GARMIN LTD

Previous wording

The following discussion and analysis of our financial condition and results of operations focuses on and is intended to clarify the results of our operations, certain changes in our financial position, liquidity, capital structure and business developments the fiscal years ended December 30, 2023 and December 31, 2022 and a year-to-year comparison of these two fiscal years. This discussion should be read in conjunction with, and is qualified by reference to, the other related information including, but not limited to, the audited consolidated financial statements (including the notes thereto), the description of our business, all as set forth in this Form 10-K, as well as the risk factors discussed above in Item 1A. Discussion regarding our results of operations for the fiscal year ended December 25, 2021 and a year-to-year comparison between the fiscal years ended December 31, 2022 and December 25, 2021 can be found in Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

Current wording

The following discussion and analysis of our financial condition and results of operations focuses on and is intended to clarify the results of our operations, certain changes in our financial position, liquidity, capital structure and business developments during the fiscal years ended December 28, 2024 and December 30, 2023 and a year-to-year comparison of these two fiscal years. This discussion should be read in conjunction with, and is qualified by reference to, the other related information including, but not limited to, the audited consolidated financial statements (including the notes thereto), the description of our business, all as set forth in this Form 10-K, as well as the risk factors discussed above in Item 1A. Discussion regarding our results of operations for the fiscal year ended December 31, 2022 and a year-to-year comparison between the fiscal years ended December 30, 2023 and December 31, 2022 can be found in Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 30, 2023.

Previous wording

Garmin’s fiscal year is a 52-53 week period ending on the last Saturday of the calendar year. Fiscal year 2023 contained 52 weeks and fiscal years 2022 and 2021 contained 53 weeks and 52 weeks, respectively. Unless otherwise stated, all years and dates refer to the Company’s fiscal year and fiscal periods. Unless the context otherwise requires, references in this document to "we", "us", "our", "the Company" and similar terms refer to Garmin Ltd. and its subsidiaries.

Current wording

Garmin’s fiscal year is based on a 52- or 53-week period ending on the last Saturday of the calendar year. Fiscal years 2024 and 2023 each contained 52 weeks, and fiscal year 2022 contained 53 weeks. Unless otherwise stated, all years and dates refer to the Company’s fiscal year and fiscal periods. Unless the context otherwise requires, references in this document to "we", "us", "our", "the Company" and similar terms refer to Garmin Ltd. and its subsidiaries.

Previous wording

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

Current wording

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

Previous wording

We believe that our flexible production model allows our factories to experience relatively low costs of manufacturing. In general, products manufactured in Taiwan have been our highest volume products. Our manufacturing labor costs historically have been lower in Taiwan and China than in other locations.

Current wording

We believe that our flexible production model allows our factories to experience relatively low costs of manufacturing. In general, products manufactured in Taiwan have been our highest volume products. Our manufacturing labor costs historically have been lower in Taiwan than in other locations.

Previous wording

Sales price variability, including that which is associated with foreign currency fluctuations, has had and can be expected to have an effect on our gross profit. Our consolidated gross margin, representing gross profit as a percentage of net sales, is dependent on segment mix, and to a lesser extent, product mix within each segment.

Current wording

Sales price variability, including that which is associated with foreign currency fluctuations, has had and can be expected to have an effect on our gross profit. Our consolidated gross margin, representing gross profit as a percentage of net sales, is also dependent on segment mix and product mix within each segment.

Previous wording

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

Current wording

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

Previous wording

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

Current wording

advertising costs associated primarily with media advertising, cooperative advertising with our retail partners, point of sale displays, and sponsorships;

Previous wording

The Company announced an organization realignment in January 2023, which combined the consumer auto operating segment with the outdoor operating segment. As a result, the Company’s operating segments, which also represent its reportable segments, are fitness, outdoor, aviation, marine, and auto OEM. Results for the 53-week and 52-week periods ended December 31, 2022 and December 25, 2021, respectively, have been recast to conform to current period presentation. This change had no effect on the Company’s consolidated results of operations.

Current wording

In the first quarter of fiscal 2024, the Company changed the presentation of operating expense to include advertising expense within selling, general and administrative expenses on the Company's consolidated statements of income, which management believes to be a more meaningful presentation. Results for the 52-week and 53-week periods ended December 30, 2023 and December 31, 2022, respectively, have been recast to conform to current period presentation. This change had no effect on the Company’s consolidated operating or net income.

Previous wording

Net sales increased 8% in fiscal year 2023 when compared to the year-ago period. Total unit sales increased approximately 8% to 16.2 million units in 2023 from 15.0 million units in 2022. Outdoor revenue represented the largest portion of our revenue mix at 32% in 2023, compared to 36% in 2022.

Current wording

Net sales increased 20% in fiscal year 2024 when compared to the year-ago period. Total unit sales increased approximately 15% to 18.6 million units in 2024 from 16.2 million units in 2023. Outdoor revenue represented the largest portion of our revenue mix at 31% in 2024, compared to 32% in 2023.

Previous wording

The increase in fitness revenue was driven by sales growth across all product categories. Aviation revenue increased primarily due to growth in OEM product categories. The increase in marine revenue was driven by contributions from newly acquired JL Audio, partially offset by declines in multiple product categories. Auto OEM revenue increased primarily due to increased shipments of domain controllers. Outdoor revenue decreased primarily due to declines in sales of adventure watches during the first quarter of 2023.

Current wording

The increase in fitness revenue was driven by sales growth across all product categories, led by strong demand for wearables. Outdoor revenue increased primarily due to sales growth in adventure watches. Aviation revenue increased primarily due to growth in OEM product categories. The increase in marine revenue was primarily driven by contributions from the Company's acquisition of JL Audio. Auto OEM revenue increased primarily due to increased shipments of domain controllers.

Previous wording

Gross profit dollars in fiscal year 2023 increased 7%, primarily due to the increase in net sales compared to the year-ago period as described above. Consolidated gross margin was relatively flat when compared to the year-ago period.

Current wording

Gross profit dollars in fiscal year 2024 increased 23%, primarily due to the increase in net sales compared to the year-ago period as described above. Consolidated gross margin increased 120 basis points when compared to the year-ago period due to higher margins within certain segments, partially offset by unfavorable segment mix.

Previous wording

The fitness and outdoor gross margin increases of 350 basis points and 110 basis points, respectively, were primarily attributable to favorable freight costs. The aviation gross margin increase of 170 basis points was primarily attributable to lower warranty costs. Gross margin remained relatively flat within the marine segment. The auto OEM gross margin decrease of 870 basis points was primarily attributable to unfavorable product mix.

Current wording

The fitness, outdoor, and marine gross margin increases of 480 basis points, 340 basis points, and 180 basis points, respectively, were primarily attributable to lower costs of goods and favorable product mix. Gross margin remained relatively flat within the aviation segment. The auto OEM gross margin decrease of 550 basis points was primarily attributable to unfavorable product mix.

Previous wording

Total operating expense increased 8% in absolute dollars and was relatively flat as a percent of revenue in fiscal year 2023 compared to fiscal year 2022.

Current wording

Total operating expense increased 10% in absolute dollars and decreased 320 basis points as a percent of revenue in fiscal year 2024 compared to fiscal year 2023.

Previous wording

Research and development expense increased 8% in absolute dollars and was relatively flat as a percent of revenue compared to the year-ago period. The absolute dollar increase was primarily due to higher engineering personnel costs.

Current wording

Research and development expense increased 10% in absolute dollars and decreased 150 basis points as a percent of revenue compared to the year-ago period. The absolute dollar increase was primarily due to higher engineering personnel costs.

Previous wording

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 increased personnel-related expenses and information technology costs.

Current wording

Selling, general and administrative expense increased 10% in absolute dollars and decreased 170 basis points as a percent of revenue when compared to the year-ago period. The absolute dollar increase was primarily attributable to increased personnel-related expenses and information technology costs.

Previous wording

The average interest rate returns on cash and investments during the 52-weeks ended December 30, 2023 and 53-weeks ended December 31, 2022 were 2.7% and 1.4%, respectively. Interest income increased primarily due to higher yields on fixed-income securities.

Current wording

The average interest rate returns on cash and investments during the 52-weeks ended December 28, 2024 and December 30, 2023 were 3.3% and 2.7%, respectively. Interest income increased primarily due to higher balances of cash and investments and higher yields on fixed-income securities.

Previous wording

Foreign currency gains and losses for the Company are driven by movements of a number of currencies in relation to the U.S. Dollar. The Taiwan Dollar is the functional currency of Garmin Corporation, the Euro is the functional currency of several subsidiaries, and the U.S. Dollar is the functional currency of Garmin (Europe) Ltd., although some transactions and balances are denominated in British Pounds. Other notable currency exposures include the Australian Dollar, Chinese Yuan, Japanese Yen, and Polish Zloty. 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.

Current wording

Foreign currency gains and losses for the Company are driven by movements of a number of currencies in relation to the U.S. Dollar. The Taiwan Dollar is the functional currency of Garmin Corporation, the Euro is the functional currency of several subsidiaries, and the U.S. Dollar is the functional currency of Garmin (Europe) Ltd., although some transactions and balances are denominated in British Pounds. Other notable currency exposures include the Australian Dollar and Polish Zloty. 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.

Previous wording

The $11.3 million currency loss recognized in fiscal 2022 was primarily due to the U.S. Dollar strengthening against the Australian Dollar, Polish Zloty, Chinese Yuan, Euro, Japanese Yen, and British Pound Sterling, partially offset by the U.S. Dollar strengthening against the Taiwan Dollar. During this period, the U.S. Dollar strengthened 6.4% against the Australian Dollar, 7.1% against the Polish Zloty, 8.5% against the Chinese Yuan, 5.4% against the Euro, 12.7% against the Japanese Yen, and 9.6% against the British Pound Sterling resulting in losses of $8.9 million, $6.0 million, $5.8 million, $5.1 million, $3.7 million, and $1.9 million, respectively, partially offset by the U.S. Dollar strengthening 9.7% against the Taiwan Dollar, resulting in a gain of $28.0 million. The remaining net currency loss of $7.9 million was related to the impacts of other currencies, each of which was individually immaterial.

Current wording

The $20.6 million currency loss recognized in fiscal 2024 was primarily due to the U.S. Dollar strengthening against the Euro, Polish Zloty, and Australian Dollar, partially offset by the U.S. Dollar strengthening against the Taiwan Dollar. During this period, the U.S. Dollar strengthened 5.5% against the Euro, 4.1% against the Polish Zloty, and 8.9% against the Australian Dollar, resulting in losses of $27.1 million, $11.3 million, and $8.7 million, respectively, partially offset by the U.S. Dollar strengthening 6.5% against the Taiwan Dollar, resulting in a gain of $36.4 million. The remaining net currency loss of $9.9 million was related to the impacts of other currencies, each of which was individually immaterial.

Previous wording

The Company recorded income tax benefit of $89.3 million for the fiscal year ended December 30, 2023, which included income tax benefit of $181.4 million recognized by the Company in the fourth quarter of 2023 related to the revaluation of Switzerland deferred tax assets and income tax benefit of $12.1 million recognized in the fourth quarter of 2023 related to Auto OEM manufacturing tax incentives in Poland. The Company recorded income tax expense of $91.4 million for the fiscal year ended December 31, 2022, which included income tax expense of $7.2 million recognized by the Company in the fourth quarter of 2022 related to the revaluation of Switzerland deferred tax assets.

Current wording

The Company recorded income tax expense of $284.0 million for the fiscal year ended December 28, 2024. The Company recorded income tax benefit of $89.3 million for the fiscal year ended December 30, 2023, which included income tax benefit of $181.4 million recognized by the Company in the fourth quarter of 2023 related to the revaluation of Switzerland deferred tax assets and income tax benefit of $12.1 million recognized in the fourth quarter of 2023 related to auto OEM manufacturing tax incentives in Poland.

Previous wording

Global taxing standards have evolved as a result of the Organization for Economic Co-Operation and Development (OECD) recommendations aimed at preventing perceived base erosion and profit shifting (BEPS) by multinational corporations. The OECD issued a statement regarding a two-pillar solution which includes within “Pillar Two” a global minimum tax. Numerous countries have signed onto the OECD statement including Switzerland, the U.S., and the U.K. In 2023, Switzerland’s Federal Council passed legislation which would implement a federal minimum tax in Switzerland of 15% in 2024. Additionally, the Swiss canton of Schaffhausen has also passed legislation that would increase the cantonal corporate tax rate beginning in 2024 and result in a combined federal and cantonal statutory tax rate of approximately 15% in Switzerland. As a result of the increases in the combined Switzerland tax rates and the impact of implementation of global minimum tax requirements, we expect our effective tax rate to be higher in the future, beginning with the 2024 tax year, when compared to fiscal years 2023, 2022, and 2021.

Current wording

Global taxing standards continue to evolve as a result of the Organization for Economic Co-Operation and Development (OECD) recommendations aimed at preventing perceived base erosion and profit shifting (BEPS) by multinational corporations, including the establishment of a global minimum tax rate of 15%. Many countries in which Garmin operates have implemented, or are in the process of implementing, global minimum tax legislation. Additionally, the Swiss canton of Schaffhausen passed legislation in 2023 that increased the cantonal corporate tax rate in 2024, resulting in a combined federal and cantonal statutory tax rate of approximately 15% in Switzerland. The increase in our effective tax rate in 2024 as compared to 2023 and 2022 is primarily due to the increase in the combined Switzerland statutory tax rate, while our effective tax rate in 2023 also benefited from the discrete impacts noted above.

Previous wording

Additionally, we initiated an intercompany transaction in 2020 which migrates ownership of certain intellectual property from Switzerland to the United States, which is the primary location of research, development, and executive management. At the end of this migration, a higher percentage of income will be recognized in the U.S.

Current wording

Partially to respond to changes to global tax standards, we initiated an intercompany transaction in 2020 which migrates ownership of certain intellectual property from Switzerland to the United States, which is the Company's primary location for research, development and executive management. At the end of this migration, a higher percentage of income will be recognized in the U.S. Due to the subjectivity inherent in transfer pricing associated with this intercompany transaction, we have obtained advanced pricing agreements with the relevant jurisdictions.

Previous wording

As a result of the various factors noted above net income increased 32% to $1,289.6 million from $973.6 million in the prior year.

Current wording

As a result of the various factors noted above net income increased 9% to $1,411.4 million from $1,289.6 million in the prior year.

Previous wording

As of December 30, 2023, we had approximately $3.1 billion of cash, cash equivalents and marketable securities. Management invests idle or surplus cash in accordance with the investment policy, which has been approved by the Company’s Board of Directors. The investment policy’s primary objectives are 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 fiscal 2023 and 2022 were 2.7% and 1.4%, 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 4 in the Notes to the Consolidated Financial Statements for additional information regarding marketable securities.

Current wording

As of December 28, 2024, we had approximately $3.7 billion of cash, cash equivalents and marketable securities. Management invests idle or surplus cash in accordance with the investment policy, which has been approved by the Company’s Board of Directors. The investment policy’s primary objectives are 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 fiscal 2024 and 2023 were 3.3% and 2.7%, 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 4 in the Notes to the Consolidated Financial Statements for additional information regarding marketable securities.

Previous wording

Cash provided by operating activities totaled $1,376.3 million for fiscal 2023, compared to $788.3 million for fiscal 2022. The increase was primarily due to a lower use of cash on purchases of inventory, partially offset by a decrease in collections of accounts receivable in fiscal 2023 when compared to fiscal 2022.

Current wording

Cash provided by operating activities totaled $1,432.5 million for fiscal 2024, compared to $1,376.3 million for fiscal 2023. The increase was primarily due to an increase in cash received from customers primarily driven by higher net sales, partially offset by increases in cash paid for cost of goods sold and operating expenses in fiscal 2024 when compared to fiscal 2023.

Previous wording

Cash used in investing activities totaled $333.0 million for fiscal 2023, compared to $145.1 million for fiscal 2022. The increase was primarily due to an increase in cash used for acquisitions and a decrease in net redemptions of marketable securities in fiscal 2023 compared to fiscal 2022. These were partially offset by a decrease in cash used for the purchase of property and equipment in fiscal 2023 compared to fiscal 2022.

Current wording

Cash used in investing activities totaled $393.3 million for fiscal 2024, compared to $333.0 million for fiscal 2023. The increase was primarily due to an increase in net purchases of marketable securities in fiscal 2024 compared to net redemptions of marketable securities in fiscal 2023. This was partially offset by a decrease in cash used for acquisitions in fiscal 2024 compared to fiscal 2023.

Previous wording

Cash used in financing activities totaled $636.5 million for fiscal 2023, compared to $840.6 million for fiscal 2022. This decrease was primarily due to lower purchases of treasury shares under the share repurchase plan and lower cash dividend payments in fiscal 2023 compared to fiscal 2022. Fiscal 2023 included four dividend payments compared to five dividend payments in fiscal 2022 due to the timing of dividend dates and our fiscal period end dates.

Current wording

Cash used in financing activities totaled $626.9 million for fiscal 2024, compared to $636.5 million for fiscal 2023. This decrease was primarily due to lower purchases of treasury shares under the share repurchase plan in fiscal 2024 compared to fiscal 2023. This was partially offset by an increase in dividends paid and an increase in purchases of treasury stock related to equity awards in fiscal 2024 compared to fiscal 2023.

Previous wording

The Company has lease arrangements for certain real estate properties, vehicles, and equipment. Leased properties are typically used for office space, distribution, and retail. As of December 30, 2023, the Company had fixed lease payment obligations of $163.3 million, with $34.7 million payable within 12 months.

Current wording

The Company has lease arrangements for certain real estate properties, vehicles, and equipment. Leased properties are typically used for office space, distribution, and retail. As of December 28, 2024, the Company had fixed lease payment obligations of $195.4 million, with $36.6 million payable within 12 months.

Previous wording

The Company obtains various raw materials and components for its products from a variety of third party suppliers. The Company’s inventory purchase obligations are primarily noncancelable. As of December 30, 2023, the Company had inventory purchase obligations of $666.0 million, with $512.0 million payable within 12 months.

Current wording

The Company obtains various raw materials and components for its products from a variety of third party suppliers. The Company’s inventory purchase obligations are primarily noncancelable. As of December 28, 2024, the Company had inventory purchase obligations of $891.9 million, with $731.9 million payable within 12 months.

Previous wording

The Company’s other purchase obligations primarily consist of noncancelable commitments for capital expenditures and other indirect purchases in connection with conducting our business. As of December 30, 2023, the Company had other purchase obligations of $361.3 million, with $209.8 million payable within 12 months.

Current wording

The Company’s other purchase obligations primarily consist of noncancelable commitments for indirect purchases in connection with conducting our business. As of December 28, 2024, the Company had other purchase obligations of $380.1 million, with $188.3 million payable within 12 months.

Previous wording

Net cash outlays for income taxes exceeded income tax expense in each of the 2023 and 2022 fiscal years, partially due to the provisions of the 2017 United States Tax Cuts and Jobs Act, which require us to capitalize certain research and development costs and amortize those costs on our U.S. tax returns over a period of five or fifteen years, depending on where the associated costs were incurred. Primarily as a result of these provisions, we expect net cash outlays for income taxes to again exceed income tax expense in fiscal 2024.

Current wording

Net cash outlays for income taxes exceeded income tax expense in each of the 2024, 2023, and 2022 fiscal years, partially due to the provisions of the 2017 United States Tax Cuts and Jobs Act, which require us to capitalize certain research and development costs and amortize those costs on our U.S. tax returns over a period of five or fifteen years, depending on where the associated costs were incurred. Primarily as a result of these provisions, we expect net cash outlays for income taxes to again exceed income tax expense in fiscal 2025. Cash paid for taxes is also expected to increase in 2025 as compared to 2024, primarily due to the payment of taxes in arrears related to the intercompany transaction to migrate ownership of certain intellectual property from Switzerland to the United States.