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United States
Securities and Exchange Commission
Washington, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE
       SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 27, 2003

or

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
      SECURITIES EXCHANGE ACT OF 1934

For the transition period from______ to_________

Commission file number 0-31983
_________________

GARMIN LTD.
(Exact name of Company as specified in its charter)

        Company’s telephone number, including area code:(345) 946-5203

No Changes

        (Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the Company (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Company was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [x] NO [ ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES [x] NO [ ]

Number of shares outstanding of the Company's common shares as of November 7, 2003:
Common Shares, $.01 par value – 108,065,397.

Garmin Ltd.
Form 10-Q
Quarter Ended September 27, 2003

Table of Contents

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Garmin Ltd.
Form 10-Q
Quarter Ended September 27, 2003

Part I – Financial Information

Item 1. Condensed Consolidated Financial Statements (Unaudited)

Introductory Comments

        The Condensed Consolidated Financial Statements of Garmin Ltd. (“Garmin” or the “Company”) included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the United States Securities and Exchange Commission. Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to enable a reasonable understanding of the information presented. These Condensed Consolidated Financial Statements should be read in conjunction with the audited financial statements and the notes thereto for the year ended December 28, 2002. Additionally, the Condensed Consolidated Financial Statements should be read in conjunction with Item 2 of Management’s Discussion and Analysis of Financial Condition and Results of Operations included in this Form 10-Q.

        The results of operations for the 13- and 39-week periods ended September 27, 2003 are not necessarily indicative of the results to be expected for the full year 2003.

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Garmin Ltd. And Subsidiaries
Condensed Consolidated Balance Sheets(In
thousands, except share information)

   See accompanying notes.

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Garmin Ltd. And Subsidiaries
Condensed Consolidated Statements of Income (Unaudited)
(In thousands, except per share information)

See accompanying notes.

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Garmin Ltd. And Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)

See accompanying notes.

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Garmin Ltd. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

September 27, 2003
(In thousands, except share and per share information)

1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the 13- and 39-week period ended September 27, 2003 are not necessarily indicative of the results that may be expected for the year ended December 27, 2003.

The condensed consolidated balance sheet at December 28, 2002 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for completed financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 28, 2002.

The Company’s fiscal year is based on a 52-53 week period ending on the last Saturday of the calendar year. Therefore the financial results of certain fiscal years, and the associated 14-week quarters, will not be exactly comparable to the prior and subsequent 52-week fiscal years and the associated quarters having only 13 weeks. The quarters ended September 27, 2003 and September 28, 2002 both contain operating results for 13 weeks.

2. Inventories

The components of inventories consist of the following:

3. Long Term Debt

During 2000, Garmin International Inc. entered into an 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. During the second quarter of 2003, the Company retired this debt by purchasing the bonds on its own account, so at September 27, 2003, outstanding principal under the 2000 Bonds was $0.

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4. Earnings and Dividends Per Share

The following table sets forth the computation of basic and diluted net income per share (in thousands, except per share information):

There were 2,500 dilutive options for the 13-week period ended September 27, 2003. There were 12,148 dilutive options for the 39-week period ended September 2003.

On July 23, 2003 the Board of Directors of the Company approved and declared a $0.50 per share dividend payable to common shareholders of record on December 1, 2003 and this amount was accrued for at September 27, 2003.

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5. Comprehensive Income

Comprehensive income is comprised of the following:

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6. Segment Information

Revenues and income before income taxes for each of the Company’s reportable segments are presented below:

Revenues and long-lived assets (property and equipment) by geographic area are as follows for the 39-week periods ended September 27, 2003 and September 28, 2002:

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7. Stock Compensation Plans

Accounting for Stock-Based Compensation

        At September 27, 2003, the Company has two stock-based employee compensation plans. The Company accounts for those plans under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. No stock-based employee compensation cost is reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation.

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2000 Non-employee Directors’ Option Plan

        In October 2000, the stockholders adopted a stock option plan for non-employee directors (the Directors Plan) providing for grants of options for up to 50,000 common shares of the Company’s stock. The term of each award is ten years. All awards vest evenly over a three-year period.

2000 Equity Incentive Plan

        Also in October 2000, the stockholders adopted an equity incentive plan (the Plan) providing for grants of incentive and nonqualified stock options and “other” stock compensation awards to employees of the Company and its subsidiaries, pursuant to which up to 3,500,000 shares of common stock are available for issuance. The stock options generally vest over a period of five years or as otherwise determined by the Board of Directors or the Compensation Committee and generally expire ten years from the date of grant, if not exercised. Option activity under the Plan during 2003 and 2002 is summarized below. There have been no “other” stock compensation awards granted under the Plan.

        A summary of the Company’s stock option activity and related information under the Plan and the Directors’ Plan for the period ended September 27, 2003 and years ended December 28, 2002 and December 29, 2001 is provided below:

        There were 2,500 and 1,000 options granted during the 13-week periods ended September 27, 2003 and September 28, 2002, respectively.

        The weighted-average remaining contract life for options outstanding at September 27, 2003 is approximately 7.9 years. Options outstanding at September 27, 2003 have exercise prices ranging from $14.00 to $49.35. At September 27, 2003, options to purchase 331,213 shares are exercisable.

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8. Warranty Reserves

The Company’s products sold are generally covered by a warranty for periods ranging from one to two years. The Company’s estimate of costs to service its warranty obligations are based on historical experience and expectation of future conditions and are recorded as a liability on the balance sheet. The following reconciliation provides an illustration of changes in the aggregate warranty reserve.

9. Garmin AT Acquisition

On August 22, 2003, Garmin International, Inc., a subsidiary of Garmin Ltd., acquired all of the outstanding capital stock of UPS Aviation Technologies, Inc. for $38 million in cash. UPS Aviation Technologies, headquartered in Salem, Oregon, designs and manufactures multiple lines of communications, navigation and surveillance products for general aviation and air transport customers. UPS Aviation Technologies is known for its innovation in the development of Automatic Dependent Surveillance Broadcast (ADS-B) technology, leading the industry in the application of that technology to enhance flight safety.

The purchase price of the UPS Aviation Technologies Inc. acquisition was preliminarily allocated to the estimated fair values of assets acquired and liabilities assumed based on management’s estimates and third-party appraisals. The excess purchase price over the fair value of the net assets acquired was allocated to goodwill in the amount of $11.4 million. UPS Aviation Technologies, Inc. was subsequently renamed Garmin AT, Inc. by the Company. The results of Garmin AT are included in the financial statements for the period of August 22, 2003 to September 27, 2003.

The following table summarizes the purchase price allocation and the useful life of intangibles for the aforementioned acquisition (dollars in thousands; life in years):

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The following table is prepared on a pro forma basis for the 13-week and 39-week periods ended September 27, 2003 and September 28, 2002 as though Garmin AT had been acquired as of the beginning of the period presented, after including the estimated impact of certain adjustments such as amortization of intangibles (unaudited; dollars in thousands):

        The discussion set forth below, as well as other portions of this Quarterly Report, contains statements concerning potential future events. Such forward-looking statements are based upon assumptions by our management, as of the date of this Quarterly Report, including assumptions about risks and uncertainties faced by the Company. Readers can identify these forward-looking statements by their use of such verbs as expects, anticipates, believes or similar verbs or conjugations of such verbs. If any of our assumptions prove incorrect or should unanticipated circumstances arise, our actual results could materially differ from those anticipated by such forward-looking statements. The differences could be caused by a number of factors or combination of factors including, but not limited to, those factors identified in the Company’s Annual Report on Form 10-K for the year ended December 28, 2002. This report has been filed with the Securities and Exchange Commission (the “SEC” or the “Commission”) in Washington, D.C. and can be obtained by contacting the SEC’s public reference operations or obtaining it through the SEC’s web site on the World Wide Web at http://www.sec.gov. Readers are strongly encouraged to consider those factors when evaluating any forward-looking statement concerning the Company. The Company will not update any forward-looking statements in this Quarterly Report to reflect future events or developments.

        The information contained in this Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Condensed Consolidated Financial Statements and Notes thereto included in this Form 10-Q and the audited financial statements and notes thereto in the Company’s Annual Report on Form 10-K for the year ended December 28, 2002.

        The Company is a leading worldwide provider of navigation, communications and information devices, most of which are enabled by Global Positioning System, or GPS, technology. We operate in two business segments, the consumer and aviation markets. Both of our segments offer products through our network of independent dealers and distributors. However, the nature of products and types of customers for the two segments vary significantly. As such, the segments are managed separately. Our consumer segment includes portable GPS receivers and accessories for marine, recreation, land and automotive use sold primarily to retail outlets. Our aviation products are portable and panel-mount avionics for Visual Flight Rules and Instrument Flight Rules navigation and are sold primarily to retail outlets and certain aircraft manufacturers.

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Results of Operations

        The following table sets forth our results of operations as a percentage of net sales during the periods shown:

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        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 condensed consolidated statements of income included in Item 1.

Comparison of 13-Weeks Ended September 27, 2003 and September 28, 2002

Net Sales

        Net sales increased $27.8 million, or 25.8%, to $135.6 million for the 13-week period ended September 27, 2003, from $107.8 million for the 13-week period ended September 28, 2002. The increase for the 13-week period ended September 27, 2003 was primarily due to the success of new products that were introduced during the previous twelve months and overall demand for our consumer products associated with strong sales across all product lines during the quarter. Sales from our consumer products accounted for 78.2% of net sales for the third quarter of 2003 compared to 74.4% during the third quarter of 2002. Sales from our aviation products accounted for 21.8% for the third quarter of 2003 compared to 25.6% during the third quarter of 2002. Total consumer and aviation unit sales increased 37% to 517,000 in 2003 from 378,000 in 2002. The higher unit sales volume in the third quarter of fiscal 2003 was primarily attributable to the introduction of new products in the prior twelve months, as well as strength in our existing product lines, which resulted in higher volume in our consumer segment.

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        Net sales for the consumer segment increased $25.7 million, or 32.1%, to $106.0 million for the 13-week period ended September 27, 2003, from $80.2 million for the 13-week period ended September 28, 2002. The increase for the 13-week period ended September 27, 2003 was primarily due to the success of the new consumer products introduced during the prior twelve months and overall demand for our consumer products associated with a strong sales across all product lines during the quarter.

        Net sales for the aviation segment increased $2.1 million to $29.6 million for the 13-week period ended September 27, 2003, when compared with $27.5 million for the 13-week period ended September 28, 2002. Increases in sales were due to revenues from new product releases and $3.0 million of Garmin AT sales, which were offset by a weakened general aviation industry and increased competition within the aviation market for the 13-week period ended September 27, 2003.

Gross Profit

        Gross profit increased $17.7 million, or 29.9%, to $76.7 million for the 13-week period ended September 27, 2003, from $59.1 million for the 13-week period ended September 28, 2002. Increased demand for our products resulted in increased production volumes at our Taiwan factory, resulting in improved manufacturing efficiencies and reduced factory overhead per unit. In addition, reduced raw material component costs, coupled with our vertical integration strategy, resulted in gross margin improvement during the quarter. The increase in gross profit is also attributable to a favorable product mix during the quarter relative to the same quarter in 2002. Gross profit as a percentage of net sales increased to 56.6% for the 13-week period ended September 27, 2003 compared to 54.8% for the 13-week period ended September 28, 2002.

        Gross profit for the consumer segment increased $16.1 million, or 38.1%, to $58.3 million for the 13-week period ended September 27, 2003, from $42.2 million for the 13-week period ended September 28, 2002. This increase is primarily attributable to the increase in consumer revenue, improved manufacturing efficiencies on many of our new products introduced during fiscal year 2002, and a reduction of raw material costs. The increase in gross profit is also attributable to a favorable product mix during the quarter. Gross profit as a percentage of net sales increased to 55.0% during the 13-week period ended September 27, 2003 compared to 52.6% for the 13-week period ended September 28, 2002.

        Gross profit for the aviation segment increased $1.6 million, or 9.3%, to $18.4 million for the 13-week period ended September 27, 2003, from $16.8 million for the 13-week period ended September 28, 2002. Gross profit as a percentage of net sales increased to 62.1% for the 13-week period ended September 27, 2003 from 61.2% for the 13-week period ended September 28, 2002. These improvements were attributable to manufacturing cost savings, a favorable product mix during the quarter, and the $1.5 million Garmin AT gross profit contribution.

Selling, General and Administrative Expenses

        Selling, general and administrative expenses increased $2.0 million, or 17.8%, to $13.0 million (9.6% of net sales) for the 13-week period ended September 27, 2003, from $11.1 million (10.3% of net sales) for the 13-week period ended September 28, 2002. Selling, general and administrative expenses increased $1.6 million, or 18.9%, in the consumer segment and were up $0.4 million in the aviation segment. The increase in expense was driven primarily by increased call center expenses, increased advertising, and Garmin AT selling, general and administrative costs.

Research and Development Expense

        Research and development expenses increased $3.8 million, or 47.5%, to $11.7 million (8.7% of net sales) for the 13-week period ended September 27, 2003, from $7.9 million (7.3% of net sales) for the 13-week period ended September 28, 2002. Research and development expenses increased $1.6 million, or 35.1%, in the consumer segment and $2.2 million, or 63.3%, in the aviation segment. The increase in expense was due to ongoing development activities for new products within our consumer segment during the quarter, the addition of 21 new engineering personnel to our staff in both the consumer and aviation segments during the last quarter as a result of our continued emphasis on product innovation, and the addition of 53 engineering personnel to our staff from the newly-acquired Garmin AT.

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Operating Income

        Operating income for the 13-week period ended September 27, 2003 increased to $52.0 million from $40.0 million for the 13-week period ended September 28, 2002. Operating income as a percentage of net sales increased to 38.3% for the 13-week period ended September 27, 2003, from 37.2% for the 13-week period ended September 28, 2002, due to improvement in gross profit partially offset by overall increases in operating expenses.

Other Income (Expense)

        Other income (expense) principally consists of interest income, interest expense and foreign currency exchange gains and losses. Other expense for the 13-week period ended September 27, 2003 amounted to $7.3 million compared to $10.7 million of other income for the 13-week period ended September 28, 2002. Interest income for the 13-week period ended September 27, 2003 amounted to $1.7 million compared to $1.5 million for the 13-week period ended September 28, 2002, the slight increase being attributable to an increase in cash and investments during the last 12 months. The average taxable equivalent interest rate return on invested cash during the quarter was 1.35% compared to 1.75% during the same quarter of 2002. Interest expense decreased to $0 for the 13-week period ended September 27, 2003 from $0.3 million for the 13-week period ended September 28, 2002 due to purchase and retirement of industrial revenue bonds in the second quarter of 2003.

        We recognized a foreign currency exchange loss of $9.0 million for the 13-week period ended September 27, 2003 compared to a gain of $9.6 million for the 13-week period ended September 28, 2002. The $9.0 million loss was due to the weakness of the U.S. Dollar compared to the Taiwan Dollar during the third quarter of fiscal 2003, when the exchange rate decreased to 33.79 TD/USD at September 27, 2003 from 34.61 TD/USD at June 28, 2003. The $9.6 million gain was due to the strength of the U.S. Dollar compared to the Taiwan Dollar during the third quarter of fiscal 2002, when the exchange rate increased to 34.95 TD/USD at September 28, 2002 from 33.56 TD/USD at June 29, 2002.

Income Tax Provision

        Income tax expense decreased by $2.9 million, to $9.4 million, for the 13-week period ended September 27, 2003 from $12.3 million for the 13-week period ended September 28, 2002 due to our lower taxable income. The effective tax rate fell to 21.0% from 24.3% due to additional tax benefits granted by the Taiwan government from increased production in our Taiwan facility.

Net Income

        As a result of the above, net income decreased 8.1% for the 13-week period ended September 27, 2003 to $35.3 million compared to $38.4 million for the 13-week period ended September 28, 2002.

Comparison of 39-weeks Ended September 27, 2003 and September 28, 2002

Net Sales

        Net sales increased $71.4 million, or 21.5%, to $402.8 million for the 39-week period ended September 27, 2003, from $331.5 million for the 39-week period ended September 28, 2002. The increase for the 39-week period ended September 27, 2003 was primarily due to the success of new products that were introduced during the previous twelve months and overall demand for our consumer products associated with strong automotive and recreation sales during the period. Sales from our consumer products accounted for 78.3% of net sales for this period in 2003 compared to 75.0% during the same period in 2002. Sales from our aviation products accounted for 21.7% for the first 39 weeks of 2003 compared to 25.0% during the same period of 2002. Total consumer and aviation unit sales increased 37% to 1,476,000 in 2003 from 1,079,000 in 2002. The higher unit volume sales during this period in 2003 was primarily attributable to the introduction of new products in the prior twelve months, as well as strength in our existing product lines, which resulted in higher volume in our consumer segment.

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        Net sales for the consumer segment increased $66.9 million, or 26.9%, to $315.6 million for the 39-week period ended September 27, 2003, from $248.7 million for the 39-week period ended September 28, 2002. The increase for the 39-week period ended September 27, 2003 was primarily due to the success of the new consumer products introduced during the prior twelve months and overall demand for our consumer products associated with strong automotive and recreation sales during the period.

        Net sales for the aviation segment increased $4.5 million, or 5.5%, to $87.3 million for the 39-week period ended September 27, 2003, when compared with $82.7 million for the 39-week period ended September 28, 2002. Increases in revenues were due to revenues from new product releases and $3.0 million of revenue from Garmin AT, which were offset to some extent by a weakened general aviation industry for the 39-week period ended September 27, 2003.

Gross Profit

        Gross profit increased $53.8 million, or 29.7%, to $235.0 million for the 39-week period ended September 27, 2003, from $181.2 million for the 39-week period ended September 28, 2002. Increased demand for our products resulted in increased production volumes at our Taiwan factory, resulting in improved manufacturing efficiencies and reduced factory overhead per unit. In addition, reduced raw material component costs, coupled with our vertical integration strategy, resulted in gross margin improvement during the 39-week period. The increase in gross profit is also attributable to a favorable product mix during the period relative to the same period in 2002. Gross profit as a percentage of net sales increased to 58.3% for the 39-week period ended September 27, 2003 compared to 54.7% for the 39-week period ended September 28, 2002.

        Gross profit for the consumer segment increased $48.4 million, or 37.1%, to $179.0 million for the 39-week period ended September 27, 2003, from $130.6 million for the 39-week period ended September 28, 2002. This increase is primarily attributable to the increase in consumer revenue, improved manufacturing efficiencies on many of our new products introduced during fiscal year 2002, and a reduction of raw material costs. The increase in gross profit is also attributable to a favorable product mix during the period. Gross profit as a percentage of net sales increased to 56.7% during the 39-week period ended September 27, 2003 compared to 52.5% for the 39-week period ended September 28, 2002.

        Gross profit for the aviation segment increased $5.4 million, or 10.6%, to $56.0 million for the 39-week period ended September 27, 2003, from $50.6 million for the 39-week period ended September 28, 2002. Gross profit as a percentage of net sales increased to 64.2% for the 39-week period ended September 27, 2003 from 61.2% for the 39-week period ended September 28, 2002. These improvements were attributable to manufacturing cost savings, a favorable product mix during the period, and the $1.5 million Garmin AT gross profit contribution.

Selling, General and Administrative Expenses

        Selling, general and administrative expenses increased $7.2 million, or 21.4%, to $40.6 million (10.1% of net sales) for the 39-week period ended September 27, 2003, from $33.4 million (10.1% of net sales) for the 39-week period ended September 28, 2002. Selling, general and administrative expenses increased $6.2 million, or 24.0%, in the consumer segment and increased $1.0 million, or 12.8%, in the aviation segment. While selling, general and administrative expenses remained flat as a percent of revenues, the absolute dollar increase in expense was driven primarily by increased call center expenses, increased advertising, insurance premiums, and Oracle implementation costs.

Research and Development Expense

        Research and development expenses increased $6.7 million, or 28.8%, to $30.1 million (7.4% of net sales) for the 39-week period ended September 27, 2003, from $23.4 million (7.1% of net sales) for the 39-week period ended September 28, 2002. Research and development expenses increased $3.5 million, or 25.9%, in the consumer segment and $3.2 million, or 32.9%, in the aviation segment. The increase in expense was due to ongoing development activities for new products within our consumer segment during the quarter, the addition of 53 Garmin AT engineering personnel, and the addition of 78 new engineering personnel to our staff in both the consumer and aviation segments during the first nine months of 2003 as a result of our continued emphasis on product innovation.

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Operating Income

        Operating income for the 39-week period ended September 27, 2003 increased to $164.3 million from $124.4 million for the 39-week period ended September 28, 2002. Operating income as a percentage of net sales increased to 40.8% for the 39-week period ended September 27, 2003, from 37.5% for the 39-week period ended September 28, 2002, due to improvement in gross profit partially offset by overall increases in operating expenses.

Other Income (Expense)

        Other income (expense) principally consists of interest income, interest expense and foreign currency exchange gains and losses. Other expense for the 39-week period ended September 27, 2003 amounted to $7.5 million compared to $3.8 million of other income for the 39-week period ended September 28, 2002. Interest income for the 39-week period ended September 27, 2003 amounted to $5.5 million compared to $4.9 million for the 39-week period ended September 28, 2002, the increase being attributable to an increase in cash and investments during the last 12 months. The average taxable equivalent interest rate return on invested cash during the period was 1.41% compared to 1.9% during the same period of 2002. Interest expense decreased to $0.5 million for the 39-week period ended September 27, 2003 from $1.1 million for the 39-week period ended September 28, 2002 as we retired all outstanding debt during May 2003.

        We recognized a foreign currency exchange loss of $11.1 million for the 39-week period ended September 27, 2003 compared to a loss of $0.1 million for the 39-week period ended September 28, 2002. The $11.1 million loss was due to the weakness of the U.S. Dollar compared to the Taiwan Dollar during the first nine months of fiscal 2003, when the exchange rate decreased to 33.79 TD/USD at September 27, 2003 from 35.10 TD/USD at December 28, 2002. The $0.1 million loss was due to positive and negative moves of similar magnitude of the U.S. Dollar compared to the Taiwan Dollar during the first nine months of fiscal 2002, when the exchange rate decreased to 34.95 TD/USD at September 28, 2002 from 35.17 TD/USD at December 29, 2001.

        Due to the retirement of all outstanding debt during 2003, two outstanding interest rate swaps were terminated in 2003. The termination of these swaps caused the Company to realize approximately $0.8 million in other expense. The Company also amortized $0.6 million of related bond issuance costs that had been capitalized in prior periods.

Income Tax Provision

        Income tax expense increased by $1.9 million, to $32.8 million, for the 39-week period ended September 27, 2003 from $30.9 million for the 39-week period ended September 28, 2002 due to our higher taxable income. The effective tax rate decreased to 20.9% during the 39-week period ended September 27, 2003 from 24.1% during the 39-week period ended September 28, 2002, due to additional tax benefits granted by the Taiwan government from increased production in our Taiwan facility.

Net Income

        As a result of the above, net income increased 27.4% for the 39-week period ended September 27, 2003 to $124.0 million from $97.3 million for the 39-week period ended September 28, 2002.

Liquidity and Capital Resources

        Net cash generated by operating activities was $126.0 million for the 39-week period ended September 27, 2003 compared to $129.9 million for the 39-week period ended September 28, 2002. We operate with a strong customer driven approach and therefore carry sufficient inventory to meet customer demand. Because we desire to respond quickly to our customers and minimize order fulfillment time, our inventory levels are generally adequate to meet most demand. We also attempt to carry sufficient inventory levels on key components so that potential supplier shortages have as minimal an impact as possible on our ability to deliver our finished products. We experienced a $17.5 million increase in inventory at September 27, 2003 when compared to inventory on December 29, 2002, net of the impact from the Garmin AT acquisition. Inventory levels were increased to mitigate possible supply issues due to long lead times on certain electronic components, and to support the anticipated ramp up of new products (specifically the iQue 3600 and StreetPilot 2610/2650) slated for the second half of 2003.

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        Cash flow from investing activities during the 39-week period ending September 27, 2003 was a $82.2 million use of cash. Cash flow used in investing activities principally related to $17.9 million in capital expenditures primarily related to the Olathe, Kansas facilities expansion project, $1.1 million in purchases of intangible assets, the purchase of UPS Aviation Technologies, Inc. for $38.2 million, and the net purchase of $25.0 million of fixed income securities associated with the investment of our on-hand cash balances. It is management’s goal to invest the on-hand cash consistent with the Company’s investment policy, which has been approved by the Board of Directors. The investment policy’s primary purpose is to preserve capital, maintain an acceptable degree of liquidity, and maximize yield within the constraint of maximum safety. The Company’s average taxable equivalent return on its investments during the period was approximately 2.0%.

        Cash flow from financing activities during the period was an $18.2 million use of cash, which represents the $20.0 million debt retirement, net of the $1.8 million of proceeds from the issuance of common stock related to our Company stock option plan.

        We currently use cash flow from operations to fund our capital expenditures and to support our working capital requirements. We expect that future cash requirements will principally be for capital expenditures, working capital requirements, and payment of dividends declared. The dividend declared in 2003 will be paid on December 15, 2003 to all shareholders of record as of December 1, 2003.

        We believe that our existing cash balances and cash flow from operations will be sufficient to meet our projected capital expenditures, working capital and other cash requirements at least through the end of fiscal 2003.

Contractual Obligations and Commercial Commitments

        On April 25, 2003, Garmin International, Inc. signed an agreement with Turner Construction Company engaging Turner as the construction manager on the facility expansion in Olathe, Kansas. The estimated cost of completion on this expansion project is approximately $60.0 million with estimated completion in September 2004.

        On March 23, 2000, Garmin International, Inc. completed a $20.0 million 20-year Taxable Industrial Revenue Bond issuance (the “2000 Bonds”) for the expansion of its Olathe, Kansas facility. In May of 2003 all $20 million of these bonds were purchased and retired, extinguishing all outstanding long-term debt.

Off-Balance Sheet Arrangements

        We do not have any off-balance sheet arrangements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

      Market Sensitivity

        We have market risk primarily in connection with the pricing of our products and services and the purchase of raw materials. Product pricing and raw material costs are both significantly influenced by semiconductor market conditions. Historically, during cyclical industry downturns, we have been able to offset pricing declines for our products through a combination of improved product mix and success in obtaining price reductions in raw material costs.

      Inflation

        We do not believe that inflation has had a material effect on our business, financial condition or results of operations. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could adversely affect our business, financial condition and results of operations.

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      Foreign Currency Exchange Rate Risk

        The operation of the Company’s subsidiaries in international markets results in exposure to movements in currency exchange rates. The potential of volatile foreign exchange rate fluctuations in the future could have a significant effect on our results of operations.

        The principal currency involved is the Taiwan Dollar. Garmin Corporation, located in Shijr, Taiwan uses the local currency as its functional currency. The Company translates all assets and liabilities at year-end exchange rates and income and expense accounts at average rates during the year. In order to minimize the effect of the currency exchange fluctuations on our operations, we have elected to retain most of our cash at our Taiwan subsidiary in U.S. dollars. As discussed above, the exchange rate decreased 3.7% during 2003 and resulted in a foreign currency loss of $11.1 million. If the exchange rate increased by a similar percentage, a comparable foreign currency gain would be recognized.

Interest Rate Risk

        As of September 27, 2003, we no longer have interest rate risk in connection with our industrial revenue bonds (the 2000 Bonds) that bear interest at a floating rate, as these bonds have been retired.

Item 4. Controls and Procedures

        As of September 27, 2003, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective as of September 27, 2003. There has been no change in the Company’s internal controls over financial reporting (as defined in Exchange Act Rule 13a-15(f)) that occurred during the Company’s fiscal quarter ended September 27, 2003 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Part II — Other Information

Item 1. Legal Proceedings

      From time to time the Company may be involved in litigation arising in the course of its operations. As of November 12, 2003, the Company was not a party to any material legal proceedings.

Item 2. Changes in Securities and Use of Proceeds

      None

Item 3. Defaults Upon Senior Securities

      None

Item 4. Other Information

      Not applicable

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Item 5. Exhibits and Reports on Form 8-K

a. Exhibits

b.     Reports on Form 8-K

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SIGNATURES

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INDEX TO EXHIBITS

                      Exhibit No.       Description                                                                                                  Page

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EXHIBIT 31.1

CERTIFICATION

        I, Min H. Kao, certify that:

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EXHIBIT 31.2

CERTIFICATION

      I, Kevin Rauckman, certify that:

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EXHIBIT 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
   
   
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

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EXHIBIT 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
   
   
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

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