Garmin 2005 Annual Report Download - page 89

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59
Substantially all research and development is performed by GII in the United States. Research and
development costs, which are expensed as incurred, amounted to approximately $74,879, $61,580, and $43,706 for
the years ended December 31, 2005, December 25, 2004, and December 27, 2003, respectively.
Customer Service and Technical Support
Customer service and free technical support costs are included on the sales and marketing expense line on
our statements of operations. Customer service and technical support costs include costs associated with performing
order processing, answering customer inquiries by telephone and through Web sites, e-mail and other electronic
means, and providing free technical support assistance to customers. In connection with the sale of certain products,
we provide a limited amount of free technical support assistance to customers. The technical support is provided
within one year after the associated revenue is recognized. We accrue the estimated cost of providing this free
support upon product shipment.
Software Development Costs
Statement of Financial Accounting Standards (SFAS) 86, “Accounting for Costs of Computer Software to
be Sold, Leased, or otherwise Marketed,” requires companies to expense software development costs as they incur
them until technological feasibility has been established, at which time those costs are capitalized until the product is
available for general release to customers. Our capitalized software development costs are not significant. SFAS 2,
“Accounting for Research and Development Costs,” establishes accounting and reporting standards for research and
development. In accordance with SFAS 2, costs we incur to enhance our existing products or after the general
release of the service using the product are expensed in the period they are incurred and included in research and
development costs on our statement of operations.
Accounting for Stock-Based Compensation
At December 31, 2005, the Company has three stock-based employee compensation plans, which are
described more fully in Note 11. The Company accounts for those plans under the recognition and measurement
principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. No stock-
based employee compensation cost is reflected in net income, as all options granted under those plans had an
exercise price equal to the market value of the underlying common stock on the date of grant. The following table
illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition
provisions of SFAS No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation.
December 31, December 25, December 27,
2005 2004 2003
Net income as reported $311,219 $205,700 $178,634
Add: Total stock-based employee compensation 925 00
expense recorded during the year
Deduct: Total stock-based employee compensation
expense determined under fair-value based
method for all awards, net of tax effects (7,239) (5,460) (3,046)
Pro forma net income $304,905 $200,240 $175,588
Pro forma net income per share:
Basic $2.82 $1.85 $1.63
Diluted $2.79 $1.84 $1.61