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

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

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

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

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

Overview

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

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

Critical Accounting Policies and Estimates

General

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

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

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

Accounting Terms and Characteristics

Net Sales

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

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

Cost of Sales/Gross Profit

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

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

Advertising Expense

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

Selling, General and Administrative Expenses

Our selling, general and administrative expenses consist primarily of:

	●	salaries for sales, marketing and product support personnel;

	●	salaries and related costs for executives and administrative personnel;

	●	marketing, and other brand building costs;

	●	accounting and legal costs;

	●	information systems and infrastructure costs;

	●	travel and related costs; and

	●	occupancy and other overhead costs.

Research and Development

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

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

Income Taxes

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

Results of Operations

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

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

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

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

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

Net Sales

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

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

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

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

Cost of Goods Sold

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

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

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

Gross Profit

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

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

Advertising Expenses

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

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

Selling, General and Administrative Expenses

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

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

Research and Development Expense

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

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

Operating Income

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

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

Other Income (Expense)

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

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

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

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

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

Income Tax Provision

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

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

Partially offset by:

	●	Income tax benefit of $2.7 million related to share based compensation in the fiscal year ended December 29, 2018, as compared to income tax expense of $19.9 million in the fiscal year ended December 30, 2017, and

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

Net Income

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

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

Net Sales

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

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

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

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

Cost of Goods Sold

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

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

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

Gross Profit

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

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

Advertising Expenses

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

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

Selling, General and Administrative Expenses

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

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

Research and Development Expense

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

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

Operating Income

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

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

Other Income (Expense)

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

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

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

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

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

Income Tax Provision

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

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

Partially offset by:

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

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

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

Net Income

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

Liquidity and Capital Resources

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

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

Operating Activities

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

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

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

Investing Activities

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

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

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

Financing Activities

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

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

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

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

Contractual Obligations and Commercial Commitments

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

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

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

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

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.