UNITED STATES 

SECURITIES AND EXCHANGE COMMISSION 

Washington, D.C. 20549

 

FORM 10-K

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 29, 2018 

or 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from  _______ to _______ 

Commission file number 0-31983

 

GARMIN LTD. 

(Exact name of registrant as specified in its charter)

 

(LOGO)

 

Switzerland 

(State or other jurisdiction 

of incorporation or organization)

98-0229227 

(I.R.S. Employer Identification No.) 

Mühlentalstrasse 2 

8200 Schaffhausen 

Switzerland  

(Address of principal executive offices) 

N/A 

(Zip Code) 

Registrant’s telephone number, including area code: +41 52 630 1600

 

Securities registered pursuant to Section 12(b) of the Act:

 

Registered Shares, CHF 0.10 Per Share Par Value The Nasdaq Stock Market, LLC
(Title of each class) (Name of each exchange on which registered)
   

Securities registered pursuant to Section 12(g) of the Act: None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES   ☑  NO ☐

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES ☐ NO ☑

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ☑ NO ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulations S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). YES ☑ NO ☐

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act. 

 

Large Accelerated Filer ☑   Accelerated Filer ☐
     
Non-accelerated Filer ☐   Smaller reporting company  ☐
     
Emerging growth company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES ☐ NO ☑

 

Aggregate market value of the common shares held by non-affiliates of the registrant as of June 30, 2018 (based on the closing price of the registrant’s common shares on the Nasdaq Stock Market for June 29, 2018) was $7,753,502,173.

 

Number of shares outstanding of the registrant’s common shares as of February 15, 2019:  

Registered Shares, CHF 0.10 par value – 198,077,418 (including treasury shares)

 

Documents incorporated by reference: 

Portions of the following document are incorporated herein by reference into Part III of the Form 10-K as indicated:

 

Document   Part of Form 10-K into
which Incorporated
Company’s Definitive Proxy Statement for the 2019 Annual Meeting of Shareholders which will be filed no later than 120 days after December 29, 2018.   Part III

 

 

 

 

Garmin Ltd.

 

2018 Form 10-K Annual Report

 

Table of Contents

 

Cautionary Statement With Respect To Forward-Looking Comments 4
   
Part I  
     
Item 1. Business 4
Item 1A. Risk Factors 22
Item 1B. Unresolved Staff Comments 36
Item 2. Properties 36
Item 3. Legal Proceedings 37
Item 4. Mine Safety Disclosures 37
Executive Officers of the Registrant 37
   
Part II  
   
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 39
Item 6. Selected Financial Data 40
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 42
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 55
Item 8. Financial Statements and Supplementary Data 57
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 93
Item 9A. Controls and Procedures 93
Item 9B. Other Information 95
     
Part III  
   
Item 10. Directors, Executive Officers and Corporate Governance 96
Item 11. Executive Compensation 97
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 97
Item 13. Certain Relationships and Related Transactions, and Director Independence 98
Item 14. Principal Accounting Fees and Services 98
     
Part IV  
   
Item 15. Exhibits, Financial Statement Schedules 99
Item 16. Form 10-K Summary 105
  Signatures 107

 

 

 

 

CAUTIONARY STATEMENT WITH RESPECT TO FORWARD-LOOKING COMMENTS

 

The discussions set forth in this Annual Report on Form 10-K contain statements concerning potential future events. Such forward-looking statements are based upon assumptions by the Company’s management, as of the date of this Annual Report, including assumptions about risks and uncertainties faced by the Company. In addition, management may make forward-looking statements orally or in other writings, including, but not limited to, in press releases, in the annual report to shareholders and in the Company’s other filings with the Securities and Exchange Commission. Readers can identify these forward-looking statements by their use of such verbs as “expects,” “anticipates,” “believes” or similar verbs or conjugations of such verbs. Forward-looking statements include any discussion of the trends and other factors that drive our business and future results in “Item 7. Management’s Discussion and Analysis of Financial Conditions and Results of Operations.” Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their date. If any of management’s assumptions prove incorrect or should unanticipated circumstances arise, the Company’s actual results could materially differ from those anticipated by such forward-looking statements. The differences could be caused by a number of factors or combination of factors including, but not limited to, those factors identified under Item 1A “Risk Factors.” Readers are strongly encouraged to consider those factors when evaluating any forward-looking statements concerning the Company. Except as may be required by law, the Company does not undertake to update any forward-looking statements in this Annual Report to reflect future events or developments.

 

Part I

 

Item 1.Business

 

This discussion of the business of Garmin Ltd. (“Garmin” or the “Company”) should be read in conjunction with, and is qualified by reference to, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under Item 7 herein and the information set forth in response to Item 101 of Regulation S-K in such Item 7 is incorporated herein by reference in partial response to this Item 1. Garmin has identified five reportable segments for external reporting purposes: auto, aviation, marine, outdoor and fitness. There are two operating segments (auto PND and auto OEM) that are not reported separately but are aggregated within the auto reportable segment. The Company’s Chief Executive Officer has been identified as the Chief Operating Decision Maker (CODM), who allocates resources and assesses performance of each segment individually.

 

Garmin was incorporated in Switzerland on February 9, 2010 as successor to Garmin Ltd., a Cayman Islands company (“Garmin Cayman”). Garmin Cayman was incorporated on July 24, 2000 as a holding company for Garmin Corporation, a Taiwan corporation, in order to facilitate a public offering of Garmin Cayman shares in the United States. On June 27, 2010, Garmin became the ultimate parent holding company of the Garmin group of companies pursuant to a share exchange transaction effected for the purpose of changing the place of incorporation of the ultimate parent holding company of the Garmin group from the Cayman Islands to Switzerland (the “Redomestication”). Pursuant to the Redomestication, all issued and outstanding Garmin Cayman common shares were transferred to Garmin and each common share, par value U.S. $0.005 per share, of Garmin Cayman was exchanged for one registered share, par value 10 Swiss francs (CHF) per share, of Garmin. At the Company’s Annual General Meeting on June 10, 2016, the Company’s shareholders approved the cancellation of 10,000,000 registered shares of the Company held by the Company (the “Formation Shares”) and the reduction in par value of each share of the Company from CHF 10 to CHF 0.10 and the amendment of the Company’s Articles of Association to effect a corresponding share capital reduction. This share cancellation has reduced authorized shares from 208,077,418 shares to 198,077,418 shares, with an incremental 99,038,709 conditional shares that may be issued through the exercise of option rights, which are granted to Garmin employees or members of its Board of Directors. Garmin owns, directly or indirectly, all of the operating companies in the Garmin group.

 

Garmin’s annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statement and Forms 3, 4 and 5 filed by Garmin’s directors and executive officers and all amendments to those reports will be made available free of charge through the Investor Relations section of Garmin’s website (http://www.garmin.com) as soon as reasonably practicable after such material is electronically filed with, or furnished to, the Securities and Exchange Commission (the “SEC”). The SEC maintains an Internet site (http://www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.

 

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The reference to Garmin’s website address does not constitute incorporation by reference of the information contained on this website, and such information should not be considered part of this report on Form 10-K.

 

Company Overview

 

For nearly 30 years, Garmin Ltd. and subsidiaries (together, the “Company”) has pioneered new Global Positioning System (GPS) navigation and wireless devices and applications that are designed for people who live an active lifestyle. Garmin serves five primary business units, including auto, aviation, fitness, marine, and outdoor. We believe it is through these business units that Garmin is able to achieve synergies in raw material purchases, manufacturing, distribution, research and development and marketing efforts making for a stronger, more effective company. Garmin designs, develops, manufactures, markets and distributes a diverse family of hand-held, wearable, portable and fixed-mount GPS-enabled products and other navigation, communications, sensor-based and information products. In 2018, Garmin celebrated a milestone in delivering its 200 millionth product since the inception of the business and delivered more than 14.9 million products during the year.

 

Overview of the Global Positioning System

 

The Global Positioning System (GPS) is a global navigation satellite system that is able to provide precise geographic location and data to GPS receivers. The system consists of a constellation of orbiting satellites and provides global coverage. Access to GPS is provided free of charge. GPS satellites and their ground control and monitoring stations are maintained and operated by the United States Department of Defense, which maintains an ongoing satellite replenishment program to ensure continuous global system coverage.

 

Garmin utilizes a variety of other global navigation satellite systems (GNSS) including, but not limited to:

Japan’s MTSAT-based Satellite Augmentation System (MSAS) which achieved initial operating capability for enroute, terminal and approach navigation for aviation on September 27, 2007.
The European Geostationary Navigation Overlay Service (EGNOS) aviation Safety of Life (SoL) service which achieved initial operating capability for enroute, terminal, and approach navigation on March 2, 2011.
The Global Navigation Satellite System (GLONASS), a space-based satellite navigation system operated by the Russian Federation, consisting of 24 satellites and providing world-wide coverage.
The Galileo system, a global navigation satellite system that is currently being built by the European Union and European Space Agency with 30 total satellites planned for orbit (24 operational and six active spares), of which 26 are currently operational. Complete operational status is expected by 2020.
The BeiDou Navigation Satellite System (BDS), a Chinese satellite navigation system that is expected to have 35 operating satellites in orbit by 2020 and will provide global coverage.

 

In certain urban canyon or restricted sky visibility situations, the combination of multiple global navigation satellite systems to produce a navigation fix may result in improved accuracy.

 

On a subscription basis, certain Garmin products offer access to the Iridium satellite network, a synchronized constellation of 66 low Earth orbit (LEO) satellites offering global data communication coverage. The Iridium network is the only network that spans the entire globe, offering 100 percent coverage worldwide to enable satellite-based communication.

 

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The accuracy and utility of GPS can be enhanced through augmentation techniques which compute any remaining errors in the signal and broadcast these corrections to a GPS device. The Federal Aviation Administration (“FAA”) has developed a Wide Area Augmentation System (WAAS) comprising ground reference stations and additional satellites that improve the accuracy of GPS positioning available in the United States and most of Canada and Mexico to approximately 3 meters. WAAS supports the use of GPS as the primary means of enroute, terminal and approach navigation for aviation in the United States. The increased accuracy offered by WAAS also enhances the utility of WAAS-enabled GPS receivers for consumer applications.

 

Products

 

Garmin offers a broad range of solutions across its reportable segments as outlined below. In general, Garmin believes that its products are known for their value, high performance, ease of use, innovation, and ergonomics. 

 

Auto

 

Garmin offers a broad range of products designed for use in the auto market.  Garmin currently offers to customers around the world:

 

Personal Navigation Devices (PND) –

 

PNDs combine a full-featured GPS navigator (with built-in maps) with Garmin’s uniquely simple user interface.  PNDs are sold under the Garmin Drive™, zūmo®, dēzl™, RV and Garmin fleet™ product lines.  The zūmo series offers motorcycle-specific features. The RV series offers features specific to the RV enthusiast. The dēzl series offers over-the-road trucking features while the Garmin fleet series delivers an integrated tracking and dispatch fleet system.  Across the expansive product portfolio, Garmin offers features such as large screens, integrated traffic receivers for traffic avoidance, bundled lifetime map updates, spoken street names, voice activated navigation, speed limit indication, lane assist with PhotoReal junction views (thousands of high quality photos of actual upcoming junctions), Bluetooth hands-free capability, DashCams, driver awareness alerts, and backup cameras.

 

Garmin offers the Garmin Drive™ and Smartphone Link mobile applications across a broad range of smartphones and tablets including iOS, Android and Windows enabled devices.  The Drive and Smartphone Link mobile applications allow a compatible Garmin personal navigator to connect to a compatible smartphone. Information can be shared between the smartphone and the personal navigator including notifications, contacts, search results, driving destination, and even parking location. Real-time services such as live traffic, weather, and live parking can be accessed for useful, real-time driving information.

 

Original Equipment Manufacturer (OEM) Solutions –

 

Garmin has cultivated key relationships with many automobile manufacturers to be the provider of a variety of auto OEM solutions. These range from complete embedded infotainment systems that provide a broad range of functionality, to integrated camera solutions, embedded navigation solutions, and precise positioning technology solutions. These support not only the infotainment system in the vehicle, but also key advanced driver-assistance systems (ADAS) functionality as well.

 

Cameras –

 

Garmin offers VIRB® action cameras that capture 360-degree footage up to 5.7K/30fps with digital image stabilization, voice or wireless remote control, and the ability to take high quality still photographs while the video camera is recording. VIRB action cameras offer built-in Wi-Fi, data sensors and a high-sensitivity GPS receiver to add speed, elevation, G-force, heart rate, and other data onto video through our VIRB Edit and VIRB Mobile applications.

 

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Garmin offers GPS-enabled DashCams that provide high-quality video recording, provide forward collision and lane departure warnings, and automatically saves video footage with G-sensor incident detection. DashCams are offered as compact, discreet standalone cameras that can be mounted to a car windshield or built-in to certain PNDs. Garmin also offers wireless backup cameras that can be utilized with compatible PNDs to display camera footage behind the vehicle when the vehicle is in reverse.

 

Outdoor

 

Garmin offers a broad range of products designed for use in outdoor activities. Garmin currently offers to consumers around the world:

 

Outdoor Handhelds –

 

Outdoor handhelds range from basic waypoints navigation capabilities to advanced color touchscreen devices offering barometric altimeter, 3-axis compass, camera, microSD™ card slot for optional customized maps, Bluetooth for smartphone connectivity, satellite communication and other features. Outdoor handhelds are sold under the Oregon®, Rino®, Montana®, eTrex®, GPSMAP®, Foretrex® and inReach® product lines. Each series of products is designed to serve various price points and niche activity categories. Handhelds with inReach include global satellite technology which, when combined with an active subscription, offers 2-way text messaging, S.O.S. capabilities and weather forecasts while anywhere in the world.

 

Adventure Watches –

 

Garmin offers GPS ruggedized smartwatches for outdoor activity. The fēnix® series provides advanced multisport features for hiking, climbing, skiing, running, cycling, swimming, yoga, repetition counting, and more. The fēnix series also offers a variety of navigational tools, third party application support with Connect IQ™ and connected features, as well as Elevate™ wrist heart rate technology for certain models. The fēnix 5 and 5 Plus series offer three different watch sizes, along with multiple QuickFit® band options available for each model. The fēnix 5 Plus series added color maps, Garmin Pay™ contactless payment solution, and music to all three watch sizes. The fēnix 5X Plus also introduced Garmin’s first wearable to offer a wrist-based Pulse Oximeter for altitude acclimation awareness. The tactix® Charlie provides preloaded full-color TOPO mapping and other features inspired by the requirements of law enforcement and police special operations. The Descent™ Mk1 is a watch style dive computer that offers divers GPS navigation, multiple dive modes, support for up to six gasses, and additional features including Garmin Elevate™ wrist heart rate technology and a variety of multisport features. In 2018, Garmin introduced Instinct, a rugged and reliable outdoor GPS smartwatch with built-in sports apps, heart rate sensor, smart connectivity and wellness data.

 

Golf Devices

 

The Approach® series of golf-focused devices includes handhelds, wrist-worn devices, club sensors, and laser ranging devices with over 41,000 preloaded worldwide golf courses. The offerings range from basic display of yardages to the front, back and middle of greens to advanced, touchscreen devices providing measurement of individual shot distances and display of the slope-adjusted yardage to fairways, hazards and greens. The S10 is an easy-to-use entry level GPS golf watch that provides precise distances to the front, middle, and back of the green on over 41,000 preloaded golf course maps on a 1.3-inch high-resolution sunlight readable screen. The S20 model includes AutoShot to automatically record distance and location of shots, daily activity tracking and smart notifications. The S60 model also includes a touchscreen display and PlaysLike feature, which takes into account the elevation change between golfers and their target to calculate the distance for how the shot will likely play. The S60 also offers Connect IQ support and a premium model which features a ceramic bezel.

 

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Many of the golf devices include a statistic-tracking feature that allows users to track and analyze their golf statistics through a Garmin mobile application. Some devices include swing metrics, which give audible tones to fine-tune swing tempo, an internal compass which provides directional assistance to the pin on blind shots, manual pin positioning, which allows users to tap and drag the flag on the green for precise yardage to the flag, and the ability to display emails, text messages and alerts.

 

In 2018, Garmin also introduced the Approach Z80, a full-featured integrated laser range finder with GPS, and Approach CT10, club tracking sensors for fully automated game tracking. The Z80 laser range finder features an overlaid image of the hole on over 41,000 preloaded golf courses and also includes image stabilization to reduce shakiness and PlaysLike feature to adjust distances based on uphill or downhill slope. The CT10 sensors are lightweight sensors added to golf clubs and paired with compatible Garmin golf wearables to provide in-depth analysis and insight on distance and accuracy on each golf club.

 

Dog Tracking and Training Devices –

 

Garmin offers a series of dog-focused products providing a range of functionality including GPS-enabled dog tracking, electronic dog training, and automatic bark detection and correction. The products are offered under the Astro®, Alpha®, Atemos™, PRO, Sport PRO™, BarkLimiter™, Delta® and Delta Smart™ product lines. The Alpha and Astro series can pinpoint multiple dogs’ positions at one time through all-weather collars and a handheld system, and can also connect to a variety of compatible Garmin devices such as the Garmin DriveTrack™ 71 GPS navigator or certain adventure watches to display dog positions. Alpha combines the tracking capabilities of Astro with electronic dog training. The BarkLimiter is an intuitive electronic bark correction device. The Delta and PRO series of training collars offers a remote training device with integrated bark limiting capability for consumer and professional dog training markets, with additional tracking features available on the PRO 550 Plus.

 

Garmin Connect and Garmin Connect Mobile –

 

Garmin Connect™ and Garmin Connect Mobile are web and mobile platforms where users can track and analyze their fitness, activities and workouts, and wellness data. In addition, users can share their accomplishments, create training groups and group challenges, and get feedback and encouragement from the Connect community.

 

Connect IQ –

 

The Connect IQ™ application development platform enables third-parties to create a variety of experiences that run on a wide assortment of Garmin devices.  Connect IQ provides developers with an easy-to-use software development kit (SDK) to facilitate development efforts in creating watch faces, applications, widgets, and data fields.  These third-party applications are available for download by Garmin users via their mobile phone or computer and run on their compatible Garmin wearable, bike computer, or outdoor handheld.

 

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Fitness

 

Garmin offers a broad range of products designed for use in fitness and activity tracking. Garmin currently offers to consumers around the world:

 

Running/Multi-Sport Watches –

 

The Forerunner® series offers compact, lightweight training watches for athletes with an integrated GPS sensor that provide time, speed, distance, pace and other data. Most models also offer a heart rate monitoring function and heart-rate based calorie computation. In 2018, Garmin added the Forerunner 645 and Forerunner 645 Music, delivering a premium GPS running watch with Garmin Elevate™ wrist-based heart rate monitoring and Garmin Pay™ contactless payment solution, while the Forerunner 645 Music adds music storage capabilities to the watch. All Forerunner models allow runners to upload their data to the Garmin Connect application, where they can store, analyze and share their workout data. Additional advanced features include: Virtual Racer™, which allows runners to race against their previous best times, recovery advisor, race predictor and VO2 max estimate. Some models are designed specifically for triathletes. These all-in-one GPS-enabled devices provide detailed swim metrics and track distance, speed/pace, elevation and heart rate for running and cycling.

 

Cycling Computers –

 

The Edge® series measures speed, distance, time, calories burned, climb and descent, and altitude offering an integrated personal training system designed for cyclists. In addition, Garmin offers devices geared toward performance-driven cyclists offering real-time connectivity through a smartphone, providing live tracking, social media sharing and real-time weather updates. The Edge series range from basic easy-to-use bike computers to premium, top-of-the-line models with advanced navigation, performance and cycling awareness features.

 

Cycling Power Meter –

 

Garmin offers Vector™, which is a high-precision pedal-based power meter designed specifically for cyclists. It provides power data to compatible devices with (or using) ANT+® technology. Some models also measure and present right and left leg power balance.

 

Cycling Safety and Awareness –

 

Garmin offers the Variaproduct line focused on cycling safety and awareness. Varia bike radar alerts cyclists when vehicles are approaching from behind and Varia bike lights make the cyclist more visible when out on the road. Varia Visionis a heads-up display that makes data available to the cyclist in their line of sight.

 

Activity Tracking Devices –

 

Garmin offers numerous devices to address the activity tracking market. The vívomove® HR provides wrist-based heart rate monitoring, sleep monitoring, and activity tracking to a hybrid smartwatch. The vívofit® fitness bands provide a personalized daily goal, track progress and remind users when it’s time to move. The devices feature a one-year battery life with an always-on display that show steps, goal countdown, calories, distance, time of day and heart rate when paired with a monitor. The vívosmart® provides the same functions as the vívofit bands but also includes Garmin Elevate™, smart notifications and a vibration alert, and a wrist-based pulse oximeter sensor in the vívosmart 4 that was released in 2018. The vívosport® incorporates GPS, allowing users to even more accurately track distance, time and pace for their activities, as well as view a map of their activity on Garmin Connect™. The vívoactive® smartwatches are focused on the active lifestyle consumer with all the basic activity tracking features along with applications designed for running, cycling and swimming and includes connectivity to the Connect IQ™ application store for further customizations and capabilities. The vívoactive 3 Music was released in 2018, which added music storage capabilities to the vívoactive GPS smartwatch product line.

 

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Marine

 

Garmin is a leading manufacturer of recreational marine electronics and offers a broad range of products. Garmin currently offers to customers around the globe:

 

Chartplotters and Multi-Function Displays (MFDs) –

 

Garmin offers numerous chartplotters/MFDs under the GPSMAP® and echoMAP™ product lines. The offerings range from 4-inch portable and fix-mounted products to 24-inch fully-integrated Glass Helm offerings. The Garmin Quickdraw™ Contours feature allows users the ability to generate their own fishing charts while they cruise around the lake and even share or download this fishing charts from a global community. Additionally, most models have the CHIRP sonar function fully integrated to reduce system cost. Our chartplotters also support “plug-and-play” access to onboard sensors and Garmin accessories with NMEA 2000, Garmin Marine Network (a system that combines GPS, radar, SiriusXM WX Satellite Weather, sonar, and other components) and the FUSION-Link™ entertainment interface.  Most of our chartplotter/MFD line-up also support Wi-Fi to enable connected features including smartphone notifications, mobile updates for charts and software, crowd sourced data, user data synchronization, and others through the ActiveCaptain® app to ensure the latest information and software is always available for the vessel. The ActiveCaptain app is available in the Apple and Android app stores.

 

Cartography –

 

Garmin is a premier supplier of cartography for the recreational marine market. Together with our subsidiary Navionics®, which serves the content needs of many 3rd party chart plotters, Garmin is the worldwide leader in recreational marine content.  Cartography product options range from worldwide basemaps to highly detailed BlueChart® g2, BlueChart® g3, BlueChart® g2 Vision® and BlueChart® g3 Vision, LakeVü g3 and LakeVü g3 Ultra charts, Navionics+, Platinum+ and Hotmaps Platinum products with coverage in many parts of the world, offering auto-guidance (Garmin US-patented), Navionics Dock to dock autorouting, 3-D chart views and aerial reference photos. Many of these products include Garmin’s most detailed cartography based on our own surveys done in U.S. inland waters by Garmin’s fleet of high tech boats, content developed and owned exclusively by Navionics own survey and data collection efforts, as well as depth content based on Navionics popular SonarChart™ product containing community contributions worldwide.  We also offer the highly-rated Navionics boating app to bring cartography to the mobile phones and tablets of recreational boaters worldwide. 

 

Fishfinders –

 

Garmin offers an advanced line of fishfinders, the Striker™ series, which incorporate GPS technology and Quickdraw™ Contours. These fishfinders are available in screen sizes from 4 to 9 inches and are paired with our latest technology sonar transducers to provide the clearest sonar pictures on the water. ClearVü sonar and Quickdraw Contours are offered on the 4-, 5-, 7- and 9-inch models which provides high resolution images of what is under the boat and the ability to create your own fishing maps. The 7- and 9-inch models also offer a SideVü option which provides similar high-resolution images but reaches much further out on either side of the boat making the search for fish more efficient. The GPS technology enables anglers to have highly accurate speed information and mark their best fishing spots and then easily return to them next weekend, next month, or next year. The 7- and 9-inch models also offer Wi-Fi technology which enables wireless updates and Quickdraw Contour sharing that give anglers access to a global fishing map community where owners can contribute or download what others have shared.

 

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Sounders –

 

Garmin offers “black-box” sounders and “smart transducers” which interface with Garmin MFDs to enhance their utility by providing the depth sounder and fish finder functions in a remote mounted package. The black boxes provide CHIRP, Ultra High-Definition ClearVü, and Ultra High-Definition SideVü sonar, similar to our integrated sonar plotters, but can be mounted in a more convenient location away from the helm. Additionally, we offer up to 3kW transmit power with our black box line-up which will reach deeper depths for ocean use. Our newest smart transducer line is the Panoptix™ all seeing sonar. It provides detailed images that can be seen in real-time (LiveVü), 3D (RealVü), and in a forward-looking configuration (FrontVü) for seeing what is coming before you get there. Panoptix is offered in a range of transducers for transom, trolling motor, or thru-hull mounting configurations. Panoptix LiveScope™ was introduced in 2018 and takes all seeing sonar to a new level. LiveScope™ takes the real-time aspect of our original Panoptix but significantly increases the resolution to provide an unparalleled view of what is happening live under the water. 

 

Autopilot Systems –

 

Garmin offers full-featured marine autopilot systems designed for sailboats and powerboats. The systems incorporate such features as Garmin’s patented Shadow Drive™ technology, which automatically disengages the autopilot if the helm is turned, remote steering and speed control, and integration with the Volvo Penta IPS steering and propulsion system. Garmin has also introduced steer-by-wire autopilot capabilities for various steering systems.

 

Radar –

 

Garmin offers high-tech solid state Fantom™ radar with MotionScope™ Doppler technology, lowering system power consumption while greatly improving situational awareness of the captain. MotionScope can instantly show if a target is closing in or safely going the other direction. Fantom radars are available in both radomes and open array radar products with compatibility to any network-compatible Garmin chartplotter. When paired with our newer MFDs, the radars support dual-range mode so users can operate the radar in two ranges independently. The Fantom radars are offered in addition to the more traditional magnetron radars. The Garmin radar solutions range from 18 inches to 6 feet antennas and from 4kW (or equivalent) up to 25kW with a maximum range of 96 nautical miles.

 

Instruments –

 

Garmin offers NMEA 2000 and NMEA 0183 compliant instrument displays that show data from multiple remote sensors on one screen. Mariners can display instrument data such as depth, speed through the water, water temperature, fuel flow rate, engine data, fuel level, wind direction and more, depending upon the specific sensors connected. Garmin instruments offer screen sizes from 4 to 10 inches, and the 10-inch mast mounted displays provide maximum visibility around the vessel.

 

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VHF Communication Radios –

 

Garmin provides marine VHF radios with the latest feature sets for the communication needs of all types of mariners. Our radios are NMEA 2000 compatible and the mid-range and premium radios are designed for larger vessels and include NMEA 0183, offer multi-station support, and monitor all AIS channels at the same time.

 

Handhelds and Wearable Devices –

 

Garmin offers a floating marine GPS handheld featuring a 3-axis tilt-compensated electronic compass, wireless data transfer between compatible units and preloaded cartography for the coastal United States. The quatix® series, Garmin GPS watches designed for mariners, combines marine features for navigation, sailing, stereo control, and even some autopilot functions while integrating Garmin’s GPS technology and interface. The quatix 5 model also includes Garmin Elevate™ wrist-based heart rate monitoring.

 

Sailing –

 

Garmin has integrated many basic and advanced sailing features into our MFD and instrument systems. These SailAssist features include enhanced wind rose with true and apparent wind data, pre-race guidance, synchronized race timer, virtual starting line, time to burn and lay line data fields.

 

Entertainment –

 

Garmin’s entertainment brand, FUSION®, consists of marine audio head units, speakers and amplifiers. These products are designed specifically for the marine or RV environments and support many connectivity options for integrating with MFDs, smartphones, and even the Garmin quatix® marine watch for an outstanding experience on the water. The FUSION marine head units are designed specifically for the marine environment and feature up to 4 zones in one unit to control. The system can support multiple head units allowing control of the whole system from a Garmin MFD.

 

Digital Switching –

 

In 2018 Garmin acquired Trigentic who designs and manufactures digital switching equipment under the EmpirBus™ brand. The EmpirBus products provide power distribution and control solutions for marine and RV applications which enable advanced logic controls and smart electrical systems to enhance features in a boat or RV. Control for EmpirBus products is integrated into Garmin’s marine multi-function displays and RV OEM products.

 

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Aviation

 

The Garmin aviation segment is a leading provider of solutions to aircraft manufacturers, existing aircraft owners and operators, as well as government/defense customers and serves a range of aircraft including business aviation, general aviation, experimental/light sport, helicopters, optionally piloted vehicles (OPV), unmanned aerial vehicles (UAV) and more. Garmin’s portfolio includes flight displays, navigation, communication, flight control, hazard avoidance, weather radar, radar altimeter, datalink weather receivers and services, engine information systems, traffic collision avoidance systems, terrain awareness and warning systems (TAWS), controller-pilot data link (CPDLC), an expansive suite of automatic dependent surveillance broadcast (ADS-B) solutions, in-cockpit and cloud connectivity, wearables, portables, apps, training, simulation, flight planning/filing, premium trip services, aviation data services as well as other solutions that are known for innovation, reliability, and value. The list below includes a sampling of some of the aviation capabilities currently offered by Garmin around the world:

 

Integrated Flight Decks/Flight Displays –

 

Garmin offers a range of integrated glass flight decks from the G1000® NXi for the general aviation and business aviation markets to the G5000® for business aviation, defense and commercial applications. Integrated capabilities include: navigation, communication, flight instruments, weather, terrain, traffic, ADS-B, engine information on large high-resolution color displays, and automatic flight control systems. Head-up display technology virtually mirrors the primary flight display instruments allowing for increased aircraft capability in adverse weather conditions. Additional features include: Garmin’s 3-D synthetic vision technology (SVT™), weather, Garmin’s electronic stability and protection system (ESP™), electronic flight charts, touchscreen and voice controls, CPDLC, audio and visual feedback, and animation to help pilots know exactly how the system is responding to their input.

 

Garmin offers similar integrated glass flight decks for the helicopter market with the G1000H® NXi, G3000H™, and G5000H™. Basic and advanced capabilities are similar to those offered to the fixed-wing aircraft market. The helicopter offerings have been optimized for rotorcraft and offer features like helicopter synthetic vision technology (HSVT™), helicopter terrain awareness and warning system with voice call outs, radar altimeter display, helicopter-specific databases that include additional heliports and low-altitude obstacles, WireAware™ wire-strike avoidance technology, as well as high resolution terrain, tailored ADS-B traffic alerting, and the ability to display video from a forward looking infrared (FLIR) camera or other video sources.

 

Garmin also offers all-glass integrated flight decks to the retrofit market through G950® NXi, G1000® NXi, G3000® and G5000®. Additionally, Garmin offers electronic flight display solutions that provide essential information such as aircraft altitude, attitude and heading while also displaying data from other avionics such as weather, traffic and much more. These solutions include G3X Touch™, G500H TXi, G500 TXi, G600 TXi and G700 TXi.

 

Panel-mount aviation products –

 

GPS/Navigation/Communication Solutions –

 

Garmin serves the market with the GTN™ series, a premium touchscreen GPS, VHF navigation and communication, and multi-function display (MFD). In addition to these core functions, this series of products combines a wealth of information for the pilot into a single display including flight planning, datalink weather, weather radar, traffic, terrain awareness and warning system (TAWS/HTAWS), charts, airport information, airspace boundaries, and much more. Additional capabilities provide advanced ADS-B “In” traffic display, including TerminalTraffic™ and patented TargetTrend™ technology as well as the ability to control the display with voice commands. Advanced GTN integration capabilities provide the option to install and control a remotely located transponder and audio processor for an even more streamlined installation and single interface. The GTN series also provides wireless cockpit connectivity (when properly equipped) with mobile device apps (such as Garmin Pilot™) or portable aviation navigators (such as aera® 660). Wireless cockpit connectivity features can include voice call control, text messaging, automatic wireless database updating via Database Concierge, wireless flight plan transfer, SiriusXM radio control, sharing of weather, traffic, position information and more. Garmin also offers more traditional VHF navigation and VHF communication transceivers with the GNC® and GTR™ series.

 

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Traffic Solutions –

 

Garmin offers a comprehensive line of traffic alert and collision avoidance systems (TCAS) and traffic advisory systems (TAS) for all markets served. Advanced TCAS II systems actively identify potential aircraft threats, coordinate and instruct the pilot with a resolution advisory (RA) via a spoken command. The GTS™ series also offers TCAS I and TAS that combine active and passive surveillance data to pinpoint specific traffic threats. The systems use our patented CLEAR CAS™ technology and correlate passive automatic dependent surveillance broadcast (ADS-B) targets with active surveillance targets for a more comprehensive display to the pilot. These systems can also provide audible alerts in a spoken ATC-like format that is easily understood by the pilot and allows him to keep his eyes outside of the aircraft.

 

Audio Solutions –

 

The GMA™ series of audio panels ranging from offerings with basic capabilities for the recreational pilot to advanced capabilities including voice control of audio panel and GTN™ series functions, Bluetooth connectivity for wireless music input, phone calls and VIRB® action camera audio output, advanced audio effects, 3D spatial audio processing, digital voice recorder, advanced auto squelch, ambient noise based volume adjustment and independent pilot/co-pilot communications capabilities. When connected to a Garmin GTN series navigator, advanced voice control functions are available, and include the ability to change page views, load destination frequencies and much more.

 

Transponder and ADS-B Solutions –

 

Garmin offers solutions for all aviation markets we serve that meet and exceed the FAA’s ADS-B mandate that requires all aircraft operating in select U.S. airspace (typically where a Mode C or S transponder is required today) to equip by 2020. For business aviation aircraft, Garmin pairs the GTX™ 3000 transponder and GDL® 88 datalink for both ADS-B out and in while mitigating the need to modify the existing aircraft panel. The GTX 345 and GTX 335 are also available as an option for some business aviation aircraft.

 

Business aviation, general aviation, helicopters and experimental/light sport aircraft can utilize our popular GTX 345 series of all-in-one ADS-B transponders that offer options with and without GPS built-in (if the aircraft is not already equipped with mandate required GPS source) as well as ADS-B “In”. ADS-B “In” information can be displayed on most Garmin multi-function displays and integrated flight decks as well as select third party displays. Additionally, the GTX 345 can wirelessly transmit this data to a portable device such as a tablet using the Garmin Pilot™ app or compatible Garmin aviation portable. ADS-B “In” offers pilots basic weather information including weather radar imagery, as well as traffic information that can be enhanced with our TerminalTraffic™ and patented TargetTrend™ technology.

 

Garmin also offers a range of FAA certified UAT-based ADS-B products within the GDL® series, including both ADS-B “Out” and ADS-B “In/Out” solutions with options for built-in GPS.

 

Many of the ADS-B “In” capable products provide traffic correlation with both Garmin and other compatible third-party traffic systems (such as TCAS) to provide a single, correlated display of traffic to the pilot. Some products also offer the option for diversity (dual) antenna installations.

 

Weather Solutions –

 

Weather capabilities are delivered within our GDL®, GSR™, GSX™, GTX™ and GWX™ series. Garmin solutions include offering SiriusXM satellite data link weather information (subscription required) to an aircraft via various panel-mount Garmin displays and/or portable devices. With our GSR 56 datalink, on-demand global weather information, text/voice communications and position tracking through the Iridium satellite network (subscription required) is available. The GWX and GSX series offer solid state, real-time, airborne doppler-capable weather radar solutions. Doppler-enhanced features include ground-clutter suppression and turbulence detection. Advanced capabilities also include lightning and hail prediction, volumetric autoscanning and predictive windshear technology.

 

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Flight Control Solutions –

 

Garmin offers both standalone and integrated flight control solutions. Our G1000® NXi, G2000®, G3000® and G5000® platforms are integrated with our GFC™ 700 digital autopilot and optionally with our autothrottle solution. For aircraft not equipped with a Garmin integrated flight deck, we offer the GFC 600 and GFC 500 digital autopilots. The GFC 600 and GFC 500 uniquely integrate with our other stand-alone avionics to allow display of the autopilot modes, flight director (FD) command cues and more. The unique design of our autopilots delivers superior in-flight characteristics, self-monitoring capabilities and minimal maintenance needs when compared to older generation autopilot systems. They also boast a robust feature set that incorporates a number of safety-enhancing technologies, including Electronic Stability and Protection (ESP™), underspeed/overspeed protection, Level Mode and much more.

 

Portable and Wearable Solutions –

 

Garmin offers a variety of portable aviation solutions, including our aera® series portable navigators, VIRB® aviation action cameras, D2™ series pilot watches, inReach® global communicators and GDL® series remote ADS-B/SiriusXM receivers. The aera series offers aviators a touchscreen navigation device compatible with a complement of aviation databases including navigation, SafeTaxi®, FliteCharts®, airport directory and terrain/obstacles for heightened situational awareness. Advanced features can include: 3D Vision virtual perspective view of surrounding terrain, a digital document viewer, a scratch pad, geo-referenced sectional and approach charts, wireless database updating, and SiriusXM radio and weather display (subscription required). Complementing the portable display products and the Garmin Pilot™ mobile application is the GDL 52 series, which can provide a remote source of GPS, ADS-B “In” information for traffic and weather, SiriusXM weather and audio as well as backup attitude reference.

 

The Garmin wearable aviation solutions include our D2 series pilot watches, which offer a built-in worldwide aviation navigation database and more alongside multisport and smartwatch features. Designed specifically for aviators, the current D2 series can display weather information (METARS and TAFs) as well as weather radar from an internet connected smartphone. Other flight information capabilities include a moving map overlaid with the aircraft’s position, HSI navigation, Zulu/UTC time and more. With a built-in baro-adjustable altimeter, vibrating alerts based on altitude can be activated to remind a pilot to activate supplemental oxygen or perform other time critical tasks. The D2 Delta series watches also include multisport features with wrist-based heart rate monitoring, smartwatch capabilities, music storage capabilities, and a wrist-based pulse oximeter sensor available on the D2 Delta PX. Our VIRB aviation action camera products provide pilots a comprehensive solution to record their flights, with the ability to integrate air traffic control communications to the audio recording, filter out prop distortion and overlay speed, altitude, G-force and more for enhanced post flight analysis.

 

inReach satellite communications and services provide the ability to stay in touch globally. Send and receive messages, navigate your route, track and share your journey and, if necessary, trigger an SOS to get emergency help from a 24/7 global monitoring center via the 100% global Iridium® satellite network.

 

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Services –

 

Mobile Applications –

 

Garmin Pilot™ is a premium, global app for iOS or Android mobile devices used for flight planning, filing a flight plan, in flight navigation, and automatic flight logging. It offers a comprehensive and simplified experience to access a wealth of information during any particular phase of the flight including weight and balance, performance, and trip calculations, checklists, airport information, weather, traffic, 3D Vision virtual perspective view of surrounding terrain, a digital document viewer, a scratch pad, geo-referenced sectional and approach charts, wireless database updating, ADS-B weather and traffic as well as SiriusXM radio and weather (subscription required). It incorporates global or regional navigation databases and charting options from Garmin as well as optional Jeppesen data and charts. While internet connected, the app provides access to comprehensive global weather information, as available per region, that generally includes weather radar, weather report (METARS), forecasts (TAFs), weather alerts (AIRMETS/SIGMETS), pilot reports, satellite imagery (visible and IR), winds and temperature aloft, lightning data, and notices to airmen (NOTAM). Garmin Pilot is the cornerstone of Garmin’s connected cockpit, for example when connected wirelessly with G1000® NXi, a host of benefits become available including automated database updates for the avionics, flight plan transfer, weather and traffic streaming, real-time engine information and much more. Garmin Pilot™ is also wirelessly compatible with select aera® series portables, D2™ aviator watches, G3X Touch™ flight displays, GTX™ series transponders, VIRB® action cameras, inReach® communicators and much more.

 

Additionally, the FltPlan® Go app offers pilots a free, advertisement supported, alternative to Garmin Pilot and is available for iOS, Android, Windows and Mac. The FltTrack™ app, available for iOS and Android, allows users to view flights by aircraft registration on high-resolution, full-screen maps with weather radar. Flight details include both filed and actual departure times and filed/amended routes. The FltLogic® app is the mobile companion to the FltLogic scheduling website and is available for iOS and Android. It allows pilots and passengers to stay up to date with scheduled flights and provides administrators the ability to create and edit events from their mobile device.

 

Web Services –

 

Pilots and operators can utilize a variety of Garmin web applications before, during and after flights. FltPlan.com is the core of these applications and is trusted by pilots and flight departments to plan and file more flight plans than any other provider. It is renowned for fuel burn accuracy, reliable flight times, accurate routing and features performance profiles for more than 320 aircraft models from experimental aircraft to inter-continental business jets.

 

FltPlan.com offers a suite of comprehensive trip services designed to help support pilots and flight departments. Services include Pre-departure clearances, runway analysis, eAPIS, international handling, privacy services with DOT COM call signs, flight tracking, fleet management and flight logistics/scheduling.

 

For flight scheduling, FltLogic.com offers a comprehensive suite of features from trip requests and approvals to flight planning and post-flight reporting to meet complex and changing operational needs. FltPlan® Manager is an integrated, web-based fleet tracking program designed specifically for charter operations, large flight departments, and fractional operations. It offers operators better insight and control of their fleet from a single administrative account. FltSafety.com is a safety management system website that assists pilots and flight departments in managing potential hazards and risks and ensuring overall safety within flight operations.

 

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Aviation Databases –

 

Garmin offers a wide selection of databases, extended warranties and subscription services to complement our products. Our database offerings include Navigation Data, Obstacles, SafeTaxi® enhanced airport diagrams, Terrain, Basemap and more. Some of these databases are required by government regulations to be updated regularly for legal flight, and Garmin offers single updates as well as annual subscriptions for owners and operators to update all of an aircraft’s qualifying avionics systems at a single price. With a database subscription and compatible avionics, owners and operators can conveniently and wirelessly transfer the latest database updates to their avionics via a mobile device running our Garmin Pilot™ application.

 

Extended Warranties –

 

Our aviation product support team has been honored with top awards from two of the leading independent avionics support surveys for 15 consecutive years. To further our full product support beyond the standard product warranties, we also offer fixed price extended warranties for integrated flight decks and custom plans tailored to the owner or operator’s needs, allowing them peace of mind and predictable maintenance costs. These further our standard warranty periods with world-class factory technical service, 24/7 aircraft-on-ground (AOG) emergency service and more.

 

Datalink Communications –

 

Our comprehensive satellite datalink network subscriptions provide owners and operators with compatible avionics, a global weather, voice calling, text messaging and position reporting solution. Global weather includes radar imagery, cloud cover, METARs, TAFs and much more for any point on the globe where the data is available (weather products vary by region).

 

Sales and Marketing

 

Garmin’s non-aviation products are sold in approximately 100 countries through a large worldwide network of independent dealers and distributors, who meet our sales and customer service qualifications. No single customer’s purchases represented 10% or more of Garmin’s consolidated net sales in the years ended December 29, 2018, December 30, 2017, and December 31, 2016. Marketing support is provided geographically from Garmin’s offices around the world. Garmin’s distribution strategy is intended to increase Garmin’s global penetration and presence while maintaining high quality standards to ensure end-user satisfaction. Some of Garmin’s larger consumer products dealers and distributors include:

 

Amazon.com—internet retailer;

Best Buy—one of the largest U.S. and Canadian electronics retailers;

Walmart—the world’s largest mass retailer; and

Decathlon—one of the world’s largest sporting goods retailers

 

Garmin’s retrofit avionics and aviation portable products are sold through a large group of approved Garmin Sales and Service Centers around the world and, in the case of aviation portable products, also through select catalogs and pilot shops. Garmin’s largest aviation dealers include Aircraft Spruce & Specialty Co., Elliott Aviation, Gulf Coast Avionics Corp., Park Rapids Avionics, and Sarasota Avionics. Avionics dealers have the training, equipment and certified staff required for installation of Garmin’s avionics equipment.

 

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In addition to the traditional distribution channels mentioned, Garmin has many relationships with original equipment manufacturers (OEMs). In the auto segment, Garmin’s products are sold globally to automotive and motorcycle OEMs, either directly or through tier 2 sourcing. Some of Garmin’s larger OEM relationships include BMW, Chrysler, Daimler (Mercedes Benz), Honda, Toyota, and Volkswagen. In the marine segment, Garmin’s products are standard equipment on various models of boats. Some of the larger OEM relationships include Chaparral Boats, Inc., Cobalt Boats, LLC, Groupe Beneteau, Hydrasports Boats, Ranger Tugs, Regal Marine Industries, Inc., Sea Hunt, Sportsman Boats, Tiara, Viking Yachts, and Yellowfin Yachts. In the aviation segment, Garmin’s avionics systems are either standard equipment or optional equipment on various models of aircraft. Some of the larger OEM relationships include Airbus Helicopters, Bell Helicopter, Bombardier Business Aircraft, Cirrus Aircraft, Daher, Diamond Aircraft, Embraer, Gulfstream Aerospace, Honda Aircraft, Leonardo Helicopters, Piper Aircraft, Quest Aircraft, Robinson Helicopter Company, Tecnam, and Textron Aviation.

 

Competition

 

In general, we operate in highly competitive markets though competitive conditions do vary among our diverse products and geographies.  Garmin believes the principal competitive factors impacting the market for its products are design, functionality, quality and reliability, customer service, brand, price, time-to-market and availability.  Garmin believes that it generally competes favorably in each of these areas and as such, is generally a significant competitor in each of our major markets.

 

Garmin believes that its principal competitors for portable automotive products are MiTAC Digital Corporation (MiTAC) (which distributes products under the brand names of Magellan, Mio, and Navman) and TomTom N.V. Garmin believes that its principal competitors for infotainment solutions are Alpine Electronics, Inc., a subsidiary of Alps Electric Co., Ltd., Harman International Industries, the Mitsubishi Group, and Panasonic Corporation. Garmin believes that its principal competitors for outdoor product lines are Dogtra Company, Magellan, a subsidiary of MiTAC, SportDOG Brand, Suunto Oy, and Vista Outdoor. Garmin believes that its principal competitors for fitness products are Apple Inc., Bryton Corp., Fitbit Inc., Huami Corporation, Huawei Technologies Co. Ltd., Polar Electro Oy, Samsung Electronics Co., Ltd., Sigma Sports, Suunto Oy, and Wahoo Fitness. For marine products, Garmin believes that its principal competitors are Flir Systems, Inc., Furuno Electronic Company, the Humminbird division of Johnson Outdoors, Inc., and Navico. For Garmin’s aviation product lines, Garmin considers its principal competitors to be Appareo Systems, Aspen Avionics, Avidyne Corporation, CMC Electronics, Collins Aerospace, Dynon Avionics, ForeFlight, Genesys Aerosystems, Honeywell Aerospace & Defense, Innovative Solutions and Support Inc., L-3 Avionics Systems, Safran SA, Thales, and Universal Avionics Systems Corporation.

 

Research and Development

 

Garmin’s product innovations are driven by its strong emphasis on research and development and the close partnership between Garmin’s engineering and manufacturing teams. Garmin’s products are created by its engineering and development staff, which numbered approximately 4,200 people worldwide as of December 29, 2018. Garmin’s manufacturing staff includes manufacturing process engineers who work closely with Garmin’s design engineers to ensure manufacturability and manufacturing cost control for its products. Garmin’s development staff includes industrial designers, as well as software engineers, electrical engineers, mechanical engineers and cartographic engineers. Garmin believes the industrial design of its products has played an important role in Garmin’s success. Once a development project is initiated and approved, a multi-disciplinary team is created to design the product and transition it into manufacturing.

 

Manufacturing and Operations

 

Garmin believes one of its core competencies and strengths is its vertically integrated manufacturing capabilities at its Taiwan facilities in Xizhi, Jhongli and LinKou, its China facility in Yangzhou, and at its U.S. facilities in Olathe, Kansas and Salem, Oregon. Garmin believes that its ownership and operation of its own manufacturing facilities and distribution networks provides significant capability and flexibility to address the breadth and depth of resources necessary to serve its diverse products and markets.

 

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Specifically, Garmin believes that its vertical integration of its manufacturing capabilities provides advantages to product cost, quality and time to market.

 

Cost: Garmin’s manufacturing resources rapidly and iteratively prototype designs, concepts, products and processes, achieving higher efficiency, resulting in lower cost. Garmin’s vertical integration approach enables leveraging our manufacturing resources across high, mid and low volume products. Sharing of these resources across our product lines favorably affects Garmin’s costs to produce its range of products, with lower volume products realizing the economies of scale of the high volume products. The ownership and integration of our resources allows Garmin to optimize the design for manufacturing of our products, yielding improved cost.

 

Quality: Garmin’s automation and sophisticated production processes provide in-service robustness and consistent reliability standards that enables Garmin to maintain strict process and quality control of the products manufactured, thereby improving the overall quality of our products. Additionally, the immediate feedback throughout the manufacturing processes is provided to the development teams providing integrated continuous improvement throughout design and supply chain.

 

Time to Market: Garmin uses multi-disciplinary teams of design engineers, process engineers, and supply chain specialists to develop products, allowing them to quickly move from concept to manufacturing. This integrated ownership provides inherent flexibility to enable faster time to market.

 

Garmin’s design, manufacturing, distribution, and servicing processes in its U.S., Taiwan, China and U.K. facilities are certified to ISO 9001, an international quality standard developed by the International Organization for Standardization. Garmin’s automotive operations in Taiwan, China, U.K., and Olathe have achieved IATF 16949 certification, a quality standard for automotive suppliers. Garmin’s Olathe and Salem aviation operations have achieved certification to AS9100, the quality standard for the aviation industry.

 

Garmin International, Inc., Garmin (Europe) Ltd. and Garmin Corporation have also achieved certification of their environmental management systems to the ISO 14001 standard, recognizing Garmin’s systems and processes which minimize or prevent harmful effects on the environment and continually strive to improve its environmental performance.

 

Materials

 

Although most components essential to Garmin’s business are generally available from multiple sources, certain key components are currently obtained by the Company from single or limited sources, which subjects Garmin to supply and pricing risks. Many of these and other key components that are available from multiple sources, including, but not limited to, NAND flash memory, dynamic random access memory (DRAM), GPS chipsets and certain LCDs, are subject at times to industry-wide shortages and commodity pricing fluctuations.

 

Garmin and other participants in the personal computer, tablet, mobile communication, aviation electronics and consumer electronics industries also compete for various components with other industries that have experienced increased demand for their products. In addition, Garmin uses some custom components that are not common to the rest of the personal computer, tablet, mobile communication and consumer electronics industries, and new products introduced by the Company often utilize custom components available from only one source until Garmin has evaluated whether there is a need for, and subsequently qualifies, additional suppliers. When a component or product uses new technologies, initial capacity constraints may exist until the suppliers’ yields have matured or manufacturing capacity has increased. Garmin makes efforts to manage risks in these areas through the use of supply agreements and safety stock for strategically important components. Nevertheless, if Garmin’s supply of a key single-sourced component for a new or existing product was delayed or constrained, if such components were available only at significantly higher prices, or if a key manufacturing vendor delayed shipments of completed products to Garmin, Garmin’s financial condition and operating results could be materially adversely affected. Garmin’s business and financial performance could also be adversely affected depending on the time required to obtain sufficient quantities from the original source, or to identify and obtain sufficient quantities from an alternative source. Continued availability of these components at acceptable prices, or at all, may be affected if those suppliers decided to concentrate on the production of common components instead of components customized to meet Garmin’s requirements.

 

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Seasonality

 

Our net sales are subject to seasonal fluctuation. Sales of our consumer products are generally higher in the fourth quarter, due to increased demand during the holiday buying season, and, to a lesser extent, the second quarter, due to increased demand during the spring and summer season. Sales of consumer products are also influenced by the timing of the release of new products. Our aviation and auto OEM products do not experience much seasonal variation, but are more influenced by the timing of aircraft certifications and the release of new products when the initial demand is typically the strongest.

 

Backlog

 

There is a relatively short cycle between order and shipment. Therefore, we believe that backlog information is not material to the understanding of our business. We typically ship most orders within 72 hours of receipt.

 

Intellectual Property

 

Our success and ability to compete is dependent in part on our proprietary technology. We rely on a combination of patent, copyright, trademark and trade secret laws, as well as confidentiality agreements, to establish and protect our proprietary rights. In addition, Garmin often relies on licenses of intellectual property for use in its business.  For example, Garmin obtains licenses for digital cartography technology for use in our products from various sources.

 

As of January 10, 2019, Garmin has been issued over 1,170 patents throughout the world and holds more than 800 trademark registrations. The duration of patents varies in accordance with the provisions of applicable local law. We believe that our continued success depends on the intellectual skills of our employees and their ability to continue to innovate.  Garmin will continue to file and prosecute patent applications when appropriate to attempt to protect Garmin’s rights in its proprietary technologies. 

 

There is no assurance that our current patents, or patents which we may later acquire, may successfully withstand any challenge, in whole or in part. It is also possible that any patent issued to us may not provide us with any competitive advantages, or that the patents of others will preclude us from manufacturing and marketing certain products. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our products or to obtain and use information that we regard as proprietary. Litigation may be necessary in the future to enforce our intellectual property rights, to protect our trade secrets, to determine the validity and scope of the proprietary rights of others or to defend against claims of infringement or invalidity.

 

Regulations

 

The telecommunications industry is highly regulated, and the regulatory environment in which Garmin operates is subject to change. In accordance with the United States’ Federal Communications Commission (FCC) rules and regulations, wireless transceiver products are required to be certified by the FCC and comparable authorities in foreign countries where they are sold. Garmin’s products sold in Europe are required to comply with relevant directives of the European Commission. A delay in receiving required certifications for new products, or enhancements to Garmin’s products, or losing certification for Garmin’s existing products could adversely affect our business. In addition, aviation products that are intended for installation in “type certificated aircraft” are required to be certified by the FAA, its European counterpart, the European Aviation Safety Agency, and other comparable organizations before they can be used in an aircraft.

 

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Because Garmin Corporation, one of the Company’s principal subsidiaries, is located in Taiwan, foreign exchange control laws and regulations of Taiwan with respect to remittances into and out of Taiwan may have an impact on Garmin’s operations. The Taiwan Foreign Exchange Control Statute, and regulations thereunder, provides that all foreign exchange transactions must be executed by banks designated to handle such business by the Ministry of Finance of Taiwan and by the Central Bank of the Republic of China (Taiwan), also referred to as the CBC. Current regulations favor trade-related foreign exchange transactions. Consequently, foreign currency earned from exports of merchandise and services may now be retained and used freely by exporters, while all foreign currency needed for the import of merchandise and services may be purchased freely from the designated foreign exchange banks. Aside from trade-related foreign exchange transactions, Taiwan companies and residents may, without foreign exchange approval, remit outside and into Taiwan foreign currencies of up to $50 million and $5 million respectively, or their equivalent, each calendar year. Currency conversions within the limits are processed by the designated banks and do not have to be reviewed and approved by the CBC. The above limits apply to remittances involving a conversion between Taiwan Dollars and U.S. Dollars or other foreign currencies. The CBC typically approves foreign exchange in excess of the limits if a party applies with the CBC for review and presents legitimate business reasons justifying the currency conversion. A requirement is also imposed on all enterprises to register all medium and long-term foreign debt with the CBC.

 

Environmental Matters

 

Garmin’s operations are subject to various environmental laws, including laws addressing air and water pollution and management of hazardous substances and wastes.  Substantial noncompliance with applicable environmental laws could have a material adverse effect on our business.  Capital expenditures for environmental controls are included in our normal capital budget.

 

Environmental regulation of Garmin’s products is increasing.  Many of Garmin’s products are subject to laws relating to the chemical and material composition of our products and their energy efficiency.  Garmin is also subject to laws requiring manufacturers to be financially responsible for collection, recovery and recycling of wastes from certain electronic products. Compliance with current environmental laws does not have a material impact on our business, but the impact of future enactment of environmental laws cannot yet be fully determined and could be substantial.

 

Garmin has implemented multiple Environmental Management System (EMS) policies in accordance with the International Organization for Standardization (ISO) 14001 standard for Environmental Health and Safety Management.  Garmin’s EMS policies set forth practices, standards, and procedures to ensure compliance with applicable environmental laws and regulations at Garmin’s Kansas headquarters facility, Garmin’s European headquarters facility, and Garmin’s Taiwan and China manufacturing facilities.

 

Garmin continues to strive to reduce our carbon footprint by increasing our environmental sustainability efforts.  Our manufacturing locations have implemented increased recycling processes that keep all obsolete Garmin manufactured material from entering the waste stream. Additionally, our new facility in Olathe, Kansas has been constructed with energy efficient considerations, including reduced water consumption, LED lighting, and reflective roofing to deflect solar radiation.

 

Employees

 

As of December 29, 2018, Garmin had approximately 13,000 full and part-time employees worldwide, of whom approximately 5,000 were in North America, 5,300 were in Taiwan, 1,600 were in Europe, and 1,100 were in other global locations. Except for some of Garmin’s employees in Sweden, none of Garmin’s employees are represented by a labor union and none of Garmin’s North American or Taiwan employees are covered by a collective bargaining agreement. Garmin considers its employee relations to be positive.

 

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Item 1A. Risk Factors

 

The risks described below are not the only ones facing our company. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also impair our business operations. If any of the following risks occur, our business, financial condition or operating results could be materially adversely affected.

 

Risks Related to the Company

 

If we are not successful in the continued development, timely manufacture, and introduction of new products or product categories, demand for our products could decrease to the extent that lost sales and profits from declining segments or product categories are not entirely offset.

 

We expect that a significant portion of our future revenue will continue to be derived from sales of newly introduced products. This is particularly important to replace sales and profits lost in declining segments or product categories. The market for our products is characterized by rapidly changing technology, evolving industry standards and changes in customer needs. If we fail to introduce new products, or to modify or improve our existing products, in response to changes in technology, industry standards or customer needs, our products could rapidly become less competitive or obsolete. We must continue to make significant investments in research and development in order to continue to develop new products, enhance existing products and achieve market acceptance for such products. However, there can be no assurance that development stage products will be successfully completed or, if developed, will achieve significant customer acceptance.

 

If we are unable to successfully develop and introduce competitive new products, and enhance our existing products, our future results of operations would be adversely affected. Our pursuit of necessary technology may require substantial time and expense. We may need to license new technologies to respond to technological change. These licenses may not be available to us on terms that we can accept or may materially change the gross profits that we are able to obtain on our products. We may not succeed in adapting our products to new technologies as they emerge. Development and manufacturing schedules for technology products are difficult to predict, and there can be no assurance that we will achieve timely initial customer shipments of new products. The timely availability of these products in volume and their acceptance by customers are important to our future success. Any future challenges related to new products, whether due to product development delays, manufacturing delays, lack of market acceptance, delays in regulatory approval, or otherwise, could have a material adverse effect on our results of operations.

 

If we are unable to compete effectively with existing or new competitors, our resulting loss of competitive position could result in price reductions, fewer customer orders, reduced margins and loss of market share.

 

The markets for many of our products are highly competitive, and we expect competition to increase in the future. Some of our competitors have significantly greater financial, technical and marketing resources than we do. These competitors may be able to respond more rapidly to new or emerging technologies or changes in customer requirements. They may also be able to devote greater resources to the development, promotion and sale of their products or secure better product positioning with retailers. Increased competition could result in price reductions, fewer customer orders, reduced margins and loss of market share. Our failure to compete successfully against current or future competitors could seriously harm our business, financial condition and results of operations.

 

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Maturation or contraction of the market for wearable devices or categories of devices could adversely affect our revenue and profits.

 

We have experienced growth in sales and profits in our outdoor and fitness segments, which in recent years have benefited from increased sales of wearable devices. If the overall wearable device market declines, or categories of devices within the wearable device market decline significantly, our business, financial condition or operating results could be materially adversely affected.

 

Our annual and quarterly financial statements will reflect fluctuations in foreign currency translation.

 

The operation of our subsidiaries in international markets results in exposure to movements in currency exchange rates. We have experienced significant foreign currency gains and losses due to the strengthening and weakening of the U.S. Dollar relative to certain other currencies. The potential of volatile foreign exchange rate fluctuations in the future could have a significant effect on our results of operations. We have not historically hedged our foreign currency exchange rate risks.

 

The currencies that typically create a majority of our exchange rate exposure are the Taiwan Dollar, Euro, and British Pound Sterling. The Taiwan Dollar is the functional currency of Garmin Corporation, the U.S. Dollar is the functional currency of Garmin (Europe) Ltd., and the Euro is the functional currency of most of our other European subsidiaries, although some transactions and balances are denominated in British Pounds. Other legal entities primarily use the local currency as the functional currency. Due to the relative size of entities using a functional currency other than the Taiwan Dollar, Euro, and British Pound Sterling, fluctuations of other currencies are not expected to have a material impact on our financial statements.

 

We translate income and expense activity at the approximate rate of exchange at the transaction date, and all assets and liabilities at the rate of exchange in effect at the balance sheet date. Income and expense activity in a currency other than the U.S. Dollar can be impacted by exchange rate variations over time. The majority of our consolidated foreign currency gain or loss is typically driven by exchange rate impacts on the significant cash, receivables, and payables held in a currency other than the functional currency at a given legal entity. Such gain or loss will create variations in our earnings per share. However, because there is minimal cash impact caused by such exchange rate variations, management will continue to focus on our operating performance before the impact of foreign currency gains and losses.

 

Changes in applicable tax laws or resolutions of tax disputes could result in adverse tax consequences to the Company.

 

Our tax position could be adversely impacted by changes to tax laws, tax treaties, or tax regulations or the interpretation or enforcement thereof by any tax authority in which we file income tax returns. We cannot predict the outcome of any specific legislative proposals. Legislative proposals are being considered in Switzerland that could make significant changes in the corporate tax regime and increase the taxes applicable to us in Switzerland. Switzerland has agreed with the European Union (EU) to execute tax reform by 2019 in exchange for the EU’s waiver of counter-measures. A failure to accomplish tax reform in the agreed timeframe may result in the EU member states reasserting counter-measure provisions which could result in additional tax for the Company.

 

Moreover, international taxing standards continue to evolve as a result of the Organization for Economic Co-Operation and Development (OECD) recommendations aimed at preventing perceived base erosion and profit shifting by multinational corporations. While these recommendations are not changes to tax law, the countries where we operate may implement legislation or take unilateral actions which may result in adverse effects to our income tax provision and financial statements.  

 

Significant judgment is required in determining our worldwide provision for income taxes. In the ordinary course of our business, there are many transactions and calculations where the ultimate tax determination is uncertain. We are regularly under audit by tax authorities. Although we believe our tax estimates are reasonable, the final determination of tax audits and any related litigation could be materially different from our historical income tax provisions and accruals. The results of an audit or litigation could have a material effect on our income tax provision, net income or cash flows in the period or periods for which that determination is made.

 

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Changes to trade regulations, including trade restrictions, sanctions, or tariffs, could significantly harm our results of operations.

 

A significant portion of our global and U.S. sales are comprised of goods assembled and manufactured in our facilities in Taiwan and the People’s Republic of China, and components for a number of our goods are sourced from suppliers in the People’s Republic of China. The imposition of additional U.S. or foreign governmental controls, regulations that create new or enhanced restrictions on free trade, trade sanctions, or tariffs, particularly those applicable to goods imported from Taiwan or the People’s Republic of China, could have substantial adverse effects on our business, results of operations, and financial condition.

 

Economic, regulatory, and political conditions and uncertainty could adversely affect our revenue and profits.

 

Our revenue and profits depend significantly on general economic conditions and the demand for products in the markets in which we compete. We have international operations which make up a significant portion of our total revenue, which can present challenges depending on economic and geopolitical conditions on both a global and regional scale. Economic weakness or constrained consumer and business spending has resulted in periods of decreased revenue and in the future, could result in decreased revenue and problems with our ability to manage inventory levels and collect customer receivables. In addition, financial difficulties experienced by our retailers and OEM customers have resulted, and could result in the future, in significant bad debt write-offs and additions to reserves in our receivables and could have an adverse effect on our results of operations. Uncertainty in the geopolitical climate could create trade disputes or increased tariffs which could adversely affect our results of operations.

 

The auto segment, which represents approximately 19% of our revenue, is expected to continue to decline in 2019. The demand for personal navigation devices (PNDs) has been and continues to be reduced by replacement technologies becoming available on mobile devices and factory-installed systems in new autos, as well as by market saturation.

 

We experienced substantial growth through 2008 in the auto segment of our business as PNDs became mass-market consumer electronics in both Europe and North America. This market is declining as competing technologies emerged and market saturation occurred. GPS/navigation technologies have been incorporated into competing devices such as mobile handsets, tablets, and new automobiles through factory-installed systems. Many companies are now offering navigation software for these mobile devices. The acceptance of this technology by consumers has reduced sales in the auto segment and has reduced profits in some periods. Navigation systems are also becoming more prevalent as standard and/or optional equipment on new automobiles. Increased navigation penetration on mobile handsets and in new automobiles is expected to cause further declines in sales of our portable navigation devices and could further reduce profits.

 

The United Kingdom (UK) is scheduled to formally leave the European Union (EU) on March 29, 2019. The effects of the UK’s withdrawal from the EU are not yet known and the uncertainty creates challenges and risks which could have a material effect on our business and results of operations.

 

The United Kingdom (UK) held a referendum in June 2016 where a majority vote was reached supporting the UK withdrawal from the European Union (EU), commonly referred to as "Brexit". Brexit is currently scheduled to occur on March 29, 2019. The UK and EU have had ongoing negotiations with respect to the UK's withdrawal terms, however, there is continued uncertainty surrounding the future relationship between the UK and EU. Barring an approved agreement by Parliament, the UK will exit the EU on March 29, 2019 without a transition plan. If the UK withdraws from the EU without a transition plan, the UK would lose its tariff-free trade status with other EU members and create customs border issues. Increased tariffs would apply to both goods imported to and exported from the UK. The long-term risks of Brexit include economic recessions in the UK and in other European markets, raising concerns over currency stability for both the British Pound Sterling and the Euro. There is risk that other current EU member states may also consider withdrawal from the EU depending on the EU economy following Brexit, which would increase the long-term risk of economic recessions in European markets and could result in further currency instability for the Euro.

 

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We have operations in the UK, including offices and a distribution facility, and several EU member states and therefore Brexit will impact our operations. We have certain measures in place to reduce the impact to our business operations, however, risks such as slow or inefficient border clearance, prolonged economic recession, and currency fluctuations could have material adverse effects on our business operations, results of operations, and financial condition. As noted in our other risk factors, currency volatility of the British Sterling Pound and Euro could have significant effects on our results of operations. If a deal is reached between the UK and the EU, the impacts of Brexit would have a lesser impact to our financial condition and business operations. Given the number of different outcomes still possible, including delaying the exit or holding a second referendum, the impacts of Brexit are difficult to determine until specific terms of the withdrawal are reached.

 

If we do not correctly anticipate demand for our products, we may not be able to secure sufficient quantities or cost-effective production of our products or we could have costly excess production or inventories.

 

We have generally been able to increase or decrease production to meet fluctuations in demand. However, the demand for our products depends on many factors and may be difficult to forecast. We expect that it will become more difficult to forecast demand as we introduce and support a diverse product portfolio, as competition in the market for our products intensifies and as the markets for some of our products mature. Significant unanticipated fluctuations in demand could cause the following problems in our operations:

 

If demand increases beyond what we forecast, we would have to rapidly increase production. We would depend on suppliers to provide additional volumes of components and those suppliers might not be able to increase production rapidly enough to meet unexpected demand.

 

Rapid increases in production levels to meet unanticipated demand could result in higher costs for manufacturing and supply of components and other expenses. These higher costs could lower our profit margins. Further, if production is increased rapidly, manufacturing quality could decline, which may also lower our margins and reduce customer satisfaction.

 

If forecasted demand does not develop, we could have excess inventories of finished products and components, which would use cash and could lead to write-offs of some or all of the excess inventories. Lower than forecasted demand could also result in excess manufacturing capacity or reduced manufacturing efficiencies at our facilities, which could result in lower margins.

 

We depend on third party suppliers and licensors, some of which are sole source, for specific components and map data used in our products. Our production and business would be seriously harmed if these suppliers are not able to meet our demand and alternative sources are not available, or if the costs of components rise.

 

We are dependent on third party suppliers for various components used in our current products. Some of the components that we procure from third party suppliers include semiconductors and electroluminescent panels, liquid crystal displays, memory chips, batteries and microprocessors. The cost, quality and availability of components are essential to the successful production and sale of our products. Some components we use are from sole source suppliers. Certain application-specific integrated circuits incorporating our proprietary designs are manufactured for us by sole source suppliers. Alternative sources may not be currently available for these sole source components.

 

In the past, we have experienced shortages of certain components. In addition, if there are shortages in supply of components, the costs of such components may rise. If suppliers are unable to meet our demand for components on a timely basis and if we are unable to obtain an alternative source, or if the price of the alternative source is prohibitive, our ability to maintain timely and cost-effective production of our products would be seriously harmed.

 

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We are also dependent on third party licensors for digital mapping data used in our products. There are only a limited number of suppliers of mapping data for some of our products and geographical regions. The largest digital map supplier for our auto products is HERE (formerly known as NAVTEQ), which is majority-owned by a consortium of Daimler AG, BMW AG, and Audi AG. Although we do not foresee difficulty in continuing to license data from HERE at reasonable pricing due to a long term license agreement with an option to extend through 2028, if we are unable to continue licensing such mapping data from HERE and other primary suppliers and are unable to obtain an alternative source, or if the nature of our relationships with primary suppliers changes detrimentally, our ability to supply mapping data for use in our products would be seriously harmed.

  

Our intellectual property rights are important to our operations, and we could suffer loss if they infringe upon other’s rights or are infringed upon by others.

 

We rely on a combination of patents, copyrights, trademarks and trade secrets, confidentiality provisions and licensing arrangements to establish and protect our proprietary rights. To this end, we hold rights to a number of patents and registered trademarks and regularly file applications to attempt to protect our rights in new technology and trademarks. However, there is no guarantee that our patent applications will become issued patents, or that our trademark applications will become registered trademarks. In addition, effective copyright, patent and trade secret protection may be unavailable, limited or not applied for in certain countries. Moreover, even if approved, our patents or trademarks may thereafter be successfully challenged by others or otherwise become invalidated for a variety of reasons. Thus, any patents or trademarks we currently have or may later acquire may not provide us a significant competitive advantage.

 

The value of our products relies substantially on our technical innovation in fields in which there are many patent filings. Third parties may claim that we or our customers (some of whom are indemnified by us) are infringing their intellectual property rights. For example, individuals and groups may purchase intellectual property assets for the purpose of asserting claims of infringement and attempting to extract settlements from us or our customers. The number of these claims has increased in recent years and may continue to increase in the future. Such claims could have a material adverse effect on our business and financial condition. From time to time we receive letters alleging infringement of patents, trademarks or other intellectual property rights and we have been, and currently are, a defendant in lawsuits alleging patent infringement. Litigation concerning patents or other intellectual property is costly and time consuming. We may seek licenses from such parties, but they could refuse to grant us a license or demand commercially unreasonable terms. Such infringement claims could also cause us to incur substantial liabilities and to suspend or permanently cease the use of critical technologies or processes or the production or sale of major products.

 

We may become subject to significant product liability costs.

 

If our products malfunction or contain errors or defects, we could be subject to significant liability for personal injury and property damage and, under certain circumstances, could be subject to a judgment for punitive damages. We maintain insurance against accident-related risks involving our products. However, there can be no assurance that such insurance would be sufficient to cover the cost of damages to others or that such insurance will continue to be available at commercially reasonable rates. In addition, insurance coverage may not cover awards of punitive damages and may not cover the cost of associated legal fees and defense costs, which could result in lower margins. If we are unable to maintain sufficient insurance to cover product liability costs or if our insurance coverage does not cover the award, this could have a materially adverse impact on our business, financial condition and results of operations.

 

We have claims and lawsuits against us that may result in adverse outcomes.

 

We are subject to a variety of claims and lawsuits. Adverse outcomes in some or all of these claims may result in significant monetary damages or injunctive relief that could adversely affect our ability to conduct our business. Litigation and other claims are subject to inherent uncertainties and the outcomes can be difficult to predict. Management may not adequately reserve for a contingent liability, or we may suffer unforeseen liabilities, which could then impact the results of a financial period. A material adverse impact on our consolidated financial statements could occur for the period in which the effect of an unfavorable final outcome becomes probable and reasonably estimable which, if not expected, could harm our results of operations and financial condition.

 

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Our products may contain undetected security vulnerabilities, which could result in damage to our reputation, lost revenue, diverted development resources and increased warranty claims, and litigation

 

Undiscovered vulnerabilities in our products could expose them to hackers or other unscrupulous third parties who develop and deploy viruses, and other malicious software programs that could attack our products. Actual or perceived security vulnerabilities in our products could harm our reputation and lead some customers to return products, to reduce or delay future purchases or use competitive products.

 

We collect, store, process, and use personal information and other customer data, which subjects us to governmental regulation and other legal obligations related to privacy, information security, and data protection, and our actual or perceived failure to comply with such obligations could harm our business.

 

We collect, store, process, and use personal information and other user data. Our users’ personal information may include, among other information, names, addresses, phone numbers, email addresses, payment account information, height, weight, age, gender, heart rates, sleeping patterns, GPS-based location, and activity patterns. Due to the volume and types of the personal information and data we manage and the nature of our products and applications, the security features of our platform and information systems are critical. If our security measures or applications are breached, disrupted or fail, unauthorized persons may be able to obtain access to user data. If we or our third-party service providers, business partners, or third-party apps with which our users choose to share their Garmin data were to experience a breach, disruption or failure of systems compromising our users’ data or the media suggested that our security measures or those of our third-party service providers were insufficient, our brand and reputation could be adversely affected, use of our products and services could decrease, and we could be exposed to a risk of loss, litigation, and regulatory proceedings. Depending on the nature of the information compromised, in the event of a data breach, disruption or other unauthorized access to our user data, we may also have obligations to notify users about the incident and we may need to provide some form of remedy for the individuals affected by the incident. A growing number of legislative and regulatory bodies have adopted consumer notification requirements in the event of unauthorized access to or acquisition of certain types of personal data. Such breach notification laws continue to evolve and may be inconsistent from one jurisdiction to another. Complying with these obligations could cause us to incur substantial costs and could increase negative publicity surrounding any incident that compromises user data. Our users may also accidentally disclose or lose control of their passwords, creating the perception that our systems or those of our third-party service providers are not secure against third-party access. Additionally, if third parties we work with, such as vendors, business partners, service providers, or developers, violate applicable laws, agreements, or our policies, such violations may also put our users’ information at risk and could in turn have an adverse effect on our business. While we maintain insurance coverage that, subject to policy terms and conditions and a significant self-insured retention, is designed to address certain aspects of cyber risks, such insurance coverage may be insufficient to cover all losses or all types of claims that may arise in the continually evolving area of cyber risk.

 

Regulatory authorities and legislative bodies around the world, including in the United States, have enacted or are considering a number of legislative and regulatory proposals concerning data protection. In May 2018, the General Data Protection Regulation (GDPR), a new data protection regulation, went into effect in the EU. Noncompliance with GDPR could result in significant fines and penalties. In addition, the interpretation and application of consumer and data protection laws in the U.S., Europe, Asia, Latin America, and elsewhere are sometimes uncertain and in flux. It is possible that these laws may be interpreted and applied in a manner that is inconsistent with our interpretation and data practices. If so, in addition to the possibility of fines, this could result in an order requiring that we change our data practices, which could have an adverse effect on our business and results of operations. Complying with these various laws could cause us to incur substantial costs or require us to change our business practices in a manner adverse to our business.

 

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We rely on information technology systems for our business operations. Failures or disruptions, including security breaches or cyber attacks, to our information technology systems may harm our reputation and adversely affect our business and result of operations.

 

Our information technology systems allow for our daily business operations to operate efficiently and effectively. These systems assist in our business processes, including, but not limited to, communications, financial management, supply chain management, order processing, shipping and billing and providing services and support to our customers. Additionally, we electronically maintain sensitive data, including intellectual property, our proprietary business information and that of our customers and suppliers, and some personally identifiable information of our customers and employees, in our facilities and on our networks. The secure processing, maintenance and transmission of this information is important to our operations. A disruption to any of these processes can adversely affect our business and results of operations. Furthermore, a breach of our security systems and procedures or those of our vendors could result in significant data losses or theft of our intellectual property as well as our customers’ or our employees’ intellectual property, proprietary business information or personally identifiable information.  A cybersecurity breach could negatively affect our competitive position and operating results as a result of theft of our intellectual property and could negatively affect our reputation as a trusted product and service provider by adversely affecting the market’s perception of the security or reliability of our products or services. 

 

We have technology and processes in place to detect and respond to data security incidents. However, because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and may be difficult to detect for long periods of time, we may be unable to anticipate these techniques or implement adequate preventive measures. In addition, hardware, software or applications we develop or procure from third parties may contain defects in design or manufacture or other problems that could unexpectedly compromise information security. Unauthorized parties may also attempt to gain access to our systems or facilities through fraud, trickery or other forms of deceiving our customers and employees. Accordingly, we may be unable to anticipate these techniques or to implement adequate security barriers or other preventative measures, or if such measures are implemented, and even with appropriate training conducted in support of such measures, human errors may still occur. It is virtually impossible for us to entirely mitigate this risk. A party, whether internal or external, who is able to circumvent our security measures could misappropriate information.

 

Actual or anticipated attacks and risks may cause us to incur increasing costs, including costs to deploy additional personnel and protection technologies, to conduct additional employee training, and to engage third party security experts and consultants. Our technology errors and omissions insurance may not protect against all of the costs, liabilities, and other adverse effects arising from a security breach or system failure. If we fail to reasonably maintain the security of confidential information, we may suffer significant reputational and financial losses and our results of operations, cash flows, financial condition, and liquidity may be adversely affected. In addition, a system breach could result in other negative consequences, including disruption of internal operations, and may subject us to private litigation, government investigations, enforcement actions, and cause us to incur potentially significant liability, damages, or remediation costs.

 

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Gross margins for our products may fluctuate or erode.

 

Gross margins in some of our segments are volatile and could decline in the future due to competitive price reductions that are not fully 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 manufacturing 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.

 

We may experience unique economic and political risks associated with companies that operate in Taiwan.

 

Our principal manufacturing facilities, where we manufacture most of our consumer products, are located in Taiwan. Relations between Taiwan and the People’s Republic of China, also referred to as the PRC, and other factors affecting the political or economic conditions of Taiwan in the future could materially affect our business, financial condition and results of operations and the market price and the liquidity of our shares.

 

The PRC asserts sovereignty over all of China, including Taiwan, certain other islands and all of mainland China. The PRC government does not recognize the legitimacy of the Taiwan government. Although significant economic and cultural relations have been established during recent years between Taiwan and the PRC, the PRC government has indicated that it may use military force to gain control over Taiwan in certain circumstances, such as the declaration of independence by Taiwan. The United States’ relations with Taiwan are governed by the 1979 Taiwan Relations Act, which signifies when the U.S. switched diplomatic recognition from Taiwan to the PRC, referred to as the “one-China” policy. Deviations from the “one-China” policy could lead to adverse changes in China-U.S. and China-Taiwan relations and could adversely affect our operations in Taiwan in the future.

 

Changes in our United States federal income tax classification, or that of our subsidiaries, could result in adverse tax consequences to our 10% or greater U.S. shareholders.

 

The Tax Cuts and Jobs Act (the “2017 Act”) signed on December 22, 2017 may have changed the consequences to U.S. shareholders that own, or are considered to own, as a result of the attribution rules, ten percent or more of the voting power or value of the stock of a non-U.S. corporation (a 10% U.S. shareholder) under the U.S. Federal income tax law applicable to owners of U.S. controlled foreign corporations (“CFCs”). 

 

Prior to the 2017 Act, the Company did not believe we, or any of our non-U.S. subsidiaries, were considered a CFC, which is a determination made daily based on whether the 10% U.S. shareholders together own, or are considered to own as a result of the attribution rules, more than fifty percent of the voting power or value of a non-U.S. corporation.  The 2017 Act repealed Internal Revenue Code Section 958(b)(4), which, unless clarified in future regulations or other guidance, may result in classification of certain of the Company’s foreign subsidiaries as CFCs with respect to any single 10% U.S. shareholder. This may be the result without regard to whether 10% U.S. shareholders together own, directly or indirectly, more than fifty percent of the voting power or value of the Company as was the case under prior rules. The repeal is effective as of the last taxable year of CFCs beginning before January 1, 2018 and for the taxable year of 10% U.S. shareholders in which the CFCs’ taxable year ends. 

 

Additional tax consequences to 10% U.S. shareholders of a CFC may result from other provisions of the 2017 Act. For example, the 2017 Act amended Section 965 to require 10% U.S. shareholders to include in income their pro-rata share of certain earnings and profits (E&P) of CFCs.  This Section 965 inclusion is accompanied by a partial dividends-received deduction.  The 2017 Act also added Section 951A which requires a 10% U.S. shareholder of a CFC to include in income its pro-rata share of the global intangible low-taxed income (GILTI) of the CFC.  Finally, the 2017 Act eliminated the requirement in Section 951(a) necessitating that a foreign corporation be considered a CFC for an uninterrupted period of at least 30 days in order for a 10% U.S. shareholder to have a current income inclusion.

 

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From time to time, the Company may elect to employ antidilutive measures such as a stock buyback program. These measures could inadvertently create additional 10% U.S. shareholders and thus trigger adverse tax consequences for those shareholders as described above. We urge shareholders to consult their individual tax advisers for advice regarding the 2017 Act revisions to the U.S. Federal income tax law applicable to owners of CFCs given the current uncertainty regarding their scope of applicability.

 

Some of our products are subject to governmental regulation or certification. Failure to obtain required certifications of our products on a timely basis, either due to government shutdown or other delays in the certification process, could harm our business.

 

Federal Aviation Administration (FAA) certification is required for all of our aviation products that are intended for installation in type-certificated aircraft. To the extent required, certification is an expensive and time-consuming process that requires significant focus and resources. An inability to obtain, or excessive delay in obtaining, such certifications could have an adverse effect on our ability to introduce new products and, for certain aviation OEM products, our customers’ ability to sell airplanes. Delays in our obtaining certification for our aviation products have resulted, and may in the future result in our being required to pay compensation to our customers. Additionally, failure of the United States Congress to appropriate funds for FAA operations that results in a shut down of FAA operations or furloughing of FAA employees, due to partial or complete government shutdowns or otherwise, could result in delays in the required FAA certification of our avionics products and in the production, sale and registration of aircraft that use our avionics products. Therefore, such inabilities or delays could have a material adverse effect on our business and financial results. In addition, we cannot assure that our certified products will not be decertified. Any such decertification could have an adverse effect on our operating results.

 

In addition, in accordance with FCC rules and regulations, wireless transceiver products are required to be certified by the FCC in the United States and comparable authorities in foreign countries where they are sold. Garmin’s products sold in Europe are required to comply with relevant directives of the European Commission. A delay in receiving required certifications for new products, or enhancements to Garmin’s products, or losing certification for Garmin’s existing products could adversely affect our business.

 

Our business may suffer if we are not able to hire and retain sufficient qualified personnel or if we lose our key personnel.

 

Our future success depends partly on the continued contribution of our key executive, engineering, sales, marketing, manufacturing and administrative personnel. We currently do not have employment agreements with any of our key executive officers. Swiss law prohibits us from paying severance payments to our senior executive officers, which may impair our ability to recruit for these positions. We do not have key person life insurance on any of our key executive officers and do not currently intend to obtain such insurance. The loss of the services of any of our senior level management, or other key employees, could harm our business. Recruiting and retaining the skilled personnel we require to maintain and grow our market position may be difficult. For example, in some recent years there has been a nationwide shortage of qualified engineers in the United States who are necessary for us to design and develop new products, and therefore, it has sometimes been challenging to recruit such personnel. If we fail to hire and retain qualified employees, we may not be able to maintain and expand our business.

 

Our quarterly operating results are subject to fluctuations and seasonality.

 

Our operating results are difficult to predict. Our future quarterly operating results may fluctuate significantly. If such operating results decline, the price of our stock could decline. As we have expanded our operations, our operating expenses, particularly our research and development costs, have increased as a percentage of our sales in some periods. If revenues decrease and we continue to increase research and development costs, our operating results would be negatively affected.

 

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Historically, our revenues have been weaker in the first quarter of each fiscal year as many of our devices are highly consumer-oriented, and consumer buying is traditionally lower in this quarter. Sales of certain of our fitness, outdoor, marine and automotive products tend to be higher in our second fiscal quarter due to increased consumer spending for such products in the spring season and travel season. Sales of many of our consumer products also have been higher in our fourth fiscal quarter due to increased consumer spending patterns on electronic devices during the holiday season. In addition, we attempt to time our new product releases to coincide with relatively higher consumer spending in the second and fourth fiscal quarters, which contributes to these seasonal variations.

 

We rely on independent dealers and distributors to sell our products, and disruption to these channels would harm our business.

 

Because we sell many of our products to independent dealers and distributors, we are subject to many risks, including risks related to their inventory levels and support for our products. In particular, our dealers and distributors maintain significant levels of our products in their inventories. If dealers and distributors attempt to reduce their levels of inventory or if they do not maintain sufficient levels to meet customer demand, our sales could be negatively impacted.

 

Many of our dealers and distributors also sell products offered by our competitors. If our competitors offer our dealers and distributors more favorable terms, those dealers and distributors may de-emphasize or decline to carry our products. In the future, we may not be able to retain or attract a sufficient number of qualified dealers and distributors. If we are unable to maintain successful relationships with dealers and distributors or to expand our distribution channels, our business will suffer.

 

We may pursue strategic acquisitions, investments, strategic partnerships or other ventures, and our business could be materially harmed if we fail to successfully identify, evaluate, complete, and integrate such transactions.

 

We intend to evaluate acquisition opportunities and opportunities to make investments in complementary businesses, technologies, services or products, or to enter into strategic partnerships with parties who can provide access to those assets, additional product or services offerings, additional distribution or marketing synergies or additional industry expertise. We may not be able to identify suitable acquisition, investment or strategic partnership candidates, or if we do identify suitable candidates in the future, we may not be able to complete those transactions on commercially favorable terms, or at all.

 

Any past or future acquisition could also result in difficulties assimilating acquired employees, operations, and products and diversion of capital and management’s attention away from other business issues and opportunities. Integration of acquired companies may result in problems related to integration of technology and inexperienced management teams. Due diligence performed prior to closing acquisitions may not uncover certain risks or liabilities that could materially impact our business and financial results. In addition, the key personnel of the acquired company may decide not to work for us. We may not successfully integrate internal controls, compliance under the Sarbanes-Oxley Act of 2002, the GDPR and other corporate governance and regulatory matters, operations, personnel or products related to acquisitions we may make in the future. If we fail to successfully integrate such transactions, our business could be materially harmed.

 

There is uncertainty as to our shareholders’ ability to enforce certain foreign civil liabilities in Switzerland and Taiwan.

 

We are a Swiss company and a substantial portion of our assets are located outside the United States, particularly in Taiwan. As a result, it may be difficult to effect service of process within the United States upon us. In addition, there is uncertainty as to whether the courts of Switzerland or Taiwan would recognize or enforce judgments of United States courts obtained against us predicated upon the civil liability provisions of the securities laws of the United States or any state thereof, or be competent to hear original actions brought in Switzerland or Taiwan against us predicated upon the securities laws of the United States or any state thereof.

 

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Many of our products rely on the Global Positioning System and other Global Satellite Navigation Systems (GNSS).

 

The Global Positioning System (GPS) is a satellite-based navigation and positioning system consisting of a constellation of orbiting satellites. The satellites and their ground control and monitoring stations are maintained and operated by the United States Department of Defense. The Department of Defense does not currently charge users for access to the satellite signals. These satellites and their ground support systems are complex electronic systems subject to electronic and mechanical failures and possible sabotage. The satellites were originally designed to have lives of 7.5 years and are subject to damage by the hostile space environment in which they operate. However, of the current deployment of satellites in place, some have been operating for more than 20 years.

 

To repair damaged or malfunctioning satellites is currently not economically feasible. If a significant number of satellites were to become inoperable, there could be a substantial delay before they are replaced with new satellites. A reduction in the number of operating satellites may impair the current utility of the GPS system and the growth of current and additional market opportunities. GPS satellites and ground control segments are being modernized. GPS modernization software updates can cause problems. We depend on public access to open technical specifications in advance of GPS updates.

 

GPS is operated by the U.S. Government, which is committed to maintenance and improvement of GPS; however, if the policy were to change, and GPS were no longer supported by the U.S. Government, or if user fees were imposed, it could have a material adverse effect on our business, results of operations, and financial condition.

 

Some of our products also use signals from Satellite Based Augmentation Systems (SBAS) that augment GPS, such as the U.S. Wide Area Augmentation System (WAAS), Japanese MTSAT-based Satellite Augmentation System (MSAS), and European Geostationary Navigation Overlay Service (EGNOS). Any curtailment of SBAS operating capability could result in decreased user capability for many of our aviation products, thereby impacting our markets.

 

Some of our products also use satellite signals from the Russian GLONASS System. Other countries, including China and India, are in the process of creating their own GNSS systems, and we either have developed or will develop products which use GNSS signals from these systems. The European community is developing an independent radio navigation satellite system, known as Galileo. National or European authorities may provide preferential access to signals to companies associated with their markets, including our competitors, which could harm our competitive position. Use of non-US GNSS signals may also be subject to FCC waiver requirements and to restrictions based upon international trade or geopolitical considerations. If we are unable to develop timely and competitive commercial products using these systems, or obtain timely and equal access to service signals, it could result in lost revenue.

 

Any of the foregoing factors could affect the willingness of buyers of our products to select Global Positioning System-based products instead of products based on competing technologies.

 

Our business is subject to disruptions and uncertainties caused by geopolitical instability, war or terrorism.

 

Acts of war or acts of terrorism, especially any directed at the GPS signals, could have a material adverse impact on our business, operating results, and financial condition. The threat of terrorism and war and heightened security and military response to this threat, or any future acts of terrorism, may cause a redeployment of the satellites used in GPS or interruptions of the system. To the extent that such interruptions have an effect on sales of our products, this could have a material adverse effect on our business, results of operations, and financial condition.

 

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A shut down of airspace or imposition of restrictions on general aviation would harm our business. The shutdown of airspace could cause reduced sales of our general aviation products and delays in the shipment of our products manufactured in our Taiwan manufacturing facilities to our global distribution facilities, thereby adversely affecting our ability to supply new and existing products to our dealers and distributors.

 

Any reallocation or repurposing of radio frequency spectrum could cause harmful interference with the reception of Global Positioning System signals. This interference could harm our business.

 

Our Global Positioning System technology is dependent on the use of the Standard Positioning Service (SPS) provided by the U.S. Government’s Global Positioning System satellites. The Global Positioning System operates in radio frequency bands that are globally allocated for radio navigation satellite services. International allocations of radio frequency are made by the International Telecommunications Union (ITU), a specialized technical agency of the United Nations. These allocations are further governed by radio regulations that have treaty status and which may be subject to modification every two to three years by the World Radio Communication Conference.  Each country also has regulatory authority on how each band is used.  In the United States, the FCC and the National Telecommunications and Information Administration (NTIA) share responsibility for radio frequency allocations and spectrum usage regulations.

 

Any ITU or national reallocation of radio frequency spectrum, including frequency band segmentation or sharing of spectrum, or other modifications of the permitted uses of relevant frequency bands, may materially and adversely affect the utility and reliability of our products and have significant negative impacts on our business and our customers.

 

Natural disasters, catastrophic events, or climate change could affect our financial results.

 

Natural disasters and extreme weather events, such as tsunamis or earthquakes, could occur in a region where we have a manufacturing or warehousing facility which would cause disruptions in our business operations or loss of inventory. If our backup and recovery plans are not sufficient to minimize business disruption and/or if our insurance is not sufficient to recover the costs associated with these types of events, our financial results could be adversely affected.

 

Climate change can also pose a risk to our business due to evolving regulatory and legislative measures surrounding climate change. The Environmental Protection Agency has begun to regulate greenhouse gas emissions under the authority granted to it under the Clean Air Act. At the federal legislative level, Congressional passage of legislation adopting some form of federal mandatory greenhouse gas emission reduction, such as a nationwide cap-and-trade program, does not appear likely at this time, although it could be adopted at a future date. It is also possible that the U.S. Congress may pass alternative climate change bills that do not mandate a nationwide cap-and-trade program and instead focus on promoting renewable energy and energy efficiency, which could increase the cost of doing business.

 

Because it is uncertain what laws and regulations will be enacted, we cannot predict the potential impact of such laws and regulations on our future consolidated financial condition, results of operations or cash flows.

 

Risks Relating to Our Shares

 

The volatility of our stock price could adversely affect investment in our common shares.

 

The market price of our shares has been, and may continue to be, highly volatile.  During 2018, the closing price of our shares ranged from a low of $57.66 to a high of $70.05. A variety of factors could cause the price of our shares to fluctuate, perhaps substantially, including:

 

new products or product enhancements by us or our competitors;

 

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general conditions in the worldwide economy, including fluctuations in interest rates and global currency exchange rates;

announcements of technological innovations;

product obsolescence and our ability to manage product transitions;

developments in our relationships with our customers and suppliers;

the availability, pricing and timeliness of delivery of components, such as flash memory and liquid crystal displays, used in our products;

quarterly fluctuations in our actual or anticipated operating results;

changes in applicable tax laws and tax rates;

developments in patents or other intellectual property rights and litigation;

announcements and rumors of developments related to our business, our competitors, our suppliers or the markets in which we compete;

research reports or opinions issued by securities analysts or brokerage houses related to Garmin, our competitors, our suppliers or our customers;

any significant acts of terrorism against the United States, Taiwan or significant markets where we sell our products; and

other factors as discussed in the previously listed risks.

 

In addition, in recent years the stock market in general and the markets for shares of technology companies in particular, have experienced extreme price fluctuations which have often been unrelated to the operating performance of affected companies.  Any such fluctuations in the future could adversely affect the market price of our common shares. 

 

Our officers and directors exert substantial influence over us.

 

As of January 17, 2019, members of our Board of Directors, and our executive officers, together with members of their families and entities that may be deemed affiliates of or related to such persons or entities, beneficially owned approximately 31.79% of our outstanding shares. Accordingly, these shareholders may be able to determine the outcome of corporate actions requiring shareholder approval, such as mergers and acquisitions and shareholder proposals. This level of ownership may have a significant effect in delaying, deferring, or preventing a change in control of Garmin and may adversely affect the voting and other rights of other holders of our common shares.

 

The rights of our shareholders are governed by Swiss law.

 

The rights of our shareholders are governed by Swiss law and Garmin Ltd.’s articles of association. The rights of shareholders under Swiss law differ from the rights of shareholders of companies incorporated in other jurisdictions. For example, Swiss law allows our shareholders acting at a shareholders’ meeting to authorize share capital that can be issued by the board of directors without approval of a shareholders’ meeting, but this authorization is limited to 50% of the existing registered share capital and must be renewed at a shareholders’ meeting at least every two years for it to continue to be available. Additionally, subject to specified exceptions, including the exceptions described in our articles of association, Swiss law grants preemptive rights to existing shareholders to subscribe for new issuances of shares and other securities. Swiss law also does not provide as much flexibility in the various terms that can attach to different classes of shares as the laws of some other jurisdictions. Swiss law also reserves for approval by shareholders certain corporate actions over which a board of directors would have authority in some other jurisdictions. For example, Swiss law provides that dividends and other distributions must be approved by shareholders at the general meeting of shareholders. These Swiss law requirements relating to our capital management may limit our flexibility, and situations may arise where greater flexibility would have provided substantial benefits to our shareholders.

 

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We have limited capital reserves from which to make distributions or repurchase shares without subjecting our shareholders Swiss withholding tax.

 

If we are unable to make distributions, if any, through a reduction of par value or to pay dividends, if any, out of qualifying capital contribution reserves, then any dividends paid by us will generally be subject to a Swiss federal withholding tax at a rate of 35%. Over the long term, the amount of par value and qualifying capital contribution reserves available for us to use for par value reductions or dividends will be limited.  The withholding tax must be withheld from the gross distribution and paid to the Swiss Federal Tax Administration. A U.S. holder that qualifies for benefits under the Convention between the United States of America and the Swiss Confederation for the Avoidance of Double Taxation with Respect to Taxes on Income may apply for a refund of the tax withheld in excess of the 15% treaty rate (or in excess of the 5% reduced treaty rate for qualifying corporate shareholders with at least 10% participation in our voting stock, or for a full refund in case of qualified pension funds). However, there can be no assurance that our shareholders will approve a reduction in par value or a dividend out of qualifying capital contribution reserves, that we will be able to meet the other legal requirements for a reduction in par value, or that Swiss withholding rules will not be changed in the future or that a change in Swiss law will not adversely affect us or our shareholders, in particular as a result of distributions out of qualifying capital contribution reserves becoming subject to additional corporate law or other restrictions. If we are unable to make a distribution through a reduction in par value or to pay a dividend out of qualifying capital contribution reserves, we may not be able to make distributions without subjecting our shareholders to Swiss withholding taxes

 

Under current Swiss tax law, repurchases of shares for the purposes of capital reduction are treated as a partial liquidation subject to 35% Swiss withholding tax on the difference between the par value and the repurchase price. However, the portion of the repurchase price that is attributed to qualifying capital contribution reserves of the shares repurchased will not be subject to the Swiss withholding tax. Therefore, repurchase of our own shares further limits the amount of qualifying capital reserves available for distributions to shareholders free of Swiss withholding taxes.  No partial liquidation treatment applies and no withholding tax is triggered if the shares are not repurchased for cancellation but held by us as treasury shares to the extent sufficient qualifying capital reserves are available. However, should we not resell such treasury shares within six years and there is not sufficient qualifying capital contribution reserves, the withholding tax becomes due at the end of the six-year period. 

 

We may follow a share repurchase process for future share repurchases, if any, similar to a “second trading line” on the SIX Swiss Exchange in which Swiss institutional investors buy shares on the open market and sell these shares to us and are generally able to receive a refund of the Swiss withholding tax. However, if we are unable to use this process successfully, we may not be able to repurchase shares for the purposes of capital reduction without subjecting our shareholders to Swiss withholding taxes if and to the extent that the repurchase of shares is made out of retained earnings or other taxable reserves. No withholding tax would be applicable if and to the extent that qualifying capital contribution reserves are attributable to the share repurchase.

 

We have certain limitations on our ability to repurchase and hold our own shares.

 

Under Swiss law we have certain limitations on our ability to repurchase and hold our own shares. We and our subsidiaries may only repurchase and hold our own shares to the extent that sufficient freely distributable reserves (including contributed surplus as determined for Swiss tax and statutory purposes) are available. The aggregate par value of our registered shares held by us and our subsidiaries may not exceed 10% of our registered share capital. We may repurchase our registered shares beyond the statutory limit of 10%, however, if our share-holders have adopted a resolution at a general meeting of shareholders authorizing the board of directors to repurchase registered shares in an amount in excess of 10% and the repurchased shares are dedicated for cancellation. Our ability to repurchase and hold our own shares has been a component of our capital management and shareholder return practices, and any restriction on our ability to repurchase our shares could make our stock less attractive to investors.

 

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Item 1B. Unresolved Staff Comments

 

None.

 

Item 2. Properties

 

Garmin and its subsidiaries own a majority of their principal properties and lease certain other properties. Depending on location, the properties could be used for manufacturing, warehousing, research and development, office space, or a combination. Garmin’s principal properties are described below:

 

Garmin International, Inc. and Garmin USA, Inc. own and occupy facilities of approximately 1,990,000 square feet on approximately 107 acres in Olathe, Kansas, where the majority of product design and development work is conducted, the majority of aviation panel-mount products are manufactured, and products are warehoused, distributed, and supported for North, Central and South America.

 

Garmin International, Inc. leases 148,000 square feet of land at New Century Airport in Gardner, Kansas under a ground lease and occupies two aircraft hangars on this land, one of which is owned (47,000 square feet) and the other leased (53,000 square feet). Both properties serve as flight test and certification facilities that are used in development and certification of aviation products.

 

In October 2018, Garmin International, Inc. completed the construction of a new 775,000 square foot manufacturing and distribution center in Olathe, Kansas, which concluded the first phase of an expansion project that began in 2016. The second phase of the expansion will include renovation of the existing warehouse and manufacturing center into a research and development facility and supporting office space. In connection with the bond financings for the facility in Olathe and the expansions of that facility, the City of Olathe holds the legal title to the Olathe facility, which is leased to Garmin’s subsidiaries by the City. Upon the payment in full of the outstanding bonds, the City of Olathe is obligated to transfer title to Garmin’s subsidiaries for the aggregate sum of $200. Garmin International, Inc. has purchased all the outstanding bonds and expects to continue to hold the bonds until maturity in order to benefit from property tax abatement.

 

Garmin AT, Inc. leases approximately 18 acres of land in Salem, Oregon under a ground lease. This ground lease expires in 2030, but Garmin AT, Inc. has the option to extend the ground lease until 2050. Garmin AT, Inc. owns and occupies a 115,000 square foot facility for office, development and manufacturing use and a 33,000 square foot aircraft hangar, flight test and certification facility on this land. Garmin AT, Inc. also owns and occupies an additional 66,000 square foot facility on the same property for Garmin’s West Coast customer support call center and for research and development activities.

 

Garmin Corporation owns and occupies 247,000 and 185,000 square foot facilities in Xizhi Dist., New Taipei City, Taiwan, a 224,000 square foot facility in Jhongli, Tao-Yang County, Taiwan, and a 576,000 square foot facility in LinKou, Tao-Yang County, Taiwan. These facilities are used for the manufacturing and warehousing of most of Garmin’s consumer and portable aviation products, as well as some research and development activities and the marketing and support of products for Asia Pacific countries. Garmin China YangZhou Co., Ltd. also leases a 204,000 square foot manufacturing facility in Yangzhou, Jiangsu, People’s Republic of China.

 

Garmin (Europe) Ltd. owns and occupies a 155,000 square foot building located in Totton, Southampton, England, used as offices and a distribution facility.

 

Garmin also owns and leases other properties, both internationally and domestically, not described above, that are used for office space, retail, and warehousing.

 

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Item 3. Legal Proceedings

 

PulseOn Oy v. Garmin (Europe) Ltd.

 

On November 11, 2016, PulseOn Oy filed suit in the Patents Court in London, England, against Garmin (Europe) Ltd. alleging infringement of alleged UK unregistered design rights and Registered European Community Design No. 002473769-0004 (the “0004 Design”) and Registered European Community Design No. 002473769-005 (the “0005 Design”) by certain Garmin products with wrist-worn heart rate monitors. A trial was held in November 2017. During the trial PulseOn abandoned its claim of infringement of alleged UK unregistered design rights. On January 18, 2018 the court issued a judgment holding that no accused Garmin products infringed either the 0004 Design or the 0005 Design. On February 21, 2018, PulseOn Oy filed an application with the Court of Appeal in England seeking leave to appeal the judgment of the Patent Court issued on January 18, 2018, holding that no accused Garmin products infringed either of the Registered Community Designs asserted by PulseOn Oy. Leave to appeal was granted and the hearing of PulseOn’s appeal before the Court of Appeal took place on January 30 and 31, 2019. On February 13, 2019, the Court of Appeal issued its judgment dismissing PulseOn’s appeal.

 

In the normal course of business, the Company and its subsidiaries are parties to various legal claims, actions, and complaints, including matters involving patent infringement, other intellectual property, product liability, customer claims and various other risks. It is not possible to predict with certainty whether or not the Company and its subsidiaries will ultimately be successful in any of these legal matters, or if not, what the impact might be. However, the Company’s management does not expect that the results in any of these legal proceedings will have a material adverse effect on the Company’s results of operations, financial position or cash flows.

 

The Company settled or resolved certain other matters during the fiscal year ended December 29, 2018 that did not individually or in the aggregate have a material impact on the Company’s financial condition or results of operations.

 

Item 4. Mine Safety Disclosure

 

None.

 

Executive Officers of the Registrant

 

Pursuant to General Instruction G(3) of Form 10-K and instruction 3 to paragraph (b) of Item 401 of Regulation S-K, the following list is included as an unnumbered Item in Part I of this Annual Report on Form 10-K in lieu of being included in the Company’s Definitive Proxy Statement in connection with its annual meeting of shareholders scheduled for June 7, 2019.

 

Dr. Min H. Kao, age 70, has served as Executive Chairman of Garmin Ltd. since January 2013 and was previously Chairman of Garmin Ltd. from August 2004 to December 2012 and Co-Chairman of Garmin Ltd. from August 2000 to August 2004. He served as Chief Executive Officer of Garmin Ltd. from August 2002 to December 2012 and previously served as Co-Chief Executive Officer from August 2000 to August 2002. Dr. Kao served as a director and officer of various subsidiaries of the Company from August 1990 until January 2013. Dr. Kao holds Ph.D. and MS degrees in Electrical Engineering from the University of Tennessee and a BS degree in Electrical Engineering from National Taiwan University.

 

Clifton A. Pemble, age 53, has served as a director of Garmin Ltd. since August 2004. He has served as President and Chief Executive Officer of Garmin Ltd. since January 2013. Previously, he served as President and Chief Operating Officer of Garmin Ltd. from October 2007 to December 2012, and is currently maintaining the role of principal operating officer. Previously, he was Vice President, Engineering of Garmin International, Inc. from 2005 to October 2007, Director of Engineering of Garmin International, Inc. from 2003 to 2005, and Software Engineering Manager of Garmin International, Inc. from 1995 to 2002 and a Software Engineer with Garmin International, Inc. from 1989 to 1995. Mr. Pemble has served as a director and officer of various Garmin subsidiaries since August 2003. Mr. Pemble holds BA degrees in Mathematics and Computer Science from MidAmerica Nazarene University.

 

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Douglas G. Boessen, age 56, has served as Chief Financial Officer and Treasurer of Garmin Ltd. since July 2014. He previously served as Chief Financial Officer of EiKO Global, LLC from September 2013 to May 2014, as well as Collective Brands, Inc. from November 1997 to November 2012. Mr. Boessen has served as a director and officer of various Garmin subsidiaries since July 2014. Mr. Boessen is a certified public accountant and holds a BS degree in Business from the University of Central Missouri and is a graduate of the executive development program at Northwestern University’s Kellogg Graduate School of Management.

 

Andrew R. Etkind, age 63, has served as Vice President, General Counsel and Secretary of Garmin Ltd. since June 2009. He was previously General Counsel and Secretary of Garmin Ltd. from August 2000 to June 2009. He has been Vice President and General Counsel of Garmin International, Inc. since July 2007, General Counsel since February 1998, and Secretary since October 1998. Mr. Etkind has served as a director and officer of various Garmin subsidiaries since December 2001. Mr. Etkind holds BA, MA and LLM degrees from Cambridge University, England and a JD degree from the University of Michigan Law School.

 

All executive officers are elected by and serve at the discretion of the Company’s Board of Directors. None of the executive officers have an employment agreement with the Company. There are no arrangements or understandings between the executive officers and any other person pursuant to which he or she was or is to be selected as an officer. There is no family relationship among any of the executive officers. Dr. Min H. Kao is the brother of Ruey-Jeng Kao, who is a supervisor of Garmin Corporation, Garmin’s Taiwan subsidiary, who serves as an ex-officio member of Garmin Corporation’s Board of Directors.

 

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PART II

 

Item 5. Market for the Company’s Common Shares, Related Shareholder Matters and Issuer Purchases of Equity Securities

 

Garmin’s shares have traded on The Nasdaq Stock Market, LLC under the symbol “GRMN” since its initial public offering on December 8, 2000 (the “IPO”). As of February 15, 2019, there were 180 shareholders of record.

 

The Board of Directors approved a share repurchase program on February 13, 2015, authorizing the Company to repurchase up to $300 million of the Company’s shares as market and business conditions warrant. The share repurchase authorization expired on December 31, 2017. The Company made no repurchases of shares during the year ended December 29, 2018. See Note 11 for additional information regarding the share repurchase plan.

 

We refer you to Item 12 of this report under the caption “Equity Compensation Plan Information” for certain equity plan information required to be disclosed by Item 201(d) of Regulation S-K.

 

Stock Performance Graph

 

This performance graph shall not be deemed ’‘filed’’ with the SEC or subject to Section 18 of the Securities Exchange Act of 1934, nor shall it be deemed incorporated by reference in any of our filings under the Securities Act of 1933, as amended.

 

The graph below matches Garmin Ltd.’s cumulative 5-Year total shareholder return on common stock with the cumulative total returns of the Nasdaq Composite index and the Nasdaq 100 index. The graph tracks the performance of a $100 investment in our common stock and in each index (with the reinvestment of all dividends) from 12/31/2013 to 12/31/2018.

 

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*

Among Garmin Ltd., the NASDAQ Composite Index and the NASDAQ 100 Index

     
 
     
  *$100 invested on 12/31/13 in stock or index, including reinvestment of dividends.  
  Fiscal year ending December 31.  

 

    12/13   12/14   12/15   12/16   12/17   12/18
                               
Garmin Ltd.   100.00    118.40    87.53    119.57    152.55    167.55 
NASDAQ Composite   100.00    114.62    122.81    133.19    172.11    165.84 
NASDAQ 100   100.00    120.99    136.23    148.44    198.95    198.30 

 

The stock price performance included in this graph is not necessarily indicative of future stock price performance.

 

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Item 6. Selected Financial Data

 

The following table sets forth selected consolidated financial data of the Company. The selected consolidated balance sheet data as of December 29, 2018 and December 30, 2017 and the selected consolidated statement of income data for the years ended December 29, 2018, December 30, 2017, and December 31, 2016 were derived from the Company’s audited consolidated financial statements and the related notes thereto which are included in Item 8 of this annual report on Form 10-K. The selected consolidated balance sheet data as of December 31, 2016, December 26, 2015, and December 27, 2014 and the selected consolidated statement of income data for the years ended December 26, 2015 and December 27, 2014 were derived from the Company’s audited consolidated financial statements, not included herein.

 

The information set forth below is not necessarily indicative of the results of future operations and should be read together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and notes to those statements included in Items 7 and 8 in Part II of this Form 10-K.

 

The Company adopted the new accounting standard for revenue recognition, as discussed in Note 2 – Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements, effective beginning with the Company’s first quarter of 2018. Adoption of the new revenue recognition standard was applied using the full retrospective method, and information for prior periods within Items 6 and 7 in Part II of this Form 10-K have been restated accordingly.

 

In the table presented below, the consolidated statements of income and balance sheet data for the years ended December 30, 2017 and December 31, 2016 and the balance sheet data for the year ended December 26, 2015 have been restated in accordance with the Company’s adoption of the new revenue recognition standard.

 

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   Years ended (1) 
   Dec. 29, 2018   Dec. 30, 2017   Dec. 31, 2016   Dec. 26, 2015   Dec. 27, 2014 
   (in thousands, except per share data) 
Consolidated Statements of Income Data:                         
Net sales  $3,347,444   $3,121,560   $3,045,797   $2,820,270   $2,870,658 
Cost of goods sold   1,367,725    1,323,619    1,357,272    1,281,566    1,266,246 
Gross profit   1,979,719    1,797,941    1,688,525    1,538,704    1,604,412 
                          
Operating expenses:                         
Advertising expense   155,394    164,693    177,143    167,166    146,633 
Selling, general and administrative   478,177    437,977    410,558    394,914    372,032 
Research and development   567,805    511,634    467,960    427,043    395,121 
Total operating expenses   1,201,376    1,114,304    1,055,661    989,123    913,786 
                          
Operating income   778,343    683,637    632,864    549,581    690,626 
Other income, net (2)(3)   44,904    13,434    5,761    17,606    33,119 
Income before income taxes   823,247    697,071    638,625    567,187    723,745 
                          
Income tax provision (benefit) (4)   129,167    (11,936)   120,901    110,960    359,534 
Net income  $694,080   $709,007   $517,724   $456,227   $364,211 
                          
Net income per share:                         
Basic  $3.68   $3.77   $2.74   $2.39   $1.89 
Diluted  $3.66   $3.76   $2.73   $2.39   $1.88 
Weighted average common shares outstanding:                         
Basic   188,635    187,828    188,818    190,631    193,106 
Diluted   189,734    188,732    189,343    191,107    194,165 
                          
Dividends declared per share  $2.12   $2.04   $2.04   $2.04   $1.92 
                          
Balance Sheet Data (at end of Period):                         
Cash and cash equivalents  $1,201,732   $891,488   $846,883   $833,070   $1,196,268 
Marketable securities   1,513,112    1,421,720    1,480,237    1,558,548    1,575,333 
Total assets   5,382,858    4,948,289    4,484,549    4,478,529    4,693,303 
Total debt                    
Total stockholders’ equity   4,162,974    3,852,419    3,453,259    3,373,734    3,403,367 

 

 

 

(1)Our fiscal year-end is the last Saturday of the calendar year and does not always fall on December 31. All years presented contain 52 weeks excluding Fiscal 2016 which includes 53 weeks.
(2)Other income, net mainly consists of gain (loss) on sale of marketable securities, interest income, and foreign currency gain (loss).
(3)Includes $7.6 million, $22.6 million, $31.7 million, $23.5 million, and $4.3 million of foreign currency losses in 2018, 2017, 2016, 2015, and 2014, respectively.
(4)2017 – includes $180.0 million income tax benefit primarily related to the revaluation of certain Switzerland deferred tax assets resulting from the Company’s election to align Switzerland corproate tax positions with international tax initiatives, partially offset by $22.6 million of income tax expense due to the expiration of certain share-based awards;

2014 – includes $307.6 million income tax expense associated with our inter-company restructuring partially offset by $72.9 million income tax reserve release due to expiration of certain statutes of limitations or completion of tax audits

 

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The following discussion and analysis of our financial condition and results of operations focuses on and is intended to clarify the results of our operations, certain changes in our financial position, liquidity, capital structure and business developments for the periods covered by the consolidated financial statements included in this Form 10-K. This discussion should be read in conjunction with, and is qualified by reference to, the other related information including, but not limited to, the audited consolidated financial statements (including the notes thereto), the description of our business, all as set forth in this Form 10-K, as well as the risk factors discussed above in Item 1A.

 

As previously noted, the discussion set forth below, as well as other portions of this Form 10-K, contain statements concerning potential future events. Readers can identify these forward-looking statements by their use of such verbs as “expects,” “anticipates,” “believes” or similar verbs or conjugations of such verbs. If any of our assumptions on which the statements are based prove incorrect or should unanticipated circumstances arise, our actual results could materially differ from those anticipated by such forward-looking statements. The differences could be caused by a number of factors or combination of factors including, but not limited to, those discussed above in Item 1A. Readers are strongly encouraged to consider those factors when evaluating any such forward-looking statement. Except as may be required by law, we do not undertake to update any forward-looking statements in this Form 10-K.

 

Garmin’s fiscal year is a 52-53 week period ending on the last Saturday of the calendar year. Fiscal years 2018 and 2017 contained 52 weeks compared to 53 weeks for 2016. Unless otherwise stated, all years and dates refer to the Company’s fiscal year and fiscal periods. Unless the context otherwise requires, references in this document to “we,” “us,” “our” and similar terms refer to Garmin Ltd. and its subsidiaries.

 

Unless otherwise indicated, dollar amounts set forth in the tables are in thousands, except per share data.

 

Overview

 

We are a leading worldwide provider of navigation, communications and information devices, most of which are enabled by Global Positioning System, or GPS, technology. We operate in five business segments, which serve the marine, outdoor, fitness, auto, and aviation markets. Our segments offer products through our network of subsidiary distributors and independent dealers and distributors. However, the nature of products and types of customers for the five segments can vary significantly. As such, the segments are managed separately.

 

Since our first products were delivered in 1991, we have generated positive income from operations each year and have funded our growth from these profits.

 

Critical Accounting Policies and Estimates

 

General

 

Garmin’s discussion and analysis of its financial condition and results of operations are based upon Garmin’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The presentation of these financial statements requires Garmin to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, Garmin evaluates its estimates, including those related to customer sales programs and incentives, product returns, bad debts, inventories, investments, intangible assets, income taxes, warranty obligations, and contingencies and litigation. Garmin bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

 

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For information on each of the following critical accounting policies and/or estimates, refer to the discussion in the Notes to the Consolidated Financial Statements as indicated in the table below:

 

Intangible Assets Note 2 - Summary of Significant Accounting Policies
Revenue Recognition Note 2 - Summary of Significant Accounting Policies & Note 13 - Revenue
Product Warranty Note 2 - Summary of Significant Accounting Policies
Legal and Other Contingencies Note 2 - Summary of Significant Accounting Policies & Note 4 - Commitments and Contingencies
Income Taxes Note 2 - Summary of Significant Accounting Policies & Note 6 - Income Taxes

 

Accounting Terms and Characteristics

 

Net Sales

 

Our net sales are primarily generated through sales to our retail partners, dealer and distributor network and to original equipment manufacturers. Refer to the Revenue Recognition discussion in Note 2 to the Consolidated Financial Statements. We aim to achieve a quick turnaround on orders we receive, and we typically ship most orders within 72 hours. Therefore, we believe that backlog information is not material to the understanding of our business.

 

Net sales are subject to seasonal fluctuation. Typically, sales of our consumer products are highest in the fourth quarter, due to increased demand during the holiday buying season, and in the second quarter, due to increased demand during the spring and summer season. Our aviation and auto OEM products do not experience much seasonal variation, but are more influenced by the timing of aircraft certifications and the release of new products when the initial demand is typically the strongest.

 

Cost of Sales/Gross Profit

 

Raw material costs are our most significant component of cost of goods sold. Our existing practice of performing the design and manufacture of our products in-house has enabled us to source components from different suppliers and, where possible, to redesign our products to leverage lower cost components. We believe that our flexible production model allows our Xizhi, Jhongli, and LinKou manufacturing plants in Taiwan; Yangzhou manufacturing plant in China; and our Olathe, Kansas, and Salem, Oregon manufacturing plants in the U.S. to experience 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 and China than in Olathe and Salem.

 

Sales price variability has had and can be expected to have an effect on our gross profit. Our gross profit is dependent on segment mix, and to a lesser extent, product mix within each segment.

 

Advertising Expense

 

Our advertising expenses consist of costs for media advertising, cooperative advertising with our retail partners, point of sale displays, and sponsorships.

 

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Selling, General and Administrative Expenses

 

Our selling, general and administrative expenses consist primarily of:

 

salaries for sales, marketing and product support personnel;

salaries and related costs for executives and administrative personnel;

marketing, and other brand building costs;

accounting and legal costs;

information systems and infrastructure costs;

travel and related costs; and

occupancy and other overhead costs.

 

Research and Development

 

The majority of our research and development costs represent salaries for our engineers and costs of test equipment and components used in product and prototype development.

 

We are committed to increasing the level of innovative design and development of new products as we strive for expanded ability to serve our existing consumer and aviation markets as well as new markets for active lifestyle products.

 

Income Taxes

 

We have experienced a relatively low effective corporate tax rate due to the proportion of our revenue generated by entities in tax jurisdictions with low statutory rates. In particular, the profit entitlement afforded our Swiss-based companies based on their intellectual property rights ownership of our consumer products have contributed to our relatively low effective corporate tax rate.

 

Results of Operations

 

The following table sets forth our results of operations as a percentage of net sales during the periods shown (the table may not foot due to rounding):

 

   52-Weeks Ended   52-Weeks Ended   53-Weeks Ended 
   December 29,   December 30,   December 31, 
   2018   2017   2016 
Net sales   100%   100%   100%
Cost of goods sold   41%   42%   45%
Gross profit   59%   58%   55%
Operating expenses:               
     Advertising   5%   5%   6%
     Selling, general and administrative   14%   14%   13%
     Research and development   17%   16%   15%
Total operating expenses   36%   36%   35%
Operating income   23%   22%   21%
Other income, net   1%   0%   0%
Income before income taxes   25%   22%   21%
Provision (benefit) for income taxes   4%   (0%)   4%
Net income   21%   23%   17%

 

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The following table sets forth our results of operations through operating income for each of our five segments during the period shown. The Company’s CODM uses operating income as the measure of profit or loss to assess segment performance and allocate resources. Operating income represents net sales less costs of goods sold and operating expenses. Net sales are directly attributed to each segment. Most costs of goods sold and the majority of operating expenses are also directly attributed to each segment, while certain other costs of goods sold and operating expenses are allocated to the segments in a manner appropriate to the specific facts and circumstances of the expenses being allocated. For each line item in the table, the total of the segments’ amounts equals the amount in the consolidated statements of income data included in Item 6.

 

52-weeks ended December 29, 2018  Outdoor   Fitness   Marine   Auto   Aviation 
                     
Net sales  $809,883   $858,329   $441,560   $634,213   $603,459 
Cost of goods sold   281,629    386,565    182,804    363,420    153,307 
Gross profit   528,254    471,764    258,756    270,793    450,152 
                          
Advertising expense   46,041    64,707    18,284    19,155    7,207 
Selling, general and administrative expenses   120,588    135,096    97,682    88,672    36,139 
Research and development expense   71,115    90,216    79,446    124,968    202,060 
Total operating expenses   237,744    290,019    195,412    232,795    245,406 
                          
Operating income  $290,510   $181,745   $63,344   $37,998   $204,746 
                          
52-weeks ended December 30, 2017  Outdoor   Fitness   Marine   Auto   Aviation 
                          
Net sales  $698,867   $762,194   $374,001   $785,139   $501,359 
Cost of goods sold   250,457    339,558    161,409    442,441    129,754 
Gross profit   448,410    422,636    212,592    342,698    371,605 
                          
Advertising expense   41,113    75,660    16,101    25,639    6,180 
Selling, general and administrative expenses   98,914    119,537    83,765    107,995    27,766 
Research and development expense   58,516    80,674    62,398    126,320    183,726 
Total operating expenses   198,543    275,871    162,264    259,954    217,672 
                          
Operating income  $249,867   $146,765   $50,328   $82,744   $153,933 
                          
53-weeks ended December 31, 2016  Outdoor   Fitness   Marine   Auto   Aviation 
                          
Net sales  $546,326   $818,486   $331,947   $909,690   $439,348 
Cost of goods sold   205,822    381,281    148,238    511,988    109,943 
Gross profit   340,504    437,205    183,709    397,702    329,405 
                          
Advertising expense   31,005    90,871    15,516    33,122    6,629 
Selling, general and administrative expenses   77,016    118,753    60,061    127,618    27,110 
Research and development expense   48,448    66,985    55,965    125,660    170,902 
Total operating expenses   156,469    276,609    131,542    286,400    204,641 
                          
Operating income  $184,035   $160,596   $52,167   $111,302   $124,764 

 

Comparison of 52-Weeks Ended December 29, 2018 and December 30, 2017

 

Net Sales

 

   52-Weeks ended December 29, 2018     52-Weeks ended December 30, 2017     Year over Year 
   Net Sales   % of Revenue     Net Sales   % of Revenue     $ Change   % Change 
Outdoor  $809,883   24%    $698,867   22%    $111,016   16%
Fitness   858,329   26%     762,194   25%     96,135   13%
Marine   441,560   13%     374,001   12%     67,559   18%
Auto   634,213   19%     785,139   25%     (150,926)  (19%)
Aviation   603,459   18%     501,359   16%     102,100   20%
Total  $3,347,444   100%    $3,121,560   100%    $225,884   7%

 

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Net sales increased 7% in 2018 when compared to the year-ago period. All segments had an increase in revenue except for auto. Fitness revenue represented the largest portion of our revenue mix in 2018 at 26%, and auto revenue represented the largest portion of our revenue mix in 2017 at 25%.

 

Total unit sales decreased 3% to 14.9 million units in 2018 from 15.4 million units in 2017.

 

Outdoor, fitness, marine, and aviation revenues increased 16%, 13%, 18%, and 20%, respectively when compared to the year-ago period. The outdoor and fitness segment revenue increases were primarily driven by growth in wearables. Marine segment revenue increases were driven by sales growth across most product lines and sales from recent acquisitions. Aviation segment revenue increases were driven by sales growth across most product lines in both OEM and aftermarket categories. Auto segment revenue decreased 19% from the year-ago period, primarily due to the ongoing PND market contraction and lower year-over-year OEM sales driven by the timing of OEM programs.

 

Cost of Goods Sold

 

   52-Weeks ended December 29, 2018     52-Weeks ended December 30, 2017     Year over Year 
   Cost of Goods   % of Revenue     Cost of Goods   % of Revenue     $ Change   % Change 
Outdoor  $281,629   35%    $250,457   36%    $31,172   12%
Fitness   386,565   45%     339,558   45%     47,007   14%
Marine   182,804   41%     161,409   43%     21,395   13%
Auto   363,420   57%     442,441   56%     (79,021)  (18%)
Aviation   153,307   25%     129,754   26%     23,553   18%
Total  $1,367,725   41%    $1,323,619   42%    $44,106   3%

 

Cost of goods sold increased 3% in absolute dollars for fiscal year 2018 when compared to fiscal year 2017. The increase in revenue outpaced the increase in cost of goods sold, which resulted in a 150 basis point decrease in cost of goods sold as a percent of revenue compared to the prior fiscal year.

 

The marine segment decrease in cost of goods sold, as a percent of revenue, primarily resulted from the favorable impact of higher margin cartography sales on product mix. The outdoor segment decrease in cost of goods sold, as a percent of revenue, was primarily due to shifts in product mix. In the fitness and aviation segments, cost of goods sold as a percent of revenue was relatively flat compared to the prior year. The auto segment cost of goods decline was largely consistent with the segment revenue decline.

 

Gross Profit

 

   52-Weeks ended December 29, 2018     52-Weeks ended December 30, 2017     Year over Year 
   Gross Profit   % of Revenue     Gross Profit   % of Revenue     $ Change   % Change 
Outdoor  $528,254   65%    $448,410   64%    $79,844   18%
Fitness   471,764   55%     422,636   55%     49,128   12%
Marine   258,756   59%     212,592   57%     46,164   22%
Auto   270,793   43%     342,698   44%     (71,905)  (21%)
Aviation   450,152   75%     371,605   74%     78,547   21%
Total  $1,979,719   59%    $1,797,941   58%    $181,778   10%

 

Gross profit dollars in 2018 increased 10% while gross margin increased 150 basis points when compared to the prior year. Gross margin increased in the outdoor and marine segments as a result of the reasons discussed above. Gross margins remained relatively flat as a percent of revenue in the fitness, auto, and aviation segments.

 

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Advertising Expenses

 

   52-Weeks ended December 29, 2018     52-Weeks ended December 30, 2017       
   Advertising         Advertising         Year over Year 
   Expense   % of Revenue     Expense   % of Revenue     $ Change   % Change 
Outdoor  $46,041   6%    $41,113   6%    $4,928   12%
Fitness   64,707   8%     75,660   10%     (10,953)  (14%)
Marine   18,284   4%     16,101   4%     2,183   14%
Auto   19,155   3%     25,639   3%     (6,484)  (25%)
Aviation   7,207   1%     6,180   1%     1,027   17%
Total  $155,394   5%    $164,693   5%    $(9,299)  (6%)

 

Advertising expense decreased 6% in absolute dollars and was relatively flat as a percent of revenue in fiscal year 2018 compared to fiscal year 2017. The overall decrease in absolute dollars was primarily attributable to decreased media advertising in the fitness segment and decreased media and cooperative advertising in the auto segment, partially offset by increased media advertising in the outdoor segment and increased media and cooperative advertising in the marine segment.

 

Selling, General and Administrative Expenses

 

   52-Weeks ended December 29, 2018     52-Weeks ended December 30, 2017       
   Selling, General &         Selling, General &         Year over Year 
   Admin. Expenses   % of Revenue     Admin. Expenses   % of Revenue      $ Change   % Change 
Outdoor  $120,588   15%    $98,914   14%    $21,674   22%
Fitness   135,096   16%     119,537   16%     15,559   13%
Marine   97,682   22%     83,765   22%     13,917   17%
Auto   88,672   14%     107,995   14%     (19,323)  (18%)
Aviation   36,139   6%     27,766   6%     8,373   30%
Total  $478,177   14%    $437,977   14%    $40,200   9%

 

Selling, general and administrative expense increased 9% in absolute dollars and was relatively flat as a percent of revenue when compared to the year-ago period. The absolute dollar increase was primarily attributable to expenses from recent acquisitions and personnel costs, partially offset by a reduction in litigation settlement costs in the marine segment. All segments were relatively flat as a percent of revenue.

 

Research and Development Expense

 

   52-Weeks ended December 29, 2018     52-Weeks ended December 30, 2017       
   Research &         Research &         Year over Year 
   Development   % of Revenue     Development   % of Revenue     $ Change   % Change 
Outdoor  $71,115   9%    $58,516   8%    $12,599   22%
Fitness   90,216   11%     80,674   11%     9,542   12%
Marine   79,446   18%     62,398   17%     17,048   27%
Auto   124,968   20%     126,320   16%     (1,352)  (1%)
Aviation   202,060   33%     183,726   37%     18,334   10%
Total  $567,805   17%    $511,634   16%    $56,171   11%

 

Research and development expense increased 11% in absolute dollars when compared to the year-ago period and was relatively flat as a percent of revenue. The absolute dollar increase was primarily due to engineering personnel costs related to wearable and aviation product offerings and expenses resulting from recent acquisitions within the marine segment. Our research and development spending is focused on product development, improving existing software capabilities, and exploring new categories.

 

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Operating Income

 

   52-Weeks ended December 29, 2018     52-Weeks ended December 30, 2017     Year over Year 
   Operating Income   % of Revenue     Operating Income   % of Revenue     $ Change   % Change 
Outdoor  $290,510   36%    $249,867   36%    $40,643   16%
Fitness   181,745   21%     146,765   19%     34,980   24%
Marine   63,344   14%     50,328   13%     13,016   26%
Auto   37,998   6%     82,744   11%     (44,746)  (54%)
Aviation   204,746   34%     153,933   31%     50,813   33%
Total  $778,343   23%    $683,637   22%    $94,706   14%

 

Operating income increased 14% in absolute dollars and increased 140 basis points as a percent of revenue when compared to fiscal year 2017. The growth in operating income on an absolute dollar basis and as a percent of revenue was the result of strong revenue growth and increased gross margins.

 

Other Income (Expense)

 

   52-Weeks ended   52-Weeks ended 
   December 29, 2018   December 30, 2017 
Interest income  $47,147   $36,925 
Foreign currency (losses)   (7,616)   (22,579)
Other   5,373    (912)
Total  $44,904   $13,434 

 

The average returns on cash and investments, including interest and capital gain/loss returns, during the 52-weeks ended December 29, 2018 and December 30, 2017 were 1.8% and 1.5%, respectively. Interest income increased primarily due to higher yields on fixed-income securities.

 

Foreign currency gains and losses for the Company are typically driven by movements in the Taiwan Dollar, Euro, and British Pound Sterling in relation to the U.S. Dollar. The Taiwan Dollar is the functional currency of Garmin Corporation, the U.S. Dollar is the functional currency of Garmin (Europe) Ltd., and the Euro is the functional currency of most of our other European subsidiaries, although some transactions and balances are denominated in British Pounds. The majority of the Company’s consolidated foreign currency gain or loss is typically driven by the significant cash and marketable securities, receivables, and payables held in a currency other than the functional currency at a given legal entity. Due to the relative size of the entities using a functional currency other than the Taiwan Dollar, Euro, and British Pound Sterling, currency fluctuations related to these entities are not expected to have a material impact on the Company’s financial statements.

 

The $7.6 million currency loss recognized in fiscal 2018 was primarily due to the strengthening of the U.S. Dollar against the Euro and the British Pound Sterling, offset by the U.S. Dollar strengthening against the Taiwan Dollar. During fiscal 2018, the U.S. Dollar strengthened 4.7% against the Euro and 6.0% against the British Pound Sterling, resulting in losses of $10.0 million and $1.7 million, respectively, while the U.S. Dollar strengthened 3.0% against the Taiwan Dollar, resulting in a gain of $15.1 million. The remaining net currency loss of $11.0 million was related to timing of transactions and impacts of other currencies, each of which was individually immaterial.

 

The $22.6 million currency loss recognized in fiscal 2017 was primarily due to the weakening of the U.S. Dollar against the Taiwan Dollar, partially offset by the U.S. Dollar weakening against the Euro and the British Pound Sterling. During fiscal 2017, the U.S. Dollar weakened 9.4% against the Taiwan Dollar, resulting in a loss of $55.9 million, while the U.S. Dollar weakened 14.1% against the Euro and 9.5% against the British Pound Sterling, resulting in gains of $27.2 million and $3.1 million, respectively. The remaining net currency gain of $3.0 million was related to timing of transactions and impacts of other currencies, each of which was individually immaterial.

 

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Income Tax Provision

 

Our income tax expense for the fiscal year ended December 29, 2018 was $129.2 million compared to income tax benefit of $11.9 million for the fiscal year ended December 30, 2017, resulting in a net change of $141.1 million. Contributing to the increase in tax expense was:

 

Income tax benefit of $180.0 million recorded in fiscal 2017 primarily related to the revaluation of certain Switzerland deferred tax assets resulting from the Company’s election in the first quarter of 2017 to align certain Switzerland corporate tax positions with international tax initiatives with no comparable item in the fiscal year ended December 29, 2018,

 

Partially offset by:

 

Income tax benefit of $2.7 million related to share based compensation in the fiscal year ended December 29, 2018, as compared to income tax expense of $19.9 million in the fiscal year ended December 30, 2017, and
Income tax benefit of $13.7 million related to the Company’s net change in uncertain tax positions in the fiscal year ended December 29, 2018, as compared to income tax expense of $5.4 million in the fiscal year ended December 30, 2017.

 

Net Income

 

As a result of the various factors noted above, income before taxes increased 18% to $823.2 million from $697.1 million in the prior year, while net income decreased 2% to $694.1 million from $709.0 million in the prior year.

 

Comparison of 52-Weeks Ended December 30, 2017 and 53-Weeks Ended December 31, 2016

 

Net Sales

 

    52-Weeks ended December 30, 2017   53-Weeks ended December 31, 2016   Year over Year 
    Net Sales   % of Revenue   Net Sales  % of Revenue   $ Change  % Change 
Outdoor   $698,867    22%  $546,326   18%  $152,541   28%
Fitness    762,194    25%   818,486   27%   (56,292)  (7%)
Marine    374,001    12%   331,947   11%   42,054   13%
Auto    785,139    25%   909,690   30%   (124,551)  (14%)
Aviation    501,359    16%   439,348   14%   62,011   14%
Total   $3,121,560    100%  $3,045,797   100%  $75,763   2%

 

Net sales increased 2% in 2017 when compared to the year-ago period. Outdoor, marine, and aviation segments had an increase in revenue, while fitness and auto segments had a decrease in revenue. Auto revenue represented the largest portion of our revenue mix in 2017 at 25%, which was a decline from 30% in 2016.

 

Total unit sales decreased 8% to 15.4 million units in the 52-weeks ended 2017 from 16.8 million units in the 53-weeks ended 2016.

 

Outdoor, marine, and aviation revenues increased 28%, 13%, and 14%, respectively when compared to the year-ago period. Growth in outdoor was driven by growth in our wearables and subscriptions categories. Our marine segment revenue increased primarily due to growth in chartplotters, fishfinders, and entertainment systems, and the newly acquired Navionics. Aviation revenues increased due to growth in both OEM and aftermarket sales. Fitness segment revenue decreased 7% from the year-ago period, primary driven by the general decline of the basic activity tracker market. Auto segment revenue decreased 14% from the year-ago period, primarily due to the ongoing PND market contraction.

 

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Cost of Goods Sold

 

    52-Weeks ended December 30, 2017   53-Weeks ended December 31, 2016   Year over Year 
    Cost of Goods   % of Revenue   Cost of Goods  % of Revenue   $ Change  % Change 
Outdoor   $250,457    36%  $205,822   38%  $44,635   22%
Fitness    339,558    45%   381,281   47%   (41,723)  (11%)
Marine    161,409    43%   148,238   45%   13,171   9%
Auto    442,441    56%   511,988   56%   (69,547)  (14%)
Aviation    129,754    26%   109,943   25%   19,811   18%
Total   $1,323,619    42%  $1,357,272   45%  $(33,653)  (2%)

 

Cost of goods sold decreased 2% in absolute dollars for the 52-weeks ended December 30, 2017 when compared to the 53-weeks ended December 31, 2016.

 

In the outdoor, fitness, and marine segments, the decrease in cost of goods sold as a percent of revenues was a result of a shift in product mix toward higher margin products. The aviation segment increase in cost of goods sold was generally consistent with the segment revenue increase. The auto segment cost of goods decline was largely consistent with the segment revenue decline.

 

Gross Profit

 

    52-Weeks ended December 30, 2017   53-Weeks ended December 31, 2016   Year over Year 
    Gross Profit   % of Revenue   Gross Profit  % of Revenue   $ Change  % Change 
Outdoor   $448,410    64%  $340,504   62%  $107,906   32%
Fitness    422,636    55%   437,205   53%   (14,569)  (3%)
Marine    212,592    57%   183,709   55%   28,883   16%
Auto    342,698    44%   397,702   44%   (55,004)  (14%)
Aviation    371,605    74%   329,405   75%   42,200   13%
Total   $1,797,941    58%  $1,688,525   55%  $109,416   6%

 

Gross profit dollars in the 52-weeks ended December 30, 2017 increased 6% while gross profit margin increased 220 basis points compared to the 53-weeks ended December 31, 2016. Growth in sales of higher margin segments contributed to the increase in gross profit dollars and gross margin percentage. Outdoor, fitness, and marine segment increases to gross profit margin were primarily due to product mix within those segments. Auto and aviation segment gross margin rates were relatively consistent between fiscal periods.

 

Advertising Expenses

 

    52-Weeks ended December 30, 2017   53-Weeks ended December 31, 2016   Year over Year 
    Advertising
Expense
   % of Revenue   Advertising
Expense
  % of Revenue   $ Change  % Change 
Outdoor   $41,113    6%  $31,005   6%  $10,108   33%
Fitness    75,660    10%   90,871   11%   (15,211)  (17%)
Marine    16,101    4%   15,516   5%   585   4%
Auto    25,639    3%   33,122   4%   (7,483)  (23%)
Aviation    6,180    1%   6,629   2%   (449)  (7%)
Total   $164,693    5%  $177,143   6%  $(12,450)  (7%)

 

Advertising expense decreased 7% in absolute dollars and was relatively flat as a percent of revenues in the 52-weeks ended December 30, 2017 compared to the 53-weeks ended December 31, 2016. The decrease in absolute dollars is primarily attributable to decreases in spend on media advertising.

 

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Selling, General and Administrative Expenses

 

    52-Weeks ended December 30, 2017   53-Weeks ended December 31, 2016   Year over Year 
    Selling, General &
Admin. Expenses
   % of Revenue   Selling, General &
Admin. Expenses
   % of Revenue    $ Change   % Change 
Outdoor   $98,914   14%  $77,016   14%  $21,898   28%
Fitness    119,537   16%   118,753   15%   784   1%
Marine    83,765   22%   60,061   18%   23,704   39%
Auto    107,995   14%   127,618   14%   (19,623)  (15%)
Aviation    27,766   6%   27,110   6%   656   2%
Total   $437,977   14%  $410,558   13%  $27,419   7%

 

Selling, general and administrative expense increased 7% in absolute dollars and was relatively flat as a percent of revenues in the 52-weeks ended December 30, 2017 compared to the 53-weeks ended December 31, 2016. The absolute dollar increase is primarily attributable to legal-related costs and information technology costs. As a percent of revenues, selling, general, and administrative expenses in all segments except marine were relatively consistent on a year over year basis. The increase in the marine segment, as a percent of revenue, was primarily related to a litigation settlement.

 

Research and Development Expense

 

    52-Weeks ended December 30, 2017   53-Weeks ended December 31, 2016   Year over Year 
    Research &
Development
  % of Revenue   Research &
Development
  % of Revenue   $ Change  % Change 
Outdoor   $58,516   8%  $48,448   9%  $10,068   21%
Fitness    80,674   11%   66,985   8%   13,689   20%
Marine    62,398   17%   55,965   17%   6,433   11%
Auto    126,320   16%   125,660   14%   660   1%
Aviation    183,726   37%   170,902   39%   12,824   8%
Total   $511,634   16%  $467,960   15%  $43,674   9%

 

Research and development expense increased 9% due to ongoing development activities for new products and the addition of engineering personnel throughout the 52-weeks ended December 30, 2017. In absolute dollars, research and development costs increased $43.7 million when compared with the 53-weeks ended December 31, 2016, and increased 100 basis points as a percent of revenue. Our research and development spending is focused on product development, improving existing software capabilities, and exploring new categories.

 

Operating Income

 

    52-Weeks ended December 30, 2017   53-Weeks ended December 31, 2016   Year over Year 
    Operating Income  % of Revenue   Operating Income  % of Revenue   $ Change  % Change 
Outdoor   $249,867   36%  $184,035   34%  $65,832   36%
Fitness    146,765   19%   160,596   20%   (13,831)  (9%)
Marine    50,328   13%   52,167   16%   (1,839)  (4%)
Auto    82,744   11%   111,302   12%   (28,558)  (26%)
Aviation    153,933   31%   124,764   28%   29,169   23%
Total   $683,637   22%  $632,864   21%  $50,773   8%

 

As a result of the above, operating income increased 8% in absolute dollars and 110 basis points as a percent of revenue when compared to the 53-weeks ended December 31, 2016. The growth in operating income, both in absolute dollars and as a percent of revenue, was primarily due to an increase in revenue growth and increase in gross margin percentage, which were partially offset by increased operating expenses, as discussed above.

 

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Other Income (Expense)

 

   52-Weeks ended   53-Weeks ended 
   December 30, 2017   December 31, 2016 
Interest income  $36,925   $33,406 
Foreign currency (losses)   (22,579)   (31,651)
Other   (912)   4,006 
Total  $13,434   $5,761 

 

The average returns on cash and investments, including interest and capital gain/loss returns, during the 52-weeks ended December 30, 2017 and the 53- weeks ended December 31, 2016 were 1.5% for both periods. Interest income increased in fiscal 2017 primarily due to slightly higher yields on fixed-income securities, while other income decreased in fiscal 2017 primarily due to higher net capital gains realized in fiscal 2016.

 

Foreign currency gains and losses for the Company are typically driven by movements in the Taiwan Dollar, Euro, and British Pound Sterling in relation to the U.S. Dollar. The Taiwan Dollar is the functional currency of Garmin Corporation, the U.S. Dollar is the functional currency of Garmin (Europe) Ltd., and the Euro is the functional currency of most of our other European subsidiaries, although some transactions and balances are denominated in British Pounds. The majority of the Company’s consolidated foreign currency gain or loss is typically driven by the significant cash and marketable securities, receivables, and payables held in a currency other than the functional currency at a given legal entity. Due to the relative size of the entities using a functional currency other than the Taiwan Dollar, Euro, and British Pound Sterling, currency fluctuations related to these entities are not expected to have a material impact on the Company’s financial statements.

 

The $22.6 million currency loss recognized in fiscal 2017 was primarily due to the weakening of the U.S. Dollar against the Taiwan Dollar, partially offset by the U.S. Dollar weakening against the Euro and the British Pound Sterling. During fiscal 2017, the U.S. Dollar weakened 9.4% against the Taiwan Dollar, resulting in a loss of $55.9 million, while the U.S. Dollar weakened 14.1% against the Euro and 9.5% against the British Pound Sterling, resulting in gains of $27.2 million and $3.1 million, respectively. The remaining net currency gain of $3.0 million was related to timing of transactions and impacts of other currencies, each of which was individually immaterial.

 

The $31.7 million currency loss recognized in fiscal 2016 was primarily due to the weakening of the U.S. Dollar against the Taiwan Dollar and the strengthening of the U.S. Dollar against the Euro and British Pound Sterling. During fiscal 2016, the U.S. Dollar weakened 1.7% against the Taiwan Dollar, resulting in a loss of $9.2 million, while the U.S. Dollar strengthened 4.2% against the Euro and 16.8% against the British Pound Sterling, resulting in losses of $13.0 million and $5.1 million, respectively. The remaining net currency loss of $4.4 million was related to timing of transactions and impacts of other currencies, each of which was individually immaterial.

 

Income Tax Provision

 

Our income tax benefit for the 52-weeks ended December 30, 2017 was $11.9 million compared to income tax expense of $120.9 million for the 53-weeks ended December 31, 2016, resulting in a net change of $132.8 million. Contributing to the decrease in tax expense was:

 

Income tax benefit of $180.0 million recorded in fiscal 2017 primarily related to the revaluation of certain Switzerland deferred tax assets resulting from the Company’s election in the first quarter of 2017 to align certain Switzerland corporate tax positions with international tax initiatives, with no comparable item in the 53-weeks ended December 31, 2016,

 

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Partially offset by:

 

Income tax expense of $19.9 million related to share based compensation in the 52-weeks ended December 30, 2017 in accordance with new accounting standard Topic 718, Compensation–Stock Compensation, and
Increased income tax expense of $21.0 million related to the Company’s election to align certain Switzerland corporate tax positions in the 52-weeks ended December 30, 2017.

 

On December 22, 2017, the Tax Cuts and Jobs Act was passed by United States Congress, reducing the United States federal corporate income tax rate from 35% to 21%. The effects of U.S. tax reform, including revaluation of deferred tax assets and liabilities, had an immaterial impact on the 2017 income tax benefit, on a provisional basis, as discussed in Note 6.

 

Net Income

 

As a result of the various factors noted above, net income increased 37% to $709.0 million for the 52-weeks ended December 30, 2017 compared to $517.7 million for the 53-weeks ended December 31, 2016.

 

Liquidity and Capital Resources

 

As of December 29, 2018, we had $2,714.8 million of cash and cash equivalents and marketable securities. We primarily use cash flow from operations, and expect that future cash requirements may be used, to fund our capital expenditures, support our working capital requirements, pay dividends, and fund strategic acquisitions. We believe that our existing cash balances and cash flow from operations will be sufficient to meet our long-term projected capital expenditures, working capital and other cash requirements.

 

It is management’s goal to invest the on-hand cash in accordance with the investment policy, which has been approved by the Board of Directors of each applicable Garmin entity holding the cash. The investment policy’s primary purpose is to preserve capital, maintain an acceptable degree of liquidity, and maximize yield within the constraint of low credit risk. Garmin’s average interest income returns on cash and investments during fiscal 2018, 2017, and 2016 were approximately 1.9%, 1.6%, and 1.5%, respectively. The fair value of our securities varies from period to period due to changes in interest rates, in the performance of the underlying collateral and in the credit performance of the underlying issuer, among other factors. See Note 3 for additional information regarding marketable securities.

 

Operating Activities

 

   52-Weeks Ended   52-Weeks Ended   53-Weeks Ended 
   December 29,   December 30,   December 31, 
(In thousands)  2018   2017   2016 
Net cash provided by operating activities  $919,520   $660,842   $705,682 

 

The $258.7 million increase in cash provided by operating activities in fiscal year 2018 compared to fiscal year 2017 was due to the increase in cash provided by working capital of $82.8 million (which included an increase of $46.4 million in net receipts of accounts receivable, an increase of $57.9 million in accounts payable, partially offset by an increase of $50.2 million in cash paid for inventory), and income taxes payable of $48.6 million. Additionally, the year over year decrease in net income of $14.9 million was offset by other non-cash adjustments to net income of $142.3 million, including an income tax benefit of $180.0 million related to the revaluation of certain Switzerland deferred tax assets.

 

The $44.8 million decrease in cash provided by operating activities in fiscal year 2017 compared to fiscal year 2016 was primarily due to a decrease of cash provided by working capital of $133.2 million (which included increases of $52.2 million in accounts receivable and $31.5 million in cash paid for inventory) and income taxes payable of $16.5 million. The decrease was partially offset by an increase in net income of $184.1 million, reduced by other non-cash adjustments to net income of $79.3 million, including an income tax benefit of $180.0 million related to the revaluation of certain Switzerland deferred tax assets.

 

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Investing Activities

 

             
   52-Weeks Ended   52-Weeks Ended   53-Weeks Ended 
   December 29,   December 30,   December 31, 
(In thousands)  2018   2017   2016 
Net cash used in investing activities  $(307,503)  $(194,383)  $(121,683)

 

The $113.1 million increase in cash used in investing activities in fiscal year 2018 compared to fiscal year 2017 was primarily due to increased net purchases of marketable securities of $167.2 million and increased cash payments for net purchases of property and equipment of $14.8 million, partially offset by a decrease in net cash paid for acquisitions of $61.3 million.

 

The $72.7 million increase in cash used in investing activities in fiscal year 2017 compared to fiscal year 2016 was primarily due to increased cash payments for net purchases of property and equipment of $49.1 million and net cash paid for acquisitions of $12.5 million.

 

Financing Activities

 

   52-Weeks Ended   52-Weeks Ended   53-Weeks Ended 
   December 29,   December 30,   December 31, 
(In thousands)  2018   2017   2016 
Net cash used in financing activities  $(286,161)  $(448,412)  $(561,676)

 

The $162.3 million decrease in cash used in financing activities in fiscal year 2018 compared to fiscal year 2017 was primarily due to a decrease in dividend payments of $86.8 million associated with the timing of dividend payments that resulted in one less dividend payment in 2018 compared to 2017, and also due to a decrease of purchases of treasury stock of $74.5 million under our share repurchase authorization, which expired on December 31, 2017.

 

The $113.3 million decrease in cash used in financing activities in fiscal year 2017 compared to fiscal year 2016 was primarily due to decreased dividend payments of $98.5 million associated with the timing of dividend payments that resulted in an additional payment made in the 53-week fiscal year 2016, and also due to a decrease of purchases of treasury stock of $18.7 million under our share repurchase authorization.

 

Our declared dividend has increased from $0.51 per share for the twelve calendar quarters beginning in June 2015 to $0.53 per share for the four calendar quarters beginning June 2018.

 

Contractual Obligations and Commercial Commitments

 

As of December 29, 2018, operating leases comprise the substance of the Company’s commercial commitments with long-term scheduled payments, as summarized below:

 

   Payments due by period 
Contractual Obligations  Total   Less than 1 year   1-3 years   3-5 years   More than 5 years 
Operating Leases  $69,838   $17,170   $24,520   $14,237   $13,910 

 

The Company is party to certain other commitments, which include purchases of raw materials, advertising expenditures, and other indirect purchases in connection with conducting our business.  The aggregate amount of purchase orders and other commitments open as of December 29, 2018 was approximately $354.6 million. We cannot determine the aggregate amount of such purchase orders that represent contractual obligations because purchase orders may represent authorizations to purchase rather than binding agreements. Our purchase orders are based on our current needs and are typically fulfilled within short periods of time.

 

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We may be required to make significant cash outlays related to unrecognized tax benefits. However, due to the uncertainty of the timing of future cash flows associated with our unrecognized tax benefits, we are unable to make reasonably reliable estimates of the period of cash settlement, if any, with the respective taxing authorities. Accordingly, unrecognized tax benefits of $118.3 million as of December 29, 2018, have been excluded from the contractual obligations table above. For further information related to unrecognized tax benefits, see Note 2, “Income Taxes”, and Note 6 to the consolidated financial statements included in this Report.

 

Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements.

 

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

 

Market Sensitivity

 

We have market risk primarily in connection with the pricing of our products and services and the purchase of raw materials. Product pricing and raw materials costs are both significantly influenced by semiconductor market conditions. Historically, during cyclical industry downturns, we have been able to offset pricing declines for our products through a combination of improved product mix and success in obtaining price reductions in raw materials costs.

 

Inflation

 

We do not believe that inflation has had a material effect on our business, financial condition or results of operations. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could adversely affect our business, financial condition and results of operations.

 

Foreign Currency Exchange Rate Risk

 

The operation of Garmin’s subsidiaries in international markets results in exposure to movements in currency exchange rates. We have experienced significant foreign currency gains and losses due to the strengthening and weakening of the U.S. dollar. The potential of volatile foreign exchange rate fluctuations in the future could have a significant effect on our results of operations. The Company has not historically hedged its foreign currency exchange rate risks.

 

The currencies that create a majority of the Company’s exchange rate exposure are the Taiwan Dollar, Euro, and British Pound Sterling. Garmin Corporation, headquartered in Xizhi, Taiwan, uses the local currency as the functional currency. The Company translates all assets and liabilities at year-end exchange rates and income and expense accounts at average rates during the year. In order to minimize the effect of the currency exchange fluctuations on our net assets, we have elected to retain most of our Taiwan subsidiary’s cash and investments in accounts denominated in U.S. Dollars.

 

Most European subsidiaries use the Euro as the functional currency. However, the functional currency of our largest European subsidiary, Garmin (Europe) Ltd., is the U.S. Dollar, and as some transactions have occurred in British Pounds Sterling or Euros, foreign currency gains or losses have been realized historically related to the movements of those currencies relative to the U.S. Dollar. The Company believes that gains and losses will become more material in the future as our European presence grows.

 

55

 

 

During fiscal year 2018, the Company incurred a net foreign currency loss of $7.6 million. The strengthening of the U.S. Dollar against the Euro and the British Pound Sterling was offset by the U.S. Dollar strengthening against the Taiwan Dollar. During fiscal 2018, the U.S. Dollar strengthened 4.7% against the Euro and 6.0% against the British Pound Sterling, resulting in losses of $10.0 million and $1.7 million, respectively, while the U.S. Dollar strengthened 3.0% against the Taiwan Dollar, resulting in a gain of $15.1 million. The remaining net currency loss of $11.0 million was related to timing of transactions and impacts of other currencies, each of which was individually immaterial.  These and other currency moves during fiscal year 2018 also resulted in a currency translation adjustment of $32.0 million within accumulated other comprehensive income.  

 

We assessed the Company’s exposure to movements in currency exchange rates by performing a sensitivity analysis of adverse changes in exchange rates and the corresponding impact to our results of operations. Based on monetary assets and liabilities denominated in currencies other than respective functional currencies as of December 29, 2018 and December 30, 2017, hypothetical and reasonably possible adverse changes of 10% for the Taiwan Dollar, Euro, and British Pound Sterling would have resulted in an adverse impact on income before income taxes of approximately $109 million and $96 million at December 29, 2018 and December 30, 2017, respectively.

 

Interest Rate Risk

 

We have no outstanding long-term debt as of December 29, 2018. We, therefore, have no meaningful debt-related interest rate risk.

 

We are exposed to interest rate risk in connection with our investments in marketable securities. As interest rates change, the unrealized gains and losses associated with those securities will fluctuate accordingly.

 

The Company’s investment policy targets low risk investments with the objective of minimizing the potential risk of principal loss. The Company does not intend to sell securities in an unrealized loss position and it is not more likely than not that the Company will be required to sell such investments before recovery of their amortized costs bases, which may be maturity. During 2018 and 2017, the Company did not record any material impairment charges on its outstanding securities.

 

We assessed the Company’s exposure to interest rate risk by performing a sensitivity analysis of a parallel shift in the yield curve and the corresponding impact to the Company’s portfolio of marketable securities. Based on balance sheet positions as of December 29, 2018 and December 30, 2017, the hypothetical and reasonably possible 100 basis point increases in interest rates across all securities would have resulted in declines in portfolio fair market value of approximately $38 million and $42 million at December 29, 2018 and December 30, 2017, respectively. Such losses would only be realized if the Company sold the investments prior to maturity.

 

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Item 8. Financial Statements and Supplementary Data

 

CONSOLIDATED FINANCIAL STATEMENTS

 

Garmin Ltd. and Subsidiaries 

Years Ended December 29, 2018, December 30, 2017, and December 31, 2016

 

Contents

 

Report of Ernst & Young LLP, Independent Registered Public Accounting Firm 58
Consolidated Balance Sheets at December 29, 2018 and December 30, 2017 59
Consolidated Statements of Income for the Years Ended December 29, 2018, December 30, 2017, And December 31, 2016 60
Consolidated Statements of Comprehensive Income for the Years Ended December 29, 2018, December 30, 2017 and December 31, 2016 61
Consolidated Statements of Stockholders’ Equity for the Years Ended December 29, 2018, December 30, 2017, and December 31, 2016 62
Consolidated Statements of Cash Flows for the Years Ended December 29, 2018, December 30, 2017, and December 31, 2016 63
Notes to Consolidated Financial Statements 65

 

57

 

 

Report of Independent Registered Public Accounting Firm

 

To the Stockholders and the Board of Directors of Garmin Ltd. and Subsidiaries

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of Garmin Ltd. and Subsidiaries (the Company) as of December 29, 2018 and December 30, 2017, the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 29, 2018 and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 29, 2018 and December 30, 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 29, 2018, in conformity with U.S. generally accepted accounting principles.

 

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 29, 2018, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 20, 2019, expressed an unqualified opinion thereon.

 

Adoption of New Accounting Standard

 

As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for revenue in 2018 due to the adoption of Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), and the related amendments. 

 

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

/s/ Ernst & Young LLP 

We have served as the Company’s auditor since 1990. 

Kansas City, Missouri 

February 20, 2019

 

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Garmin Ltd. And Subsidiaries

Consolidated Balance Sheets

(In thousands, except per share information)

 

   December 29,
2018
   December 30,
2017
 
Assets          
Current assets:          
Cash and cash equivalents  $1,201,732   $891,488 
Marketable securities (Note 3)   182,989    161,687 
Accounts receivable, less allowance for doubtful accounts of $5,487 in 2018 and $4,168 in 2017   569,833    590,882 
Inventories   561,840    517,644 
Deferred costs   28,462    30,525 
Prepaid expenses and other current assets   120,512    153,912 
Total current assets   2,665,368    2,346,138 
           
Property and equipment, net          
Land and improvements   131,689    114,701 
Building and improvements   539,177    482,794 
Office furniture and equipment   264,818    246,107 
Manufacturing equipment   162,077    156,119 
Engineering equipment   154,742    141,321 
Vehicles   20,991    21,115 
    1,273,494    1,162,157 
Accumulated depreciation   (609,967)   (566,473)
    663,527    595,684 
           
Restricted cash (Note 4)   73    271 
Marketable securities (Note 3)    1,330,123    1,260,033 
Deferred income taxes (Note 6)   176,959    195,981 
Noncurrent deferred costs   29,473    33,029 
Intangible assets, net   417,080    409,801 
Other assets   100,255    107,352 
Total assets  $5,382,858   $4,948,289 
           
Liabilities and Stockholders’ Equity          
Current liabilities:          
Accounts payable  $204,985   $169,640 
Salaries and benefits payable   113,087    102,802 
Accrued warranty costs   38,276    36,827 
Accrued sales program costs   90,388    93,250 
Deferred revenue   96,372    103,140 
Accrued royalty costs   24,646    32,204 
Accrued advertising expense   31,657    30,987 
Other accrued expenses   69,777    93,652 
Income taxes payable   51,642    33,638 
Dividend payable   200,483    95,975 
Total current liabilities   921,313    792,115 
           
Deferred income taxes (Note 6)   92,944    76,612 
Noncurrent income taxes   127,211    138,295 
Noncurrent deferred revenue   76,566    87,060 
Other liabilities   1,850    1,788 
           
Stockholders’ equity:          
Shares, CHF 0.10 par value, 198,077 shares authorized and issued, 189,461 shares outstanding at December 29, 2018; and 188,189 shares outstanding at December 30, 2017; (Notes 9, 10, and 11):   17,979    17,979 
Additional paid-in capital   1,823,638    1,828,386 
Treasury stock   (397,692)   (468,818)
Retained earnings   2,710,619    2,418,444 
Accumulated other comprehensive income   8,430    56,428 
Total stockholders’ equity   4,162,974    3,852,419 
Total liabilities and stockholders’ equity  $5,382,858   $4,948,289 

 

See accompanying notes.

 

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Garmin Ltd. And Subsidiaries

Consolidated Statements of Income

(In thousands, except per share information)

 

   Fiscal Year Ended 
   December 29,
2018
   December 30,
2017
   December 31,
2016
 
             
Net sales  $3,347,444   $3,121,560   $3,045,797 
Cost of goods sold   1,367,725    1,323,619    1,357,272 
Gross profit   1,979,719    1,797,941    1,688,525 
                
Advertising expense   155,394    164,693    177,143 
Selling, general and administrative expenses   478,177    437,977    410,558 
Research and development expense   567,805    511,634    467,960 
    1,201,376    1,114,304    1,055,661 
Operating income   778,343    683,637    632,864 
                
Other income (expense):               
Interest income   47,147    36,925    33,406 
Foreign currency losses   (7,616)   (22,579)   (31,651)
Other income (expense)   5,373    (912)   4,006 
    44,904    13,434    5,761 
Income before income taxes   823,247    697,071    638,625 
                
Income tax provision (benefit): (Note 6)               
Current   93,424    79,234    117,842 
Deferred   35,743    (91,170)   3,059 
    129,167    (11,936)   120,901 
Net income  $694,080   $709,007   $517,724 
                
Basic net income per share (Note 10)  $3.68   $3.77   $2.74 
Diluted net income per share (Note 10)  $3.66   $3.76   $2.73 

 

See accompanying notes.

 

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Garmin Ltd. And Subsidiaries

Consolidated Statements of Comprehensive Income

(In thousands)

 

   Fiscal Year Ended 
   December 29,
2018
   December 30,
2017
   December 31,
2016
 
Net income  $694,080   $709,007   $517,724 
Foreign currency translation adjustment   (31,965)   88,965    4,434 
Change in fair value of available-for-sale marketable securities, net of deferred taxes   (15,581)   4,486    (11,029)
Comprehensive income  $646,534   $802,458   $511,129 

 

See accompanying notes.

 

61

 

 

Garmin Ltd. And Subsidiaries

Consolidated Statements of Stockholders’ Equity

(In thousands)

 

   Common
Stock
   Additional
Paid-In
Capital
   Treasury
Stock
   Retained
Earnings
   Accumulated
Other
Comprehensive
Income (Loss)
   Total 
Balance at December 26, 2015  $1,797,435   $62,239   $(414,637)  $1,959,125   $(30,428)  $3,373,734 
Net income               517,724        517,724 
Translation adjustment                   4,434    4,434 
Adjustment related to unrealized gains (losses) on available-for-sale securities net of income tax effects of $1,094                   (11,029)   (11,029)
Comprehensive income                            511,129 
Dividends declared               (384,629)       (384,629)
Tax benefit from issuance of equity awards       (6,309)               (6,309)
Issuance of treasury stock related to equity awards       (40,589)   59,237            18,648 
Stock compensation       41,250                41,250 
Purchase of treasury stock related to equity awards           (7,331)           (7,331)
Purchase of treasury stock under share repurchase plan           (93,233)           (93,233)
Reduction in par value of Common Stock   (1,779,456)   1,779,456                 
Balance at December 31, 2016  $17,979   $1,836,047   $(455,964)  $2,092,220   $(37,023)  $3,453,259 
Net income               709,007        709,007 
Translation adjustment                   88,965    88,965 
Adjustment related to unrealized gains (losses) on available-for-sale securities net of income tax effects of $493                   4,486    4,486 
Comprehensive income                            802,458 
Dividends declared               (382,783)       (382,783)
Issuance of treasury stock related to equity awards       (52,581)   74,442            21,861 
Stock compensation       44,735                44,735 
Purchase of treasury stock related to equity awards       185    (12,773)           (12,588)
Purchase of treasury stock under share repurchase plan           (74,523)           (74,523)
Balance at December 30, 2017  $17,979   $1,828,386   $(468,818)  $2,418,444   $56,428   $3,852,419 
Net income               694,080        694,080 
Translation adjustment                   (31,965)   (31,965)
Adjustment related to unrealized gains (losses) on available-for-sale securities net of income tax effects of $2,174                   (15,581)   (15,581)
Comprehensive income                            646,534 
Dividends declared               (400,657)       (400,657)
Issuance of treasury stock related to equity awards       (61,139)   87,781            26,642 
Stock compensation       56,391                56,391 
Purchase of treasury stock related to equity awards           (16,655)           (16,655)
Reclassification under ASU 2016-16               (1,700)       (1,700)
Reclassification under ASU 2018-02               452    (452)    
Balance at December 29, 2018  $17,979   $1,823,638   $(397,692)  $2,710,619   $8,430   $4,162,974 

 

See accompanying notes.

 

62

 

 

Garmin Ltd. And Subsidiaries

Consolidated Statements of Cash Flows

(In thousands)

 

   Fiscal Year Ended 
   December 29,
2018
   December 30,
2017
   December 31,
2016
 
Operating Activities:               
Net income  $694,080   $709,007   $517,724 
Adjustments to reconcile net income to net cash provided by operating activities:               
Depreciation   64,798    59,895    55,796 
Amortization   31,396    26,357    30,544 
Gain on sale of property and equipment   (479)   (230)   (503)
Provision for doubtful accounts   2,123    1,021    4,136 
Provision for obsolete and slow-moving inventories   24,579    31,071    26,458 
Unrealized foreign currency losses   13,790    21,681    13,125 
Deferred income taxes   38,978    (90,000)   3,745 
Stock compensation expense   56,391    44,735    41,250 
Realized losses (gains) on marketable securities   827    991    (822)
Changes in operating assets and liabilities, net of acquisitions:               
Accounts receivable   5,167    (40,088)   9,000 
Inventories   (82,316)   (38,575)   (2,455)
Other current and non-current assets   7,358    (21,608)   2,234 
Accounts payable   40,628    (17,240)   (11,496)
Other current and non-current liabilities   (1,323)   5,627    44,766 
Deferred revenue   (17,208)   (20,754)   (32,733)
Deferred costs   5,611    2,395    1,896 
Income taxes payable   35,120    (13,443)   3,017 
Net cash provided by operating activities   919,520    660,842    705,682 
                
Investing activities:               
Purchases of property and equipment   (155,755)   (139,696)   (90,960)
Proceeds from sale of property and equipment   1,600    361    676 
Purchase of intangible assets   (4,600)   (12,232)   (5,715)
Purchase of marketable securities   (403,181)   (587,656)   (905,089)
Redemption of marketable securities   283,603    635,311    957,350 
Acquisitions, net of cash acquired   (29,170)   (90,471)   (77,945)