Garmin 2003 Annual Report Download - page 38

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Other Income (Expense)
The majority of the difference between 2001 and 2002 was caused by foreign currency gains in 2001. Interest income for
fiscal 2002 decreased relative to fiscal 2001 due to the fall in interest rates, reducing the returns on the Company’s cash and cash
equivalents. Interest expense decreased from fiscal 2001 to fiscal 2002 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 $1.3 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.
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.
Liquidity and Capital Resources
Net cash generated by operations was $175.2 million, $175.4 million, and $130.0 million for fiscal years 2003, 2002, and
2001, 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 raw material inventories in late 2003 in anticipation of new product releases in the first half of 2004 and also as a
response to the significant increase in the lead-time of high dollar components such as LCD’s and flash memory. In addition, we
prefer to have sufficient finished goods on hand to meet anticipated demand for our products. Finished goods inventory levels also
continued to grow gradually as a function of our growing sales. We were able to reduce inventory levels during fiscal year 2002 by
$3.6 million when compared to fiscal year end 2001, without impairing our ability to meet customer demand, by effectively managing
the introduction of 22 new products during the year. We expect that inventory levels may decrease during the latter half of fiscal 2004
as raw materials inventories are consumed during the manufacture and delivery of new products in the first half of 2004.
Capital expenditures in 2003 totaled $32.8 million, an increase of $20.4 million over fiscal 2002. This increase in 2003 was
primarily attributable to the initiation of expansion of our Olathe, Kansas facility ($17 million) and maintenance capital expenditures
($3.4 million). During fiscal 2002, our capital expenditures totaled $12.4 million. The expenditures in fiscal 2002 were primarily
related to general corporate purposes ($9.8 million) and the addition of surface-mount production equipment in both the Olathe,
Kansas and Shijr, Taiwan facilities ($2.6 million).
We have budgeted approximately $60 million of capital expenditures during fiscal 2004 to include construction costs related
to the completion of our facilities expansion in Olathe, Kansas and purchases of production machinery and equipment to expand
capacity in the Shijr, Taiwan facility.
2002 2001
Interest Income $6,466 $11,164
Interest Expense (1,329) (2,174)
Foreign Currency Exchange 11 11,573
Other 146 186
Total $5,294 $20,749