the years ended December 31, 1997, December 26, 1998 and
December 25, 1999, respectively, and $0.03 and $0.06 per share for the nine
months ended September 25, 1999 and September 23, 2000, respectively. The
Company currently expects to benefit from the incentives and credits being
offered by Taiwan through 2004, at which time these tax benefits expire.
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:
<TABLE>
<CAPTION>
December 26, December 25, September 23,
1998 1999 2000
------------ ------------ -------------
(unaudited)
<S> <C> <C> <C>
Deferred tax assets:
Product warranty accruals............ $ 953 $1,464 $2,711
Allowance for doubtful accounts........ 237 411 504
Inventory carrying value............... 4,613 3,606 3,206
Vacation accrual..................... 295 335 398
Depreciation........................... 321 75 57
Unrealized foreign currency losses..... 432 28 29
Other.................................. 10 57 38
------ ------ ------
6,861 5,976 6,943
Deferred tax liabilities:
Unrealized foreign currency gains...... 18 18 18
Other.................................. 50 -- --
------ ------ ------
68 18 18
------ ------ ------
Net deferred tax assets................ $6,793 $5,958 $6,925
====== ====== ======
</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
F-18
<PAGE>
GARMIN LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information pertaining to the nine months ended September 25, 1999 and
September 23, 2000 is unaudited)
(Dollars in Thousands)
based on the nontaxable PSA Municipal Swap Index and amounted to 4.15%, 4.80%
and 4.45% at December 26, 1998, December 25, 1999 and September 23, 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 nine months ended September 23, 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 September 23, 2000. GII's fixed interest rate under the
swap agreement is 7.26% at September 23, 2000 compared to the counterparty's
floating rate of 6.59% at the same date. The counterparty's floating rate is
based on the bank's Taxable Low Floater Rate.
The gain and loss on interest rate swap agreements was immaterial for all
periods presented.
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 September 23, 2000
---------------- ----------------- ----------------------
Carrying Fair Carrying Fair Carrying
Amount Value Amount 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 $135,968 $135,968
Restricted cash......... -- -- -- -- 9,085 9,085
Notes payable........... 363 363 5 5 -- --
Long-term debt:
Term loan............. -- -- 18,370 18,370 18,562 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.
F-19
<PAGE>
GARMIN LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information pertaining to the nine months ended September 25, 1999 and
September 23, 2000 is unaudited)
(Dollars in Thousands)
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 retail outlets and certain aircraft manufacturers.
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.......................... 33,997 14,875 48,872
Assets:
Accounts receivable............................... 13,863 4,291 18,154
Inventory......................................... 24,375 7,545 31,920
<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.......................... 37,936 9,584 47,520
Assets:
Accounts receivable............................... 14,071 3,489 17,560
Inventory......................................... 25,528 12,446 37,974
</TABLE>
F-20
<PAGE>
GARMIN LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information pertaining to the nine months ended September 25, 1999 and
September 23, 2000 is unaudited)
(Dollars in Thousands)
<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................ 60,449 23,683 84,132
Assets:
Accounts receivable..................... 26,117 9,791 35,908
Inventory............................... 31,093 20,155 51,248
<CAPTION>
Nine months ended September 25,
1999
------------------------------------
Consumer Aviation Total
----------- ----------- -----------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C>
Sales to external customers............... $121,125 $43,411 $164,536
Income before income taxes................ 40,188 16,945 57,133
Assets:
Accounts receivable..................... 18,500 6,631 25,131
Inventory............................... 31,986 11,464 43,450
<CAPTION>
Nine months ended September
23, 2000
------------------------------------
Consumer Aviation Total
----------- ----------- -----------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C>
Sales to external customers............... $173,322 $86,757 $260,079
Income before income taxes................ 63,845 38,323 102,168
Assets:
Accounts receivable..................... 27,818 13,924 41,742
Inventory............................... 53,381 26,197 79,578
</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
------------- ------- ------- --------
<S> <C> <C> <C> <C>
December 31, 1997
Sales to external customers............. $110,591 $ 9,112 $40,577 $160,280
Long-lived assets....................... 12,326 10,717 204 23,247
<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
<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>
F-21
<PAGE>
GARMIN LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information pertaining to the six months ended September 25, 1999 and
September 23, 2000 is unaudited)
(Dollars in Thousands)
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.
13. Pending Public Offering of Common Stock
During September 2000, the Company filed a registration statement with the
Securities and Exchange Commission for an underwritten initial public offering
of 10,500,000 shares of common stock, 7,875,000 shares of which are to be
offered by the Company (the "Offering"). The Board of Directors approved a
1.12379256 for 1 stock split of the Company's common shares, effected through a
stock dividend on November 6, 2000. All share and per share information
included in the accompanying consolidated financial statements has been
adjusted to give retroactive effect to the common stock split.
F-22
<PAGE>
[Graphics on inside back cover page of prospectus]
<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
[GARMIN LOGO]
10,500,000 Common Shares
----------------
PROSPECTUS
----------------
Merrill Lynch & Co.
Credit Suisse First Boston
----------------
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.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Until January 2, 2001 (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>
10,500,000 Shares
[GARMIN LOGO]
Common Shares
1,575,000 common shares are initially being offered outside the United States
and Canada by the international managers and 8,925,000 shares are initially
being concurrently offered in the United States and Canada by the U.S.
underwriters. The offering price and underwriting discounts and commissions for
both offerings are identical.
We are selling 7,875,000 common shares and the selling shareholders are
selling 2,625,000 common shares.
Prior to this offering, there has been no public market for our common
shares. The initial public offering price of our common shares is $14.00 per
share. Our common shares have been approved for listing on The Nasdaq Stock
Market's National Market under the symbol "GRMN."
Investing in the common shares involves risks that are described in the "Risk
Factors" section beginning on page 7 of this prospectus.
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Public offering price................................... $14.00 $147,000,000
Underwriting discount................................... $ 0.98 $ 10,290,000
Proceeds, before expenses, to Garmin Ltd................ $13.02 $102,532,500
Proceeds, before expenses, to the selling shareholders.. $13.02 $ 34,177,500
</TABLE>
The international managers may also purchase up to an additional 55,067
shares from Garmin Ltd., and up to an additional 181,183 shares from the
selling shareholders, at the public offering price, less the underwriting
discount, within 30 days from the date of this prospectus to cover over-
allotments. The U.S. underwriters may similarly purchase up to an additional
312,044 shares from Garmin Ltd. and up to an additional 1,026,706 shares from
the selling shareholders.
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.
The shares will be ready for delivery on or about December 13, 2000.
Merrill Lynch International Credit Suisse First Boston
----------------
Salomon Smith Barney
The date of this prospectus is December 8, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Special Note Regarding Forward-
Looking Statements and Certain
Other Information................. ii
Prospectus Summary................... 1
Risk Factors......................... 7
Conventions.......................... 18
Use of Proceeds...................... 19
Dividend Policy...................... 19
Dilution............................. 20
Capitalization....................... 21
Selected Consolidated Financial and
Other Data........................ 22
Management's Discussion and Analysis
of Financial Condition and Results
of Operations..................... 24
Reorganization....................... 36
</TABLE>
<TABLE>
<CAPTION>
Page
<S> <C>
Business............................. 37
Management........................... 53
Certain Relationships and Related
Transactions...................... 61
Principal and Selling Shareholders... 62
Description of Share Capital......... 65
Shares Eligible for Future Sale...... 69
Tax Considerations................... 71
Underwriting......................... 78
Legal Matters........................ 84
Experts.............................. 84
Enforceability of Civil Liabilities.. 84
Additional Information............... 85
Index to Consolidated Financial
Statements........................ F-1
</TABLE>
----------------
GARMIN, the GARMIN logo, the GARMIN globe design, the GARMIN "swoosh"
design, STREETPILOT, ETREX, TRACBACK, DCG, GPS II, GPS III, GPSCOM, PHASETRAC
12, TRACPAK, G CHART, GPS 40, PERSONAL NAVIGATOR, GUIDANCE BY GARMIN, MULTITRAC
8, AUTOLOCATE, QUICKFIX, NAVTALK and SEE-THRU are registered trademarks of
Garmin Corporation, and EMAP, 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.
i
<PAGE>
UNDERWRITING
We intend to offer the common shares outside the U.S. and Canada through
the international managers and in the U.S. and Canada through the U.S.
underwriters. Subject to the terms and conditions of an international purchase
agreement, dated December 8, 2000, the international managers named below, who
are represented by Merrill Lynch International ("Merrill Lynch") and Credit
Suisse First Boston (Europe) Limited ("CSFB") as joint book-running managers,
and concurrently with the sale of 8,925,000 shares to the U.S. underwriters,
have severally agreed to purchase from us and the selling shareholders the
respective number of common shares set forth opposite their names below.
<TABLE>
<CAPTION>
Number of
Shares
<S> <C>
International Managers:
Merrill Lynch International........................................ 616,927
Credit Suisse First Boston (Europe) Limited........................ 616,927
Salomon Brothers International Limited............................. 341,146
---------
Total............................................................ 1,575,000
=========
</TABLE>
We and the selling shareholders have also entered into a U.S. purchase
agreement with the U.S. underwriters for sale of the common shares in the U.S.
and Canada for whom Merrill Lynch, Pierce, Fenner & Smith Incorporated and
Credit Suisse First Boston Corporation are acting as U.S. representatives.
Subject to the terms and conditions in the U.S. purchase agreement, and
concurrently with the sale of 1,575,000 shares to the international managers
pursuant to the international purchase agreement, we and the selling
shareholders have agreed to sell to the U.S. underwriters, and the U.S.
underwriters severally have agreed to purchase, 8,925,000 shares from us and
the selling shareholders. The initial public offering price per common share
and the total underwriting discount per common share are identical under the
international purchase agreement and the U.S. purchase agreement.
The international managers and the U.S. underwriters have agreed to
purchase all of the common shares sold under the international and U.S.
purchase agreements if any of these common shares are purchased. If an
underwriter defaults, the U.S. and international purchase agreements provide
that the purchase commitments of the nondefaulting underwriters may be
increased or the purchase agreements may be terminated. The closings for the
sale of common shares to be purchased by the international managers and the
U.S. underwriters are conditioned on one another.
The international purchase agreement provides that the obligations of the
several international managers 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 international managers are
obligated to purchase and accept delivery of all the common shares, other than
those common shares covered by the over-allotment option described below, if
they purchase any of the common shares.
We and the selling shareholders have agreed to indemnify the international
managers and the U.S. underwriters against certain liabilities, including
liabilities under the Securities Act, and to contribute to payments that the
international managers and the U.S. underwriters may be required to make in
respect of those liabilities.
78
<PAGE>
The underwriters are offering the common shares, subject to prior sale,
when, as and if issued to and accepted by them, subject to approval of legal
matters by their counsel, including the validity of the common shares, and
other conditions contained in the purchase agreements, such as the receipt by
the underwriters of officer's certificates and legal opinions. The underwriters
reserve the right to withdraw, cancel or modify offers to the public and to
reject orders in whole or in part.
No Public Offering Outside the United States
Other than in the United States, no action has been taken by us or the
international managers that would permit a public offering of the common shares
included in this offering in any jurisdiction that requires action for that
purpose. The common 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 common 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 of our common shares included in this offering in any jurisdiction where
such an offer or a solicitation would not be permitted or legal.
Purchasers of the common shares offered by this prospectus may be required
to pay stamp taxes and other charges in accordance with the laws and practices
of the country of purchase in addition to the offering price on the cover page
of this prospectus.
Commissions and Discounts
The international managers 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 common shares to dealers at
the initial public offering price less a concession not in excess of $0.58 per
share. The international managers may allow, and these dealers may re-allow, a
concession not in excess of $0.10 per share on sales to other dealers. After
the initial offering of the common shares to the public, the international
managers may change the public offering price and such concessions.
The following table shows the public offering price, underwriting discount
and proceeds before expenses to us and the selling shareholders. The
information assumes either no exercise or full exercise by the international
managers and the U.S. underwriters of their over-allotment options.
<TABLE>
<CAPTION>
Per Share Without Option With Option
--------- -------------- ------------
<S> <C> <C> <C>
Public offering price................... $14.00 $147,000,000 $169,050,000
Underwriting discount................... $ 0.98 $ 10,290,000 $ 11,833,500
Proceeds, before expenses, to Garmin
Ltd.................................. $13.02 $102,532,500 $107,312,285
Proceeds, before expenses, to the
selling shareholders................. $13.02 $ 34,177,500 $ 49,904,215
</TABLE>
The expenses of the offering, not including the underwriting discount, are
estimated at $0.7 million and are payable by us. The underwriters have agreed
to pay certain of our expenses.
79
<PAGE>
Over-allotment Option
We and the selling shareholders have granted to the international managers
an option, exercisable for 30 days from the date of this prospectus, to
purchase up to 236,250 additional common shares at the initial public offering
price less the underwriting fees. The international managers may exercise this
option solely to cover over-allotments, if any, made in connection with this
offering. To the extent that the international managers exercise this option,
each international manager will become obligated, subject to certain
conditions, to purchase a number of additional shares proportionate to such
international manager's initial purchase commitment.
We and the selling shareholders have also granted options to the U.S.
underwriters, exercisable for 30 days from the date of this prospectus, to
purchase up to 1,338,750 additional common shares to cover any over-allotments
on terms similar to those granted to the international managers.
Intersyndicate Agreement
The international managers and the U.S. underwriters have entered into an
intersyndicate agreement that provides for the coordination of their
activities. Under the intersyndicate agreement, the international managers and
the U.S. underwriters may sell common shares to each other for purposes of
resale at the initial public offering price, less an amount not greater than
the selling concession. Under the intersyndicate agreement, the international
managers and any dealer to whom they sell shares will not offer to sell or sell
shares to persons who are U.S. or Canadian persons or to persons they believe
intend to resell to persons who are U.S. or Canadian persons, except in the
case of transactions under the intersyndicate agreement. Similarly, the U.S.
underwriters and any dealer to whom they sell shares will not offer to sell or
sell shares to non-U.S. persons or non-Canadian persons or to persons they
believe intend to resell to non-U.S. or non-Canadian persons, except in the
case of transactions under the intersyndicate agreement.
No Sales of Similar Securities
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
Merrill Lynch and CSFB:
. 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 common shares or any securities convertible
into or exercisable or exchangeable for common shares; or
. enter into any swap or other arrangement that transfers all or a
portion of the economic consequences associated with the ownership of
any common shares regardless of whether a covered transaction is to be
settled by the delivery of common shares or such other securities, in
cash or otherwise;
except that:
. we may without such consent grant options, none of which will be
exercisable prior to 180 days after the date of this prospectus, and
sell common shares pursuant to our 2000 Equity
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Incentive Plan, our Directors Plan, our Employee Stock Purchase Plan and
Garmin International, Inc.'s Savings and Profit Sharing Plan;
. we may without such consent issue equity shares in connection with any
bona fide business acquisition of or by Garmin Ltd. (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 Merrill Lynch and CSFB, they will be bound by the lock-up
restrictions described above in this paragraph for the remainder of
such 180-day period; and
. our executive officers and directors, the selling shareholders and our
other shareholders may offer, sell, assign or otherwise transfer common
shares to family trusts provided those trusts agree to be bound by the
lock-up restrictions described above.
In addition, during this period, we have also agreed not to file any
registration statement (other than registration statements 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 Merrill Lynch and CSFB.
Reserved Shares
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.
Quotation on the Nasdaq National Market
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 U.S. underwriters. The factors to be considered in
determining the initial public offering price include:
. the history of and the prospects for the industry in which we compete;
. our past and present operations;
. our historical results of operations;
. our prospects for future earnings;
. the recent market prices of securities of generally comparable
companies; and
. the general condition of the securities markets at the time of the
offering.
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An active trading market for the common shares may not develop. It is also
possible that after the offering the common shares will not trade in the public
market at or above the initial public offering price.
Our common shares have been approved for listing on the Nasdaq National
Market under the symbol "GRMN."
The international managers have informed us that they do not expect
discretionary sales to exceed 5% of the common shares being offered.
Price Stabilization, Short Positions and Penalty Bids
In connection with this offering, certain U.S. underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
common shares. Specifically, the U.S. 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 U.S. 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 U.S. underwriters' over-allotment option
to purchase additional common 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 U.S.
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 U.S. underwriters may close out any
covered short position by either exercising their over-allotment option to
purchase additional shares from us or purchasing common shares in the open
market. The U.S. underwriters must close out any naked short position by
purchasing common shares in the open market. In determining the source of
common shares to close out the covered short position, the U.S. underwriters
will consider, among other things, the price of common shares available for
purchase in the open market as compared to the price at which they may purchase
common shares from us through the over-allotment option. The U.S. 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 Merrill Lynch and/or CSFB
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 U.S.
underwriters are not required to engage in these activities, and may end any of
these activities at any time.
UK Selling Restrictions
Each international manager has agreed that:
. it has not offered or sold and, prior to the expiry of the period of six
months from the date hereof, will not offer or sell any common shares to
persons in the United Kingdom, except to
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persons whose ordinary activities involve them in acquiring, holding,
managing or disposing of investments (as principal or agent) for the
purposes of their businesses or otherwise in circumstances which do not
constitute an offer to the public in the United Kingdom within the meaning
of the Public Offers of Securities Regulations 1995 of the United Kingdom
(as amended);
. it has complied and will comply with all applicable provisions of the
Financial Services Act 1986 with respect to anything done by it in
relation to the common shares in, from or otherwise involving the United
Kingdom; and
. it has only issued or passed on and will only issue or pass on in the
United Kingdom any document received by it in connection with the
issuance of common shares to a person who is of a kind described in
Article 11(3) (other than Article 11(3)(c)) of the Financial Services Act
1986 (Investment Advertisements) (Exemptions) Order 1996 as amended by
the Financial Services Act 1986 (Investment Advertisements) (Exemptions)
Order 1997 or is a person to whom such document may otherwise lawfully be
issued or passed on.
Japan Selling Restrictions
The common shares have not been and will not be registered under the
Securities and Exchange Law of Japan. Accordingly, each underwriter has
represented and agreed that it has not, directly or indirectly, offered or sold
and will not, directly or indirectly offer or sell, common shares in Japan or
to any person resident in Japan for Japanese securities law purposes, including
any corporation or other entity organized under the laws of Japan, except
pursuant to an exemption from the registration requirements of, and otherwise
in compliance with, the Securities and Exchange Law of Japan.
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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 the Cayman Islands will be passed upon by Maples and Calder, George
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:
. political and economic stability;
. an effective judicial system;
. a favorable tax system;
. the absence of exchange control or currency restrictions; and
. 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
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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.
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 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 (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:
. Judiciary Plaza
450 Fifth Street, N.W.
Room 1024
Washington, D.C. 20549;
. Seven World Trade Center
13th Floor
New York, New York 10048; and
. 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.
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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.
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[GARMIN LOGO]
10,500,000 Common Shares
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PROSPECTUS
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Credit Suisse First Boston
Merrill Lynch International
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Salomon Smith Barney
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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.
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Until January 2, 2001 (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.
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