Garmin 2009 Annual Report Download - page 43

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Grossmarginsforourproductsmayfluctuateorerode.
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Grossmarginsonourautomotive/mobileproductsweredecliningpriorto2009andareexpectedto
declinein2010duetopricereductionsintheincreasinglycompetitivemarketforpersonalnavigationdevices
(PNDs)thatarenotoffsetbymaterialcostreductions.Inaddition,ouroverallgrossmarginmayfluctuatefrom
periodtoperiodduetoanumberoffactors,includingproductmix,competitionandunitvolumes.Inparticular,
theaveragesellingpricesofaspecificproducttendtodecreaseoverthatproduct’slife.Tooffsetsuchdecreases,
weintendtorelyprimarilyoncomponentcostreduction,obtainingyieldimprovementsandcorrespondingcost
reductionsinthemanufactureofexistingproductsandonintroducingnewproductsthatincorporateadvanced
featuresandthereforecanbesoldathigheraveragesellingprices.However,therecanbenoassurancethatwe
willbeabletoobtainanysuchyieldimprovementsorcostreductionsorintroduceanysuchnewproductsinthe
future.Totheextentthatsuchcostreductionsandnewproductintroductionsdonotoccurinatimelymanneror
ourproductsdonotachievemarketacceptance,ourbusiness,financialconditionandresultsofoperationscould
bemateriallyadverselyaffected.
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ChangesinourUnitedStatesfederalincometaxclassificationorinapplicabletaxlawcouldresultinadversetax
consequencestoourshareholders.
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Wedonotbelievethatwe(oranyofournon‐UnitedStatessubsidiaries)arecurrentlya‘‘passiveforeign
investmentcompany’’forUnitedStatesfederalincometaxpurposes. Wedonotexpecttobecomeapassive
foreigninvestmentcompany.However,becausethepassiveforeigninvestmentcompanydeterminationismade
annuallybasedonwhetherthecompany’sincomeorassetsmeetcertainthresholdsasdeterminedunderUnited
Statesfederaltaxprincipleswhicharebasedonfactsandcircumstancesthatmaybebeyondourcontrol,we
cannotassurethatwewillnotbecomeapassiveforeigninvestmentcompanyinthefuture. Ifweareapassive
foreigninvestmentcompanyinanyyear,thenanyofourshareholdersthatisaUnitedStatespersoncouldbe
liabletopaytaxontheirproratashareofourincomeplusaninterestchargeuponsomedistributionsbyusor
whenthatshareholdersellsourcommonsharesatagain. Further,ifweareclassifiedasapassiveforeign
investmentcompanyinanyyearinwhichaUnitedStatespersonisashareholder,wegenerallywillcontinuetobe
treatedasapassiveforeigninvestmentcompanywithrespecttosuchshareholderinallsucceedingyears,
regardlessofwhetherwecontinuetosatisfytheincomeorassettestsmentionedabove.

Wedonotbelievethatwe(oranyofournon‐UnitedStatessubsidiaries)arecurrentlyaControlled
ForeignCorporation(CFC)forUnitedStatesfederalincometaxpurposes.WedonotexpecttobecomeaCFC.The
CFCdeterminationismadedailybasedonwhethertheUnitedStatesshareholdersownmorethanfiftypercentof
thevotingpowerorvalueoftheCompany.OnlyUnitedStatespersonsthatowntenpercentormoreofthevoting
poweroftheCompany’ssharesqualifyasUnitedStatesshareholders.IftheCompanyweretobeclassifiedasa
CFCforanuninterruptedthirtydayperiodinanyyear,theCompany’sshareholdersthatqualifyasUnitedStates
shareholderscouldbeliabletopayUSincometaxatordinaryincometaxratesontheirpro‐ratashareofcertain
categoriesoftheCompany’sincomefortheperiodinwhichtheCompanyisclassifiedasaCFC.AstheCompany
cannotcontroltheownershipoftheCompany’sstocknorcantheCompanycontrolwhichshareholdersparticipate
intheCompany’sstockbuybackprogram,ownershipchangescouldresultthatcreateUnitedStatesshareholders
whichincreasetheriskofGarminbeingtreatedasaCFC.
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LegislativeproposalshavebeenconsideredintheUnitedStateswithinthepastyearthatcouldincrease
theUnitedStatestaxburdenofcorporationswithinternationaloperationsandcouldbroadenthecircumstances
underwhichforeigncorporationscouldbeconsideredresidentintheUnitedStatesOurtaxpositioncouldbe
adverselyimpactedbychangesinUnitedStatesorforeigntaxlaws,taxtreatiesortaxregulationsorthe
interpretationorenforcementthereofbyanytaxauthority.Wecannotpredicttheoutcomeofanyspecific
legislativeproposals.
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BestBuyisasignificantcustomer,representingover10%ofnetsales.Accordingly,ourrevenuesand
profitabilitywillbeadverselyimpactedifBestBuy’sbusinessdeclinesorifBestBuyisunabletopayusamounts
owedtimely.