Garmin 2001 Annual Report Download - page 22

Critical Accounting Policies and Estimates
General
The Company’s discussion and analysis of its financial condition and results of operations are based upon the Company’s consolidated
financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States.
The presentation of these financial statements requires the Company to make estimates and judgements that affect the reported
amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going
basis, the Company evaluates its estimates, including those related to customer sales programs and incentives, product returns,
bad debts, inventories, investments, intangible assets, income taxes, warranty obligations, and contingencies and litigation.
The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable
under the circumstances, the results of which form the basis for making judgements about the carrying value of assets and
liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different
assumptions or conditions.
Revenue Recognition
The Company records estimated reductions to revenue for customer sales programs and incentive offerings including rebates,
price protection, promotions and other volume-based incentives. If market conditions were to decline, the Company may take
actions to increase customer incentive offerings possibly resulting in an incremental reduction of revenue at the time the
incentive is offered.
Bad Debt
The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to
make required payments. If the financial condition of the Company’s customers were to deteriorate, resulting in an impairment
of their ability to make payments, additional allowances may be required.
Warranties
The Company’s products sold are generally covered by a warranty for periods ranging from one to two years. The Company
accrues a warranty reserve for estimated costs to provide warranty services. The Company’s estimate of costs to service its
warranty obligations is based on historical experience and expectation of future conditions. To the extent the Company experiences
increased warranty claim activity or increased costs associated with servicing those claims, its warranty accrual will increase
resulting in decreased gross profit.
Inventory
The Company writes down its inventory for estimated obsolescence or unmarketable inventory equal to the difference between
the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions.
If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be
required.
Income Taxes
It is the Company’s policy to record a valuation allowance to reduce its deferred tax assets to an amount that it believes is more
likely than not to be realized. While the Company has considered future taxable income and ongoing prudent and feasible tax
planning strategies in assessing the need for the valuation allowance, in the event the Company were to determine that it would
not be able to realize all or part of its net deferred tax assets in the future, an adjustment to the deferred tax assets would be
charged to income in the period such determination was made. Likewise, should the Company determine that it would be able
to realize its deferred tax assets in the future in excess of its net recorded amount, an adjustment to the deferred tax assets
would increase income in the period such determination was made.
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