Garmin 2008 Annual Report Download - page 63

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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.
As revenues have grown, selling, general and administrative expenses have also increased during the past
five years. Due to the economic pressure on our consumer-oriented business, we plan to decrease selling, general
and administrative expenses in 2009. We expect to decrease advertising and marketing expenses to better match
anticipated demand and to support operating margins. We also reduced advertising and marketing expenses in the
second half of 2008 and did not experience a negative impact to our market share. We also expect selling, general
and administrative costs, excluding advertising, to be flat in 2009.
Research and Development
The majority of our research and development costs represent salaries for our engineers, costs for high
technology components and costs of test equipment used in product and prototype development. Approximately
86% of the research and development of our products is performed in North America. The remainder of our
research and development activities are performed by our Taiwan engineering group, which has increased in size in
recent years.
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 in absolute terms.
Customers
Best Buy accounted for 12.0% of our net sales in the year ended December 27, 2008. Our top ten
customers have contributed between 24% and 43% of net sales since 2004. We have experienced average sales days
in our customer accounts receivable of between 43 and 70 days since 2004. We have experienced an increase in the
level of customer accounts receivable days due to changes in product mix, longer payment terms, and
macroeconomic conditions. We expect to reduce the level of customer accounts receivable days as we negotiate
shorter payment terms with our customers. In 2008, one of our key customers, Circuit City, filed for bankruptcy
resulting in an increase of $18.5 million in accounts receivable reserve.
Income Taxes
We have experienced a relatively low effective corporate tax rate due to the proportion of our revenue
generated by entities in tax jurisdictions with low statutory rates. In particular, the profit entitlement afforded our
parent company based on its intellectual property rights ownership of our consumer products along with substantial
tax incentives offered by the Taiwanese government on certain high-technology capital investments have continued
to reduce our tax rate. As a result, our consolidated effective tax rate was approximately 19.9% during 2008. This