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

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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.

This section provides discussion and a year-to-year comparison for the fiscal years ended December 28, 2019 and December 29, 2018. Discussion regarding our results of operations for the fiscal year ended December 30, 2017 and a year-to-year comparison between the fiscal years ended December 29, 2018 and December 30, 2017 can be found in Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 29, 2018.

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 2019, 2018 and 2017 contained 52 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" 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 reportable segments, which serve the auto, aviation, fitness, marine, and outdoor markets. Our auto reportable segment is comprised of two operating segments; auto PND and auto OEM. Each operating segment offers products through our network of subsidiary distributors and independent dealers and distributors, as well as through OEMs. Each of the operating segments is 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

Our discussion and analysis of financial condition and results of operations are based upon the Company’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 management 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, we evaluate our 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. We base our estimates on historical experience and 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.

Goodwill

We allocate goodwill to reporting units in proportion to the expected benefit from each business combination. Each of the Company’s operating segments (auto PND, auto OEM, aviation, fitness, marine, and outdoor) represents a distinct reporting unit. Goodwill is tested for impairment at the reporting unit level on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. These events or circumstances could include a significant change in the operating performance indicators, competition, or expectations about future market or economic conditions.

Application of the goodwill impairment test requires significant judgment, including the identification of reporting units, assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units, and determination of the fair value of each reporting unit. The fair value of each reporting unit is estimated through the use of a discounted cash flow methodology. This analysis requires significant assumptions, including discount rate, projected future revenues, projected future operating margins, and terminal growth rates. The estimates used to calculate the fair value of a reporting unit change from year to year based on operating results, market conditions, and other factors. Changes in these estimates and assumptions could materially affect the determination of fair value and goodwill impairment for each reporting unit.

Unrecognized Income Tax Benefits

We recognize liabilities associated with uncertain income tax positions, including those related to transfer pricing, based on our estimate of whether, and the extent to which, additional taxes will be due. We recognize the tax benefits from an uncertain tax position only if payment of these amounts ultimately proves to be not required or it is more likely than not that the tax position will be sustained upon examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are measured based on the largest amount of benefit that is more likely than not to be realized upon ultimate settlement.

Assessing uncertain tax positions requires significant judgment, including the evaluation of unique facts and circumstances and the interpretation of laws and regulations, especially the assessment of pricing analyses that may produce various ranges of outcomes. Variations in the actual outcome of these future tax consequences could materially impact our consolidated financial statements.

Other

For further information on the Company’s critical accounting policies, 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
Income Taxes	Note 2 - Summary of Significant Accounting Policies & Note 6 - Income Taxes
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

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 (OEMs). 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 auto OEM and aviation products do not experience much seasonal variation, but are more influenced by the timing of auto program manufacturing, aircraft certifications, regulatory mandates, 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; our Wassenaar manufacturing plant in the Netherlands; 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 primarily 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;

	•	finance and legal costs;

	•	human resource 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 income tax rate due to the proportion of our income generated by entities in tax jurisdictions with low statutory rates.

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				52-Weeks Ended
		December 28, 2019				December 29, 2018				December 30, 2017
Net sales			100	%			100	%			100	%
Cost of goods sold			41	%			41	%			42	%
Gross profit			59	%			59	%			58	%
Operating expenses:
Advertising			4	%			5	%			5	%
Selling, general and administrative			14	%			14	%			14	%
Research and development			16	%			17	%			16	%
Total operating expenses			34	%			36	%			36	%
Operating income			25	%			23	%			22	%
Other income (expense), net			1	%			1	%			0	%
Income before income taxes			26	%			25	%			22	%
Provision (benefit) for income taxes			1	%			4	%			(0	)%
Net income			25	%			21	%			23	%

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, combined with other measures, 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.

As indicated in Note 8 to the Consolidated Financial Statements, the methodology used to allocate certain selling, general, and administrative expenses was refined at the beginning of the 2019 fiscal year. The amounts presented below for the 52-weeks ended December 29, 2018 and December 30, 2017 are presented here as they were originally reported. For comparative purposes, we estimate operating income for the 52-weeks ended December 29, 2018 would have been approximately $18 million less for the aviation segment, approximately $11 million more for the marine segment, approximately $7 million more for the outdoor segment, and not significantly different for the auto and fitness segments. We estimate operating income for the 52-weeks ended December 30, 2017 would have been approximately $14 million less for the aviation segment, approximately $8 million less for the fitness segment, approximately $8 million more for the marine segment, and approximately $7 million more for each of the outdoor and auto segments.

52-weeks ended December 28, 2019		Fitness				Outdoor				Aviation				Auto				Marine
Net sales		$	1,047,527			$	917,567			$	735,458			$	548,103			$	508,850
Cost of goods sold			514,923				319,124				192,073				291,508				205,901
Gross profit			532,604				598,443				543,385				256,595				302,949
Advertising expense			71,772				52,171				5,667				14,435				20,411
Selling, general and administrative expenses			159,793				124,650				65,663				78,110				90,352
Research and development expense			109,181				87,581				219,112				107,182				82,310
Total operating expenses			340,746				264,402				290,442				199,727				193,073
Operating income		$	191,858			$	334,041			$	252,943			$	56,868			$	109,876
52-weeks ended December 29, 2018		Fitness				Outdoor				Aviation				Auto				Marine
Net sales		$	858,329			$	809,883			$	603,459			$	634,213			$	441,560
Cost of goods sold			386,565				281,629				153,307				363,420				182,804
Gross profit			471,764				528,254				450,152				270,793				258,756
Advertising expense			64,707				46,041				7,207				19,155				18,284
Selling, general and administrative expenses			135,096				120,588				36,139				88,672				97,682
Research and development expense			90,216				71,115				202,060				124,968				79,446
Total operating expenses			290,019				237,744				245,406				232,795				195,412
Operating income		$	181,745			$	290,510			$	204,746			$	37,998			$	63,344
52-weeks ended December 30, 2017		Fitness				Outdoor				Aviation				Auto				Marine
Net sales		$	762,194			$	698,867			$	501,359			$	785,139			$	374,001
Cost of goods sold			339,558				250,457				129,754				442,441				161,409
Gross profit			422,636				448,410				371,605				342,698				212,592
Advertising expense			75,660				41,113				6,180				25,639				16,101
Selling, general and administrative expenses			119,537				98,914				27,766				107,995				83,765
Research and development expense			80,674				58,516				183,726				126,320				62,398
Total operating expenses			275,871				198,543				217,672				259,954				162,264
Operating income		$	146,765			$	249,867			$	153,933			$	82,744			$	50,328

Net Sales

Net Sales		52-Weeks Ended December 28, 2019				Year-over-Year Change				52-Weeks Ended December 29, 2018				Year-over-Year Change				52-Weeks Ended December 30, 2017
Fitness		$	1,047,527				22	%		$	858,329				13	%		$	762,194
Percentage of Total Net Sales			28	%							26	%							24	%
Outdoor			917,567				13	%			809,883				16	%			698,867
Percentage of Total Net Sales			24	%							24	%							22	%
Aviation			735,458				22	%			603,459				20	%			501,359
Percentage of Total Net Sales			20	%							18	%							16	%
Auto			548,103				(14	%)			634,213				(19	%)			785,139
Percentage of Total Net Sales			15	%							19	%							25	%
Marine			508,850				15	%			441,560				18	%			374,001
Percentage of Total Net Sales			13	%							13	%							12	%
Total		$	3,757,505				12	%		$	3,347,444				7	%		$	3,121,560

Net sales increased 12% in 2019 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 2019 at 28% compared to 26% in 2018.

Total unit sales increased 5% to 15.6 million units in 2019 from 14.9 million units in 2018.

Fitness, outdoor, aviation, and marine revenues increased 22%, 13%, 22%, and 15%, respectively when compared to the year-ago period. The fitness segment revenue increase was primarily driven by strong sales in wearables and sales from Tacx, a newly acquired group of subsidiaries that designs and manufactures indoor bike trainers. The outdoor segment revenue increase was driven by sales growth in multiple product categories, primarily led by adventure watches. Aviation segment revenue increases were driven by sales growth in both aftermarket and OEM categories. Marine segment revenue increases were driven by sales growth across multiple product categories, primarily chartplotters and SONAR products. Auto segment revenue decreased 14% from the year-ago period, due to the ongoing auto PND market contraction and lower auto OEM program sales.

Gross Profit

Gross Profit		52-Weeks Ended December 28, 2019				Year-over-Year Change				52-Weeks Ended December 29, 2018				Year-over-Year Change				52-Weeks Ended December 30, 2017
Fitness		$	532,604				13	%		$	471,764				12	%		$	422,636
Percentage of Segment Net Sales			51	%							55	%							55	%
Outdoor			598,443				13	%			528,254				18	%			448,410
Percentage of Segment Net Sales			65	%							65	%							64	%
Aviation			543,385				21	%			450,152				21	%			371,605
Percentage of Segment Net Sales			74	%							75	%							74	%
Auto			256,595				(5	%)			270,793				(21	%)			342,698
Percentage of Segment Net Sales			47	%							43	%							44	%
Marine			302,949				17	%			258,756				22	%			212,592
Percentage of Segment Net Sales			60	%							59	%							57	%
Total		$	2,233,976				13	%		$	1,979,719				10	%		$	1,797,941
Percentage of Total Net Sales			59	%							59	%							58	%

Gross profit dollars in fiscal year 2019 increased 13% while gross margin was slightly higher compared to fiscal year 2018. Gross margin increased 410 basis points in the auto segment when compared to the prior year, primarily attributable to lower license expense. Gross margin remained relatively flat within the outdoor, marine, and aviation segments. Gross margin decreased in the fitness segment primarily due to lower average selling prices and product mix.

Advertising Expenses

Advertising		52-Weeks Ended December 28, 2019				Year-over-Year Change				52-Weeks Ended December 29, 2018				Year-over-Year Change				52-Weeks Ended December 30, 2017
Fitness		$	71,772				11	%		$	64,707				(14	%)		$	75,660
Percentage of Segment Net Sales			7	%							8	%							10	%
Outdoor			52,171				13	%			46,041				12	%			41,113
Percentage of Segment Net Sales			6	%							6	%							6	%
Aviation			5,667				(21	%)			7,207				17	%			6,180
Percentage of Segment Net Sales			1	%							1	%							1	%
Auto			14,435				(25	%)			19,155				(25	%)			25,639
Percentage of Segment Net Sales			3	%							3	%							3	%
Marine			20,411				12	%			18,284				14	%			16,101
Percentage of Segment Net Sales			4	%							4	%							4	%
Total		$	164,456				6	%		$	155,394				(6	%)		$	164,693
Percentage of Total Net Sales			4	%							5	%							5	%

Advertising expense increased 6% in absolute dollars and was relatively flat as a percent of revenue in fiscal year 2019 compared to fiscal year 2018. The overall increase in absolute dollars was primarily attributable to increased cooperative advertising in the outdoor, fitness, and marine segments and increased media advertising in the outdoor and fitness segments. These increases were partially offset by decreased cooperative advertising expense in the auto and aviation segments. All segments were relatively flat as a percent of revenue compared to the prior year.

Selling, General and Administrative Expenses

Selling, General & Admin. Expenses		52-Weeks Ended December 28, 2019				Year-over-Year Change				52-Weeks Ended December 29, 2018				Year-over-Year Change				52-Weeks Ended December 30, 2017
Fitness		$	159,793				18	%		$	135,096				13	%		$	119,537
Percentage of Segment Net Sales			15	%							16	%							16	%
Outdoor			124,650				3	%			120,588				22	%			98,914
Percentage of Segment Net Sales			14	%							15	%							14	%
Aviation			65,663				82	%			36,139				30	%			27,766
Percentage of Segment Net Sales			9	%							6	%							6	%
Auto			78,110				(12	%)			88,672				(18	%)			107,995
Percentage of Segment Net Sales			14	%							14	%							14	%
Marine			90,352				(8	%)			97,682				17	%			83,765
Percentage of Segment Net Sales			18	%							22	%							22	%
Total		$	518,568				8	%		$	478,177				9	%		$	437,977
Percentage of Total Net Sales			14	%							14	%							14	%

Selling, general and administrative expense increased 8% in absolute dollars and was relatively flat as a percent of revenue when compared to the prior year. The absolute dollar increase was primarily attributable to personnel costs, legal related costs, and expenses from recent acquisitions.

As noted above and in Note 8 to the Consolidated Financial Statements, the Company refined its methodology to allocate certain selling, general and administrative expenses at the beginning of the 2019 fiscal year. The prior year amounts are presented here as originally reported. For comparative purposes, we estimate selling, general and administrative expenses for fiscal year 2018 would have been approximately $18 million more for the aviation segment, approximately $11 million less for the marine segment, approximately $7 million less for the outdoor segment, and not significantly different for the fitness and auto segments. We estimate the selling, general and administrative expense for fiscal 2017 would have been approximately $14 million more for the aviation segment, approximately $8 million more for the fitness segment, approximately $8 million less for the marine segment, and approximately $7 million less for each of the outdoor and auto segments.

In addition to the change in methodology of allocating certain selling, general and administrative expenses noted above, marine decreased in fiscal 2019, as a percent of revenue, from the previous year due to greater leverage of operating costs.

Research and Development Expense

Research & Development		52-Weeks Ended December 28, 2019				Year-over-Year Change				52-Weeks Ended December 29, 2018				Year-over-Year Change				52-Weeks Ended December 30, 2017
Fitness		$	109,181				21	%		$	90,216				12	%		$	80,674
Percentage of Segment Net Sales			10	%							11	%							11	%
Outdoor			87,581				23	%			71,115				22	%			58,516
Percentage of Segment Net Sales			10	%							9	%							8	%
Aviation			219,112				8	%			202,060				10	%			183,726
Percentage of Segment Net Sales			30	%							33	%							37	%
Auto			107,182				(14	%)			124,968				(1	%)			126,320
Percentage of Segment Net Sales			20	%							20	%							16	%
Marine			82,310				4	%			79,446				27	%			62,398
Percentage of Segment Net Sales			16	%							18	%							17	%
Total		$	605,366				7	%		$	567,805				11	%		$	511,634
Percentage of Total Net Sales			16	%							17	%							16	%

Research and development expense increased 7% 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 our wearable and aviation product offerings and expenses resulting from recent acquisitions, partially offset by the capitalization of certain contractually reimbursable preproduction design and development personnel costs within the auto segment. Our research and development spending is focused on product development, improving existing software capabilities, and exploring new categories.

Operating Income

Operating Income		52-Weeks Ended December 28, 2019				Year-over-Year Change				52-Weeks Ended December 29, 2018				Year-over-Year Change				52-Weeks Ended December 30, 2017
Fitness		$	191,858				6	%		$	181,745				24	%		$	146,765
Percentage of Segment Net Sales			18	%							21	%							19	%
Outdoor			334,041				15	%			290,510				16	%			249,867
Percentage of Segment Net Sales			36	%							36	%							36	%
Aviation			252,943				24	%			204,746				33	%			153,933
Percentage of Segment Net Sales			34	%							34	%							31	%
Auto			56,868				50	%			37,998				-54	%			82,744
Percentage of Segment Net Sales			10	%							6	%							11	%
Marine			109,876				73	%			63,344				26	%			50,328
Percentage of Segment Net Sales			22	%							14	%							13	%
Total		$	945,586				21	%		$	778,343				14	%		$	683,637
Percentage of Total Net Sales			25	%							23	%							22	%

Total operating income increased 21% in absolute dollars and increased 190 basis points as a percent of revenue when compared to fiscal year 2018. The growth in total operating income on an absolute dollar basis and as a percent of revenue was the result of revenue growth, slightly higher gross margin, and greater leverage of operating expenses, as discussed above.

Other Income (Expense)

Other Income (Expense)		52-Weeks Ended December 28, 2019				52-Weeks Ended December 29, 2018				52-Weeks Ended December 30, 2017
Interest income		$	52,817			$	47,147			$	36,925
Foreign currency (losses)			(16,799	)			(7,616	)			(22,579	)
Other income (expense)			5,618				5,373				(912	)
Total		$	41,636			$	44,904			$	13,434

The average returns on cash and investments, including interest and capital gain/loss returns during the 52-weeks ended December 28, 2019 and December 29, 2018 were 2.0% and 1.8%, 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 $16.8 million currency loss recognized in fiscal 2019 was primarily due to the U.S. Dollar strengthening against the Euro and weakening against the Taiwan Dollar, partially offset by the U.S. Dollar weakening against the British Pound Sterling. During fiscal 2019, the U.S. Dollar strengthened 2.3% against the Euro and weakened 1.5% against the Taiwan Dollar, resulting in losses of $9.3 million and $7.1 million, respectively, while the U.S. Dollar weakened 2.9% against the British Pound Sterling, resulting in a gain of $2.8 million. The remaining net currency loss of $3.2 million was related to the timing of transactions and impacts of other currencies, each of which was individually immaterial.

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 the timing of transactions and impacts of other currencies, each of which was individually immaterial.

Income Tax Provision

Income tax expense for the fiscal year ended December 28, 2019 was $34.7 million compared to income tax expense of $129.2 million for the fiscal year ended December 29, 2018, representing a net decrease of $94.5 million. Contributing to the decrease in income tax expense was an income tax benefit of $118.0 million associated with the revaluation and step-up of certain Switzerland tax assets as a result of the October 2019 enactment of Switzerland federal and Schaffhausen cantonal tax reform and related transitional measures. In connection with these transitional measures included in Switzerland tax reform, a reduced income tax rate will be utilized on certain Switzerland taxable income for up to five years.

In February 2020, the Company initiated a transaction between wholly-owned subsidiaries to migrate ownership of certain intellectual property from Switzerland to the United States, the primary location of research, development, and executive management. The migration, which includes a multi-year intercompany license of intellectual property, is expected to result in a favorable shift of income mix by jurisdiction and a reduction in expense related to uncertain tax positions. During the term of the license agreement, this transaction is expected to decrease the Company’s effective income tax rate as compared to the fiscal year 2019 effective income tax rate excluding the $118.0 million income tax benefit associated with the revaluation and step-up of certain Switzerland tax assets, as described above. The Company plans to pursue an Advance Pricing Agreement between relevant jurisdictions related to this transaction. At the end of the license agreement, a higher percentage of income will be recognized in the United States.

Net Income

As a result of the various factors noted above, income before taxes increased 20% to $987.2 million from $823.2 million in the prior year, while net income increased 37% to $952.5 million from $694.1 million in the prior year.

Liquidity and Capital Resources

As of December 28, 2019, we had approximately $2.6 billion of cash and cash equivalents and marketable securities. We primarily use cash flow from operations, and expect that future cash requirements may be used, to fund our capital expenditures, support our working capital requirements, pay dividends, and fund strategic acquisitions. We believe that our existing cash balances and cash flow from operations will be sufficient to meet our short- and long-term projected working capital needs, capital expenditures, and other cash requirements.

It is management’s goal to invest the on-hand cash in accordance with the investment policy, which has been approved by the Company’s Board of Directors. The investment policy’s primary purpose is to preserve capital, maintain an acceptable degree of liquidity, and maximize yield within the constraint of low credit risk. Garmin’s average interest income returns on cash and investments during fiscal 2019, 2018, and 2017 were approximately 2.0%, 1.9%, and 1.6%, 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 of the Notes to Consolidated Financial Statements for additional information regarding marketable securities.

Operating Activities

		52-Weeks Ended				52-Weeks Ended				52-Weeks Ended
		December 28, 2019				December 29, 2018				December 30, 2017
Net cash provided by operating activities		$	698,549			$	919,520			$	660,842

The $221.0 million decrease in cash provided by operating activities in fiscal year 2019 compared to fiscal year 2018 was primarily due to a decrease of cash provided by working capital of $303.1 million (which included a decrease of $130.7 million in net collections of accounts receivable associated primarily with strong fourth quarter sales, a net increase of $112.4 million in cash paid for inventory associated primarily with the Company’s strategy to increase days of supply to support our increasingly diversified product lines, and a net increase of $60.0 million in cash used in other activities primarily driven by payments associated with an amendment to a license agreement) and income taxes payable of $69.4 million. The decrease was partially offset by an increase in net income of $258.4 million, reduced by other non-cash adjustments to net income of $106.9 million, which included an income tax benefit of $118.0 million associated with the revaluation and step-up of certain Switzerland tax assets.

Investing Activities

		52-Weeks Ended				52-Weeks Ended				52-Weeks Ended
		December 28, 2019				December 29, 2018				December 30, 2017
Net cash used in investing activities		$	(450,746	)		$	(307,503	)		$	(194,383	)

The $143.2 million increase in cash used in investing activities in fiscal year 2019 compared to fiscal year 2018 was primarily due to increased net cash paid for acquisitions of $271.1 million, partially offset by a decrease in net purchases of marketable securities of $89.0 million and decreased cash payments for net purchases of property and equipment of $36.7 million.

Financing Activities

		52-Weeks Ended				52-Weeks Ended				52-Weeks Ended
		December 28, 2019				December 29, 2018				December 30, 2017
Net cash used in financing activities		$	(416,028	)		$	(286,161	)		$	(448,412	)

The $129.9 million increase in cash used in financing activities in fiscal year 2019 compared to fiscal year 2018 was primarily due to an increase in dividend payments of $121.1 million associated with the timing of dividend payments that resulted in one more dividend payment in 2019 compared to 2018.

Our declared dividend has increased from $0.51 per share for the twelve calendar quarters beginning in June 2016 to $0.57 per share for the four calendar quarters beginning June 2019.

Contractual Obligations and Commercial Commitments

As of December 28, 2019, 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		$	97,319			$	18,487			$	30,240			$	22,018			$	26,574

The Company is party to certain other commitments, which include purchases of raw materials, capital expenditures, advertising, and other indirect purchases in connection with conducting our business. The aggregate amount of purchase orders and other commitments open as of December 28, 2019 was approximately $586.3 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 generally 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 $101.3 million as of December 28, 2019, have been excluded from the contractual obligations table above. For further information related to unrecognized tax benefits, see Note 2 – Summary of Significant Accounting Policies, Income Taxes and Note 6 – Income Taxes to the Consolidated Financial Statements included in this Report.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.