Garmin 2009 Annual Report Download - page 65

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deliverableisthehardwareandsoftwareessentialtothefunctionalityofthehardwaredevicedeliveredatthe
timeofsale,andtheseconddeliverableisthenüLinkservice.TheCompanyhasallocatedrevenuebetweenthese
twodeliverablesusingtherelativesellingpricemethoddeterminedusingVSOE.Amountsallocatedtothe
deliveredhardwareandtherelatedessentialsoftwarearerecognizedatthetimeofsaleprovidedtheother
conditionsforrevenuerecognitionhavebeenmet.AmountsallocatedtothenüLinkservicesaredeferredand
recognizedonastraight‐linebasisoverthe24‐monthlifeoftheservice.

Garminrecordsestimatedreductionstorevenueforcustomersalesprogramsreturnsandincentive
offeringsincludingrebates,priceprotection(productdiscountsofferedtoretailerstoassistinclearingolder
productsfromtheirinventoriesinadvanceofnewproductreleases),promotionsandothervolume‐based
incentives.Thereductionstorevenuearebasedonestimatesandjudgmentsusinghistoricalexperienceand
expectationoffutureconditions.ChangesintheseestimatescouldnegativelyaffectGarmin’soperatingresults.
Theseincentivesarereviewedperiodicallyand,withtheexceptionsofpriceprotectionandcertainother
promotions,areaccruedforonapercentageofsalesbasis.Ifmarketconditionsweretodecline,Garminmaytake
actionstoincreasecustomerincentiveofferingspossiblyresultinginanincrementalreductionofrevenueatthe
timetheincentiveisoffered.

GarminrecordsreductionstorevenueforexpectedfutureproductreturnsbasedonGarmin’shistorical
experience.
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TradeAccountsReceivable

Wesellourproductstoretailers,wholesalers,andothercustomersandextendcreditbasedonour
evaluationofthecustomer’sfinancialcondition.Potentiallossesonreceivablesaredependentoneachindividual
customer’sfinancialcondition.Wecarryourtradeaccountsreceivableatnetrealizablevalue.Typically,our
accountsreceivablearecollectedwithin60daysanddonotbearinterest.Wemonitorourexposuretolosseson
receivablesandmaintainallowancesforpotentiallossesoradjustments.Wedeterminetheseallowancesby(1)
evaluatingtheagingofourreceivables;and(2)reviewingourhigh‐riskcustomers.Pastduereceivablebalancesare
writtenoffwhenourinternalcollectioneffortshavebeenunsuccessfulincollectingtheamountdue.

Warranties
Garmin’sproductsaregenerallycoveredbyawarrantyforperiodsrangingfromonetotwoyears.Garmin
accruesawarrantyreserveforestimatedcoststoprovidewarrantyservices.Garmin’sestimateofcoststoservice
itswarrantyobligationsisbasedonhistoricalexperienceandexpectationoffutureconditions.Totheextent
Garminexperiencesincreasedwarrantyclaimactivityorincreasedcostsassociatedwithservicingthoseclaims,its
warrantyaccrualwillincrease,resultingindecreasedgrossprofit.


Inventory
Garmin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.


Investments

Investmentsareclassifiedasavailableforsaleandrecordedatfairvalue,andunrealizedinvestmentgains
andlossesarereflectedinstockholders’equity.Investmentincomeisrecordedwhenearned,andcapitalgains
andlossesarerecognizedwheninvestmentsaresold.Fairvalueofinvestmentsinauctionratesecuritiesare