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

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

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

Garmin’s fiscal year is a 52-53 week period ending on the last Saturday of the calendar year. Fiscal year 2017 contains 52 weeks compared to 53 weeks for 2016 and 52 weeks for 2015. Unless otherwise stated, all years and dates refer to the Company’s fiscal year and fiscal periods. Unless the context otherwise requires, references in this document to "we," "us," "our" and similar terms refer to Garmin Ltd. and its subsidiaries.

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

Overview

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

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

Critical Accounting Policies and Estimates

General

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

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

Trade Accounts Receivable	Note 2 – Summary of Significant Accounting Policies
Inventories	Note 2 – Summary of Significant Accounting Policies
Long-Lived Assets & Goodwill	Note 2 – Summary of Significant Accounting Policies
Revenue Recognition	Note 2 – Summary of Significant Accounting Policies
Product Warranty	Note 2 – Summary of Significant Accounting Policies
Sales Programs	Note 2 – Summary of Significant Accounting Policies
Recently Issued Accounting Pronouncements – Revenue from Contracts with Customers	Note 2 – Summary of Significant Accounting Policies
Marketable Securities	Note 2 – Summary of Significant Accounting Policies & Note 3 – Marketable Securities
Legal and Other Contingencies	Note 2 – Summary of Significant Accounting Policies & Note 4 – Commitments and Contingencies
Income Taxes	Note 2 – Summary of Significant Accounting Policies & Note 6 – Income Taxes
Stock-Based Compensation	Note 2 – Summary of Significant Accounting Policies & Note 9 – Stock Compensation Plans

Accounting Terms and Characteristics

Net Sales

Our net sales are primarily generated through sales to our retail partners, dealer and distributor network and to original equipment manufacturers. Refer to the Revenue Recognition discussion in Note 2 to the Consolidated Financial Statements. Our sales are largely of a consumer nature; therefore, backlog levels are not necessarily indicative of our future sales results. We aim to achieve a quick turnaround on orders we receive, and we typically ship most orders within 72 hours.

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

Cost of Sales/Gross Profit

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

Sales price variability has had and can be expected to have an effect on our gross profit. In the past, prices of our devices sold into the auto market have declined due to market pressures and introduction of new products sold at lower price points. In recent years, pricing has stabilized in auto allowing for relatively stable gross margins excluding the impact of deferred revenues and costs. The average selling prices of our aviation, outdoor, fitness, and marine products have historically been stable due to product mix and the introduction of more advanced products sold at higher prices. The effect of the sales price differences inherent within the mix of products sold could have a significant impact on our gross profit.

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Advertising Expense

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

Selling, General and Administrative Expenses

Our selling, general and administrative expenses consist primarily of:

	·	salaries for sales, marketing and product support personnel;

	·	salaries and related costs for executives and administrative personnel;

	·	marketing, and other brand building costs;

	·	accounting and legal costs;

	·	information systems and infrastructure costs;

	·	travel and related costs; and

	·	occupancy and other overhead costs.

Research and Development

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

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

Income Taxes

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

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Results of Operations

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

		52-weeks ended				53-weeks ended				52-weeks ended
		Dec. 30,				Dec. 31,				Dec. 26,
		2017				2016				2015
Net sales			100	%			100	%			100	%
Cost of goods sold			42	%			44	%			45	%
Gross profit			58	%			56	%			55	%
Operating expenses:
Advertising			5	%			6	%			6	%
Selling, general and administrative			14	%			14	%			14	%
Research and development			17	%			16	%			15	%
Total operating expenses			36	%			35	%			35	%
Operating income			22	%			21	%			19	%
Other income, net			0	%			0	%			1	%
Income before income taxes			22	%			21	%			20	%
Provision (benefit) for income taxes			(0	)%			4	%			4	%
Net income			23	%			17	%			16	%

In 2016, the Company moved action camera related revenue and expenses from the outdoor segment to the auto segment, allowing for alignment and synergies with other camera-based efforts occurring within the auto segment. The overall impact of the move was immaterial. However, action camera related operating results for the 52-weeks ended December 26, 2015 has been recast to conform to the 2017 and 2016 presentation.

The following table sets forth our results of operations through operating income for each of our five segments during the period shown. For each line item in the table the total of the segments’ amounts equals the amount in the consolidated statements of income data included in Item 6.

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52-weeks ended December 30, 2017		Outdoor				Fitness				Marine				Auto				Aviation
Net sales		$	698,867			$	762,194			$	374,001			$	750,583			$	501,359
Cost of goods sold			250,457				339,558				161,409				422,662				129,754
Gross profit			448,410				422,636				212,592				327,921				371,605
Advertising expense			41,113				75,660				16,101				25,639				6,180
Selling, general and administrative expenses			98,914				119,537				83,765				107,995				27,766
Research and development expense			58,516				80,674				62,398				126,320				183,726
Total operating expenses			198,543				275,871				162,264				259,954				217,672
Operating income		$	249,867			$	146,765			$	50,328			$	67,967			$	153,933

53-weeks ended December 31, 2016		Outdoor				Fitness				Marine				Auto				Aviation
Net sales		$	546,326			$	818,486			$	331,947			$	882,558			$	439,348
Cost of goods sold			205,822				381,281				148,238				493,811				109,943
Gross profit			340,504				437,205				183,709				388,747				329,405
Advertising expense			31,005				90,871				15,516				33,122				6,629
Selling, general and administrative expenses			77,016				118,753				60,061				127,618				27,110
Research and development expense			48,448				66,985				55,965				125,660				170,902
Total operating expenses			156,469				276,609				131,542				286,400				204,641
Operating income		$	184,035			$	160,596			$	52,167			$	102,347			$	124,764

52-weeks ended December 26, 2015		Outdoor				Fitness				Marine				Auto				Aviation
Net sales		$	411,184			$	661,599			$	286,778			$	1,062,091			$	398,618
Cost of goods sold			156,306				295,460				128,285				597,611				103,904
Gross profit			254,878				366,139				158,493				464,480				294,714
Advertising expense			24,655				79,737				16,106				40,710				5,958
Selling, general and administrative expenses			54,132				97,809				60,834				157,151				24,988
Research and development expense			37,021				54,019				52,942				130,550				152,511
Total operating expenses			115,808				231,565				129,883				328,411				183,457
Operating income		$	139,070			$	134,574			$	28,611			$	136,069			$	111,257

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

Net Sales

		52-weeks ended December 30, 2017								53-weeks ended December 31, 2016								Year over Year
		Net Sales				% of Revenues				Net Sales				% of Revenues				$ Change				% Change
Outdoor		$	698,867				23	%		$	546,326				18	%		$	152,541				28	%
Fitness			762,194				25	%			818,486				27	%			(56,292	)			-7	%
Marine			374,001				12	%			331,947				11	%			42,054				13	%
Auto			750,583				24	%			882,558				29	%			(131,975	)			-15	%
Aviation			501,359				16	%			439,348				15	%			62,011				14	%
Total		$	3,087,004				100	%		$	3,018,665				100	%		$	68,339				2	%

Net sales increased 2% in 2017 when compared to the year-ago period. Outdoor, marine, and aviation segments had an increase in revenue, while fitness and auto segments had a decrease in revenue. Fitness revenue represented the largest portion of our revenue mix at 25% in 2017, which was a slight decline from 27% in 2016. Auto revenue represented the largest portion of our revenue mix in 2016 at 29% and declined to 24% in 2017.

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

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Auto segment revenue decreased 15% from the year-ago period, primarily due to the ongoing PND market contraction. Fitness segment revenue decreased 7% from the year-ago period, primary driven by the general decline of the basic activity tracker market. Outdoor, marine, and aviation revenues increased 28%, 13%, and 14%, respectively when compared to the year-ago period. Growth in outdoor was driven by growth in our wearables and subscriptions categories. Our marine segment revenue increased primarily due to growth in chartplotters, fishfinders, and entertainment systems, and the newly acquired Navionics. Aviation revenues increased due to growth in both OEM and aftermarket sales.

Cost of Goods Sold

		52-weeks ended December 30, 2017								53-weeks ended December 31, 2016								Year over Year
		Cost of Goods				% of Revenues				Cost of Goods				% of Revenues				$ Change				% Change
Outdoor		$	250,457				36	%		$	205,822				38	%		$	44,635				22	%
Fitness			339,558				45	%			381,281				47	%			(41,723	)			-11	%
Marine			161,409				43	%			148,238				45	%			13,171				9	%
Auto			422,662				56	%			493,811				56	%			(71,149	)			-14	%
Aviation			129,754				26	%			109,943				25	%			19,811				18	%
Total		$	1,303,840				42	%		$	1,339,095				44	%		$	(35,255	)			-3	%

Cost of goods sold decreased 3% in absolute dollars for the 52-weeks ended December 30, 2017 when compared to the 53-weeks ended December 31, 2016.

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

Gross Profit

		52-weeks ended December 30, 2017								53-weeks ended December 31, 2016								Year over Year
		Gross Profit				% of Revenues				Gross Profit				% of Revenues				$ Change				% Change
Outdoor		$	448,410				64	%		$	340,504				62	%		$	107,906				32	%
Fitness			422,636				55	%			437,205				53	%			(14,569	)			-3	%
Marine			212,592				57	%			183,709				55	%			28,883				16	%
Auto			327,921				44	%			388,747				44	%			(60,826	)			-16	%
Aviation			371,605				74	%			329,405				75	%			42,200				13	%
Total		$	1,783,164				58	%		$	1,679,570				56	%		$	103,594				6	%

Gross profit dollars in the 52-weeks ended December 30, 2017 increased 6% while gross profit margin increased 210 basis points compared to the 53-weeks ended December 31, 2016. Growth in sales of higher margin segments contributed to the increase in gross profit dollars and gross margin percentage. Outdoor, fitness, and marine segment increases to gross profit margin were primarily due to product mix within those segments. Auto and aviation segment gross margin rates were relatively consistent between fiscal periods.

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Advertising Expenses

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

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

Selling, General and Administrative Expenses

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

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

Research and Development Expense

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

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

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Operating Income

		52-weeks ended December 30, 2017								53-weeks ended December 31, 2016								Year over Year
		Operating Income				% of Revenues				Operating Income				% of Revenues				$ Change				% Change
Outdoor		$	249,867				36	%		$	184,035				34	%		$	65,832				36	%
Fitness			146,765				19	%			160,596				20	%			(13,831	)			-9	%
Marine			50,328				13	%			52,167				16	%			(1,839	)			-4	%
Auto			67,967				9	%			102,347				12	%			(34,380	)			-34	%
Aviation			153,933				31	%			124,764				28	%			29,169				23	%
Total		$	668,860				22	%		$	623,909				21	%		$	44,951				7	%

As a result of the above, operating income increased 7% in absolute dollars and 100 basis points as a percent of revenue when compared to the 53-weeks ended December 31, 2016. The growth in operating income, both in absolute dollars and as a percent of revenue, was primarily due to an increase in revenue growth and increase in gross margin percentage, which was partially offset by increased operating expenses, as discussed above.

Other Income (Expense)

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

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

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

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

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

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Income Tax Provision

Our income tax benefit for the 52-weeks ended December 30, 2017 was $12.7 million compared to income tax expense of $118.9 million for the 53-weeks ended December 31, 2016, resulting in a net change of $131.6 million. Contributing to the decrease in tax expense was:

	·	Income tax benefit of $180.0 million related to the Company’s Switzerland corporate tax election in the 52-weeks ended December 30, 2017 with no comparable item in the 53-weeks ended December 31, 2016,

Partially offset by:

	·	Income tax expense of $19.9 million related to share based compensation in the 52-weeks ended December 30, 2017 in accordance with new accounting standard Topic 718, Compensation–Stock Compensation, and

	·	Increased income tax expense of $21.0 million related to the Company’s election to align certain Switzerland corporate tax positions in the 52-weeks ended December 30, 2017.

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

Net Income

As a result of the various factors noted above, net income increased 36% to $695.0 million for the 52-weeks ended December 30, 2017 compared to $510.8 million for the 53-weeks ended December 31, 2016.

Comparison of 53-Weeks Ended December 31, 2016 and 52-Weeks Ended December 26, 2015

Net Sales

		53-weeks ended December 31, 2016								52-weeks ended December 26, 2015								Year over Year
		Net Sales				% of Revenues				Net Sales				% of Revenues				$ Change				% Change
Outdoor		$	546,326				18	%		$	411,184				15	%		$	135,142				33	%
Fitness			818,486				27	%			661,599				23	%			156,887				24	%
Marine			331,947				11	%			286,778				10	%			45,169				16	%
Auto			882,558				29	%			1,062,091				38	%			(179,533	)			-17	%
Aviation			439,348				15	%			398,618				14	%			40,730				10	%
Total		$	3,018,665				100	%		$	2,820,270				100	%		$	198,395				7	%

Net sales increased 7% in 2016 when compared to the prior year period. All segments had an increase in revenue except for auto. Auto revenue remains the largest portion of our revenue mix at 29% in the 53-weeks ended December 31, 2016 compared to 38% in the 52-weeks ended December 26, 2015.

Total unit sales increased 4% to 16.8 million units in 2016 from 16.2 million units in 2015.

Auto segment revenue decreased 17% from the prior year period, primarily due to the ongoing PND market contraction. Outdoor, fitness, marine, and aviation revenues increased 33%, 24%, 16%, and 10%, respectively, when compared to the prior year period, primarily due to increases in sales volumes. Growth in outdoor was driven by wearables and the newly acquired DeLorme product lines. The increase in fitness was driven by wearables with Garmin ElevateTM wrist heart rate technology. Our marine segment increased due to growth in chartplotters, fishfinders, and entertainment systems. Aviation revenues increased due to growth in both OEM and aftermarket sales.

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Cost of Goods Sold

		53-weeks ended December 31, 2016								52-weeks ended December 26, 2015								Year over Year
		Cost of Goods				% of Revenues				Cost of Goods				% of Revenues				$ Change				% Change
Outdoor		$	205,822				38	%		$	156,306				38	%		$	49,516				32	%
Fitness			381,281				47	%			295,460				45	%			85,821				29	%
Marine			148,238				45	%			128,285				45	%			19,953				16	%
Auto			493,811				56	%			597,611				56	%			(103,800	)			-17	%
Aviation			109,943				25	%			103,904				26	%			6,039				6	%
Total		$	1,339,095				44	%		$	1,281,566				45	%		$	57,529				4	%

Cost of goods sold increased 4% in absolute dollars for the 53-weeks ended December 31, 2016 when compared to the 52-weeks ended December 26, 2015.

In the auto segment, the cost of goods decline was largely consistent with the segment revenue decline. In the outdoor and fitness segments, the increases of 32% and 29% in cost of goods sold, respectively, primarily reflect strong volume growth. In the marine and aviation segments, the increases of 16% and 6%, respectively, primarily reflect volume growth.

Gross Profit

		53-weeks ended December 31, 2016								52-weeks ended December 26, 2015								Year over Year
		Gross Profit				% of Revenues				Gross Profit				% of Revenues				$ Change				% Change
Outdoor		$	340,504				62	%		$	254,878				62	%		$	85,626				34	%
Fitness			437,205				53	%			366,139				55	%			71,066				19	%
Marine			183,709				55	%			158,493				55	%			25,216				16	%
Auto			388,747				44	%			464,480				44	%			(75,733	)			-16	%
Aviation			329,405				75	%			294,714				74	%			34,691				12	%
Total		$	1,679,570				56	%		$	1,538,704				55	%		$	140,866				9	%

Gross profit dollars in the 53-weeks ended December 31, 2016 increased 9% while gross profit margin increased 100 basis points compared to the 52-weeks ended December 26, 2015. Growth in sales of higher margin segments contributed to the increase in gross profit dollars and gross margin percentage. Fitness margin declined to 53% due to product mix. All other segment gross margin rates are relatively consistent between fiscal periods.

Advertising Expenses

		53-weeks ended December 31, 2016								52-weeks ended December 26, 2015
		Advertising								Advertising								Year over Year
		Expense				% of Revenues				Expense				% of Revenues				$ Change				% Change
Outdoor		$	31,005				6	%		$	24,655				6	%		$	6,350				26	%
Fitness			90,871				11	%			79,737				12	%			11,134				14	%
Marine			15,516				5	%			16,106				6	%			(590	)			-4	%
Auto			33,122				4	%			40,710				4	%			(7,588	)			-19	%
Aviation			6,629				2	%			5,958				1	%			671				11	%
Total		$	177,143				6	%		$	167,166				6	%		$	9,977				6	%

Advertising expense increased 6% in absolute dollars and was relatively flat as a percent of revenues in the 53-weeks ended December 31, 2016 compared to the 52-weeks ended December 26, 2015. The increase in absolute dollars is primarily attributable to outdoor and fitness, partially offset by auto.

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Selling, General and Administrative Expenses

		53-weeks ended December 31, 2016								52-weeks ended December 26, 2015
		Selling, General &								Selling, General &								Year over Year
		Admin. Expenses				% of Revenues				Admin. Expenses				% of Revenues				$ Change				% Change
Outdoor		$	77,016				14	%		$	54,132				13	%		$	22,884				42	%
Fitness			118,753				15	%			97,809				15	%			20,944				21	%
Marine			60,061				18	%			60,834				21	%			(773	)			-1	%
Auto			127,618				14	%			157,151				15	%			(29,533	)			-19	%
Aviation			27,110				6	%			24,988				6	%			2,122				8	%
Total		$	410,558				14	%		$	394,914				14	%		$	15,644				4	%

Selling, general and administrative expense increased 4% and was relatively flat as a percent of revenues in the 53-weeks ended December 31, 2016 compared to the 52-weeks ended December 26, 2015. The absolute dollar increase is primarily attributable to information technology costs and salaries and benefits. Variances by segment are primarily due to the allocation of certain selling, general and administrative expenses based on percentage of total revenues with the exception of the marine segment, as expenses decreased as a percentage of revenue due to prior year specific litigation matters.

Research and Development Expense

		53-weeks ended December 31, 2016								52-weeks ended December 26, 2015
		Research &								Research &								Year over Year
		Development				% of Revenues				Development				% of Revenues				$ Change				% Change
Outdoor		$	48,448				9	%		$	37,021				9	%		$	11,427				31	%
Fitness			66,985				8	%			54,019				8	%			12,966				24	%
Marine			55,965				17	%			52,942				18	%			3,023				6	%
Auto			125,660				14	%			130,550				12	%			(4,890	)			-4	%
Aviation			170,902				39	%			152,511				38	%			18,391				12	%
Total		$	467,960				16	%		$	427,043				15	%		$	40,917				10	%

Research and development expense increased 10% due to ongoing development activities for new products and additional engineering personnel throughout the 53-weeks ended December 31, 2016. In absolute dollars, research and development costs increased $40.9 million when compared with the 52-weeks ended December 26, 2015, and increased 40 basis points as a percent of revenue. Our research and development spending is focused on product development, improving existing software capabilities, and exploring new categories.

Operating Income

		53-weeks ended December 31, 2016								52-weeks ended December 26, 2015								Year over Year
		Operating Income				% of Revenues				Operating Income				% of Revenues				$ Change				% Change
Outdoor		$	184,035				34	%		$	139,070				34	%		$	44,965				32	%
Fitness			160,596				20	%			134,574				20	%			26,022				19	%
Marine			52,167				16	%			28,611				10	%			23,556				82	%
Auto			102,347				12	%			136,069				13	%			(33,722	)			-25	%
Aviation			124,764				28	%			111,257				28	%			13,507				12	%
Total		$	623,909				21	%		$	549,581				19	%		$	74,328				14	%

As a result of the above, operating income increased 14% in absolute dollars and 120 basis points as a percent of revenue when compared to the 52-weeks ended December 26, 2015. Revenue growth with a slight increase in gross margin percentage contributed to the growth, slightly offset by increased operating expenses, as discussed above, with the exception of the marine segment, as operating expenses decreased as a percentage of revenue due to prior year specific litigation matters.

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Other Income (Expense)

		53-weeks ended				52-weeks ended
		December 31, 2016				December 26, 2015
Interest income		$	33,406			$	29,653
Foreign currency gains (losses)			(31,651	)			(23,465	)
Other			4,006				11,418
Total		$	5,761			$	17,606

The average returns on cash and investments, including interest and capital gain/loss returns, during the 53-weeks ended December 31, 2016 and the 52-weeks ended December 26, 2015 were 1.5% and 1.2%, respectively. 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 $31.7 million currency loss in fiscal 2016 was primarily due to the weakening of the U.S. Dollar against the Taiwan Dollar and the strengthening of the U.S. Dollar against the Euro and British Pound Sterling. During fiscal 2016, the U.S. Dollar weakened 1.7% against the Taiwan Dollar, resulting in a loss of $9.2 million, while the U.S. Dollar strengthened 4.2% against the Euro and 16.8% against the British Pound Sterling, resulting in losses of $13.0 million and $5.1 million, respectively. The remaining net currency loss of $4.4 million was related to other currencies and timing of transactions.

The $23.5 million currency loss in fiscal 2015 was primarily due to the strengthening of the U.S. Dollar against the Euro and British Pound Sterling, partially offset by a gain associated with the strengthening of the U.S. Dollar against the Taiwan Dollar. During fiscal 2015, the U.S. Dollar strengthened 10.0% against the Euro and 4.6% against the British Pound Sterling, resulting in losses of $31.2 million and $2.1 million, respectively. This was largely offset by the U.S. Dollar strengthening 3.8% against the Taiwan Dollar, resulting in a gain of $19.5 million. The remaining net currency loss of $9.7 million was related to other currencies and timing of transactions.

During the 53-weeks ended December 31, 2016, Garmin recorded other income of $4.0 million compared to $11.4 million in the 52-weeks ended December 26, 2015. The decrease in fiscal 2016 relates primarily to a legal settlement received in fiscal 2015.

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Income Tax Provision

Our income tax expense increased by $7.9 million, to $118.9 million for the 53-weeks ended December 31, 2016, from $111.0 million for the 52-weeks ended December 26, 2015. Contributing to the increase was:

	·	Increased income before taxes in the 53-weeks ended December 31, 2016 compared to the 52-weeks ended December 26, 2015,

Partially offset by:

	·	A net release of uncertain tax position reserves due to expiration of certain statutes of limitations of $11.9 million for the 53-weeks ended December 31, 2016, as compared with $7.3 million for the 52-weeks ended December 26, 2015.

Net Income

As a result of the various factors noted above, net income increased 12% to $510.8 million for the 53-weeks ended December 31, 2016 compared to $456.2 million for the 52-weeks ended December 26, 2015.

Liquidity and Capital Resources

As of December 30, 2017, we had $2,313.2 million of cash and cash equivalents and marketable securities. We primarily use cash flow from operations, and expect that future cash requirements will be used, to fund our capital expenditures, support our working capital requirements, pay dividends, fund share repurchases, and fund strategic acquisitions. We believe that our existing cash balances and cash flow from operations will be sufficient to meet our long-term projected capital expenditures, working capital and other cash requirements.

It is management’s goal to invest the on-hand cash in accordance with the investment policy, which has been approved by the Board of Directors of each applicable Garmin entity holding the cash. The investment policy’s primary purpose is to preserve capital, maintain an acceptable degree of liquidity, and maximize yield within the constraint of low credit risk. Garmin’s average interest rate returns on cash and investments during fiscal 2017, 2016, and 2015 were approximately 1.6%, 1.5%, and 1.2%, respectively. The fair value of our securities varies from period to period due to changes in interest rates, in the performance of the underlying collateral and in the credit performance of the underlying issuer, among other factors. See Note 3 for additional information regarding marketable securities.

Operating Activities

		52-Weeks Ended				53-Weeks Ended				52-Weeks Ended
		December 30,				December 31,				December 26,
(In thousands)		2017				2016				2015
Net cash provided by operating activities		$	660,842			$	705,682			$	280,467

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

The $425.2 million increase in cash provided by operating activities in fiscal year 2016 compared to fiscal year 2015 was primarily due to an increase in cash provided by working capital of $223.5 million (which included decreases of $122.5 million in cash paid for inventory and $109.6 million in cash paid for prepaid royalties and other assets) and income taxes payable of $154.0 million, primarily attributable to cash taxes paid related to a 2015 intercompany restructuring. The increase was also impacted by an increase of net income of $54.6 million, reduced by other non-cash adjustments to net income of $6.9 million.

Investing Activities

		52-Weeks Ended				53-Weeks Ended				52-Weeks Ended
		December 30,				December 31,				December 26,
(In thousands)		2017				2016				2015
Net cash used in investing activities		$	(194,536	)		$	(121,537	)		$	(111,979	)

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The $73.0 million increase in cash used in investing activities in fiscal year 2017 compared to fiscal year 2016 was primarily due to increased cash payments for net purchases of property and equipment of $49.1 million and net cash paid for acquisitions of $12.5 million.

The $9.6 million increase in cash used in investing activities in fiscal year 2016 compared to fiscal year 2015 was primarily due to increased net cash paid for acquisitions of $39.3 million and net purchases of property and equipment of $17.6 million, partially offset by an increase of $49.0 million in net redemptions of marketable securities.

We have budgeted approximately $140 million to $150 million of capital expenditures during fiscal 2018 to include some facility expansion, along with normal ongoing capital expenditures and maintenance activities. Approximately half of the budgeted capital expenditures in fiscal 2018 are attributable to Olathe, KS facilities, including the expansion project described in “Item 2. Properties.”

Financing Activities

		52-Weeks Ended				53-Weeks Ended				52-Weeks Ended
		December 30,				December 31,				December 26,
(In thousands)		2017				2016				2015
Net cash used in financing activities		$	(448,412	)		$	(561,676	)		$	(500,092	)

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

The $61.6 million increase in cash used in financing activities in fiscal year 2016 compared to fiscal year 2015 was primarily due to increased dividend payments of $103.3 million associated with an additional payment made in the 53-week fiscal year 2016 and the year-over-year increase of our dividend rate, partially offset by a decrease of purchases of treasury stock of $38.2 million under our share repurchase authorization.

Our declared dividend has increased from $0.48 per share for the four calendar quarters beginning in June 2014 to $0.51 per share for the twelve calendar quarters beginning in June 2015.

Contractual Obligations and Commercial Commitments

As of December 30, 2017, operating leases comprise the substance of the Company’s commercial commitments with long-term scheduled payments, as summarized below:

		Payments due by period
Contractual Obligations		Total				Less than 1 year				1-3 years				3-5 years				More than 5 years
Operating Leases		$	82,210			$	17,572			$	25,777			$	17,255			$	21,606

The Company is party to certain other commitments, which include purchases of raw materials, advertising expenditures, and other indirect purchases in connection with conducting our business. The aggregate amount of purchase orders and other commitments open as of December 30, 2017 was approximately $313.4 million. We cannot determine the aggregate amount of such purchase orders that represent contractual obligations because purchase orders may represent authorizations to purchase rather than binding agreements. Our purchase orders are based on our current needs and are typically fulfilled within short periods of time.

We may be required to make significant cash outlays related to unrecognized tax benefits. However, due to the uncertainty of the timing of future cash flows associated with our unrecognized tax benefits, we are unable to make reasonably reliable estimates of the period of cash settlement, if any, with the respective taxing authorities. Accordingly, unrecognized tax benefits of $130.8 million as of December 30, 2017, have been excluded from the contractual obligations table above. For further information related to unrecognized tax benefits, see Note 2, “Income Taxes,” to the consolidated financial statements included in this Report.

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Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.