Garmin 2002 Annual Report Download - page 55

Note 8. Income Taxes (continued)
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s
deferred tax assets and liabilities are as follows:
December 28, 2002 December 29, 2001
Deferred tax assets:
Product warranty accruals $1,707 $1,833
Allowance for doubtful accounts 1,088 888
Inventory carrying value 2,777 2,241
Sales program allowances 3,249 1,696
Vacation accrual 507 438
Interest rate swaps 408 579
Unrealized intercompany profit in inventory 4,994 6,829
Other 117 46
14,847 14,550
Deferred tax liabilities:
Unrealized investment gain 455 –
Unrealized foreign currency gains 623 844
Depreciation 1,133 1,017
2,211 1,861
Net deferred tax assets $12,636 $12,689
Note 9. Interest Rate Risk Management
During 1996, GII entered into an interest rate swap agreement to effectively convert a portion of its floating rate long-term
debt associated with the Bonds to a fixed rate basis, thus, reducing the impact of interest rate changes on future income. The
agreement was renewed in 2001. Pursuant to this “pay-fixed” swap agreement, GII agreed to exchange, at specified intervals,
the difference between the fixed and the floating interest amounts calculated on the notional amount of the swap agreement
totaling $5,000 at December 28, 2002 and December 29, 2001. GII’s fixed interest rate under the swap agreement is 5.1%. The
counterparty’s floating rate is based on the nontaxable PSA Municipal Swap Index and amounted to 1.18% and 1.75% at
December 28, 2002 and December 29, 2001, respectively. Notional amounts do not quantify risk or represent assets and liabilities
of the Company, but are used in the determination of cash settlements under the agreement. The Company is exposed to credit
losses from counterparty nonperformance but does not anticipate any losses from its agreement, which is with a major financial
institution. The agreement expires June 6, 2004.
During 2000, GII entered into an additional swap agreement to effectively convert a portion of additional floating rate long-
term debt associated with the 2000 Bonds to a fixed rate basis. Pursuant to this pay-fixed swap agreement, GII agreed to
exchange, at specified intervals, the difference between the fixed and the floating interest amounts calculated on the notional
amount of the swap agreement totaling $10,000 at December 28, 2002 and December 29, 2001. GII’s fixed interest rate under the
swap agreement is 7.26% compared to the counterparty’s floating rate of 1.51% and 2.1% at December 28, 2002 and December
29, 2001, respectively. The counterparty’s floating rate is based on the bank’s Taxable Low Floater Rate. The Company is exposed
to credit losses from counterparty nonperformance but does not anticipate any losses from its agreement, which is with a major
financial institution. The agreement expires June 1, 2004.
The fair value of the interest rate swap agreements is recorded as a component of other accrued expenses and amounted to
$1,046 and $1,479 at December 28, 2002 and December 29, 2001, respectively. None of the Company’s cash flow hedges were
deemed ineffective.
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