Garmin 2005 Annual Report Download - page 66

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passage of time can significantly change these judgements. Revisions of impairment judgements are made when
new information becomes known, and any resulting impairment adjustments are made at that time. The economic
environment and volatility of securities markets increase the difficulty of determining fair value and assessing
investment impairment.
Income Taxes
The Company provides deferred tax assets and liabilities based on the difference between the tax basis of
assets and liabilities and their carrying amount for financial reporting purposes as measured by the enacted tax rates
and laws that will be in effect when the differences are expected to reverse. While no valuation allowance has been
recorded, 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.
In addition, the calculation of our tax liabilities involves dealing with uncertainties in the application of
complex tax regulations. We recognize liabilities for tax audit issues in the U.S. and other tax jurisdictions based on
our estimate of whether, and the extent to which, additional taxes will be due. If payment of these amounts
ultimately proves to be unnecessary, the reversal of the liabilities would result in tax benefits being recognized in the
period when we determine the liabilities are no longer necessary. If our estimate of tax liabilities proves to be less
than the ultimate assessment, a further charge to expense would result.
Stock Based Compensation
The Company distributes stock options or stock appreciation rights (“SAR’s”) each year as part of the
Company’s compensation package for employees. Employees with certain levels of responsibility within the
Company are eligible for stock option or SAR grants, but the granting of options is at the discretion of the
Compensation Committee of the Board of Directors and is not a contractual obligation. Stock compensation plans
are discussed in detail in Note 11 of the Notes to Consolidated Financial Statements.
Accounting Terms and Characteristics
Net Sales
Our net sales are primarily generated through sales to our global dealer and distributor network and to
original equipment manufacturers. We recognize sales when products are shipped. Our sales are largely of a
consumer nature; therefore backlog levels are not necessarily indicative of our future sales results. We aim to
achieve a quick turnaround on orders we receive, and we typically ship most orders within 72 hours.
Net sales are subject to some seasonal fluctuation. Typically, sales of our consumer products are highest in
the second quarter, due to increased demand during the spring and summer marine season, and in the fourth quarter,
due to increased demand during the holiday buying season. Our aviation products do not experience much seasonal
variation, but are more influenced by the timing of the release of new products when the initial demand is typically
the strongest.
Gross Profit