Garmin 2005 Annual Report Download - page 68

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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
No customer accounted for 10% or more of our sales in the year ended December 31, 2005. Our top ten
customers have contributed between 25% and 30% of net sales since 2001. We have experienced average sales days
in our customer accounts receivable between 35 and 61 days since 2001. The average sales days in our customer
accounts receivable was 61 days as of December 31, 2005. We have experienced an increase in the level of
customer accounts receivable days due to changes in product mix and longer payment terms, and anticipate
maintaining approximately the current level of accounts receivable days going forward.
Income Taxes
We have experienced a relatively low effective tax rate in Taiwan due to lower marginal tax rates and
substantial tax incentives offered by the Taiwanese government on certain high-technology capital investments, and
other Taiwan tax credits due to expected repatriation of 2005 earnings. Therefore, profits earned in Taiwan have
been taxed at a lower rate than those in the United States and Europe. As a result, our consolidated effective tax rate
was approximately 16.5 percent during 2005. We have taken advantage of this tax benefit in Taiwan since our
inception and we expect to continue to benefit from lower effective tax rates at least through 2010. The current
Taiwan tax incentives for which Garmin has received approval will end in 2010. We plan on applying for additional
incentives for years beyond 2010 based on capital investments we expect to make in the future. However, there can
be no assurance that such tax incentives will be available indefinitely or that we will receive the incentives for which
we apply. Management believes that the effective tax rate for fiscal 2006 will be slightly lower than fiscal 2005.
The actual effective tax rate will be dependent upon the production volume, additional capital investments made
during fiscal 2005, and composition of our earnings.
Results of Operations
The following table sets forth our results of operations as a percentage of net sales during the periods
shown:
Fiscal Years Ended
Dec. 31, Dec. 25, Dec. 27,
2005 2004 2003
Net sales 100.0% 100.0% 100.0%
Cost of goods sold 47.9% 46.1% 42.3%
Gross profit 52.1% 53.9% 57.7%
Operating expenses:
Selling, general and administrative 11.9% 10.4% 10.4%
Research and development 7.3% 8.0% 7.6%
Total operating expenses 19.2% 18.4% 18.0%
Operating income 32.9% 35.5% 39.7%
Other income / (expense) , net 3.3% (2.0%) (0.2%)
Income before income taxes 36.2% 33.5% 39.5%
Provision for income taxes 6.0% 6.5% 8.3%
Net income 30.2% 27.0% 31.2%