Garmin 2005 Annual Report Download - page 74

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44
Income tax expense increased by $2.2 million, to $49.5 million, for fiscal year 2004 from $47.3 million for
fiscal year 2003 due to our higher taxable income. The effective tax rate was 19.4% for fiscal 2004 versus 20.9%
for fiscal 2003. The decrease in tax rate is due to additional tax benefits received from Taiwan as a result of our
continued capital investment in our manufacturing facilities in Taiwan, and the increased contribution to our income
from lower tax jurisdictions during 2004 relative to 2003.
Net Income
As a result of the various factors noted above, net income increased 15.2% to $205.7 million for fiscal year
2004 compared to $178.6 million for fiscal year 2003.
Liquidity and Capital Resources
Net cash generated by operations was $247.0 million, $208.9 million, and $173.5 million for fiscal years
2005, 2004, and 2003, respectively. We operate with a customer-oriented approach and seek to maintain 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 substantial enough to meet most demand. We also attempt to
carry sufficient inventory levels of key components so that potential supplier shortages have as minimal an impact as
possible on our ability to deliver our finished products. We significantly increased our finished goods inventories in
2005 in anticipation of new product releases in the first half of 2006. In addition, we prefer to have sufficient
finished goods on hand to meet anticipated demand for our products. Raw materials and finished goods inventory
levels also continued to grow as a function of our growing sales. We anticipate days of inventory to stabilize at
current levels in 2006 although absolute dollars of inventory will continue to rise, reflecting the growth of our
businesses.
Capital expenditures in 2005 totaled $27.1 million, a decrease of $51.0 million from fiscal 2004. This
amount in 2005 reflects ordinary capital expenditures for fiscal 2005. During fiscal 2004, our capital expenditures
totaled $78.1 million. The expenditures in fiscal 2004 were primarily related to the completion of expansion of our
Olathe, Kansas facility ($47 million) and normal ongoing capital expenditures ($31 million).
We have budgeted approximately $50 million of capital expenditures during fiscal 2006 to include the
purchase and renovation of an additional manufacturing facility in Chung-Li, Taiwan, normal ongoing capital
expenditures, and purchases of production machinery and equipment to expand capacity in the Shijr, Taiwan
facility.
In addition to capital expenditures, in 2005 cash flow used in investing related to the purchase of fixed
income securities associated with the investment of our on-hand cash balances and approximately $3.6 million of
intangible assets. The Company’s average return on its investments during fiscal 2005 was approximately 3.1%. In
addition to capital expenditures, in 2004 cash flow used in investing related to the purchase of fixed income
securities associated with the investment of our on-hand cash balances and approximately $1.8 million of intangible
assets. 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 return on its investments during fiscal year 2004 was approximately 1.7%.
Cash flow related to financing activities resulted in a net use of cash in 2005 of $70.9 million. During
2005, the Company repurchased 638,000 shares of its common shares under the 3,000,000-share stock repurchase
program that was approved by the Board of Directors on April 21, 2004 and expires on April 30, 2006. Sources and
uses in financing activities during 2005 related primarily to uses for the payment of a dividend ($54.0 million) and
stock repurchase ($26.7 million), and a source of cash from the issuance of common stock related to the exercise of
employee stock options and the employee stock purchase plan ($9.7 million). Cash flow related to financing
activities resulted in a net use of cash in 2004 of $51.1 million. During 2004, the Company repurchased 100,000
shares of its common shares under the 3,000,000-share stock repurchase program. Sources and uses in financing
activities during 2004 related primarily to uses for the payment of a dividend ($54.1 million) and stock repurchase
($3.1 million), and a source of cash from the issuance of common stock related to the exercise of employee stock