Annual Statements Open main menu

GARMIN LTD - Quarter Report: 2019 June (Form 10-Q)

GARMIN LTD - 1121788 - 2019
 
 
United States
Securities and Exchange Commission
Washington, D.C. 20549
 
FORM 10-Q
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 29, 2019
 
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 Company as specified in its charter)
 
Switzerland
 
98-0229227
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
identification no.)
     
Mühlentalstrasse 2
   
8200 Schaffhausen
   
Switzerland
 
N/A
(Address of principal executive offices)
 
(Zip Code)
 
Company’s telephone number, including area code: +
41 52 630 1600
 
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common Shares, CHF 0.10 Per Share Par Value
 
GRMN
 
The Nasdaq Stock Market, LLC
 
Indicate by check mark whether the Company (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 Company 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 Regulation 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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an 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. YES ☐ NO ☐
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES ☐ NO ☒
 
Number of shares outstanding of the registrant’s common shares as of July 29, 2019
CHF 0.10 par value: 198,077,418 (including treasury shares)
 
 
 
 
 
Garmin Ltd.
Form 10-Q
Quarter Ended June 29, 2019
 
Table of Contents
 
Part I - Financial Information
Page
     
Item 1.
Condensed Consolidated Financial Statements
1
 
     
 
Condensed Consolidated Balance Sheets at June 29, 2019 and December 29, 2018 (Unaudited)
1
     
 
Condensed Consolidated Statements of Income for the 13-Weeks and 26-Weeks ended June 29, 2019 and June 30, 2018 (Unaudited)
2
     
 
Condensed Consolidated Statements of Comprehensive Income for the 13-Weeks and 26-Weeks ended June 29, 2019 and June 30, 2018 (Unaudited)
3
     
 
Condensed Consolidated Statements of Stockholders’ Equity for the 13-Weeks and 26-Weeks ended June 29, 2019 and June 30, 2018 (Unaudited)
4-5
     
 
Condensed Consolidated Statements of Cash Flows for the 26-Weeks ended June 29, 2019 and June 30, 2018 (Unaudited)
6
     
 
Notes to Condensed Consolidated Financial Statements (Unaudited)
7
     
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
20
     
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
30
     
Item 4.
Controls and Procedures
30
     
Part II - Other Information
 
     
Item 1.
Legal Proceedings
31
     
Item 1A.
Risk Factors
31
     
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
31
     
Item 3.
Defaults Upon Senior Securities
31
     
Item 4.
Mine Safety Disclosures
31
     
Item 5.
Other Information
31
     
Item 6.
Exhibits
31
     
Signature Page
32
     
Index to Exhibits
33
 
i
 
  
Part I - Financial Information
Item I - Condensed Consolidated Financial Statements
 
Garmin Ltd. And Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
(In thousands, except per share information)
 
    June 29,     December 29,  
    2019     2018  
Assets            
Current assets:            
Cash and cash equivalents   $ 820,181     $ 1,201,732  
Marketable securities     239,765       182,989  
Accounts receivable, net     583,913       569,833  
Inventories     648,140       561,840  
Deferred costs     27,040       28,462  
Prepaid expenses and other current assets     141,539       120,512  
Total current assets     2,460,578       2,665,368  
                 
Property and equipment, net     702,108       663,527  
Operating lease right-of-use assets     59,166        
                 
Restricted cash     73       73  
Marketable securities     1,319,026       1,330,123  
Deferred income taxes     162,739       176,959  
Noncurrent deferred costs     27,018       29,473  
Intangible assets, net     653,014       417,080  
Other assets     141,061       100,255  
Total assets   $ 5,524,783     $ 5,382,858  
                 
Liabilities and Stockholders’ Equity
               
Current liabilities:                
Accounts payable   $ 214,763     $ 204,985  
Salaries and benefits payable     106,331       113,087  
Accrued warranty costs     39,330       38,276  
Accrued sales program costs     74,302       90,388  
Deferred revenue     94,980       96,372  
Accrued royalty costs     14,578       24,646  
Accrued advertising expense     28,444       31,657  
Other accrued expenses     90,439       69,777  
Income taxes payable     39,879       51,642  
Dividend payable     324,655       200,483  
Total current liabilities     1,027,701       921,313  
                 
Deferred income taxes     105,865       92,944  
Noncurrent income taxes     121,997       127,211  
Noncurrent deferred revenue     71,700       76,566  
Noncurrent operating lease liabilities     46,281        
Other liabilities     273       1,850  
                 
Stockholders’ equity:                
Shares, CHF 0.10 par value, 198,077 shares authorized and issued; 190,102 shares outstanding at June 29, 2019; and 189,461 shares outstanding at December 29, 2018;     17,979       17,979  
Additional paid-in capital     1,825,135       1,823,638  
Treasury stock     (368,200 )     (397,692 )
Retained earnings     2,641,371       2,710,619  
Accumulated other comprehensive income     34,681       8,430  
Total stockholders’ equity     4,150,966       4,162,974  
Total liabilities and stockholders’ equity   $ 5,524,783     $ 5,382,858  
 
See accompanying notes.
 
1
 
 
 
 
Garmin Ltd. And Subsidiaries
Condensed Consolidated Statements of Income (Unaudited)
(In thousands, except per share information)
 
    13-Weeks Ended     26-Weeks Ended  
    June 29,     June 30,     June 29,     June 30,  
    2019     2018     2019     2018  
Net sales   $ 954,840     $ 894,452     $ 1,720,890     $ 1,605,325  
                                 
Cost of goods sold     379,475       371,182       693,827       655,520  
                                 
Gross profit     575,365       523,270       1,027,063       949,805  
                                 
Advertising expense     41,523       43,549       69,139       68,861  
Selling, general and administrative expense     128,738       120,500       255,519       237,564  
Research and development expense     148,883       141,713       294,801       283,670  
Total operating expense     319,144       305,762       619,459       590,095  
                                 
Operating income     256,221       217,508       407,604       359,710  
                                 
Other income:                                
Interest income     13,735       10,995       27,439       21,222  
Foreign currency gains     3,413       2,647       3,727       3,463  
Other income     2,409       4,918       3,273       5,653  
Total other income     19,557       18,560       34,439       30,338  
                                 
Income before income taxes     275,778       236,068       442,043       390,048  
                                 
Income tax provision     52,122       45,726       78,214       70,333  
                                 
Net income   $ 223,656     $ 190,342     $ 363,829     $ 319,715  
                                 
Net income per share:                                
Basic   $ 1.18     $ 1.01     $ 1.92     $ 1.70  
Diluted   $ 1.17     $ 1.00     $ 1.91     $ 1.69  
                                 
Weighted average common shares outstanding:                                
Basic     189,855       188,542       189,728       188,432  
Diluted     190,714       189,461       190,657       189,377  
 
See accompanying notes.
 
2
 
 
  
Garmin Ltd. And Subsidiaries
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
(In thousands)
 
   13-Weeks Ended   26-Weeks Ended 
   June 29,   June 30,   June 29,   June 30, 
   2019   2018   2019   2018 
Net income  $223,656   $190,342   $363,829   $319,715 
Foreign currency translation adjustment   314    (49,868)   (8,920)   (26,368)
Change in fair value of available-for-sale marketable securities, net of deferred taxes   16,029    (4,842)   35,171    (19,876)
Comprehensive income  $239,999   $135,632   $390,080   $273,471 
 
See accompanying notes.
 
3
 
  
 
Garmin Ltd. And Subsidiaries
Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)
For the 13-Weeks Ended June 29, 2019 and June 30, 2018
(In thousands, except per share information)
 
                            Accumulated        
          Additional                 Other        
    Common     Paid-In     Treasury     Retained     Comprehensive        
    Stock     Capital     Stock     Earnings     Income (Loss)     Total  
Balance at March 31, 2018   $ 17,979     $ 1,818,532     $ (450,160 )   $ 2,546,400     $ 64,442     $ 3,997,193  
Net income                       190,342             190,342  
Translation adjustment                             (49,868 )     (49,868 )
Adjustment related to unrealized gains (losses) on available-for-sale securities net of income tax effects of $ 492                             (4,842 )     (4,842 )
Comprehensive income                                             135,632  
Dividends declared ($ 2.12 per share)                       (400,128 )           (400,128 )
Issuance of treasury stock related to equity awards           (4,324 )    
16,539
                  12,215  
Stock compensation           14,307                         14,307  
Purchase of treasury stock related to equity awards                 (338 )                 (338 )
Balance at June 30, 2018   $ 17,979     $ 1,828,515     $ (433,959 )   $ 2,336,614     $ 9,732     $ 3,758,881  
 
                            Accumulated        
          Additional                 Other        
    Common     Paid-In     Treasury     Retained     Comprehensive        
    Stock     Capital     Stock     Earnings     Income (Loss)     Total  
Balance at March 30, 2019   $ 17,979     $ 1,810,196     $ (381,815 )   $ 2,850,588     $ 18,338     $ 4,315,286  
 Net income                       223,656             223,656  
 Translation adjustment                             314       314  
 Adjustment related to unrealized gains (losses) on available-for-sale securities net of income tax effects of $ 2,406                             16,029       16,029  
 Comprehensive income                                             239,999  
 Dividends declared ($ 2.28 per share)                       (432,873 )           (432,873 )
 Issuance of treasury stock related to equity awards           (893 )     13,875                   12,982  
 Stock compensation           15,832                         15,832  
 Purchase of treasury stock related to equity awards                 (260 )                 (260 )
Balance at June 29, 2019   $ 17,979     $ 1,825,135     $ (368,200 )   $ 2,641,371     $ 34,681     $ 4,150,966  
 
See accompanying notes.
 
4
 
  
 
Garmin Ltd. And Subsidiaries
Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)
For the 26-Weeks Ended June 29, 2019 and June 30, 2018
(In thousands, except per share information)
 
                            Accumulated        
          Additional                 Other        
    Common     Paid-In     Treasury     Retained     Comprehensive        
    Stock     Capital     Stock     Earnings     Income (Loss)     Total  
Balance at December 30, 2017   $ 17,979     $ 1,828,386     $ (468,818 )   $ 2,418,444     $ 56,428     $ 3,852,419  
Net income                       319,715             319,715  
Translation adjustment                             (26,368 )     (26,368 )
Adjustment related to unrealized gains (losses) on available-for-sale securities net of income tax effects of $ 2,907                             (19,876 )     (19,876 )
Comprehensive income                                             273,471  
Dividends declared ($ 2.12 per share)                       (400,297 )           (400,297 )
Issuance of treasury stock related to equity awards           (27,617 )     41,759                   14,142  
Stock compensation           27,746                         27,746  
Purchase of treasury stock related to equity awards                 (6,900 )                 (6,900 )
Reclassification under ASU 2016-06                       (1,700 )           (1,700 )
Reclassification under ASU 2018-02                       452       (452 )      
Balance at June 30, 2018   $ 17,979     $ 1,828,515     $ (433,959 )   $ 2,336,614     $ 9,732     $ 3,758,881  
 
                            Accumulated        
          Additional                 Other        
    Common     Paid-In     Treasury     Retained     Comprehensive        
    Stock     Capital     Stock     Earnings     Income (Loss)     Total  
Balance at December 29, 2018   $ 17,979     $ 1,823,638     $ (397,692 )   $ 2,710,619     $ 8,430     $ 4,162,974  
Net income                       363,829             363,829  
Translation adjustment                             (8,920 )     (8,920 )
Adjustment related to unrealized gains (losses) on available-for-sale securities net of income tax effects of $ 5,311                             35,171       35,171  
Comprehensive income                                             390,080  
Dividends declared ($ 2.28 per share)                       (433,077 )           (433,077 )
Issuance of treasury stock related to equity awards           (29,464 )     42,446                   12,982  
Stock compensation           30,961                         30,961  
Purchase of treasury stock related to equity awards                 (12,954 )                 (12,954 )
Balance at June 29, 2019   $ 17,979     $ 1,825,135     $ (368,200 )   $ 2,641,371     $ 34,681     $ 4,150,966  
 
See accompanying notes.
 
5
 
 
  
Garmin Ltd. And Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
 
   26-Weeks Ended 
   June 29,   June 30, 
   2019   2018 
Operating activities:        
Net income  $363,829   $319,715 
Adjustments to reconcile net income to net cash provided by operating activities:          
Depreciation   34,526    31,800 
Amortization   16,208    16,420 
Loss (gain) on sale or disposal of property and equipment   94    (1,042)
Provision for doubtful accounts   660    616 
Provision for obsolete and slow moving inventories   17,842    11,725 
Unrealized foreign currency (gain) loss   (6,811)   2,401 
Deferred income taxes   7,077    11,000 
Stock compensation expense   30,961    27,747 
Realized (gains) losses on marketable securities   (60)   231 
Changes in operating assets and liabilities, net of acquisitions:          
Accounts receivable   5,529    48,099 
Inventories   (86,059)   (4,666)
Other current and non-current assets   (68,370)   (4,841)
Accounts payable   5,960    1,618 
Other current and non-current liabilities   (33,001)   (49,237)
Deferred revenue   (6,252)   (7,483)
Deferred costs   3,876    962 
Income taxes payable   (10,791)   32,998 
Net cash provided by operating activities   275,218    438,063 
           
Investing activities:          
Purchases of property and equipment   (60,495)   (93,072)
Proceeds from sale of property and equipment   271    1,282 
Purchase of intangible assets   (853)   (2,452)
Purchase of marketable securities   (192,168)   (209,387)
Redemption of marketable securities   182,860    127,152 
Acquisitions, net of cash acquired   (276,014)   (9,417)
Net cash used in investing activities   (346,399)   (185,894)
           
Financing activities:          
Dividends   (308,905)   (196,086)
Proceeds from issuance of treasury stock related to equity awards   12,982    14,142 
Purchase of treasury stock related to equity awards   (12,954)   (6,900)
Net cash used in financing activities   (308,877)   (188,844)
           
Effect of exchange rate changes on cash, cash equivalents, and restricted cash   (1,493)   (8,217)
           
Net (decrease) increase in cash, cash equivalents, and restricted cash   (381,551)   55,108 
Cash, cash equivalents, and restricted cash at beginning of period   1,201,805    891,759 
Cash, cash equivalents, and restricted cash at end of period  $820,254   $946,867 
 
See accompanying notes.
 
6
 
 
Garmin Ltd. and Subsidiaries
 
Notes to Condensed Consolidated Financial Statements (Unaudited)
 
June 29, 2019
(In thousands, except per share information)
 
1. Accounting Policies
 
 
Basis of Presentation
 
The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Additionally, the Condensed Consolidated Financial Statements should be read in conjunction with Item 2 of Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in this Form 10-Q. Operating results for the 13-week and 26-week periods ended June 29, 2019 are not necessarily indicative of the results that may be expected for the year ending December 28, 2019.
 
The Condensed Consolidated Balance Sheet at December 29, 2018 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the Consolidated Financial Statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 29, 2018.
 
The Company’s fiscal year is based on a 52-53 week period ending on the last Saturday of the calendar year. Therefore, the financial results of certain 53-week fiscal years, and the associated 14-week quarters, will not be exactly comparable to the prior and subsequent 52-week fiscal years and the associated 13-week quarters. The quarters ended June 29, 2019 and June 30, 2018 both contain operating results for 13 weeks.
 
Recently Adopted Accounting Standards
 
Leases
 
In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. The FASB subsequently issued Accounting Standards Update No. 2018-10 and Accounting Standards Update No. 2018-11 in July 2018, which provide clarifications and improvements to ASU 2016-02 (collectively, the “new lease standard”). Accounting Standards Update No. 2018-11 also provides the optional transition method which allows companies to apply the new lease standard at the adoption date instead of at the earliest comparative period presented. The new lease standard requires lessees to present a right-of-use asset and a corresponding lease liability on the balance sheet.
 
The Company adopted the new lease standard as of the beginning of the 2019 fiscal year using the optional transition method. The Company did not have a cumulative effect adjustment to retained earnings as a result of adopting the new lease standard and does not expect the new lease standard to have a material impact on the Company’s Consolidated Statements of Income or Consolidated Statements of Cash Flows in future periods. The Company elected the package of transitional practical expedients upon adoption which, among other provisions, allowed the Company to carry forward historical lease classification. See Note 11 – Leases for additional information regarding leases.
 
7
 
 
Significant Accounting Policies
 
For a description of the significant accounting policies and methods used in the preparation of the Company’s Condensed Consolidated Financial Statements, refer to Note 2, “Summary of Significant Accounting Policies” in the Notes to the Consolidated Financial Statements in Part II, Item 8 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2018. Other than the policy discussed below, there were no material changes to the Company’s significant accounting policies during the 26-week period ended June 29, 2019.
 
Preproduction Costs Related to Long-Term Supply Arrangements
 
Preproduction design and development costs related to long-term supply arrangements are expensed as incurred, and classified as Research and development, unless the customer has provided a contractual guarantee for reimbursement of such costs. Contractually reimbursable costs are capitalized as incurred in the Condensed Consolidated Balance Sheets within Prepaid expenses and other current assets if reimbursement is expected to be received within one year, or within Other assets if expected to be received beyond one year. Such capitalized costs were approximately $11 million as of June 29, 2019, and there were no such capitalized costs as of December 29, 2018.
 
2. Inventories
 
The components of inventories consist of the following:
 
    June 29,     December 29,  
    2019     2018  
             
Raw materials   $ 253,133     $ 205,696  
Work-in-process     115,930       96,564  
Finished goods     279,077       259,580  
Inventories   $ 648,140     $ 561,840  
 
3. Earnings Per Share
 
The following table sets forth the computation of basic and diluted net income per share:
 
    13-Weeks Ended  
    June 29,     June 30,  
    2019     2018  
Numerator:            
Numerator for basic and diluted net income per share - net income   $ 223,656     $ 190,342  
                 
Denominator:                
Denominator for basic net income per share – weighted-average common shares     189,855       188,542  
                 
Effect of dilutive securities – stock options, stock appreciation rights and restricted stock units     859       919  
                 
Denominator for diluted net income per share – adjusted weighted-average common shares     190,714       189,461  
                 
Basic net income per share   $ 1.18     $ 1.01  
                 
Diluted net income per share   $ 1.17     $ 1.00  
 
8
 
 
    26-Weeks Ended  
    June 29,     June 30,  
    2019     2018  
Numerator:            
Numerator for basic and diluted net income per share - net income   $ 363,829     $ 319,715  
                 
Denominator:                
Denominator for basic net income per share – weighted-average common shares     189,728       188,432  
                 
Effect of dilutive securities – stock options, stock appreciation rights and restricted stock units     929       945  
                 
Denominator for diluted net income per share – adjusted weighted-average common shares     190,657       189,377  
                 
Basic net income per share   $ 1.92     $ 1.70  
                 
Diluted net income per share   $ 1.91     $ 1.69  
 
There were 400 anti-dilutive stock options, stock appreciation rights and restricted stock units (collectively “equity awards”) outstanding during the 13-week and 26-week periods ended June 29, 2019 and no anti-dilutive equity awards outstanding during the 13-week and 26-week periods ended June 30, 2018.
 
There were 10 and 46 net shares issued as a result of exercises and releases of equity awards for the 13-week periods ended June 29, 2019 and June 30, 2018, respectively.
 
There were 396 and 378 net shares issued as a result of exercises and releases of equity awards for the 26-week periods ended June 29, 2019 and June 30, 2018, respectively.
 
There were 245 employee stock purchase plan (ESPP) shares issued from outstanding Treasury stock during the 13-week and 26-week periods ended June 29, 2019.
There were 230 ESPP shares issued from outstanding Treasury stock during the 13-week and 26-week periods ended June 30, 2018.
 
4. Segment Information
 
The Company has identified five reportable segments – auto, aviation, fitness, marine, and outdoor. The Company’s Chief Executive Officer, who has been identified as the Chief Operating Decision Maker (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.
 
In the first quarter of fiscal 2019, the methodology used to allocate certain selling, general, and administrative expenses to the segments was refined, endeavoring to provide the Company’s CODM with a more meaningful representation of segment profit or loss in light of the evolution of its segments. The Company’s composition of operating segments and reportable segments did not change. Prior year amounts are presented here as they were originally reported, as it is not practicable to accurately restate prior period activity in accordance with the refined allocation methodology. For comparative purposes, we estimate operating income for the 13-weeks ended June 30, 2018 would have been approximately $5 million less for the aviation segment, approximately $4 million more for the marine segment, approximately $1 million more for the outdoor segment, and not significantly different for the auto and fitness segments. We estimate operating income for the 26-weeks ended June 30, 2018 would have been approximately $9 million less for the aviation segment, approximately $8 million more for the marine segment, approximately $1 million more for the outdoor segment, and not significantly different for the auto and fitness segments.
 
9
 
Net sales (“revenue”), gross profit, and operating income for each of the Company’s reportable segments are presented below.
 
    Reportable Segments  
    Outdoor     Fitness     Marine     Auto     Aviation     Total  
                                     
13-Weeks Ended June 29, 2019                                    
                                     
Net sales   $ 210,404     $ 251,653     $ 151,407     $ 157,411     $ 183,965     $ 954,840  
Gross profit     135,508       135,136       91,683       74,861       138,177       575,365  
Operating income     71,336       50,413       42,730       24,908       66,834       256,221  
                                                 
13-Weeks Ended June 30, 2018                                                
                                                 
Net sales   $ 201,640     $ 225,095     $ 134,583     $ 180,128     $ 153,006     $ 894,452  
Gross profit     128,872       126,431       78,785       75,452       113,730       523,270  
Operating income     71,916       52,548       27,768       12,612       52,664       217,508  
                                                 
26-Weeks Ended June 29, 2019                                                
                                                 
Net sales   $ 364,455     $ 431,908     $ 285,376     $ 284,410     $ 354,741     $ 1,720,890  
Gross profit     232,996       225,970       169,739       132,198       266,160       1,027,063  
Operating income     113,290       68,537       68,205       33,121       124,451       407,604  
                                                 
26-Weeks Ended June 30, 2018                                                
                                                 
Net sales   $ 345,899     $ 391,130     $ 248,138     $ 321,439     $ 298,719     $ 1,605,325  
Gross profit     222,158       223,032       145,468       136,463       222,684       949,805  
Operating income     115,739       85,922       40,899       16,079       101,071       359,710  
 
Net sales to external customers by geographic region were as follows for the 13-week and 26-week periods ended June 29, 2019 and June 30, 2018. Note that APAC includes Asia Pacific and Australian Continent and EMEA includes Europe, the Middle East and Africa:
 
    13-Weeks Ended     26-Weeks Ended  
    June 29,     June 30,     June 29,     June 30,  
    2019     2018     2019     2018  
Americas   $ 470,840     $ 437,116     $ 850,296     $ 783,091  
EMEA     338,595       309,116       598,615       555,029  
APAC     145,405       148,220       271,979       267,205  
Net sales to external customers   $ 954,840     $ 894,452     $ 1,720,890     $ 1,605,325  
 
Net property and equipment by geographic region as of June 29, 2019 and June 30, 2018 are presented below.
 
    Americas     APAC     EMEA     Total  
June 29, 2019                        
Property and equipment, net   $ 424,127     $ 216,648     $ 61,333     $ 702,108  
                                 
June 30, 2018                                
Property and equipment, net   $ 395,638     $ 202,455     $ 39,152     $ 637,245  
 
10
 
 
5. Warranty Reserves
 
The Company’s products sold are generally covered by a standard warranty for periods ranging from one to three years . The Company’s estimate of costs to service its warranty obligations are based on historical experience and management’s expectations and judgments of future conditions, and are recorded as a liability on the balance sheet. The following reconciliation provides an illustration of changes in the aggregate warranty reserve.
 
    13-Weeks Ended  
    June 29,     June 30,  
    2019     2018  
             
Balance - beginning of period   $ 35,042     $ 35,422  
Accrual for products sold during the period(1)
    17,366       17,113  
Expenditures     (13,078 )     (14,106 )
Balance - end of period   $ 39,330     $ 38,429  
 
    26-Weeks Ended  
    June 29,     June 30,  
    2019     2018  
             
Balance - beginning of period   $ 38,276     $ 36,827  
Accrual for products sold during the period(1)
    28,215       27,125  
Expenditures     (27,161 )     (25,523 )
Balance - end of period   $ 39,330     $ 38,429  
 
  (1) Changes in cost estimates related to pre-existing warranties are not material and aggregated with accruals for new warranty contracts in the ‘accrual for products sold during the period’ line.
 
6. Commitments and Contingencies
 
Commitments
 
The Company is party to certain 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 June 29, 2019 was approximately $463,200. 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.
 
Contingencies
 
In the normal course of business, the Company and its subsidiaries are parties to various legal claims, investigations and complaints, including matters alleging patent infringement and other intellectual property claims. The Company evaluates, on a quarterly and annual basis, developments in legal proceedings, investigations, claims, and other loss contingencies that could affect any required accrual or disclosure or estimate of reasonably possible loss or range of loss. An estimated loss from a loss contingency is accrued by a charge to income if it is probable that an asset has been impaired or a liability has been incurred and the amount of the loss can be reasonably estimated. If a range of loss is estimated, and some amount within that range appears to be a better estimate than any other amount within that range, then that amount is accrued. If no amount within the range can be identified as a better estimate than any other amount, the Company accrues the minimum amount in the range.
 
11
 
 
If an outcome unfavorable to the Company is determined to be probable, but the amount of loss cannot be reasonably estimated or is determined to be reasonably possible, but not probable, we disclose the nature of the contingency and an estimate of the possible loss or range of loss or a statement that such an estimate cannot be made. The Company’s aggregate range of reasonably possible losses includes (1) matters where a liability has been accrued and there is a reasonably possible loss in excess of the amount accrued for that liability, and (2) matters where a loss is believed to be reasonably possible, but not probable, and a liability therefore has not been accrued. This aggregate range only represents the Company’s estimate of reasonably possible losses and does not represent the Company’s maximum loss exposure. The assessment regarding whether a loss is probable or reasonably possible, and whether the loss or a range of loss is estimable, often involves a series of complex judgments about future events. In assessing the probability of an outcome in a lawsuit, claim or assessment that could be unfavorable to the Company, we consider the following factors, among others: a) the nature of the litigation, claim, or assessment; b) the progress of the case; c) the opinions or views of legal counsel and other advisers; d) our experience in similar cases; e) the experience of other entities in similar cases; and f) how we intend to respond to the lawsuit, claim, or assessment. Costs incurred in defending lawsuits, claims or assessments are expensed as incurred.
 
Management of the Company currently does not believe it is reasonably possible that the Company may have incurred a material loss, or a material loss in excess of recorded accruals, with respect to loss contingencies in the aggregate, for the fiscal quarter ended June 29, 2019. The results of legal proceedings, investigations and claims, however, cannot be predicted with certainty. An adverse resolution of one or more of such matters in excess of management’s expectations could have a material adverse effect in the particular quarter or fiscal year in which a loss is recorded, but based on information currently known, the Company does not believe it is likely that losses from such matters would have a material adverse effect on the Company’s business or its consolidated financial position, results of operations or cash flows.
 
The Company settled or resolved certain matters during the 13-week and 26-week periods ended June 29, 2019 that did not individually or in the aggregate have a material impact on the Company’s business or its consolidated financial position, results of operations or cash flows.
 
7. Income Taxes
 
The Company recorded income tax expense of $52,122 in the 13-week period ended June 29, 2019, compared to income tax expense of $45,726 in the 13-week period ended June 30, 2018. The effective tax rate was 18.9% in the second quarter of 2019, compared to 19.4% in the second quarter of 2018.
 
The Company recorded income tax expense of $78,214 in the first half of 2019, compared to income tax expense of $70,333 in the first half of 2018. The effective tax rate was 17.7% in the first half of 2019, compared to 18.0% in the first half of 2018.
 
8. Marketable Securities
 
The Financial Accounting Standards Board (“FASB”) ASC topic entitled Fair Value Measurements and Disclosures defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The accounting guidance classifies the inputs used to measure fair value into the following hierarchy:
 
Level 1 Unadjusted quoted prices in active markets for the identical asset or liability
 
Level 2 Observable inputs for the asset or liability, either directly or indirectly, such as quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability
 
Level 3 Unobservable inputs for the asset or liability
 
12
 
 
The Company endeavors to utilize the best available information in measuring fair value. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Valuation is based on prices obtained from an independent pricing vendor using both market and income approaches. The primary inputs to the valuation include quoted prices for similar assets in active markets, quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields, and credit spreads.
 
The method described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
 
Available-for-sale securities measured at fair value on a recurring basis are summarized below:
 
    Fair Value Measurements as of June 29, 2019  
    Total     Level 1     Level 2     Level 3  
U.S. Treasury securities   $ 19,550     $     $ 19,550     $  
Agency securities     61,922             61,922        
Mortgage-backed securities     127,352             127,352        
Corporate securities     1,059,434             1,059,434        
Municipal securities     165,765             165,765        
Other     124,768             124,768        
Total   $ 1,558,791     $     $ 1,558,791     $  
 
    Fair Value Measurements as of December 29, 2018  
    Total     Level 1     Level 2     Level 3  
U.S. Treasury securities   $ 22,128     $     $ 22,128     $  
Agency securities     59,116             59,116        
Mortgage-backed securities     135,865             135,865        
Corporate securities     980,524             980,524        
Municipal securities     173,137             173,137        
Other     142,342             142,342        
Total   $ 1,513,112     $     $ 1,513,112     $  
 
13
 
 
Marketable securities classified as available-for-sale securities are summarized below:
 
    Available-For-Sale Securities as of June 29, 2019  
    Amortized Cost     Gross Unrealized Gains     Gross Unrealized Losses     Fair Value  
U.S. Treasury securities   $ 19,657     $ 3     $ (110 )   $ 19,550  
Agency securities     61,950       146       (174 )     61,922  
Mortgage-backed securities     129,851       88       (2,587 )     127,352  
Corporate securities     1,058,920       6,640       (6,126 )     1,059,434  
Municipal securities     164,980       1,001       (216 )     165,765  
Other     125,414       59       (705 )     124,768  
Total   $ 1,560,772     $ 7,937     $ (9,918 )   $ 1,558,791  
 
    Available-For-Sale Securities as of December 29, 2018  
    Amortized Cost     Gross Unrealized Gains     Gross Unrealized Losses     Fair Value  
U.S. Treasury securities   $ 22,485     $     $ (357 )   $ 22,128  
Agency securities     60,088       28       (1,000 )     59,116  
Mortgage-backed securities     142,176       1       (6,312 )     135,865  
Corporate securities     1,010,590       33       (30,099 )     980,524  
Municipal securities     175,630       73       (2,566 )     173,137  
Other     144,606       0       (2,264 )     142,342  
Total   $ 1,555,575     $ 135     $ (42,598 )   $ 1,513,112  
 
 
The Company’s investment policy targets low risk investments with the objective of minimizing the potential risk of principal loss. 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. The Company does not intend to sell the securities that have an unrealized loss shown in the table above, and it is not more likely than not that the Company will be required to sell a security before recovery of its amortized costs basis, which may be maturity.
 
The Company recognizes the credit component of other-than-temporary impairments of debt securities in “Other Income” and the noncredit component in “Other comprehensive income (loss)” for those securities that we do not intend to sell and for which it is not more likely than not that we will be required to sell before recovery. During 2018 and the 26-week period ended June 29, 2019, the Company did not record any material impairment charges on its outstanding securities.
 
The amortized cost and fair value of the securities at an unrealized loss position as of June 29, 2019 were $856,094 and $846,176 , respectively. Approximately 55% of securities in our portfolio were at an unrealized loss position as of June 29, 2019. We have the ability to hold these securities until maturity or their value is recovered. We do not consider these unrealized losses to be other than temporary credit losses because there has been no material deterioration in credit quality and no change in the cash flows of the underlying securities. We do not intend to sell the securities and it is not more likely than not that we will be required to sell the securities; therefore, no material impairment has been recorded in the accompanying Condensed Consolidated Statements of Income.
 
14
 
 
The cost of securities sold is based on the specific identification method.
 
The following tables display additional information regarding gross unrealized losses and fair value by major security type for available-for-sale securities in an unrealized loss position as of June 29, 2019 and December 29, 2018.
 
    As of June 29, 2019  
    Less than 12 Consecutive Months     12 Consecutive Months or Longer  
    Gross Unrealized Losses     Fair Value     Gross Unrealized Losses     Fair Value  
U.S. Treasury securities   $     $     $ (110 )   $ 17,148  
Agency securities                 (174 )     39,347  
Mortgage-backed securities     ( 5 )     5,662       (2,582 )     113,253  
Corporate securities     (307 )     79,025       (5,819 )     440,815  
Municipal securities     (0 )     886       (216 )     54,151  
Other     (28 )     15,246       (677 )     80,643  
Total   $ (340 )   $ 100,819     $ (9,578 )   $ 745,357  
 
    As of December 29, 2018  
    Less than 12 Consecutive Months     12 Consecutive Months or Longer  
    Gross Unrealized Losses     Fair Value     Gross Unrealized Losses     Fair Value  
U.S. Treasury securities   $ (3 )   $ 3,975     $ (354 )   $ 18,153  
Agency securities     (5 )     4,656       (995 )     40,508  
Mortgage-backed securities     (1 )     361       (6,311 )     135,323  
Corporate securities     (4,028 )     323,633       (26,071 )     640,439  
Municipal securities     (454 )     38,371       (2,112 )     118,362  
Other     (102 )     8,015       (2,162 )     114,120  
Total   $ (4,593 )   $ 379,011     $ (38,005 )   $ 1,066,905  
 
The amortized cost and fair value of marketable securities at June 29, 2019, by maturity, are shown below.
 
    Amortized Cost     Fair Value  
             
Due in one year or less   $ 239,947     $ 239,765  
Due after one year through five years     1,221,956       1,222,332  
Due after five years through ten years     91,375       89,361  
Due after ten years     7,494       7,333  
    $ 1,560,772     $ 1,558,791  
 
15
 
 
9. Accumulated Other Comprehensive Income
 
The following provides required disclosure of changes in accumulated other comprehensive income (AOCI) balances by component for the 13-week and 26-week periods ended June 29, 2019:
 
    13-Weeks Ended June 29, 2019  
    Foreign Currency Translation Adjustment     Net unrealized gains (losses) on available-for-sale securities     Total  
Beginning Balance   $ 38,093     $ (19,755 )   $ 18,338  
Other comprehensive income before reclassification, net of income tax expense of $ 2,406     314       16,148       16,462  
Amounts reclassified from accumulated other comprehensive income           (119 )     (119 )
Net current-period other comprehensive income     314       16,029       16,343  
Ending Balance   $ 38,407     $ (3,726 )   $ 34,681  
 
    26-Weeks Ended June 29, 2019  
    Foreign Currency Translation Adjustment     Net unrealized gains (losses) on available-for-sale securities     Total  
Beginning Balance   $ 47,327     $ (38,897 )   $ 8,430  
Other comprehensive income before reclassification, net of income tax expense of $ 5,311     (8,920 )     35,248       26,328  
Amounts reclassified from accumulated other comprehensive income           (77 )     (77 )
Net current-period other comprehensive income     (8,920 )     35,171       26,251  
Ending Balance   $ 38,407     $ (3,726 )   $ 34,681  
 
The following provides required disclosure of reporting reclassifications out of AOCI for the 13-week and 26-week periods ended June 29, 2019:
 
13-Weeks Ended June 29, 2019
Details About Accumulated Other Comprehensive Income Components   Amount Reclassified from Accumulated Other Comprehensive Income     Affected Line Item in the Statement Where Net Income is Presented
           
Unrealized gains (losses) on available-for-sale securities   $ 121     Other income (expense)
      (2 )   Income tax benefit (provision)
    $ 119     Net of tax
 
26-Weeks Ended June 29, 2019
Details About Accumulated Other Comprehensive Income Components   Amount Reclassified from Accumulated Other Comprehensive Income     Affected Line Item in the Statement Where Net Income is Presented
           
Unrealized gains (losses) on available-for-sale securities   $ 60     Other income (expense)
      17     Income tax benefit (provision)
    $ 77     Net of tax
 
16
 

10. Revenue
 
In order to further depict how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors, we disaggregate revenue (or “net sales”) by geographic region, major product category, and pattern of recognition.
 
Disaggregated revenue by geographic region (Americas, APAC, and EMEA) is presented in Note 4 – Segment Information. The Company has identified six major product categories – auto PND, auto OEM, aviation, fitness, marine, and outdoor. Note 4 contains disaggregated revenue information of the aviation, fitness, marine, and outdoor major product categories. Auto segment revenue presented in Note 4 is comprised of the auto PND and auto OEM major product categories, as depicted below.
 
    Auto Revenue by Major Product Category  
    13-Weeks Ended     26-Weeks Ended  
    June 29,     June 30,     June 29,     June 30,  
    2019     2018     2019     2018  
Auto PND     68 %     70 %     64 %     67 %
Auto OEM     32 %     30 %     36 %     33 %
 
A large majority of the Company’s sales are recognized on a point in time basis, usually once the product is shipped and title and risk of loss have transferred to the customer. Sales recognized over a period of time are primarily within the auto segment and relate to performance obligations that are satisfied over the life of the product or contractual service period. Revenue disaggregated by the timing of transfer of the goods or services is presented in the table below:
 
    13-Weeks Ended     26-Weeks Ended  
    June 29,     June 30,     June 29,     June 30,  
    2019     2018     2019     2018  
Point in time   $ 911,099     $ 854,260     $ 1,635,275     $ 1,525,524  
Over time     43,741       40,192       85,615       79,801  
Net sales   $ 954,840     $ 894,452     $ 1,720,890     $ 1,605,325  
 
17
 
 
Transaction price and costs associated with the Company’s unsatisfied performance obligations are reflected as deferred revenue and deferred costs, respectively, on the Company’s Condensed Consolidated Balance Sheets. Such amounts are recognized ratably over the applicable service period or estimated useful life. Changes in deferred revenue and costs during the 26-week period ending June 29, 2019 are presented below:
 
    26-Weeks Ended  
    June 29,  
    2019  
   
Deferred Revenue(1)
   
Deferred Costs(2)
 
             
Balance, beginning of period   $ 172,938     $ 57,935  
Deferrals in period     79,357       13,950  
Recognition of deferrals in period     (85,615 )     (17,827 )
Balance, end of period   $ 166,680     $ 54,058  
 
  (1) Deferred revenue is comprised of both Deferred revenue and Noncurrent deferred revenue per the Condensed Consolidated Balance Sheets
 
  (2) Deferred costs are comprised of both Deferred costs and Noncurrent deferred costs per the Condensed Consolidated Balance Sheets
 
Of the $85,615 of deferred revenue recognized in the 26-weeks ended June 29, 2019, $56,686 was deferred as of the beginning of the period.
 
Approximately two-thirds of the $166,680 of deferred revenue at the end of the period , June 29, 2019, is recognized ratably over a period of three years or less.

11. Leases
 
The Company leases certain real estate properties, vehicles, and equipment in various countries around the world. Leased properties are typically used for office space, distribution, and retail. The Company’s leases are classified as operating leases with remaining terms of 1 to 34 years, some of which include an option to extend or renew. If the exercise of an option to extend or renew is determined to be reasonably certain, the associated right-of-use asset and lease liability reflects the extended period and payments. For all real estate leases, any non-lease components, including common area maintenance, have been separated from lease components and excluded from the associated right-of-use asset and lease liability calculations. For all equipment and vehicle leases, an accounting policy election has been made to not separate lease and non-lease components.
 
Leases with an initial term of 12 months or less (“short-term leases”) are not recognized on the Company’s Condensed Consolidated Balance Sheets as a right-of-use asset or lease liability.
 
The following table represents lease costs recognized in the Company’s Condensed Consolidated Statements of Income for the 13-weeks and 26-weeks ended June 29, 2019. Lease costs are included in Selling, general and administrative expense and Research and development expense on the Company’s Condensed Consolidated Statements of Income.
 
    13-Weeks Ended     26-Weeks Ended  
    June 29,     June 29,  
    2019     2019  
Operating lease cost(1)
  $ 6,018     $ 11,660  
 
  (1) Operating lease cost includes short-term lease costs and variable lease costs, which were not material in the periods presented.
 
18
 
 
The following table represents the components of leases that are recognized on the Company’s Condensed Consolidated Balance Sheets as of June 29, 2019.
 
    June 29,  
    2019  
       
Operating lease right-of-use assets   $ 59,166  
         
Other accrued expenses   $ 14,455  
Noncurrent operating lease liabilities     46,281  
Total lease liabilities   $ 60,736  
         
Weighted average remaining lease term    
5.6 years
 
Weighted average discount rate     4.0 %
 
The following table represents the maturity of lease liabilities.
 
Fiscal Year   Lease payments  
2019, excluding the 26-weeks ended June 29, 2019   $ 9,022  
2020     15,765  
2021     12,339  
2022     8,536  
2023     7,808  
Thereafter     15,418  
Total   $ 68,888  
Less: imputed interest     (8,152 )
Present value of lease liabilities   $ 60,736  
 
The following table presents supplemental cash flow and noncash information related to leases.
 
    26-Weeks Ended  
    June 29,  
    2019  
Cash paid for amounts included in the measurement of operating lease liabilities(2)
  $ 9,134  
Right-of-use assets obtained in exchange for new operating lease liabilities   $ 7,391  
 
  (2) Included in Net cash provided by operating activities on the Company’s Condensed Consolidated Statements of Cash Flows.
 
12. Recently Issued Accounting Pronouncements Not Yet Adopted
 
Financial Instruments – Credit Losses
 
In June 2016, the FASB issued Accounting Standards Update No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 provides new guidance on assessment of expected credit losses of certain financial instruments. ASU 2016-13 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019. Early adoption is permitted. The Company is currently evaluating the impact of adopting the new standard on its Consolidated Financial Statements.
 
Receivables – Nonrefundable Fees and Other Costs
 
In March 2017, the FASB issued Accounting Standards Update No. 2017-08, Receivables – Nonrefundable Fees and Other Costs (Topic 310-20): Premium Amortization on Purchased Callable Debt Securities (“ASU 2017-08”), which shortens the amortization period for certain callable debt securities held at a premium, requiring the premium to be amortized to the earliest call date. Callable debt securities held at a discount continue to be amortized to maturity. ASU 2017-08 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019. Early adoption is permitted. The Company is currently evaluating the impact of adopting the new standard on its Consolidated Financial Statements.
 
19
 
 
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
Overview
 
The discussion set forth below, as well as other portions of this Quarterly Report, contains statements concerning potential future events. Such forward-looking statements are based upon assumptions by management, as of the date of this Quarterly Report, including assumptions about risks and uncertainties faced by the Company. 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 the Company’s assumptions prove incorrect or should unanticipated circumstances arise, 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 in the Company’s Annual Report on Form 10-K for the year ended December 29, 2018. This report has been filed with the Securities and Exchange Commission (the “SEC” or the “Commission”) in Washington, D.C. and can be obtained by contacting the SEC’s public reference operations or obtaining it through the SEC’s website at http://www.sec.gov. Readers are strongly encouraged to consider those factors when evaluating any forward-looking statement concerning the Company. The Company will not update any forward-looking statements in this Quarterly Report to reflect future events or developments.
 
The information contained in this Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Condensed Consolidated Financial Statements and Notes thereto included in this Form 10-Q and the audited financial statements and notes thereto in the Company’s Annual Report on Form 10-K for the year ended December 29, 2018.
 
The Company is 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 reportable segments, which serve the outdoor, fitness, marine, auto and aviation markets. The Company’s segments offer consumer products through its network of subsidiary distributors and independent dealers and distributors and some also maintain relationships with original equipment manufacturers (OEMs). However, the nature of products and types of customers for the five segments may vary significantly. As such, the segments are managed separately.
 
20
 
 
Results of Operations
 
The following table sets forth the Company’s results of operations as a percent of net sales during the periods shown (the table may not foot due to rounding):
 
    13-Weeks Ended  
    June 29, 2019     June 30, 2018  
             
Net sales     100 %     100 %
Cost of goods sold     40 %     41 %
Gross profit     60 %     59 %
Advertising expense     4 %     5 %
Selling, general and administrative expense     13 %     13 %
Research and development expense     16 %     16 %
Total operating expense     33 %     34 %
Operating income     27 %     24 %
Other income     2 %     2 %
Income before income taxes     29 %     26 %
Income tax provision     5 %     5 %
Net income     23 %     21 %
 
    26-Weeks Ended  
    June 29, 2019     June 30, 2018  
             
Net sales     100 %     100 %
Cost of goods sold     40 %     41 %
Gross profit     60 %     59 %
Advertising expense     4 %     4 %
Selling, general and administrative expense     15 %     15 %
Research and development expense     17 %     18 %
Total operating expense     36 %     37 %
Operating income     24 %     22 %
Other income     2 %     2 %
Income before income taxes     26 %     24 %
Income tax provision     5 %     4 %
Net income     21 %     20 %
 
The segment table located in Note 4 to the Condensed Consolidated Financial Statements sets forth the Company’s results of operations (in thousands) including net sales, gross profit, and operating income for each of the Company’s five segments during the periods shown. For each line item in the table, the total of the outdoor, fitness, marine, auto, and aviation segments’ amounts equals the amount in the Condensed Consolidated Statements of Income included in Item 1.
 
As indicated in Note 4 to the Condensed Consolidated Financial Statements, the methodology used to allocate certain selling, general, and administrative expenses was refined in the first quarter of 2019. The amounts presented below for the 13-weeks and 26-weeks ended June 30, 2018 are presented here as they were originally reported.
 
21
 
 
Comparison of 13-Weeks ended June 29, 2019 and June 30, 2018
(Amounts included in the following discussion are stated in thousands unless otherwise indicated)
 
Net Sales
 
    13-Weeks Ended
June 29, 2019
13-Weeks Ended
June 30, 2018
Year over Year
    Net Sales % of Total Net Sales % of Total $ Change % Change
Outdoor   $ 210,404     22 %   $ 201,640     23 %   $ 8,764     4 %
Fitness     251,653     26 %     225,095     25 %     26,558     12 %
Marine     151,407     16 %     134,583     15 %     16,824     13 %
Auto     157,411     17 %     180,128     20 %     (22,717 )   (13 )%
Aviation     183,965     19 %     153,006     17 %     30,959     20 %
Total   $ 954,840     100 %   $ 894,452     100 %   $ 60,388     7 %
 
Net sales increased 7% for the 13-week period ended June 29, 2019 when compared to the year-ago quarter. The outdoor, fitness, marine, and aviation segments collectively increased by 12%, contributing 83% of total revenue. Fitness was the largest portion of our revenue mix at 26% in the second quarter of 2019 compared to 25% in the second quarter of 2018.
 
Total unit sales in the second quarter of 2019 increased to 3,838 when compared to total unit sales of 3,783 in the second quarter of 2018.
 
Outdoor, fitness, marine, and aviation segment revenue increased 4%, 12%, 13%, and 20%, respectively, when compared to the year-ago quarter. The outdoor segment revenue increase was primarily driven by strong sales in golf and inReach product lines. The fitness segment revenue increase was primarily driven by strong sales in wearables and sales from Tacx, a newly acquired group of subsidiaries that designs and manufactures indoor bike trainers. The current quarter marine segment revenue increase was primarily driven by sales growth in chartplotters and sonar products. The aviation segment revenue increase was driven by sales growth across most product lines in both OEM and aftermarket categories. Auto segment revenue decreased 13% from the year-ago quarter, primarily due to the ongoing PND market contraction.
 
Gross Profit
 
    13-Weeks Ended
June 29, 2019
13-Weeks Ended
June 30, 2018
Year over Year
    Gross Profit % of Revenue Gross Profit % of Revenue $ Change % Change
Outdoor   $ 135,508     64 %   $ 128,872     64 %   $ 6,636     5 %
Fitness     135,136     54 %     126,431     56 %     8,705     7 %
Marine     91,683     61 %     78,785     59 %     12,898     16 %
Auto     74,861     48 %     75,452     42 %     (591 )   (1 )%
Aviation     138,177     75 %     113,730     74 %     24,447     21 %
Total   $ 575,365     60 %   $ 523,270     59 %   $ 52,095     10 %
 
Gross profit dollars in the second quarter of 2019 increased 10%, primarily due to growth in net sales along with a gross margin increase of 180 basis points compared to the year-ago quarter. Gross margin increased in the outdoor, marine, auto, and aviation segments, slightly offset by a gross margin decrease in the fitness segment when compared to the year-ago quarter.
 
The marine segment gross margin increase of 200 basis points was primarily attributable to product mix. The auto segment gross margin increase of 570 basis points was primarily attributable to lower license expense and product mix. A portion of license expense favorability in the auto segment is expected to continue for the remainder of the year. The fitness segment gross margin decrease was primarily attributable to lower average selling prices and product mix.
 
22
 
 
Advertising Expense
 
    13-Weeks Ended
June 29, 2019
  13-Weeks Ended
June 30, 2018
Year over Year
    Advertising
Expense
  % of Revenue Advertising
Expense
% of Revenue $ Change % Change
Outdoor   $ 11,965     6 %   $ 10,700     5 %   $ 1,265               12 %
Fitness     17,928     7 %     18,534     8 %     (606 )     (3 )%
Marine     5,585     4 %     5,142     4 %     443       9 %
Auto     4,403     3 %     6,691     4 %     (2,288 )     (34 )%
Aviation     1,642     1 %     2,482     2 %     (840 )     (34 )%
Total   $ 41,523     4 %   $ 43,549     5 %   $ (2,026 )     (5 )%
 
Advertising expense as a percent of revenue was slightly lower when compared to the year-ago quarter and decreased 5% in absolute dollars. The total absolute dollar decrease was primarily attributable to decreased cooperative advertising and point-of-sale display advertising expense in the auto segment and decreased media advertising in the fitness segment, slightly offset by increased media and cooperative advertising in the outdoor segment.
 
Selling, General and Administrative Expense
 
    13-Weeks Ended
June 29, 2019
13-Weeks Ended
June 30, 2018
Year over Year
    Selling, General &
Admin. Expenses
% of Revenue Selling, General &
Admin. Expenses
% of Revenue $ Change % Change
Outdoor   $ 30,409     14 %   $ 28,591       14 %   $ 1,818       6 %
Fitness     39,964     16 %     32,797       15 %     7,167       22 %
Marine     23,309     15 %     25,683       19 %     (2,374 )     (9 )%
Auto     19,373     12 %     24,987       14 %     (5,614 )     (22 )%
Aviation     15,683     9 %     8,442       6 %     7,241       86 %
Total   $ 128,738     13 %   $ 120,500       13 %   $ 8,238       7 %
 
Selling, general and administrative expense increased 7% in absolute dollars and was relatively flat as a percent of revenue compared to the year-ago quarter. The absolute dollar increase in the second quarter of 2019 was primarily attributable to personnel costs, legal related costs, and expenses from recent acquisitions. The fitness segment increase as a percent of revenue was primarily due to expenses from newly acquired Tacx. The auto segment decrease as a percent of revenue was primarily due to less amortization expense associated with intangible assets.
 
As noted above and in Note 4 to the Condensed Consolidated Financial Statements, the Company refined its methodology to allocate certain selling, general and administrative expenses in the beginning of the 2019 fiscal year. The prior year amounts are presented here as originally reported. For comparative purposes, we estimate selling, general and administrative expenses for the second quarter of 2018 would have been approximately $5 million more for the aviation segment, approximately $4 million less for the marine segment, approximately $1 million less for the outdoor segment, and not significantly different for the fitness and auto segments.
 
Considering the refined allocation methodology noted above, we estimate selling, general and administrative expenses for the 52-weeks ended December 29, 2018 would have been approximately $18 million more for the aviation segment, approximately $11 million less for the marine segment, approximately $7 million less for the outdoor segment, and not significantly different for the fitness and auto segments.
 
Research and Development Expense
 
 
 
13-Weeks Ended
June 29, 2019
13-Weeks Ended
June 30, 2018
Year over Year
 
 
Research &
Development
% of Revenue
Research &
Development
% of Revenue
$ Change
% Change
Outdoor   $ 21,798     10 %   $ 17,665       9 %   $ 4,133       23 %
Fitness     26,831     11 %     22,552       10 %     4,279       19 %
Marine     20,059     13 %     20,192       15 %     (133 )     (1 )%
Auto     26,177     17 %     31,162       17 %     (4,985 )     (16 )%
Aviation     54,018     29 %     50,142       33 %     3,876       8 %
Total   $ 148,883     16 %   $ 141,713       16 %   $ 7,170       5 %
 
Research and development expense as a percent of revenue was relatively flat compared to the year-ago quarter and increased 5% in absolute dollars. The absolute dollar increase was primarily due to higher engineering personnel costs related to wearable and aviation product offerings and expenses resulting from recent acquisitions, partially offset by the capitalization of certain contractually reimbursable preproduction design and development personnel costs within the auto segment. Our research and development spending is focused on product development, improving existing software capabilities, and exploring new categories. 
23
 
 
Operating Income
 
    13-Weeks Ended
June 29, 2019
13-Weeks Ended
June 30, 2018
Year over Year
    Operating Income % of Revenue Operating Income % of Revenue $ Change % Change
Outdoor   $ 71,336     34 %   $ 71,916     36 %   $ (580 )   (1 )%
Fitness     50,413     20 %     52,548     23 %     (2,135 )   (4 )%
Marine     42,730     28 %     27,768     21 %     14,962     54 %
Auto     24,908     16 %     12,612     7 %     12,296     97 %
Aviation     66,834     36 %     52,664     34 %     14,170     27 %
Total   $ 256,221     27 %   $ 217,508     24 %   $ 38,713     18 %
 
Operating income increased 18% in absolute dollars and increased 250 basis points when compared to the year-ago quarter. In the current quarter, the operating income growth in absolute dollars was primarily attributable to revenue growth and gross margin improvement. The increase in operating income as a percent of revenue was primarily attributable to improved gross margin and leverage of operating expenses, as discussed above.
 
Other Income (Expense)
 
 
 
13-Weeks Ended
13-Weeks Ended
 
 
June 29,
2019
June 30,
2018
Interest income   $ 13,735     $ 10,995  
Foreign currency gains     3,413       2,647  
Other     2,409       4,918  
Total   $ 19,557     $ 18,560  
 
The average return on cash and investments, including interest and capital gains/losses, during the second quarter of 2019 was 2.2% compared to 1.9% during the same quarter of 2018. Interest income increased primarily due to slightly 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 $3.4 million currency gain recognized in the second quarter of 2019 was primarily due to the U.S. Dollar weakening against the Euro and strengthening against the Taiwan Dollar, partially offset by the U.S. Dollar strengthening against the British Pound Sterling, within the 13-weeks ended June 29, 2019. During this period, the U.S. Dollar weakened 1.4% against the Euro and strengthened 0.3% against the Taiwan Dollar, resulting in gains of $3.7 million and $1.7 million, respectively, while the U.S. Dollar strengthened 2.6% against the British Pound Sterling, resulting in a loss of $0.7 million. The remaining net currency loss of $1.3 million was related to the timing of transactions and impacts of other currencies, each of which was individually immaterial.
 
The $2.6 million currency gain recognized in the second quarter of 2018 was primarily due to the strengthening of the U.S. Dollar against the Taiwan Dollar, partially offset by the U.S. Dollar strengthening against the Euro and British Pound Sterling within the 13-weeks ended June 30, 2018. During this period, the U.S. Dollar strengthened 4.7% against the Taiwan Dollar, resulting in a gain of $26.7 million, while the U.S. Dollar strengthened 5.2% against the Euro and 5.8% against the British Pound Sterling, resulting in losses of $14.0 million and $1.9 million, respectively. The remaining net currency loss of $8.2 million was related to the timing of transactions and impacts of other currencies, each of which was individually immaterial.
 
 
24
 
 
Income Tax Provision
 
The Company recorded income tax expense of $52.1 million in the 13-week period ended June 29, 2019, compared to income tax expense of $45.7 million in the 13-week period ended June 30, 2018. The effective tax rate was 18.9% in the second quarter of 2019, compared to 19.4% in the second quarter of 2018.
 
The Company expects to record an income tax benefit due to the revaluation of certain Switzerland deferred tax assets resulting from Swiss tax reform. However, the Company is unable to estimate the timing and the amount of the income tax benefit due to the dependency on the future enactment of Swiss cantonal tax rate.
 
Net Income
 
As a result of the above, net income for the 13-weeks ended June 29, 2019 was $223.7 million compared to $190.3 million for the 13-week period ended June 29, 2018, an increase of $33.4 million.
 
Comparison of 26-Weeks Ended June 29, 2019 and 26-Weeks Ended June 30, 2018
 
Net Sales
 
   
26-Weeks Ended
June 29, 2019
26-Weeks Ended
June 30, 2018
Year over Year
   
Operating Income
% of Revenue
Operating Income
% of Revenue
$ Change
% Change
Outdoor
 
$
364,455
   
21
%
 
$
345,899
   
22
%
 
$
18,556
   
5
%
Fitness
   
431,908
   
25
%
   
391,130
   
24
%
   
40,778
   
10
%
Marine
   
285,376
   
17
%
   
248,138
   
15
%
   
37,238
   
15
%
Auto
   
284,410
   
16
%
   
321,439
   
20
%
   
(37,029
 
(12
)%
Aviation
   
354,741
   
21
%
   
298,719
   
19
%
   
56,022
   
19
%
Total
 
$
1,720,890
   
100
%
 
$
1,605,325
   
100
%
 
$
115,565
   
7
%
 
Net sales increased 7% for the 26-week period ended June 29, 2019 when compared to the year-ago period. The outdoor, fitness, marine, and aviation segments collectively increased by 12%, contributing 84% of total revenue. Fitness was the largest portion of our revenue mix at 25% in the first half of 2019 compared to 24% in the first half of 2018.
 
Total unit sales in the first half of 2019 increased to 7,019 when compared to the total unit sales of 6,739 in the first half of 2018.
 
Outdoor, fitness, marine, and aviation segment revenues increased 5%, 10%, 15%, and 19%, respectively, when compared to the year-ago period. The outdoor segment revenue increase was primarily driven by strong sales in golf and inReach product lines. Fitness segment revenue increases were primarily driven by strong sales in wearables and sales from newly acquired Tacx. Marine segment revenue increases were primarily driven by sales growth in chartplotters and sonar products. The aviation segment revenue increase was driven by sales growth across most product lines in both OEM and aftermarket categories. Auto segment revenue decreased 12% from the year-ago period, primarily due to the ongoing PND market contraction.
 
 
25
 
 
Gross Profit
 
   
26-Weeks Ended
June 29, 2019
 26-Weeks Ended
June 30, 2018
 Year over Year
   
Gross Profit
% of Revenue
Gross Profit
% of Revenue
$ Change
% Change
Outdoor
 
$
232,996
   
64
%
 
$
222,158
   
64
%
 
$
10,838
   
5
%
Fitness
   
225,970
   
52
%
   
223,032
   
57
%
   
2,938
   
1
%
Marine
   
169,739
   
59
%
   
145,468
   
59
%
   
24,271
   
17
%
Auto
   
132,198
   
46
%
   
136,463
   
42
%
   
(4,265
 
(3
)%
Aviation
   
266,160
   
75
%
   
222,684
   
75
%
   
43,476
   
20
%
Total
 
$
1,027,063
   
60
%
 
$
949,805
   
59
%
 
$
77,258
   
8
%
 
Gross profit dollars in the 26-week period ended June 29, 2019 increased 8% while gross margin remained relatively flat compared to the year-ago period. Gross margin increased 400 basis points in the auto segment when compared to the year-ago period, primarily attributable to lower license expense and product mix. A portion of license expense favorability in the auto segment is expected to continue for the remainder of the year. Gross margin remained relatively flat within the outdoor, marine, and aviation segments. Gross margin decreased in the fitness segment primarily due to lower average selling prices and product mix.
 
Advertising Expense
 
   
26-Weeks Ended
June 29, 2019
26-Weeks Ended
June 30, 2018
Year over Year
   
Advertising Expense
% of Revenue
Advertising Expense
% of Revenue
$ Change
% Change
Outdoor
 
$
19,136
   
5
%
 
$
16,500
   
5
%
 
$
2,636
   
16
%
Fitness
   
27,917
   
6
%
   
28,219
   
7
%
   
(302
)
 
(1
)%
Marine
   
11,916
   
4
%
   
10,428
   
4
%
   
1,488
   
14
%
Auto
   
7,305
   
3
%
   
9,921
   
3
%
   
(2,616
 
(26
)%
Aviation
   
2,865
   
1
%
   
3,793
   
1
%
   
(928
   
(24
)%
Total
 
$
69,139
   
4
%
 
$
68,861
   
4
%
 
$
278
   
0
%
 
Advertising expense was relatively flat in absolute dollars and as a percent of revenue when compared to the year-ago period. Increases in cooperative advertising in the outdoor and marine segments and increased media advertising in the outdoor segment were generally offset by decreases in cooperative advertising and point-of-sale display advertising expense in the auto segment.
 
Selling, General and Administrative Expense
 
   
26-Weeks Ended
June 29, 2019
26-Weeks Ended
June 30, 2018
Year over Year
   
Selling, General &
Admin. Expenses
% of Revenue
Selling, General &
Admin. Expenses
% of Revenue
$ Change
% Change
Outdoor
 
$
58,711
   
16
%
 
$
54,647
     
16
%
 
$
4,064
     
7
%
Fitness
   
77,538
   
18
%
   
64,092
     
16
%
   
13,446
     
21
%
Marine
   
49,291
   
17
%
   
54,136
     
22
%
   
(4,845
)
   
(9
)%
Auto
   
38,668
   
14
%
   
47,046
     
15
%
   
(8,378
)
   
(18
)%
Aviation
   
31,311
   
9
%
   
17,643
     
6
%
   
13,668
     
77
%
Total
 
$
255,519
   
15
%
 
$
237,564
     
15
%
 
$
17,955
     
8
%
 
Selling, general and administrative expense increased 8% 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 personnel costs, legal related costs, and expenses from recent acquisitions. The fitness segment increase as a percent of revenue was primarily due to expenses from newly acquired Tacx. The auto segment decrease as a percent of revenue was primarily due to less amortization expense associated with intangible assets.
 
As noted above and in Note 4 to the Condensed Consolidated Financial Statements, the Company refined its methodology to allocate certain selling, general and administrative expenses in the beginning of the 2019 fiscal year. The prior year amounts are presented here as originally reported. For comparative purposes, we estimate selling, general and administrative expenses for the first half of 2018 would have been approximately $9 million more for the aviation segment, approximately $8 million less for the marine segment, approximately $1 million less for the outdoor segment, and not significantly different for the fitness and auto segments. Selling, general and administrative expense as a percent of revenue also decreased in marine due to leverage of operating costs.
 
26
 
 
Considering the refined allocation methodology noted above, we estimate selling, general and administrative expenses for the 52-weeks ended December 29, 2018 would have been approximately $18 million more for the aviation segment, approximately $11 million less for the marine segment, approximately $7 million less for the outdoor segment, and not significantly different for the fitness and auto segments.
 
Research and Development Expense
 
   
26-Weeks Ended
June 29, 2019
26-Weeks Ended
June 30, 2018
Year over Year
   
Research &
Development
% of Revenue
Research &
Development
% of Revenue
$ Change
% Change
Outdoor
 
$
41,859
   
11
%
 
$
35,272
     
10
%
 
$
6,587
     
19
%
Fitness
   
51,978
   
12
%
   
44,799
     
11
%
   
7,179
     
16
%
Marine
   
40,327
   
14
%
   
40,005
     
16
%
   
322
     
1
%
Auto
   
53,104
   
19
%
   
63,417
     
20
%
   
(10,313
)
   
(16
)%
Aviation
   
107,533
   
30
%
   
100,177
     
34
%
   
7,356
     
7
%
Total
 
$
294,801
   
17
%
 
$
283,670
     
18
%
 
$
11,131
     
4
%
 
Research and development expense as a percent of revenue was slightly lower when compared to the year-ago period and increased $11.1 million in absolute dollars. The absolute dollar increase in research and development expenses when compared with the year-ago period was primarily due to engineering personnel costs related to our wearable and aviation product offerings and expenses resulting from recent acquisitions, partially offset by the capitalization of certain contractually reimbursable preproduction design and development personnel costs within the auto segment. Our research and development spending is focused on product development, improving existing software capabilities, and exploring new categories.
 
Operating Income
 
   
26-Weeks Ended
June 29, 2019
26-Weeks Ended
June 30, 2018
Year over Year
   
Operating Income
% of Revenue
Operating Income
% of Revenue
$ Change
% Change
Outdoor
 
$
113,290
   
31
%
 
$
115,739
   
33
%
 
$
(2,449
)
 
(2
)%
Fitness
   
68,537
   
16
%
   
85,922
   
22
%
   
(17,385
)
 
(20
)%
Marine
   
68,205
   
24
%
   
40,899
   
16
%
   
27,306
   
67
%
Auto
   
33,121
   
12
%
   
16,079
   
5
%
   
17,042
   
106
%
Aviation
   
124,451
   
35
%
   
101,071
   
34
%
   
23,380
   
23
%
Total
 
$
407,604
   
24
%
 
$
359,710
   
22
%
 
$
47,894
   
13
%
 
Operating income increased 13% in absolute dollars and increased 130 basis points as a percent of revenue when compared to the year-ago period. The growth in operating income on an absolute dollar basis and as a percent of revenue was the result of revenue growth, slight increase in gross margin, and leverage of operating expenses, as discussed above.
 
Other Income (Expense)
 
   
26-Weeks Ended
26-Weeks Ended
   
June 29,
2019
June 30,
2018
Interest income
 
$
27,439
   
$
21,222
 
Foreign currency gains
   
3,727
     
3,463
 
Other
   
3,273
     
5,653
 
Total
 
$
34,439
   
$
30,338
 
 
The average returns on cash and investments, including interest and capital gains/losses, during the 26-weeks ended June 29, 2019 and the 26-weeks ended June 30, 2018 were 2.2% and 1.8%, respectively. Interest income increased primarily due to slightly higher yields on fixed-income securities.
 
The $3.7 million currency gain recognized in the first half of 2019 was primarily due to the strengthening of the U.S. Dollar against the Taiwan Dollar, partially offset by the U.S. Dollar strengthening against the Euro within the 26-weeks ended June 29, 2019. During this period, the U.S. Dollar strengthened 1.2% against the Taiwan Dollar, resulting in a gain of $7.4 million while the U.S. Dollar strengthened 0.6% against the Euro, resulting in a loss of $4.1 million. The U.S. Dollar remained relatively flat against the British Pound Sterling. The remaining net currency gain of $0.4 million was related to the timing of transactions and impacts of other currencies, each of which was individually immaterial.
 
27
 
 
The $3.5 million currency gain recognized in the first half of 2018 was primarily due to the strengthening of the U.S. Dollar against the Taiwan Dollar, partially offset by the U.S. Dollar strengthening against the Euro and British Pound Sterling within the 26-weeks ended June 30, 2018. During this period, the U.S. Dollar strengthened 2.7% against the Taiwan Dollar, resulting in a gain of $13.9 million, while the U.S. Dollar strengthened 2.6% against the Euro and 2.3% against the British Pound Sterling, resulting in losses of $5.1 million and $0.1 million, respectively. The remaining net currency loss of $5.2 million was related to the timing of transactions and impacts of other currencies, each of which was individually immaterial.
 
Income Tax Provision
 
The Company recorded income tax expense of $78.2 million in the first half of 2019, compared to income tax expense of $70.3 million in the first half of 2018. The effective tax rate was 17.7% in the first half of 2019, compared to 18.0% in the first half of 2018.
 
The Company expects to record an income tax benefit due to the revaluation of certain Switzerland deferred tax assets resulting from Swiss tax reform. However, 
the Company is unable to estimate the timing and the amount of the income tax benefit due to the dependency on the future enactment of Swiss cantonal tax rate.

 
Net Income
 
As a result of the above, net income for the 26-week period ended June 29, 2019 was $363.8 million compared to $319.7 million for the 26-week period ended June 30, 2018, an increase of $44.1 million.
 
Liquidity and Capital Resources
 
As of June 29, 2019, we had approximately $2.4 billion 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 Company’s Board of Directors. 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 rate returns on cash and investments during the first half of 2019 and 2018 were approximately 2.2% and 1.8%, 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 8 for additional information regarding marketable securities.
 
Operating Activities
 
 
 
26-Weeks Ended
 
 
 
June 29,
 
 
June 30,
 
(In thousands)
 
2019
 
 
2018
 
Net cash provided by operating activities   $ 275,218     $ 438,063  
 
The $162.8 million decrease in cash provided by operating activities in the first half of 2019 compared to the first half of 2018 was primarily due to the net increase in cash used in working capital of $156.6 million (which included a decrease of $42.5 million in net receipts of accounts receivable, a net increase of $75.3 million in cash paid for inventory, and a net increase of $38.8 million in cash used in other activities primarily driven by payments associated with an amendment to a license agreement) and income taxes payable of $43.8 million. These decreases were partially offset by the year over year increase in net income and other non-cash adjustments of $37.6 million.
 
28
 
 
Investing Activities
 
 
 
26-Weeks Ended
 
 
 
June 29,
 
 
June 30,
 
(In thousands)
 
2019
 
 
2018
 
Net cash used in investing activities   $ (346,399 )   $ (185,894 )
 
The $160.5 million increase in cash used in investing activities during the first half of 2019 compared to the first half of 2018 was primarily due to increased cash payments for acquisitions of $266.6 million, partially offset by decreased net purchases of marketable securities of $72.9 million and decreased cash payments for net purchases of property and equipment of $31.6 million.
 
Financing Activities
 
 
 
26-Weeks Ended
 
 
 
June 29,
 
 
June 30,
 
(In thousands)
 
2019
 
 
2018
 
Net cash used in financing activities   $ (308,877 )   $ (188,844 )
 
The $120.0 million increase in cash used in financing activities during the first half of 2019 compared to the first half of 2018 was primarily due to an increase in dividend payments of $112.8 million associated with the timing of dividend payments that resulted in three dividend payments in the first half of 2019 compared to two dividend payments in the first half of 2018.
 
Off-Balance Sheet Arrangements
 
We do not have any off-balance sheet arrangements.
 
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, revenue and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, Garmin evaluates its estimates, including those related to bad debts, inventories, investments, intangible assets, income taxes, warranty obligations, contingencies, customer sales programs and incentives, product returns, relative standalone selling prices, and progress toward completion of performance obligations in certain contracts with customers. 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.
 
For a description of the significant accounting policies and methods used in the preparation of the Company’s Condensed Consolidated Financial Statements, refer to Note 2, “Summary of Significant Accounting Policies” in the Notes to the Consolidated Financial Statements in Part II, Item 8 and “Critical Accounting Policies and Estimates” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2018. There were no material changes to the Company’s critical accounting policies and estimates in the 13-week and 26-week periods ended June 29, 2019, other than those discussed in Note 1, “Accounting Policies”.
 
29
 
 
Item 3. Quantitative and Qualitative Disclosures About Market Risk
 
There are numerous market risks that can affect our future business, financial condition and results of operations. In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part II, “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the fiscal year ended December 29, 2018. There have been no material changes during the 13-week and 26-week periods ended June 29, 2019 in the risks described in our Annual Report on Form 10-K related to market sensitivity, inflation, foreign currency exchange rate risk and interest rate risk.
 
Item 4. Controls and Procedures
 
(a)
Evaluation of disclosure controls and procedures.
The Company maintains a system of disclosure controls and procedures that are designed to provide reasonable assurance that information, which is required to be timely disclosed, is accumulated and communicated to management in a timely fashion.  A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. As of June 29, 2019, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures.  Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded as of June 29, 2019 that our disclosure controls and procedures were effective such that the information relating to the Company, required to be disclosed in our Securities and Exchange Commission (“SEC”) reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to the Company’s management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
 
(b)
Changes in internal control over financial reporting
. There has been no change in the Company’s internal controls over financial reporting that occurred during the Company’s fiscal quarter ended June 29, 2019 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
 
30
 
 
Part II - Other Information
 
Item 1. Legal Proceedings
 
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. For additional information, see Note 6 – Commitments and Contingencies in the above Condensed Consolidated Financial Statements and Part I, “Item 3. Legal Proceedings” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2018.
 
Item 1A. Risk Factors
 
There are many risks and uncertainties that can affect our future business, financial performance or share price. In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 29, 2018. There have been no material changes during the 13-week and 26-week periods ended June 29, 2019 in the risks described in our Annual Report on Form 10-K. These risks, however, are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.
 
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 
Not applicable
 
Item 3. Defaults Upon Senior Securities
 
None
 
Item 4. Mine Safety Disclosures
 
Not applicable
 
Item 5. Other Information
 
Not applicable
 
Item 6. Exhibits
 
Exhibit 31.1
   
Exhibit 31.2
   
Exhibit 32.1
   
Exhibit 32.2
 
Exhibit 101.INS
 
XBRL Instance Document
   
Exhibit 101.SCH
 
XBRL Taxonomy Extension Schema
   
Exhibit 101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase
   
Exhibit 101.LAB
 
XBRL Taxonomy Extension Label Linkbase
   
Exhibit 101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase
     
Exhibit 101.DEF
 
XBRL Taxonomy Extension Definition Linkbase
31
 
 
SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
GARMIN LTD.
     
 
By
/s/ Douglas G. Boessen
   
Douglas G. Boessen
   
Chief Financial Officer
   
(Principal Financial Officer and
Principal Accounting Officer)
 
Dated: July 31, 2019
 
32
 
 
INDEX TO EXHIBITS
 
Exhibit No.
 
Description
     
Exhibit 31.1
 
     
Exhibit 31.2
 
     
Exhibit 32.1
 
     
Exhibit 32.2
 
 
Exhibit 101.INS
 
XBRL Instance Document
   
Exhibit 101.SCH
 
XBRL Taxonomy Extension Schema
   
Exhibit 101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase
   
Exhibit 101.LAB
 
XBRL Taxonomy Extension Label Linkbase
   
Exhibit 101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase
     
Exhibit 101.DEF
 
XBRL Taxonomy Extension Definition Linkbase
 
 
33