Garmin 2002 Annual Report Download - page 31

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Research and Development Expenses
Research and development expenses increased $4.0 million, or 14.2%, to $32.2 million (6.9% of net revenues) for fiscal year 2002
from $28.2 million (7.6% of net revenues) for fiscal year 2001. Research and development expenses increased $.67 million, or
3.7%, in the consumer segment and increased $3.3 million, or 33.4%, in the aviation segment. The increase in expense was
primarily attributable to the development and introduction of 22 new products, and the addition of 67 new engineers to our
staff during fiscal 2002. Management believes that one of the key strategic initiatives for future growth and success of the
Company is continuous innovation, development, and introduction of new products. Management expects that its research and
development expenses will increase approximately 20% to 25% during fiscal 2003 on an absolute dollar basis due to the
anticipated introduction of new products for fiscal 2003. Management expects to continue to invest in the research and
development of new products and technology in order to maintain the Company’s competitive advantage in the markets in
which it competes.
Other Income (Expense)
Other income (expense) principally consists of interest income, interest expense and foreign currency exchange gains and losses.
Other income for fiscal year 2002 amounted to $5.3 million compared to other income of $20.7 million for fiscal year 2001, with
the majority of this difference caused by foreign currency gains in 2001. Interest income for fiscal 2002 amounted to $6.5 million
compared to $11.2 million for fiscal 2001, the decrease being attributable to the fall in interest rates, reducing the returns on the
Company’s cash and cash equivalents. Interest expense decreased to $1.3 million for fiscal 2002 from $2.2 million for fiscal 2001,
due primarily to the reduction of debt and a lower interest rate environment during fiscal 2002.
During fiscal 2002 the Company’s position was neutral with regard to foreign currency exchange gains and losses, as the U.S.
Dollar was at approximately the same level at the beginning of 2002 relative to the New Taiwan Dollar (35.17 NTD/USD) as it was
at the end of fiscal 2002 (34.90 NTD/USD). In fiscal 2001 there was an $11.6 million gain due to the significantly increased
strength of the U.S. Dollar compared to the New Taiwan Dollar during 2001, when the exchange rate increased to 35.17
NTD/USD at December 29, 2001 from 33.01 NTD/USD at December 30, 2000.
Income Tax Provision
Income tax expense increased by $1.4 million, to $39.9 million, for fiscal year 2002 from $38.6 million for fiscal year 2001 due to
our higher taxable income. The effective tax rate was 21.9% for fiscal 2002 versus 25.4% for fiscal 2001. The decrease in tax rate
is due primarily to additional tax benefits received from Taiwan as a result of our continued capital investment in our
manufacturing facilities there. Management believes that the effective tax rate for fiscal 2003 will be comparable to fiscal 2002.
Net Income
As a result of the above, net income increased 25.9% to $142.8 million for fiscal year 2002 compared to $113.4 million for fiscal
year 2001.
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