Garmin 2009 Annual Report Download - page 67

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AccountingTermsandCharacteristics
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NetSales
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Ournetsalesareprimarilygeneratedthroughsalestoourglobaldealeranddistributornetworkandto
originalequipmentmanufacturers.RefertotheRevenueRecognitiondiscussionabove.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.
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Netsalesaresubjecttoseasonalfluctuation.Typically,salesofourconsumerproductsarehighestinthe
secondquarter,duetoincreaseddemandduringthespringandsummer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.
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
GrossProfit
Rawmaterialcostsareourmostsignificantcomponentofcostofgoodssold.In2009,grossmarginfor
ourautomotive/mobilesegmentincreased350basispointsasbenefitsfromrawmaterialpricedeclinesand
operatingefficienciesexceededtheaveragesellingpricedecline.In2008,grossmarginforourautomotive/mobile
segmentdeclined310basispointsastheaveragesellingpricecontinuedtodeclineandweexperiencedfurther
shiftinproductmixtolower‐marginproductgroups.Theseimpactsweresomewhatoffsetbyrawmaterialprice
declines,mostsignificantlyflashmemory.Inthefirsthalfof2007,weexperiencedfavorableproductmixand
productpricing,whichallowedustoholdmarginsinourautomotive/mobilesegmentsteady;margindeclinesin
thesecondhalfof2007wereprimarilyaresultofaveragesellingpricedeclines,coupledwithrawmaterialsprice
increases,mostnotablythecostsforflashmemory,inlatesecondquarterandthroughthethirdquarterof2007
whenwewerepurchasingthesecomponentsforourholidayproductionruns,resultinginmargindeclinesasthese
componentsweresold,primarilyinthefourthquarterof2007.Grossmarginsfortheaviation,marine,and
outdoor/fitnesssegmentsaremorestable.Ourlong‐termgrossmargintargetsare65%,55%and55%,
respectively,forthesesegments.
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Ourexistingpracticeofperformingthedesignandmanufactureofourproductsin‐househasenabledus
toutilizealternativelowercostcomponentsfromdifferentsuppliersand,wherepossible,toredesignourproducts
topermitustousetheselowercostcomponents.Webelievethatbecauseofourpracticeofperformingthe
design,manufactureandmarketingofourproductsin‐house,ourShijr,Jhongli,andLin‐Koumanufacturingplants
inTaiwan,ourOlathe,Kansas,andSalem,Oregonmanufacturingplantshaveexperiencedrelativelylowcostsof
manufacturing.Ingeneral,productsmanufacturedinTaiwanhavebeenourhighestvolumeproducts.Our
manufacturinglaborcostshistoricallyhavebeenlowerinTaiwanthaninOlatheandSalem.
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Salespricevariabilityhashadandcanbeexpectedtohaveaneffectonourgrossprofit.Inthepast,
pricesofourdevicessoldintotheautomotive/mobilemarkethavedeclinedduetomarketpressuresand
introductionofnewproductssoldatlowerpricepoints.Theaveragesellingpricesofouraviation,outdoor/fitness,
andmarineproductshaveincreasedduetoproductmixandtheintroductionofmoreadvancedproductssoldat
higherprices.TheeffectofthesalespricedifferencesinherentwithinthemixofGPS‐enabledproductssoldcould
haveasignificantimpactonourgrossprofit.
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AdvertisingExpense
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Ouradvertisingexpensesconsistofcostsforbothmediaadvertisingandcooperativeadvertisingwithour
retailpartners.Asrevenuesgrewin2005‐2008,advertisingexpensealsoincreased.In2009,wereducedour
advertisingexpenseasrevenuesdeclinedandthepublicbecamemoreawareofGPStechnology.Thereduction