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 26, 2020 and December 28, 2019. Discussion regarding our results of operations for the fiscal year ended December 29, 2018 and a year-to-year comparison between the fiscal years ended December 28, 2019 and December 29, 2018 can be found in Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 28, 2019.

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 2020, 2019 and 2018 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. Garmin is organized in the six operating segments of auto OEM, aviation, consumer auto, fitness, marine, and outdoor. The Company’s Chief Executive Officer, who has been identified as the Chief Operating Decision Maker (CODM), allocates resources and assesses performance of each operating segment individually. The aviation, fitness, marine, and outdoor operating segments represent reportable segments. The auto OEM and consumer auto operating segments, which serve the auto market, do not meet the quantitative thresholds to separately qualify as reportable segments, and they are therefore reported together in an “all other” category captioned as auto. Auto, aviation, fitness, marine, and outdoor are collectively referred to as our reported segments.

The operating segments offer products through our network of subsidiary distributors and independent dealers and distributors, our own webshop, as well as through various auto, aviation, and marine OEMs. Each of the operating segments is managed separately. The consumer auto operating segment was previously referred to as our auto PND operating segment. We have revised the name of this operating segment to reflect the evolution of the product lines and focus of that part of our business. The name change did not impact the composition or operating results of the segment.

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

Impacts of COVID-19

The COVID-19 pandemic has created disruption and uncertainty in the global economy and has affected our business, suppliers, and customers. Our operating segments were not all impacted equally, as COVID-19 had an unfavorable impact on net sales and profitability of the auto and aviation segments during fiscal year 2020. However, the diversity of our business and product offerings helped mitigate the impacts to our consolidated net sales and operating income.

With pre-existing fundamentals such as trade credit insurance, direct online sales through our webshops, direct fulfillment arrangements with certain retailers, our strong cash and marketable securities position, market and product diversity, a vertically integrated business model, and ample inventory on hand, we were well-positioned to mitigate the initial impacts of COVID-19. While COVID-19 continues to evolve into a complicated and prolonged global pandemic, we have implemented further mitigation measures, such as initiating additional direct fulfillment arrangements with retailers, mitigating single source supplier dependencies, enhancing cleaning and sanitation within our facilities to maintain a healthy and safe environment for essential on-site functions, boosting functionality and security of technology for employees who are working from home, and fostering the safe reintegration of our on-site workforce. These mitigation efforts complement our top priorities of ensuring the health and safety of our employees and continuing to serve our customers. Additional benefits have been provided to many of our employees, including increased flexible work arrangements, remote work access, and flexible paid leave policies. We have also focused on mitigating impacts to operating income and liquidity by monitoring our expense structure and balance sheet, reducing and prioritizing certain discretionary operating expenses and capital expenditures, and slowing the number of new employees hired.

Sustained adverse impacts to us, our suppliers or our customers may affect the future valuation of certain assets and therefore may increase the likelihood of an impairment charge, write-off, write-down, reserve, or accelerated expense associated with such assets, including marketable securities, accounts receivable, inventories, prepaid expenses, property and equipment, tax assets, goodwill, indefinite and finite-lived intangible assets, capitalized preproduction design and development costs, and other assets.

Although we believe we have taken appropriate actions to help mitigate risks associated with COVID-19 as described above, the duration and magnitude of COVID-19 impacts to our business operations and financial results may be affected by a number of factors including uncertainty regarding the evolution of the pandemic, the imposition or relaxation of government restrictions on business and social gathering activities, voluntary behavior changes associated with public health guidance, the efficacy, distribution and uptake of vaccines, and those presented above in Item 1A. Risk Factors of this Annual Report.

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 OEM, aviation, consumer auto, 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, our own webshop, 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 from our retail, dealer, and distributor customers. Certain arrangements with OEM customers are entered into at the beginning of an aircraft or vehicle life cycle with the intent to fulfill customer purchasing requirements for the entire production life, although there are generally no firm volume commitments, and sales are therefore generated on an order-by-order basis. As a result, we do not believe backlog information is 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 factories to experience relatively low costs of manufacturing. In general, products manufactured in Taiwan have been our highest volume products. Our manufacturing labor costs historically have been lower in Taiwan and China than in 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 engineering personnel costs, costs of test equipment and components used in product and prototype development, and outside product development costs.

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

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 26, 2020				December 28, 2019				December 29, 2018
Net sales			100	%			100	%			100	%
Cost of goods sold			41	%			41	%			41	%
Gross profit			59	%			59	%			59	%
Operating expenses:
Advertising			4	%			4	%			5	%
Selling, general and administrative			14	%			14	%			14	%
Research and development			17	%			16	%			17	%
Total operating expenses			34	%			34	%			36	%
Operating income			25	%			25	%			23	%
Other income (expense), net			1	%			1	%			1	%
Income before income taxes			26	%			26	%			25	%
Provision (benefit) for income taxes			2	%			1	%			4	%
Net income			24	%			25	%			21	%

The table below sets forth our results of operations through operating income for each of our five reported segments and supplemental information for the consumer auto and auto OEM operating segments that management believes is useful. 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 below, the total of the reported 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 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 aviation, approximately $11 million more for marine, approximately $7 million more for outdoor, and not significantly different for auto and fitness.

																		Auto
52-Weeks Ended December 26, 2020		Fitness				Outdoor				Marine				Aviation				Total Auto				Consumer Auto				Auto OEM
Net sales		$	1,317,498			$	1,128,081			$	657,848			$	622,820			$	460,326			$	275,493			$	184,833
Cost of goods sold			619,959				388,304				273,398				169,812				253,764				135,629				118,135
Gross profit			697,539				739,777				384,450				453,008				206,562				139,864				66,698
Advertising expense			66,157				49,957				21,549				2,921				10,582				10,387				195
Selling, general and administrative expenses			190,109				143,714				94,376				76,504				65,542				40,094				25,448
Research and development expense			122,389				105,021				92,801				236,380				149,094				47,919				101,175
Total operating expenses			378,655				298,692				208,726				315,805				225,218				98,400				126,818
Operating income (loss)		$	318,884			$	441,085			$	175,724			$	137,203			$	(18,656	)		$	41,464			$	(60,120	)
52-Weeks Ended December 28, 2019		Fitness				Outdoor				Marine				Aviation				Total Auto				Consumer Auto				Auto OEM
Net sales		$	1,047,527			$	917,567			$	508,850			$	735,458			$	548,103			$	365,511			$	182,592
Cost of goods sold			514,923				319,124				205,901				192,073				291,508				193,293				98,215
Gross profit			532,604				598,443				302,949				543,385				256,595				172,218				84,377
Advertising expense			71,772				52,171				20,411				5,667				14,435				14,174				261
Selling, general and administrative expenses			159,793				124,650				90,352				65,663				78,110				53,444				24,666
Research and development expense			109,181				87,581				82,310				219,112				107,182				41,301				65,881
Total operating expenses			340,746				264,402				193,073				290,442				199,727				108,919				90,808
Operating income (loss)		$	191,858			$	334,041			$	109,876			$	252,943			$	56,868			$	63,299			$	(6,431	)
52-Weeks Ended December 29, 2018		Fitness				Outdoor				Marine				Aviation				Total Auto				Consumer Auto				Auto OEM
Net sales		$	858,329			$	809,883			$	441,560			$	603,459			$	634,213			$	425,684			$	208,529
Cost of goods sold			386,565				281,629				182,804				153,307				363,420				245,822				117,598
Gross profit			471,764				528,254				258,756				450,152				270,793				179,862				90,931
Advertising expense			64,707				46,041				18,284				7,207				19,155				18,803				352
Selling, general and administrative expenses			135,096				120,588				97,682				36,139				88,672				71,265				17,407
Research and development expense			90,216				71,115				79,446				202,060				124,968				46,653				78,315
Total operating expenses			290,019				237,744				195,412				245,406				232,795				136,721				96,074
Operating income (loss)		$	181,745			$	290,510			$	63,344			$	204,746			$	37,998			$	43,141			$	(5,143	)

Net Sales

Net Sales		52-Weeks Ended December 26, 2020				Year-over-Year Change				52-Weeks Ended December 28, 2019				Year-over-Year Change				52-Weeks Ended December 29, 2018
Fitness		$	1,317,498				26	%		$	1,047,527				22	%		$	858,329
Percentage of Total Net Sales			31	%							28	%							26	%
Outdoor			1,128,081				23	%			917,567				13	%			809,883
Percentage of Total Net Sales			27	%							24	%							24	%
Marine			657,848				29	%			508,850				15	%			441,560
Percentage of Total Net Sales			16	%							13	%							13	%
Aviation			622,820				(15	%)			735,458				22	%			603,459
Percentage of Total Net Sales			15	%							20	%							18	%
Auto			460,326				(16	%)			548,103				(14	%)			634,213
Percentage of Total Net Sales			11	%							15	%							19	%
Consumer Auto			275,493				(25	%)			365,511				(14	%)			425,684
Percentage of Total Net Sales			7	%							10	%							13	%
Auto OEM			184,833				1	%			182,592				(12	%)			208,529
Percentage of Total Net Sales			4	%							5	%							6	%
Total		$	4,186,573				11	%		$	3,757,505				12	%		$	3,347,444

Net sales increased 11% in 2020 when compared to the year-ago period. All operating segments had an increase in revenue except for aviation and consumer auto. Fitness revenue represented the largest portion of our revenue mix in 2020 at 31% compared to 28% in 2019.

Total unit sales decreased 1.3% to 15.4 million units in 2020 from 15.6 million units in 2019.

Fitness, outdoor, marine, and auto OEM revenues increased 26%, 23%, 29%, and 1%, respectively, when compared to the year-ago period. The fitness revenue increase was primarily driven by strong demand for advanced wearables and cycling products. The outdoor revenue increase was driven by sales growth across multiple product categories, primarily led by adventure watches. Marine revenue increases were driven by sales growth across all product categories, led primarily by chartplotters and SONAR products. The auto OEM revenue increase was driven by sales growth in new auto OEM programs. Aviation revenue decreased 15% from the year-ago period, due to fewer shipments to OEM customers and reduced contributions from ADS-B products. Consumer auto revenue decreased 25% from the year-ago period, primarily due to the ongoing personal navigation device market contraction.

Gross Profit

Gross Profit		52-Weeks Ended December 26, 2020				Year-over-Year Change				52-Weeks Ended December 28, 2019				Year-over-Year Change				52-Weeks Ended December 29, 2018
Fitness		$	697,539				31	%		$	532,604				13	%		$	471,764
Percentage of Segment Net Sales			53	%							51	%							55	%
Outdoor			739,777				24	%			598,443				13	%			528,254
Percentage of Segment Net Sales			66	%							65	%							65	%
Marine			384,450				27	%			302,949				17	%			258,756
Percentage of Segment Net Sales			58	%							60	%							59	%
Aviation			453,008				(17	%)			543,385				21	%			450,152
Percentage of Segment Net Sales			73	%							74	%							75	%
Auto			206,562				(19	%)			256,595				(5	%)			270,793
Percentage of Segment Net Sales			45	%							47	%							43	%
Consumer Auto			139,864				(19	%)			172,218				(4	%)			179,862
Percentage of Segment Net Sales			51	%							47	%							42	%
Auto OEM			66,698				(21	%)			84,377				(7	%)			90,931
Percentage of Segment Net Sales			36	%							46	%							44	%
Total		$	2,481,336				11	%		$	2,233,976				13	%		$	1,979,719
Percentage of Total Net Sales			59	%							59	%							59	%

Gross profit dollars in fiscal year 2020 increased 11%, primarily due to the increase in net sales compared to the year-ago period. Consolidated gross margin was relatively flat compared to fiscal year 2019. The fitness and consumer auto gross margin increases of 210 basis points and 365 basis points, respectively, were primarily attributable to product mix. Gross margin remained relatively flat within the outdoor segment. The marine and aviation gross margin decreases of 110 basis points and 115 basis points, respectively, were primarily attributable to product mix. The auto OEM gross margin decrease of 1,010 basis points was primarily attributable to product mix associated with growth in new auto OEM programs. This product mix and associated gross margin trend is generally expected to continue into 2021 and beyond.

Advertising Expenses

Advertising		52-Weeks Ended December 26, 2020				Year-over-Year Change				52-Weeks Ended December 28, 2019				Year-over-Year Change				52-Weeks Ended December 29, 2018
Fitness		$	66,157				(8	%)		$	71,772				11	%		$	64,707
Percentage of Segment Net Sales			5	%							7	%							8	%
Outdoor			49,957				(4	%)			52,171				13	%			46,041
Percentage of Segment Net Sales			4	%							6	%							6	%
Marine			21,549				6	%			20,411				12	%			18,284
Percentage of Segment Net Sales			3	%							4	%							4	%
Aviation			2,921				(48	%)			5,667				(21	%)			7,207
Percentage of Segment Net Sales			0	%							1	%							1	%
Auto			10,582				(27	%)			14,435				(25	%)			19,155
Percentage of Segment Net Sales			2	%							3	%							3	%
Consumer Auto			10,387				(27	%)			14,174				(25	%)			18,803
Percentage of Segment Net Sales			4	%							4	%							4	%
Auto OEM			195				(25	%)			261				(26	%)			352
Percentage of Segment Net Sales			0	%							0	%							0	%
Total		$	151,166				(8	%)		$	164,456				6	%		$	155,394
Percentage of Total Net Sales			4	%							4	%							5	%

Advertising expense decreased 8% in absolute dollars and decreased slightly as a percent of revenue in fiscal year 2020 compared to fiscal year 2019. The overall decrease in absolute dollars was primarily attributable to decreased media advertising in fitness and outdoor and decreased cooperative advertising in consumer auto. These decreases were partially offset by increased cooperative advertising expense in fitness, outdoor, and marine. Advertising expenses in all operating segments decreased slightly as a percent of revenue compared to the prior year.

Selling, General and Administrative Expenses

Selling, General & Admin. Expenses		52-Weeks Ended December 26, 2020				Year-over-Year Change				52-Weeks Ended December 28, 2019				Year-over-Year Change				52-Weeks Ended December 29, 2018
Fitness		$	190,109				19	%		$	159,793				18	%		$	135,096
Percentage of Segment Net Sales			14	%							15	%							16	%
Outdoor			143,714				15	%			124,650				3	%			120,588
Percentage of Segment Net Sales			13	%							14	%							15	%
Marine			94,376				4	%			90,352				(8	%)			97,682
Percentage of Segment Net Sales			14	%							18	%							22	%
Aviation			76,504				17	%			65,663				82	%			36,139
Percentage of Segment Net Sales			12	%							9	%							6	%
Auto			65,542				(16	%)			78,110				(12	%)			88,672
Percentage of Segment Net Sales			14	%							14	%							14	%
Consumer Auto			40,094				(25	%)			53,444				(25	%)			71,265
Percentage of Segment Net Sales			15	%							15	%							17	%
Auto OEM			25,448				3	%			24,666				42	%			17,407
Percentage of Segment Net Sales			14	%							14	%							8	%
Total		$	570,245				10	%		$	518,568				8	%		$	478,177
Percentage of Total Net Sales			14	%							14	%							14	%

Selling, general and administrative expense increased 10% 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 information technology costs and personnel related expenses.

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 aviation, approximately $11 million less for marine, approximately $7 million less for outdoor, and not significantly different for fitness and auto.

Research and Development Expense

Research & Development		52-Weeks Ended December 26, 2020				Year-over-Year Change				52-Weeks Ended December 28, 2019				Year-over-Year Change				52-Weeks Ended December 29, 2018
Fitness		$	122,389				12	%		$	109,181				21	%		$	90,216
Percentage of Segment Net Sales			9	%							10	%							11	%
Outdoor			105,021				20	%			87,581				23	%			71,115
Percentage of Segment Net Sales			9	%							10	%							9	%
Marine			92,801				13	%			82,310				4	%			79,446
Percentage of Segment Net Sales			14	%							16	%							18	%
Aviation			236,380				8	%			219,112				8	%			202,060
Percentage of Segment Net Sales			38	%							30	%							33	%
Auto			149,094				39	%			107,182				(14	%)			124,968
Percentage of Segment Net Sales			32	%							20	%							20	%
Consumer Auto			47,919				16	%			41,301				(11	%)			46,653
Percentage of Segment Net Sales			17	%							11	%							11	%
Auto OEM			101,175				54	%			65,881				(16	%)			78,315
Percentage of Segment Net Sales			55	%							36	%							38	%
Total		$	705,685				17	%		$	605,366				7	%		$	567,805
Percentage of Total Net Sales			17	%							16	%							17	%

Research and development expense increased 17% in absolute dollars when compared to the year-ago period and increased slightly as a percent of revenue. The absolute dollar increase was primarily due to engineering personnel costs across all of our operating segments and other expenses related to auto OEM programs. The auto OEM increase in absolute dollars and as a percent of revenue was primarily attributable to higher engineering personnel costs and other expenses related to investments in auto OEM programs and a lower proportion of such costs being contractually reimbursable in fiscal year 2020. This trend of increasing auto OEM research and development expense is expected to continue in 2021 as we expect higher total costs and the majority of costs will not be contractually reimbursable.

Operating Income

Operating Income		52-Weeks Ended December 26, 2020				Year-over-Year Change				52-Weeks Ended December 28, 2019				Year-over-Year Change				52-Weeks Ended December 29, 2018
Fitness		$	318,884				66	%		$	191,858				6	%		$	181,745
Percentage of Segment Net Sales			24	%							18	%							21	%
Outdoor			441,085				32	%			334,041				15	%			290,510
Percentage of Segment Net Sales			39	%							36	%							36	%
Marine			175,724				60	%			109,876				73	%			63,344
Percentage of Segment Net Sales			27	%							22	%							14	%
Aviation			137,203				(46	%)			252,943				24	%			204,746
Percentage of Segment Net Sales			22	%							34	%							34	%
Auto			(18,656	)			(133	%)			56,868				50	%			37,998
Percentage of Segment Net Sales			(4	%)							10	%							6	%
Consumer Auto			41,464				(34	%)			63,299				47	%			43,141
Percentage of Segment Net Sales			15	%							17	%							10	%
Auto OEM			(60,120	)			835	%			(6,431	)			25	%			(5,143	)
Percentage of Segment Net Sales			(33	%)							(4	%)							(2	%)
Total		$	1,054,240				11	%		$	945,586				21	%		$	778,343
Percentage of Total Net Sales			25	%							25	%							23	%

Total operating income increased 11% in absolute dollars and was relatively flat as a percent of revenue when compared to fiscal year 2019. The growth in total operating income on an absolute dollar basis was the result of revenue growth as discussed above. Operating income, in absolute dollars and as a percent of revenue, decreased in aviation primarily due to a decline in sales compared to the year-ago period. Auto OEM experienced an operating loss in fiscal year 2020, and we expect this trend of an operating loss to continue in 2021, primarily due to a lower gross margin and increased expense associated with certain programs, as described above.

Other Income (Expense)

Other Income (Expense)		52-Weeks Ended December 26, 2020				52-Weeks Ended December 28, 2019				52-Weeks Ended December 29, 2018
Interest income		$	37,002			$	52,817			$	47,147
Foreign currency (losses)			2,825				(16,799	)			(7,616	)
Other income			9,343				5,618				5,373
Total		$	49,170			$	41,636			$	44,904

The average returns on cash and investments, including interest and capital gain/loss returns during the 52-weeks ended December 26, 2020 and December 28, 2019, were 1.4% and 2.0%, respectively. Interest income decreased primarily due to lower yields on fixed-income securities.

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

The $2.8 million currency gain recognized in fiscal 2020 was primarily due to the U.S. Dollar weakening against the Euro, Australian Dollar, Chinese Yuan, and British Pound Sterling, partially offset by the U.S. Dollar weakening against the Taiwan Dollar. During fiscal 2020, the U.S. Dollar weakened 9.2% against the Euro, 9.4% against the Australian Dollar, 7.2% against the Chinese Yuan, and 3.6% against the British Pound Sterling, resulting in gains of $21.1 million, $6.5 million, $2.9 million, and $2.6 million, respectively, while the U.S. Dollar weakened 7.1% against the Taiwan Dollar, resulting in a loss of $32.2 million. The remaining net currency gain of $1.9 million is related to the timing of transactions and impacts of other currencies, each of which was individually immaterial.

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, 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 is 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 26, 2020 was $111.1 million compared to income tax expense of $34.7 million for the fiscal year ended December 28, 2019, representing a net increase of $76.4 million. Contributing to the year-over-year increase in income tax expense in fiscal year 2020 was an income tax benefit of $118.0 million recognized in fiscal year 2019 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. A revaluation of these assets performed in the fourth quarter of 2020 resulted in an $11.0 million income tax expense in fiscal year 2020. 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. The Company also recognized a $14.3 million income tax benefit in fiscal 2020 due to the release of uncertain tax position reserves associated with a 2014 intercompany restructuring.

Excluding the aforementioned $11.0 million income tax expense and $14.3 million income tax benefit in fiscal 2020, and the $118.0 million tax benefit in fiscal 2019, income tax expense for fiscal years 2020 and 2019 was $114.4 million and $152.7 million, respectively. In this comparison, income tax expense for fiscal year 2020 was lower primarily due to a transaction initiated by the Company in February 2020 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, has resulted 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 continue to result in a lower effective income tax rate as compared to the fiscal year 2019 effective income tax rate, excluding the $118.0 million income tax benefit in 2019 described above. The Company is pursuing 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 net income increased 4% to $992.3 million from $952.5 million in the prior year.

Liquidity and Capital Resources

As of December 26, 2020, we had approximately $3.0 billion of cash, 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 rate returns on cash and investments during fiscal 2020, 2019, and 2018 were approximately 1.4%, 2.0% and 1.9%, respectively. The fair value of our securities varies from period to period due to changes in interest rates, in the performance of the underlying collateral, and in the credit performance of the underlying issuer, among other factors. See Note 8 for additional information regarding marketable securities.

Operating Activities

		52-Weeks Ended				52-Weeks Ended				52-Weeks Ended
		December 26, 2020				December 28, 2019				December 29, 2018
Net cash provided by operating activities		$	1,135,267			$	698,549			$	919,520

The $436.7 million increase in cash provided by operating activities in fiscal year 2020 compared to fiscal year 2019 was due to a decrease in cash used in working capital of $294.3 million (which included an increase of $14.5 million in net receipts of accounts receivable, a decrease of $198.9 million in cash paid for inventory, a decrease of $13.6 million net cash used for income taxes, and a decrease of $92.0 million net cash used in other activities primarily driven by prior year payments associated with an amendment to a license agreement, partially offset by an increase of $24.7 million net cash used in accounts payable). Additional changes were due to the year-over-year increase in net income of $39.8 million and an increase in other non-cash adjustments to net income of $102.6 million primarily driven by a prior year 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 26, 2020				December 28, 2019				December 29, 2018
Net cash used in investing activities		$	(260,524	)		$	(450,746	)		$	(307,503	)

The $190.2 million decrease in cash used in investing activities in fiscal year 2020 compared to fiscal year 2019 was primarily due to a decrease in cash payments for acquisitions of $151.6 million, an increase in net redemptions of marketable securities of $104.2 million, and partially offset by increased net purchases of property and equipment of $65.9 million.

Financing Activities

		52-Weeks Ended				52-Weeks Ended				52-Weeks Ended
		December 26, 2020				December 28, 2019				December 29, 2018
Net cash used in financing activities		$	(461,760	)		$	(416,028	)		$	(286,161	)

The $45.7 million increase in cash used in financing activities in fiscal year 2020 compared to fiscal year 2019 was primarily due to an increase in dividend payments of $33.4 million.

Our declared dividend has increased from $0.53 per share for the four calendar quarters beginning in June 2018 to $0.57 per share for the four calendar quarters beginning in June 2019, and to $0.61 per share for the four calendar quarters beginning in June 2020.

Contractual Obligations and Commercial Commitments

As of December 26, 2020, 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		$	107,859			$	22,900			$	36,965			$	24,965			$	23,029

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 26, 2020 was approximately $880.0 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 $85.0 million as of December 26, 2020, 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.