Garmin 2009 Annual Report Download - page 93

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ConcentrationofCreditRisk
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TheCompanygrantscredittocertaincustomerswhomeettheCompany’spre‐establishedcredit
requirements.Generally,theCompanydoesnotrequiresecuritywhentradecreditisgrantedtocustomers.Credit
lossesareprovidedforintheCompany’sconsolidatedfinancialstatementsandtypicallyhavebeenwithin
management’sexpectations.Creditriskhasbecomemoresignificantinfiscal2009duetothemacroeconomic
conditionsbuttheCompanyismanagingcredittermsandbalancesaccordingly.Certaincustomersareallowed
extendedtermsconsistentwithnormalindustrypractice.Mostoftheseextendedtermscanbeclassifiedas
eitherrelatingtoseasonalsalesvariationsortothetimingofnewproductreleasesbytheCompany.
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RevenueRecognition
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Garminrecognizesrevenuewhenpersuasiveevidenceofanarrangementexists,deliveryhasoccurred,
thesalespriceisfixedordeterminable,andcollectionisprobable.ForthelargemajorityofGarmin’ssales,these
criteriaaremetonceproducthasshippedandtitleandriskoflosshavetransferredtothecustomer. The
Companyrecognizesrevenuefromthesaleofhardwareproductsandsoftwarebundledwithhardwarethatis
essentialtothefunctionalityofthehardwareinaccordancewithgeneralrevenuerecognitionaccounting
guidance.TheCompanyrecognizesrevenueinaccordancewithindustryspecificsoftwareaccountingguidancefor
standalonesalesofsoftwareproductsandsalesofsoftwarebundledwithhardwarenotessentialtothe
functionalityofthehardware.TheCompanygenerallydoesnotofferspecifiedorunspecifiedupgraderightstoits
customersinconnectionwithsoftwaresales.
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GarminintroducednüMapsLifetime™inJanuary2009,whichisasinglefeeprogramthat,subjecttothe
program’stermsandconditions,enablescustomerstodownloadthelatestmapandpointofinterestinformation
everyquarterfortheusefullifeoftheirPND. TherevenueandassociatedcostofroyaltiesforsalesofnüMaps
Lifetime™productsaredeferredatthetimeofsaleandrecognizedratablyonastraight‐linebasisoverthe
currentlyestimatedthree‐yearlifeoftheproducts.
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Formulti‐elementarrangementsthatincludetangibleproductsthatcontainsoftwarethatisessentialto
thetangibleproduct’sfunctionalityandundeliveredsoftwareelementsthatrelatetothetangibleproduct’s
essentialsoftware,theCompanyallocatesrevenuetoalldeliverablesbasedontheirrelativesellingprices.Insuch
circumstances,thenewaccountingprinciplesestablishahierarchytodeterminethesellingpricetobeusedfor
allocatingrevenuetodeliverablesasfollows:(i)vendor‐specificobjectiveevidenceoffairvalue(“VSOE”),(ii)third‐
partyevidenceofsellingprice(“TPE”),and(iii)bestestimateofthesellingprice(“ESP”).VSOEgenerallyexistsonly
whentheCompanysellsthedeliverableseparatelyandisthepriceactuallychargedbytheCompanyforthat
deliverable.
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In2009,Garminintroducedthenüvi1690,apremiumPNDwithabuilt‐inwirelessmodulethatlets
customersaccessGarmin’snüLink!™service,whichprovidesdirectlinkstocertainonlineinformation. The
Companyhasidentifiedtwodeliverablescontainedinarrangementsinvolvingthesaleofthenüvi1690.Thefirst
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.
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TheCompanyrecordsreductionstorevenueforexpectedfutureproductreturnsbasedontheCompany’s
historicalexperience.