Item 8. Financial Statements and Supplementary Data

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Item 8. Financial Statements and Supplementary Data

CONSOLIDATED FINANCIAL STATEMENTS

Garmin Ltd. and Subsidiaries

Years Ended December 26, 2020, December 28, 2019, and December 29, 2018

Contents


Report of Ernst & Young LLP, Independent Registered Public Accounting Firm	48
Consolidated Balance Sheets at December 26, 2020 and December 28, 2019	51
Consolidated Statements of Income for the Years Ended December 26, 2020, December 28, 2019, and December 29, 2018	52
Consolidated Statements of Comprehensive Income for the Years Ended December 26, 2020, December 28, 2019, and December 29, 2018	53
Consolidated Statements of Stockholders’ Equity for the Years Ended December 26, 2020, December 28, 2019, and December 29, 2018	54
Consolidated Statements of Cash Flows for the Years Ended December 26, 2020, December 28, 2019, and December 29, 2018	55
Notes to Consolidated Financial Statements	57

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Garmin Ltd. and Subsidiaries

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Garmin Ltd. and Subsidiaries (the Company) as of December 26, 2020 and December 28, 2019, the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 26, 2020, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 26, 2020 and December 28, 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 26, 2020, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 26, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 17, 2021, expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Valuation of Goodwill


Description of the Matter	The Company assigns goodwill acquired in business combinations to its reporting units as of each acquisition date. At December 26, 2020, the Company’s goodwill balance related to the consumer auto reporting unit was approximately $80 million. As discussed in Note 2 of the consolidated financial statements, goodwill is tested for impairment at least annually at the reporting unit level. The consumer auto market has declined in recent years as competing technologies have emerged and market saturation has occurred. This has resulted in periods of lower revenues and profits for the Company’s consumer auto reporting unit. Considering these qualitative factors, management performed a quantitative impairment test of the consumer auto reporting unit in the fourth quarter of 2020. Considering the uncertainty of future operating results and/or market conditions deteriorating faster or more drastically than the forecasts utilized in management’s estimation of fair value, the Company disclosed some or all of the approximately $80 million of goodwill associated with the consumer auto reporting unit is at risk of future impairment. Auditing management’s annual goodwill impairment test for the consumer auto reporting unit was complex and highly judgmental due to the significant estimation required in determining the fair value of the reporting unit. In particular, the fair value estimate was sensitive to significant assumptions such as the discount rate, projected future revenues, projected future operating margins, and terminal growth rates which are affected by expectations about future market or economic conditions.

Description of the Matter

The Company assigns goodwill acquired in business combinations to its reporting units as of each acquisition date. At December 26, 2020, the Company’s goodwill balance related to the consumer auto reporting unit was approximately $80 million. As discussed in Note 2 of the consolidated financial statements, goodwill is tested for impairment at least annually at the reporting unit level. The consumer auto market has declined in recent years as competing technologies have emerged and market saturation has occurred. This has resulted in periods of lower revenues and profits for the Company’s consumer auto reporting unit. Considering these qualitative factors, management performed a quantitative impairment test of the consumer auto reporting unit in the fourth quarter of 2020. Considering the uncertainty of future operating results and/or market conditions deteriorating faster or more drastically than the forecasts utilized in management’s estimation of fair value, the Company disclosed some or all of the approximately $80 million of goodwill associated with the consumer auto reporting unit is at risk of future impairment. Auditing management’s annual goodwill impairment test for the consumer auto reporting unit was complex and highly judgmental due to the significant estimation required in determining the fair value of the reporting unit. In particular, the fair value estimate was sensitive to significant assumptions such as the discount rate, projected future revenues, projected future operating margins, and terminal growth rates which are affected by expectations about future market or economic conditions.


How We Addressed the Matter in Our Audit	We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s consumer auto goodwill impairment review process. For example, we tested controls over management's review of the significant assumptions (e.g., discount rate, projected revenue growth rates, projected operating margins, terminal growth rates) used to develop the prospective financial information (PFI) for the quantitative analysis. We also tested management's controls to validate that the data used in the valuation was complete and accurate. To test the estimated fair value of the Company’s consumer auto reporting unit, we performed audit procedures that included, among others, assessing the methodology and testing the significant assumptions discussed above and the underlying data used by the Company in its analysis. We included valuation specialists on our team to review the Company’s model, method, and the more sensitive assumptions such as the discount rate and terminal growth assumptions. We compared the significant assumptions used by management to current industry and economic trends, changes to the Company’s business model, forecasts used in the Company’s annual operating plans and other relevant factors. We assessed the historical accuracy of management’s forecast estimates and performed sensitivity analyses of significant assumptions to evaluate the changes in the fair value of the consumer auto reporting unit that would result from changes in the assumptions. We reconciled the fair value of the reporting unit to its carrying value, testing the Company’s determination of the assets and liabilities used within the reporting unit that are the basis for the carrying value. In addition, we tested management’s reconciliation of the fair value of the reporting units to the market capitalization of the Company.

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s consumer auto goodwill impairment review process. For example, we tested controls over management's review of the significant assumptions (e.g., discount rate, projected revenue growth rates, projected operating margins, terminal growth rates) used to develop the prospective financial information (PFI) for the quantitative analysis. We also tested management's controls to validate that the data used in the valuation was complete and accurate. To test the estimated fair value of the Company’s consumer auto reporting unit, we performed audit procedures that included, among others, assessing the methodology and testing the significant assumptions discussed above and the underlying data used by the Company in its analysis. We included valuation specialists on our team to review the Company’s model, method, and the more sensitive assumptions such as the discount rate and terminal growth assumptions. We compared the significant assumptions used by management to current industry and economic trends, changes to the Company’s business model, forecasts used in the Company’s annual operating plans and other relevant factors. We assessed the historical accuracy of management’s forecast estimates and performed sensitivity analyses of significant assumptions to evaluate the changes in the fair value of the consumer auto reporting unit that would result from changes in the assumptions. We reconciled the fair value of the reporting unit to its carrying value, testing the Company’s determination of the assets and liabilities used within the reporting unit that are the basis for the carrying value. In addition, we tested management’s reconciliation of the fair value of the reporting units to the market capitalization of the Company.

Measurement of Reserve for Unrecognized Income Tax Benefits


Description of the Matter	The Company accounts for uncertainty in income taxes in accordance with the FASB ASC 740 topic, Income Taxes. The Company operates in a multinational tax environment and is subject to tax laws, regulations and guidelines for intercompany transactions that have transfer pricing subjectivity. The Company uses significant judgment to evaluate uncertain tax positions and determine whether the threshold for recognition has been met and to measure the largest amount of benefit that is more likely than not to be realized upon ultimate settlement. As discussed in Note 6 to the consolidated financial statements, the Company’s balance of gross unrecognized income tax benefits was $85 million at December 26, 2020, primarily related to transfer pricing positions. Auditing management’s assessment and measurement of material tax positions is complex and involved especially subjective and complex judgements. The assessment process involves both significant judgment to evaluate each position against the recognition threshold and estimation because the pricing of the intercompany transactions is based on pricing analyses that may produce a number of different outcomes or ranges of outcomes (e.g., the price that would be charged in an arm’s-length transaction). Each transfer pricing tax position carries unique facts and circumstances that must be evaluated, and ultimate resolution will be dependent on uncontrollable factors, such as the interpretation of laws and regulations; new case law; the willingness of the income tax authority to settle the issue, including the timing thereof; and other factors.

Description of the Matter

The Company accounts for uncertainty in income taxes in accordance with the FASB ASC 740 topic, Income Taxes. The Company operates in a multinational tax environment and is subject to tax laws, regulations and guidelines for intercompany transactions that have transfer pricing subjectivity. The Company uses significant judgment to evaluate uncertain tax positions and determine whether the threshold for recognition has been met and to measure the largest amount of benefit that is more likely than not to be realized upon ultimate settlement. As discussed in Note 6 to the consolidated financial statements, the Company’s balance of gross unrecognized income tax benefits was $85 million at December 26, 2020, primarily related to transfer pricing positions. Auditing management’s assessment and measurement of material tax positions is complex and involved especially subjective and complex judgements. The assessment process involves both significant judgment to evaluate each position against the recognition threshold and estimation because the pricing of the intercompany transactions is based on pricing analyses that may produce a number of different outcomes or ranges of outcomes (e.g., the price that would be charged in an arm’s-length transaction). Each transfer pricing tax position carries unique facts and circumstances that must be evaluated, and ultimate resolution will be dependent on uncontrollable factors, such as the interpretation of laws and regulations; new case law; the willingness of the income tax authority to settle the issue, including the timing thereof; and other factors.


How We Addressed the Matter in Our Audit	We obtained an understanding, evaluated the design and tested the operating effectiveness of controls that address the risks of material misstatement relating to the identification, assessment, measurement and valuation of uncertain tax positions related to transfer pricing from intercompany transactions. For example, we tested controls over management’s review of intercompany transfer pricing positions against the measurement criteria, review of inputs and calculations of these uncertain tax positions, which included management’s evaluation of the ranges of outcomes and pricing conclusions reached within the transfer pricing studies. Our audit procedures included, among others, involving our tax professionals to test the Company’s assessment and measurement of tax positions related to transfer pricing used in intercompany transactions to assess the appropriateness of the ranges of outcomes utilized and the pricing conclusions reached within the transfer pricing studies conducted by the Company. For example, we compared the transfer pricing methodology utilized by management to alternative methodologies and industry benchmarks. We also verified our understanding of the relevant facts by reading the Company’s correspondence with the relevant tax authorities and any third-party advice obtained by the Company. In addition, we used our knowledge of international and local income tax laws, as well as historical settlement activity from income tax authorities, to evaluate the appropriateness of the Company’s measurement of uncertain tax positions related to transfer pricing used in these intercompany transactions.

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design and tested the operating effectiveness of controls that address the risks of material misstatement relating to the identification, assessment, measurement and valuation of uncertain tax positions related to transfer pricing from intercompany transactions. For example, we tested controls over management’s review of intercompany transfer pricing positions against the measurement criteria, review of inputs and calculations of these uncertain tax positions, which included management’s evaluation of the ranges of outcomes and pricing conclusions reached within the transfer pricing studies. Our audit procedures included, among others, involving our tax professionals to test the Company’s assessment and measurement of tax positions related to transfer pricing used in intercompany transactions to assess the appropriateness of the ranges of outcomes utilized and the pricing conclusions reached within the transfer pricing studies conducted by the Company. For example, we compared the transfer pricing methodology utilized by management to alternative methodologies and industry benchmarks. We also verified our understanding of the relevant facts by reading the Company’s correspondence with the relevant tax authorities and any third-party advice obtained by the Company. In addition, we used our knowledge of international and local income tax laws, as well as historical settlement activity from income tax authorities, to evaluate the appropriateness of the Company’s measurement of uncertain tax positions related to transfer pricing used in these intercompany transactions.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 1990.

Kansas City, Missouri

February 17, 2021

Garmin Ltd. and Subsidiaries
Consolidated Balance Sheets
(In thousands, except per share information)

	December 26, 2020			December 28, 2019
Assets
Current assets:
Cash and cash equivalents	$	1,458,442		$	1,027,567
Marketable securities (Note 3)		387,642			376,463
Accounts receivable, less allowance for doubtful accounts of $11,086 in 2020 and $6,754 in 2019		849,469			706,763
Inventories		762,084			752,908
Deferred costs		20,145			25,105
Prepaid expenses and other current assets		191,569			169,044
Total current assets		3,669,351			3,057,850

Property and equipment, net (Note 2)		855,539			728,921
Operating lease right-of-use assets (Note 14)		94,626			63,589
Restricted cash (Note 4)		306			71
Marketable securities (Note 3)		1,131,175			1,205,475
Deferred income taxes (Note 6)		245,455			268,518
Noncurrent deferred costs		16,510			23,493
Intangible assets, net		828,566			659,629
Other assets		189,845			159,253
Total assets	$	7,031,373		$	6,166,799

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	258,885		$	240,831
Salaries and benefits payable		181,937			128,426
Accrued warranty costs		42,643			39,758
Accrued sales program costs		109,891			112,578
Deferred revenue		86,865			94,562
Accrued advertising expense		31,950			35,142
Other accrued expenses		149,817			110,461
Income taxes payable		68,585			56,913
Dividend payable		233,644			217,262
Total current liabilities		1,164,217			1,035,933

Deferred income taxes (Note 6)		116,844			114,754
Noncurrent income taxes		92,810			105,771
Noncurrent deferred revenue		49,934			67,329
Noncurrent operating lease liabilities		75,958			49,238
Other liabilities		15,494			278

Stockholders’ equity:
Shares, CHF 0.10 par value, 198,077 shares authorized and issued, 191,571 shares outstanding at December 26, 2020; and 190,686 shares outstanding at December 28, 2019; (Notes 9, 10, and 11):		17,979			17,979
Additional paid-in capital		1,880,354			1,835,622
Treasury stock		(320,016	)		(345,040	)
Retained earnings		3,754,372			3,229,061
Accumulated other comprehensive income		183,427			55,874
Total stockholders’ equity		5,516,116			4,793,496
Total liabilities and stockholders’ equity	$	7,031,373		$	6,166,799

See accompanying notes.

Garmin Ltd. and Subsidiaries
Consolidated Statements of Income
(In thousands, except per share information)

	Fiscal Year Ended
	December 26, 2020		December 28, 2019			December 29, 2018
Net sales	$	4,186,573	$	3,757,505		$	3,347,444
Cost of goods sold		1,705,237		1,523,529			1,367,725
Gross profit		2,481,336		2,233,976			1,979,719

Advertising expense		151,166		164,456			155,394
Selling, general and administrative expenses		570,245		518,568			478,177
Research and development expense		705,685		605,366			567,805
		1,427,096		1,288,390			1,201,376
Operating income		1,054,240		945,586			778,343
Other income (expense):
Interest income		37,002		52,817			47,147
Foreign currency gains (losses)		2,825		(16,799	)		(7,616	)
Other income		9,343		5,618			5,373
		49,170		41,636			44,904
Income before income taxes		1,103,410		987,222			823,247

Income tax provision (benefit): (Note 6)
Current		104,471		123,073			93,424
Deferred		6,615		(88,337	)		35,743
		111,086		34,736			129,167
Net income	$	992,324	$	952,486		$	694,080

Basic net income per share (Note 10)	$	5.19	$	5.01		$	3.68
Diluted net income per share (Note 10)	$	5.17	$	4.99		$	3.66

See accompanying notes.

Garmin Ltd. and Subsidiaries
Consolidated Statements of Comprehensive Income
(In thousands)

	Fiscal Year Ended
	December 26, 2020		December 28, 2019		December 29, 2018
Net income	$	992,324	$	952,486	$	694,080
Foreign currency translation adjustment		107,664		7,962		(31,965	)
Change in fair value of available-for-sale marketable securities, net of deferred taxes		19,889		39,482		(15,581	)
Comprehensive income	$	1,119,877	$	999,930	$	646,534

See accompanying notes.

Garmin Ltd. and Subsidiaries
Consolidated Statements of Stockholders' Equity
(In thousands)

	Common Stock		Additional Paid-In Capital			Treasury Stock			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total
Balance at December 30, 2017	$	17,979	$	1,828,386		$	(468,818	)	$	2,418,444		$	56,428		$	3,852,419
Net income		—		—			—			694,080			—			694,080
Translation adjustment		—		—			—			—			(31,965	)		(31,965	)
Adjustment related to unrealized gains (losses) on available-for-sale securities net of income tax effects of $2,174		—		—			—			—			(15,581	)		(15,581	)
Comprehensive income																646,534
Dividends declared ($2.12 per share)		—		—			—			(400,657	)		—			(400,657	)
Issuance of treasury stock related to equity awards		—		(61,139	)		87,781			—			—			26,642
Stock compensation		—		56,391			—			—			—			56,391
Purchase of treasury stock related to equity awards		—		—			(16,655	)		—			—			(16,655	)
Reclassification under ASU 2016-16		—		—			—			(1,700	)		—			(1,700	)
Reclassification under ASU 2018-02		—		—			—			452			(452	)		—
Balance at December 29, 2018	$	17,979	$	1,823,638		$	(397,692	)	$	2,710,619		$	8,430		$	4,162,974
Net income		—		—			—			952,486			—			952,486
Translation adjustment		—		—			—			—			7,962			7,962
Adjustment related to unrealized gains (losses) on available-for-sale securities net of income tax effects of $5,982		—		—			—			—			39,482			39,482
Comprehensive income																999,930
Dividends declared ($2.28 per share)		—		—			—			(434,044	)		—			(434,044	)
Issuance of treasury stock related to equity awards		—		(51,416	)		78,538			—			—			27,122
Stock compensation		—		63,400			—			—			—			63,400
Purchase of treasury stock related to equity awards		—		—			(25,886	)		—			—			(25,886	)
Balance at December 28, 2019	$	17,979	$	1,835,622		$	(345,040	)	$	3,229,061		$	55,874		$	4,793,496
Net income		—		—			—			992,324			—			992,324
Translation adjustment		—		—			—			—			107,664			107,664
Adjustment related to unrealized gains (losses) on available-for-sale securities net of income tax effects of $3,157		—		—			—			—			19,889			19,889
Comprehensive income																1,119,877
Dividends declared ($2.44 per share)		—		—			—			(467,013	)		—			(467,013	)
Issuance of treasury stock related to equity awards		—		(36,153	)		51,354			—			—			15,201
Stock compensation		—		80,885			—			—			—			80,885
Purchase of treasury stock related to equity awards		—		—			(26,330	)		—			—			(26,330	)
Balance at December 26, 2020	$	17,979	$	1,880,354		$	(320,016	)	$	3,754,372		$	183,427		$	5,516,116

See accompanying notes.

Garmin Ltd. and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)

	Fiscal Year Ended
	December 26, 2020			December 28, 2019			December 29, 2018
Operating Activities:
Net income	$	992,324		$	952,486		$	694,080
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		78,121			71,921			64,798
Amortization		48,594			34,254			31,396
Gain on sale of property and equipment		(1,799	)		(233	)		(479	)
Unrealized foreign currency (gains) losses		(9,873	)		18,663			13,790
Deferred income taxes		6,931			(88,358	)		38,978
Stock compensation expense		80,885			63,400			56,391
Realized (gains) losses on marketable securities		(1,392	)		(799	)		827
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable, net of allowance for doubtful accounts		(108,859	)		(123,401	)		7,290
Inventories		28,726			(170,169	)		(57,737	)
Other current and non-current assets		(33,690	)		(86,073	)		7,358
Accounts payable		1,447			26,192			40,628
Other current and non-current liabilities		87,761			36,660			(1,323	)
Deferred revenue		(25,211	)		(11,032	)		(17,208	)
Deferred costs		11,973			9,335			5,611
Income taxes payable		(20,671	)		(34,297	)		35,120
Net cash provided by operating activities		1,135,267			698,549			919,520

Investing activities:
Purchases of property and equipment		(185,401	)		(118,031	)		(155,755	)
Proceeds from sale of property and equipment		1,977			529			1,600
Purchase of intangible assets		(2,065	)		(2,377	)		(4,600	)
Purchase of marketable securities		(1,052,640	)		(789,352	)		(403,181	)
Redemption of marketable securities		1,126,253			758,774			283,603
Acquisitions, net of cash acquired		(148,648	)		(300,289	)		(29,170	)
Net cash used in investing activities		(260,524	)		(450,746	)		(307,503	)

Financing activities:
Dividends		(450,631	)		(417,264	)		(296,148	)
Proceeds from issuance of treasury stock related to equity awards		15,201			27,122			26,642
Purchase of treasury stock related to equity awards		(26,330	)		(25,886	)		(16,655	)
Net cash used in financing activities		(461,760	)		(416,028	)		(286,161	)

Effect of exchange rate changes on cash and cash equivalents		18,127			(5,942	)		(15,810	)

Net increase (decrease) in cash, cash equivalents, and restricted cash		431,110			(174,167	)		310,046
Cash, cash equivalents, and restricted cash at beginning of year		1,027,638			1,201,805			891,759
Cash, cash equivalents, and restricted cash at end of year	$	1,458,748		$	1,027,638		$	1,201,805

See accompanying notes.

Garmin Ltd. and Subsidiaries
Consolidated Statements of Cash Flows (continued)
(In thousands)

	Fiscal Year Ended
	December 26, 2020			December 28, 2019			December 29, 2018
Supplemental disclosures of cash flow information

Cash paid during the year for income taxes	$	133,057		$	160,286		$	67,592

Cash received during the year from income tax refunds	$	4,820		$	6,063		$	6,122

Supplemental disclosure of non-cash investing and financing activities

(Decrease) increase in accrued capital expenditures related to purchases of property and equipment	$	(4,192	)	$	2,821		$	(14,647	)

Change in marketable securities related to unrealized appreciation (depreciation)	$	23,045		$	45,464		$	(17,755	)

Fair value of assets acquired	$	165,082		$	354,631		$	31,920
Liabilities assumed		(14,884	)		(25,507	)		(2,273	)
Less: cash acquired		(1,550	)		(28,835	)		(477	)
Cash paid for acquisitions, net of cash acquired	$	148,648		$	300,289		$	29,170

See accompanying notes.

Garmin Ltd. and Subsidiaries

Notes to Consolidated Financial Statements

(In thousands, except share and per share information)

December 26, 2020 and December 28, 2019

Description of the Business

Garmin Ltd. and subsidiaries (together, the “Company”) design, develop, manufacture, market, and distribute a diverse family of hand-held, wrist-based, portable, and fixed-mount Global Positioning System (GPS)-enabled products and other navigation, communications, information and sensor-based products. Garmin Corporation (GC) is primarily responsible for the manufacturing and distribution of the Company’s products to the Company’s subsidiaries and, to a lesser extent, new product development and sales and marketing of the Company’s products in Asia and the Far East. Garmin International, Inc. (GII) is primarily responsible for sales and marketing of the Company’s products in the Americas region and for most of the Company’s research and new product development. GII also manufactures most of the Company’s products in the aviation segment. Garmin (Europe) Ltd. (GEL) is responsible for sales and marketing of the Company’s products in Europe, the Middle East and Africa (EMEA). Many of GEL’s sales are to other Company-owned distributors in the EMEA region.

Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States. The accompanying consolidated financial statements reflect the accounts of Garmin Ltd. and its wholly-owned subsidiaries. All significant inter-company balances and transactions have been eliminated. Certain prior period amounts have been reclassified or presented to conform to current period presentation.

Fiscal Year

The Company’s fiscal year is based on a 52-53-week period ending on the last Saturday of the calendar year. Due to the fact that there are not exactly 52 weeks in a calendar year, and there is slightly more than one additional day per year (not including the effects of leap year) in each calendar year as compared to a 52-week fiscal year, the Company will have a fiscal year comprising 53 weeks in certain fiscal years, as determined by when the last Saturday of the calendar year occurs.

In those resulting fiscal years that have 53 weeks, the Company will record an extra week of sales, costs, and related financial activity. Therefore, the financial results of those 53-week fiscal years, and the associated 14-week fourth quarters, will not be entirely comparable to the prior and subsequent 52-week fiscal years and the associated 13-week quarters. Fiscal years 2020, 2019, and 2018 each included 52 weeks.

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Foreign Currency

Many Garmin Ltd. subsidiaries utilize currencies other than the United States Dollar (USD) as their functional currency. As required by the Foreign Currency Matters topic of the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC), the financial statements of these subsidiaries for all periods presented have been translated into USD, the functional currency of Garmin Ltd., and the reporting currency herein, for purposes of consolidation at rates prevailing during the year for sales, costs, and expenses and at end-of-year rates for all assets and liabilities. The effect of this translation is recorded in a separate component of stockholders’ equity. Cumulative currency translation adjustments of $162,953 and $55,289 as of December 26, 2020 and December 28, 2019, respectively, have been included in accumulated other comprehensive income in the accompanying consolidated balance sheets.

Transactions in foreign currencies are recorded at the approximate rate of exchange at the transaction date. Assets and liabilities resulting from these transactions are translated at the rate of exchange in effect at the balance sheet date. 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. Net foreign currency gains recorded in results of operations were $2,825 for the year ended December 26, 2020, and net foreign currency losses recorded in results of operations were $16,799, and $7,616, for the years ended December 28, 2019, and December 29, 2018, respectively. The gain 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. The loss in fiscal 2019 was primarily driven by the U.S. Dollar strengthening against the Euro and weakening against the Taiwan Dollar, which was partially offset by the U.S. Dollar weakening against the British Pound Sterling. The loss in fiscal 2018 was due primarily to the USD strengthening against the Euro and British Pound Sterling, offset by the U.S. Dollar strengthening against the Taiwan Dollar.

Earnings Per Share

Basic earnings per share amounts are computed based on the weighted-average number of common shares outstanding. For purposes of diluted earnings per share, the number of shares that would be issued from the exercise of dilutive share-based compensation awards has been reduced by the number of shares which could have been purchased from the proceeds of the exercise or release at the average market price of the Company’s stock during the period the awards were outstanding. See Note 10 of the Notes to Consolidated Financial Statements.

Cash, Cash Equivalents, and Restricted Cash

Cash and cash equivalents include cash on hand, operating accounts, money market funds, deposits readily convertible to known amounts of cash, and securities with maturities of three months or less when purchased. The carrying amount of cash and cash equivalents approximates fair value, given the short maturity of those instruments. Restricted cash is reported separately from cash and cash equivalents on the consolidated balance sheets. See Note 4 of the Notes to Consolidated Financial Statements for additional information on restricted cash.

The total of cash and cash equivalents and restricted cash balances presented on the Consolidated Balance Sheet reconciles to the total cash, cash equivalents, and restricted cash shown in the Consolidated Statements of Cash Flows.

Trade Accounts Receivable

The Company sells its products to retailers, wholesalers, and other customers and extends credit based on its evaluation of the customer’s financial condition. Potential losses on receivables are dependent on each individual customer’s financial condition. The Company carries its trade accounts receivable at net realizable value. Typically, its accounts receivable are collected within 90 days and do not bear interest. The Company monitors its exposure to losses on receivables and maintains allowances for potential losses or adjustments. The Company determines these allowances by (1) evaluating the aging of its receivables and (2) reviewing its high-risk customers. Past due receivable balances are written off when internal collection efforts have been unsuccessful in collecting the amount due. The Company maintains trade credit insurance to provide some security against certain losses within policy limits.

Concentration of Credit Risk

The Company grants credit to certain customers who meet the Company’s pre-established credit requirements. Generally, the Company does not require security when trade credit is granted to customers. Credit losses are provided for in the Company’s consolidated financial statements and typically have been within management’s expectations. Certain customers are allowed extended terms consistent with normal industry practice. Most of these extended terms can be classified as either relating to seasonal sales variations or to the timing of new product releases by the Company.

The Company’s top ten customers have contributed between 20% and 23% of net sales annually since 2018. None of the Company’s customers accounted for more than or equal to 10% of consolidated net sales in the years ended December 26, 2020, December 28, 2019, and December 29, 2018, respectively.

Inventories

Inventories are stated at the lower of cost or net realizable value. Cost includes materials, labor, and manufacturing overhead associated with purchases and production and is determined on a first-in, first-out (FIFO) basis. The Company writes down its inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated net realizable value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required. Inventories consisted of the following:

	December 26, 2020		December 28, 2019
Raw materials	$	282,287	$	260,070
Work-in-process		147,821		133,157
Finished goods		331,976		359,681
Inventories	$	762,084	$	752,908

Property and Equipment

Property and equipment is recorded at cost and typically depreciated using the straight-line method. The components of property and equipment were as follows and are generally depreciated over the following estimated useful lives:

	Estimated Useful Life
Land		124,654		112,267
Building and improvements	15 to 50 years	662,753		597,387
Machinery, equipment and software	3 to 10 years	800,410		696,343
Total, at cost		1,587,817		1,405,997
Accumulated depreciation		(732,278	)	(677,076	)
Property and equipment, net		855,539		728,921

As required by the Property, Plant and Equipment topic of the FASB ASC (ASC Topic 360), the Company reviews property and equipment assets for impairment whenever events or changes in circumstances indicate the carrying amount of an asset or asset group may not be fully recoverable. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. That assessment is based on the carrying amount of the asset at the date it is tested for recoverability. An impairment loss is measured as the amount by which the carrying amount of a long-lived asset exceeds its fair value. The Company did not recognize any material long-lived asset impairment charges in the fiscal years of 2020, 2019, or 2018.

Intangible Assets

At December 26, 2020, and December 28, 2019, the Company had patents, customer related intangibles and other identifiable finite-lived intangible assets recorded at a cost of $523,990 and $432,296, respectively. Identifiable, finite-lived intangible assets are amortized over their estimated useful lives on a straight-line basis typically over three to ten years. Accumulated amortization was $279,633 and $239,776 at December 26, 2020 and December 28, 2019, respectively. Amortization expense on these intangible assets was $34,797, $26,225, and $21,796 for the years ended December 26, 2020, December 28, 2019, and December 29, 2018, respectively. In the next five years, the amortization expense is estimated to be $33,371, $30,255, $28,309, $26,357, and $23,941, respectively. The Company also reviews finite-lived intangible assets for impairment in accordance with ASC Topic 360, as described above, whenever events or changes in circumstances indicate the carrying amount of an asset or asset group may not be fully recoverable.

The Company’s excess purchase cost over fair value of net assets acquired (goodwill) was $584,210 at December 26, 2020, and $467,108 at December 28, 2019.

	December 26, 2020		December 28, 2019
Goodwill balance at beginning of year	$	467,108	$	301,017
Acquisitions		89,499		171,773
Effect of foreign currency translation, finalization of purchase price allocations, and impairment charges		27,603		(5,682	)
Goodwill balance at end of year	$	584,210	$	467,108

The Intangibles – Goodwill and Other topic of the FASB ASC (ASC Topic 350) requires that goodwill and intangible assets with indefinite useful lives should not be amortized but rather be assessed for impairment at least annually or sooner whenever events or changes in circumstances indicate that they may be impaired. The Company performs its annual impairment assessments of goodwill and indefinite-lived intangible assets, if any, in the fourth quarter of each year, as of the Company’s fiscal year end date. ASC Topic 350 allows management to first perform a qualitative assessment by assessing the qualitative factors of relevant events and circumstances at the reporting unit level to determine if it is necessary to perform the quantitative goodwill impairment test. If factors indicate that it is more likely than not that the fair value of the reporting unit is less than the carrying amount, then the quantitative test will be performed. If the fair value of the reporting unit is less than the carrying amount, then a goodwill impairment charge will be recognized in the amount by which carrying amount exceeds fair value, limited to the total amount of goodwill allocated to that reporting unit.

Each of the Company’s operating segments (auto OEM, aviation, consumer auto, fitness, marine, and outdoor) represents a distinct reporting unit. The consumer auto market has declined in recent years as competing technologies have emerged and market saturation has occurred. This has resulted in periods of lower revenues and profits for the Company’s consumer auto reporting unit. Considering these qualitative factors, management performed a quantitative impairment test of the consumer auto reporting unit in the fourth quarter of 2020 and determined that the fair value of the reporting unit was substantially in excess of its carrying amount. However, considering the uncertainty of future operating results and/or market conditions deteriorating faster or more drastically than the forecasts utilized in management’s estimation of fair value, management believes some or all of the approximately $80 million of goodwill associated with the Company’s consumer auto reporting unit is at risk of future impairment.

Management concluded that no other reporting units are currently at risk of impairment, and the Company did not recognize any material goodwill or intangible asset impairment charges in fiscal years 2020, 2019, or 2018.

Leases

The Company leases certain real estate properties, vehicles, and equipment in various countries around the world. Leased properties are typically used for office space, distribution, and retail. The Company’s leases are classified as operating leases with remaining terms of 1 to 33 years, some of which include an option to extend or renew. If the exercise of an option to extend or renew is determined to be reasonably certain, the associated right-of-use asset and lease liability reflects the extended period and payments. For newly signed leases, the right-of-use asset and lease liability is recognized on lease commencement date. Variable lease costs, such as adjustments to payments based on consumer price indices, are excluded in the recognition of right-of-use assets and lease liabilities. For all real estate leases, any non-lease components, including common area maintenance, have been separated from lease components and excluded from the associated right-of-use asset and lease liability calculations. For all equipment and vehicle leases, an accounting policy election has been made to not separate lease and non-lease components.

Leases with an initial term of 12 months or less (“short-term leases”) are not recognized on the Company’s Consolidated Balance Sheets as a right-of-use asset or lease liability.

Dividends

Under Swiss corporate law, dividends must be approved by shareholders at the general meeting of the Company’s shareholders.

On June 5, 2020, the shareholders approved a dividend of $2.44 per share (of which, $1.22 was paid in the Company’s 2020 fiscal year) payable in four equal installments on dates determined by the Board of Directors. The dates determined by the Board were as follows:

Dividend Date	Record Date	$s per share
June 30, 2020	June 15, 2020	$	0.61
September 30, 2020	September 15, 2020	$	0.61
December 31, 2020	December 15, 2020	$	0.61
March 31, 2021	March 15, 2021	$	0.61

The Company paid dividends in 2020 in the amount of $450,631, which included four dividend distributions in the fiscal year. Both the dividends paid and the remaining dividend payable were reported as a reduction of retained earnings.

On June 7, 2019, the shareholders approved a dividend of $2.28 per share (of which, $1.14 was paid in the Company’s 2019 fiscal year) payable in four equal installments on dates determined by the Board of Directors. The dates determined by the Board were as follows:

Dividend Date	Record Date	$s per share
June 28, 2019	June 17, 2019	$	0.57
September 30, 2019	September 16, 2019	$	0.57
December 31, 2019	December 16, 2019	$	0.57
March 31, 2020	March 16, 2020	$	0.57

The Company paid dividends in 2019 in the amount of $417,264, which included four dividend distributions in the fiscal year. Both the dividends paid and the remaining dividend payable were reported as a reduction of retained earnings.

On June 8, 2018, the shareholders approved a dividend of $2.12 per share (of which, $1.06 was paid in the Company’s 2018 fiscal year) payable in four equal installments on dates determined by the Board of Directors. The dates determined by the Board were as follows:

Dividend Date	Record Date	$s per share
June 29, 2018	June 18, 2018	$	0.53
September 28, 2018	September 14, 2018	$	0.53
December 31, 2018	December 14, 2018	$	0.53
March 29, 2019	March 15, 2019	$	0.53

The Company paid dividends in 2018 in the amount of $296,148, which included three dividend distributions in the fiscal year. Both the dividends paid and the remaining dividend payable were reported as a reduction of retained earnings.

Approximately $61,129 of retained earnings was indefinitely restricted from distribution to stockholders pursuant to the laws of Taiwan as of December 26, 2020 and December 28, 2019.

Marketable Securities

Management determines the appropriate classification of marketable securities at the time of purchase and reevaluates such designation as of each balance sheet date.

All of the Company’s marketable securities were considered available-for-sale at December 26, 2020. Available-for-sale securities are stated at fair value, with the unrealized gains and losses, net of tax, reported in Accumulated other comprehensive income on the Company’s Consolidated Balance Sheets. At December 26, 2020, cumulative unrealized net gains of $20,474 were reported in accumulated other comprehensive income, net of related taxes. At December 28, 2019, cumulative unrealized net gains of $585 were reported in accumulated other comprehensive income, net of related taxes.

Testing for impairment of investments requires significant management judgment. The identification of potentially impaired investments, the determination of their fair value, and the assessment of whether any decline in value is relating to credit losses are the key judgment elements. The discovery of new information and the passage of time can significantly change these judgments. Revisions of impairment judgments are made when new information becomes known, and any resulting impairment adjustments are made at that time. The economic environment and volatility of securities markets increase the difficulty of determining fair value and assessing investment impairment.

In making this assessment we evaluate the extent to which the fair value is less than the amortized cost basis, any change in credit rating of the security, adverse conditions specifically related to the security, failure of the issuer to make scheduled payments, and other relevant factors affecting the security. If it is determined that a credit loss exists, the amount of the credit loss is determined by comparing the present value of the expected future cash flows for the security to the amortized cost basis of the security, limited by the amount that the fair value is less than the amortized cost basis.

The amortized cost of debt securities classified as available-for-sale is adjusted for amortization of premiums and accretion of discounts to maturity, or in the case of mortgage-backed securities, over the estimated life of the security. Such amortization and realized gains/losses are recorded within Interest income and Other income (expense), respectively, on the Company’s Consolidated Statements of Income. The cost of securities sold is based on the specific identification method.

Investments are discussed in detail in Note 3 of the Notes to Consolidated Financial Statements.

Income Taxes

The Company accounts for income taxes using the liability method in accordance with the FASB ASC 740 topic Income Taxes. The liability method provides that deferred tax assets and liabilities are recorded based on the difference between the tax bases of assets and liabilities and their carrying amount for financial reporting purposes as measured based on the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.

The Company accounts for uncertainty in income taxes in accordance with the FASB ASC 740 topic Income Taxes. The Company recognizes liabilities based on our estimate of whether, and the extent to which, additional taxes will be due. If payment of these amounts ultimately proves not to be required, the reversal of the liabilities results in tax benefits being recognized in the period when the Company determines the liabilities are no longer necessary. If the Company’s estimate of tax liabilities proves to be less than the ultimate assessment, a further charge to expense would result.

Income taxes are discussed in detail in Note 6 of the Notes to Consolidated Financial Statements.

Revenue Recognition

The Company recognizes revenue upon the transfer of control of promised products or services to the customer in an amount that depicts the consideration the Company expects to be entitled to for the related products or services. For the large majority of the Company’s sales, transfer of control occurs once product has shipped and title and risk of loss have transferred to the customer. The Company offers certain tangible products with ongoing services promised over a period of time, typically the useful life of the related tangible product. When such services have been identified as both capable of being distinct and separately identifiable from the related tangible product, the associated revenue allocated to such services is recognized over time. The Company generally does not offer specified or unspecified upgrade rights to its customers in connection with software sales.

The Company allocates revenue to all performance obligations associated with tangible products containing separately identifiable ongoing services based on the respective performance obligations’ relative standalone selling prices (“SSP”), with the amounts allocated to ongoing services deferred and recognized over a period of time. These ongoing services primarily consist of the Company’s contractual promises to provide personal navigation device (PND) users with map updates and server-based traffic services. In addition, we provide map update services (map care) over a contractual period in certain hardware and software contracts with original automotive equipment manufacturers (OEMs). The Company has determined that directly observable prices do not exist for map updates, map care, or server-based traffic, as stand-alone and unbundled unit sales do not occur on more than a limited basis. Therefore, the Company uses the expected cost plus a margin as the primary indicator to calculate relative SSP of map updates, map care, and traffic performance obligations. The revenue and associated costs allocated to map updates, map care, and/or the server-based traffic service are deferred and recognized ratably over the estimated life of the products of approximately 3 years for PNDs, or the estimated map care period in OEM contracts of 3-10 years as we believe our efforts related to providing these services are spread evenly throughout the performance period. In addition to the products listed above, the Company has offered certain other products with ongoing performance obligations including mobile applications, incremental navigation and communication service subscriptions, aviation database subscriptions, and extended warranties that are recognized over the contractual service period (typically 1-3 years).

The Company records revenue net of sales tax and variable consideration such as trade discounts and customer returns. Payment is due typically within 90 days or less of shipment of product, or upon the grant of a given software license (as applicable). The Company records estimated reductions to revenue in the form of variable consideration for customer sales programs, returns, and incentive offerings including rebates, price protection (product discounts offered to retailers to assist in clearing older products from their inventories in advance of new product releases), promotions, and other volume-based incentives. Cooperative advertising incentives payable to dealers and distributors are recorded as reductions of revenue unless we obtain proof of a distinct advertising service, in which case we record the incentive as advertising expense. The reductions to revenue are based on estimates and judgments using historical experience and expectation of future conditions. Changes in these estimates could negatively affect the Company’s operating results. These incentives are reviewed periodically and, with the exceptions of price protection and certain other promotions, typically accrued for on a percentage of sales basis.

Deferred Revenues and Costs

At December 26, 2020 and December 28, 2019, the Company had deferred revenues totaling $136,799 and $161,891, respectively, and related deferred costs totaling $36,655 and $48,598, respectively.

Deferred revenue consists primarily of the transaction price allocated to performance obligations that are recognized over a period of time basis as discussed in the Revenue Recognition portion of this footnote. Billings associated with such items are typically completed upon the transfer of control of promised products or services to the customer and recorded to accounts receivable until payment is received. Deferred costs primarily refer to the royalties incurred by the Company associated with the aforementioned unsatisfied performance obligations, which are amortized over the same period as the revenue is recognized. The Company typically pays the associated royalties either monthly or quarterly in arrears, on a per item shipped or installed basis.

The Company applies a practical expedient, as permitted within ASC 340, to expense as incurred the incremental costs to obtain a contract when the amortization period of the asset that would have otherwise been recognized is one year or less.

Shipping and Handling Costs

Shipping and handling activities are typically performed before the customer obtains control of the good, and the related costs are therefore expensed as incurred. Shipping and handling costs are included in cost of goods sold in the accompanying consolidated financial statements.

Product Warranty

The Company accrues for estimated future warranty costs at the time products are sold. The Company’s standard warranty obligation to retail partners generally provides for a right of return of any product for a full refund in the event that such product is not merchantable, is damaged, or is defective. The Company’s historical experience is that these types of warranty obligations are generally fulfilled within 5 months from time of sale. The Company’s standard warranty obligation to its end-users provides for a period of one to two years from date of shipment while certain aviation, marine, and auto OEM products have a warranty period of two years or more from the date of installation. The Company’s estimates of costs to service its warranty obligations are based on historical experience and management’s expectations and judgments of future conditions. To the extent the Company experiences increased warranty claim activity or increased costs associated with servicing those claims, its warranty accrual will increase, which may result in decreased gross profit. The following reconciliation presents details of the changes in the Company’s accrued warranty costs:

	Fiscal Year Ended
	December 26, 2020			December 28, 2019			December 29, 2018
Balance - beginning of period	$	39,758		$	38,276		$	36,827
Accrual for products sold (1)		67,028			58,092			59,374
Expenditures		(64,143	)		(56,610	)		(57,925	)
Balance - end of period	$	42,643		$	39,758		$	38,276

(1) Changes in cost estimates related to pre-existing warranties were not material and aggregated with accruals for new warranty contracts in the ‘accrual for products sold’ line.

Advertising Costs

The Company expenses advertising costs as incurred. Advertising expense amounted to approximately $151,166, $164,456, and $155,394 for the years ended December 26, 2020, December 28, 2019, and December 29, 2018, respectively.

Research and Development

A majority of the Company’s research and development is performed in the United States. Research and development costs, which are typically expensed as incurred, amounted to approximately $705,685, $605,366, and $567,805 for the years ended December 26, 2020, December 28, 2019, and December 29, 2018, respectively.

Preproduction Costs Related to Long-Term Supply Arrangements

Preproduction design and development costs related to long-term supply arrangements are expensed as incurred, and classified as Research and development, unless the customer has provided a contractual guarantee for reimbursement of such costs. Contractually reimbursable costs are capitalized as incurred in the Consolidated Balance Sheets within Prepaid expenses and other current assets if reimbursement is expected to be received within one year, or within Other assets if expected to be received beyond one year. Such capitalized costs were approximately $63,610 and $24,267 as of December 26, 2020 and December 28, 2019, respectively.

Customer Service and Technical Support

Customer service and technical support costs are included as selling, general and administrative expenses in the accompanying Consolidated Statements of Income. Customer service and technical support costs include costs associated with performing order processing, answering customer inquiries by telephone and through websites, e-mail and other electronic means, and providing free technical support assistance to customers. The technical support is typically provided within one year after the associated revenue is recognized. The related cost of providing this free support is not material.

Software Development Costs

The FASB ASC topic entitled Software requires companies to expense software development costs as they incur them until technological feasibility has been established, at which time those costs are capitalized until the product is available for general release to customers. The Company’s capitalized software development costs are not significant, as the time elapsed from working model to release is typically short. As required by the Research and Development topic of the FASB ASC, costs incurred to enhance our existing products or after the general release of the service using the product are expensed in the period they are incurred and included in research and development costs in the accompanying consolidated statements of income.

Accounting for Stock-Based Compensation

The Company currently sponsors three stock-based employee compensation plans. The FASB ASC topic entitled Compensation – Stock Compensation requires the measurement and recognition of compensation expenses for all share-based payment awards made to employees and directors, including employee stock options and restricted stock, based on estimated fair values.

Accounting guidance requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as stock-based compensation expense over the requisite service period in the Company’s consolidated financial statements.

As stock-based compensation expenses recognized in the accompanying Consolidated Statements of Income are based on awards ultimately expected to vest, they have been reduced for estimated forfeitures. Accounting guidance requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures were estimated based on historical experience and management’s estimates.

Excess tax benefits or deficiencies from stock-based compensation are recognized in the income tax provision and are not estimated in the effective tax rate, rather, are recorded as discrete tax items in the period they occur. Excess income tax benefits from stock-based compensation arrangements are classified as a cash flow from operations.

Stock compensation plans are discussed in detail in Note 9 of the Notes to Consolidated Financial Statements.

Recently Adopted Accounting Standards

Financial Instruments – Credit Losses

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 changes how entities assess and measure credit losses of certain financial instruments, including available-for-sale securities and accounts receivable. The Company adopted the new standard as of the beginning of the 2020 fiscal year. The adoption of the standard did not have a material impact on the Company’s Consolidated Financial Statements.

Receivables – Nonrefundable Fees and Other Costs

In March 2017, the FASB issued Accounting Standards Update No. 2017-08, Receivables – Nonrefundable Fees and Other Costs (Topic 310-20): Premium Amortization on Purchased Callable Debt Securities (“ASU 2017-08”), which shortens the amortization period for certain callable debt securities held at a premium, requiring the premium to be amortized to the earliest call date. The Company adopted the new standard as of the beginning of the 2020 fiscal year. The adoption of the standard did not have a material impact on the Company’s Consolidated Financial Statements.

Leases

In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. The FASB subsequently issued Accounting Standards Update No. 2018-10 and Accounting Standards Update No. 2018-11 in July 2018, which provide clarifications and improvements to ASU 2016-02 (collectively, the “new lease standard”). Accounting Standards Update No. 2018-11 also provides the optional transition method which allows companies to apply the new lease standard at the adoption date instead of at the earliest comparative period presented. The new lease standard requires lessees to present a right-of-use asset and a corresponding lease liability on the balance sheet.

The Company adopted the new lease standard as of the beginning of the 2019 fiscal year using the optional transition method. The Company did not have a cumulative effect adjustment to retained earnings as a result of adopting the new lease standard and does not expect the new lease standard to have a material impact on the Company’s Consolidated Statements of Income or Consolidated Statements of Cash Flows in future periods. The Company elected the package of transitional practical expedients upon adoption which, among other provisions, allowed the Company to carry forward historical lease classification. See Note 14 – Leases for additional information regarding leases.

Intangible – Goodwill and Other

In January 2017, the FASB issued Accounting Standards Update No. 2017-04, Intangible – Goodwill and Other (Topic 350): Simplify the Test for Goodwill Impairment (“ASU 2017-04”) which simplifies the accounting for goodwill impairment. ASU 2017-04 removes “step two” of the goodwill impairment test, such that a goodwill impairment charge is now the amount by which a reporting unit’s carrying value exceeds its fair value. ASU 2017-04 is applied prospectively and was effective for fiscal years, or any goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption was permitted for any impairment tests performed after January 1, 2017. The Company early adopted ASU 2017-04 in the fourth quarter of the year ended December 28, 2019. The adoption did not have a material impact on the Company’s Consolidated Financial Statements.

Recently Issued Accounting Pronouncements Not Yet Adopted

We do not expect any recently issued accounting pronouncements not yet adopted to have a material impact on the Company’s consolidated financial statements, accounting policies, processes, or systems upon adoption.

Marketable Securities

The FASB ASC topic entitled Fair Value Measurements and Disclosures defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The accounting guidance classifies the inputs used to measure fair value into the following hierarchy:


Level 1	Unadjusted quoted prices in active markets for identical assets or liability


Level 2	Observable inputs for the asset or liability, either directly or indirectly, such as quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability

Level 3	Unobservable inputs for the asset or liability

The Company endeavors to utilize the best available information in measuring fair value. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Valuation is based on prices obtained from an independent pricing vendor using both market and income approaches. The primary inputs to the valuation include quoted prices for similar assets in active markets, quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields, and credit spreads.

The method described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

Marketable securities classified as available-for-sale securities are summarized below:

		Available-For-Sale Securities as of December 26, 2020
	Fair Value Level	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. Treasury securities	Level 2	$	400	$	6	$	—		$	406
Agency securities	Level 2		5,954		56		—			6,010
Mortgage-backed securities	Level 2		239,445		1,051		(1,923	)		238,573
Corporate securities	Level 2		984,696		25,962		(1,637	)		1,009,021
Municipal securities	Level 2		214,515		3,644		(223	)		217,936
Other	Level 2		47,760		167		(1,056	)		46,871
Total		$	1,492,770	$	30,886	$	(4,839	)	$	1,518,817

		Available-For-Sale Securities as of December 28, 2019
	Fair Value Level	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. Treasury securities	Level 2	$	15,204	$	5	$	(30	)	$	15,179
Agency securities	Level 2		64,582		120		(27	)		64,675
Mortgage-backed securities	Level 2		256,417		90		(2,485	)		254,022
Corporate securities	Level 2		980,590		8,806		(3,746	)		985,650
Municipal securities	Level 2		163,898		1,092		(235	)		164,755
Other	Level 2		98,246		111		(700	)		97,657
Total		$	1,578,937	$	10,224	$	(7,223	)	$	1,581,938

The Company’s investment policy targets low risk investments with the objective of minimizing the potential risk of principal loss. 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.

Accrued interest receivable, which totaled $10,176 as of December 26, 2020, is excluded from both the fair value and amortized cost basis of available-for-sale securities and is included within Prepaid expenses and other current assets on the Company’s Consolidated Balance Sheets. The Company writes off impaired accrued interest on a timely basis, generally within 30 days of the due date, by reversing interest income. No accrued interest was written off during the 52-week period ended December 26, 2020.

The Company recognizes impairments relating to credit losses of available-for-sale securities through an allowance for credit losses and Other income (expense) on the Company’s Consolidated Statements of Income. Impairment not relating to credit losses is recorded in Other comprehensive income (loss) on the Company’s Consolidated Balance Sheets. The cost of securities sold is based on the specific identification method. Approximately 21% of securities in our portfolio were at an unrealized loss position at December 26, 2020.

The following tables display additional information regarding gross unrealized losses and fair value by major security type for available-for-sale securities in an unrealized loss position as of December 26, 2020 and December 28, 2019.

	As of December 26, 2020
	Less than 12 Consecutive Months					12 Consecutive Months or Longer					Total
	Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value
U.S. Treasury securities	$	—		$	—	$	—		$	—	$	—		$	—
Agency securities		—			—		—			—		—			—
Mortgage-backed securities		(1,849	)		85,688		(74	)		2,122		(1,923	)		87,810
Corporate securities		(1,065	)		199,187		(572	)		8,625		(1,637	)		207,812
Municipal securities		(223	)		50,403		—			—		(223	)		50,403
Other		(726	)		22,600		(330	)		3,426		(1,056	)		26,026
Total	$	(3,863	)	$	357,878	$	(976	)	$	14,173	$	(4,839	)	$	372,051

	As of December 28, 2019
	Less than 12 Consecutive Months					12 Consecutive Months or Longer					Total
	Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value
U.S. Treasury securities	$	—		$	—	$	(30	)	$	13,087	$	(30	)	$	13,087
Agency securities		(16	)		20,808		(11	)		20,812		(27	)		41,620
Mortgage-backed securities		(745	)		79,007		(1,740	)		86,392		(2,485	)		165,399
Corporate securities		(1,585	)		183,691		(2,161	)		100,926		(3,746	)		284,617
Municipal securities		(218	)		34,165		(17	)		9,522		(235	)		43,687
Other		(410	)		34,540		(290	)		21,559		(700	)		56,099
Total	$	(2,974	)	$	352,211	$	(4,249	)	$	252,298	$	(7,223	)	$	604,509

As of December 26, 2020 and December 28, 2019, the Company had not recognized an allowance for credit losses on any securities in an unrealized loss position.

The Company has not recorded an allowance for credit losses and charge to Other income for the unrealized losses on mortgage-backed, corporate, municipal, and other securities presented above because we do not consider the declines in fair value to have resulted from credit losses. We have not observed a significant deterioration in credit quality of these securities, which are highly rated with moderate to low credit risk. Declines in value are largely attributable to current global economic conditions. The securities continue to make timely principal and interest payments, and the fair values are expected to recover as they approach maturity. The Company does not intend to sell the securities, and it is not more likely than not that the Company will be required to sell the securities, before the respective recoveries of their amortized cost bases, which may be maturity.

The amortized cost and fair value of marketable securities at December 26, 2020, by maturity, are shown below.

	Amortized Cost		Fair Value
Due in one year or less	$	386,010	$	387,642
Due after one year through five years		1,049,200		1,071,892
Due after five years through ten years		53,831		55,813
Due after ten years		3,729		3,470
	$	1,492,770	$	1,518,817

Commitments and Contingencies

Commitments

The Company is party to certain 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 $880,000. 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 typically fulfilled by our suppliers, contract manufacturers, and logistics providers within short periods of time.

Certain cash balances are held as collateral in relation to bank guarantees. The total amount of restricted cash was $306 and $71 on December 26, 2020 and December 28, 2019, respectively.

Contingencies

In the normal course of business, the Company and its subsidiaries are parties to various legal claims, investigations and complaints, including matters alleging patent infringement and other intellectual property claims. The Company evaluates, on a quarterly and annual basis, developments in legal proceedings, investigations, claims, and other loss contingencies that could affect any required accrual or disclosure or estimate of reasonably possible loss or range of loss. An estimated loss from a loss contingency is accrued by a charge to income if it is probable that an asset has been impaired or a liability has been incurred and the amount of the loss can be reasonably estimated. If a range of loss is estimated, and some amount within that range appears to be a better estimate than any other amount within that range, then that amount is accrued. If no amount within the range can be identified as a better estimate than any other amount, the Company accrues the minimum amount in the range.

If an outcome unfavorable to the Company is determined to be probable, but the amount of loss cannot be reasonably estimated or is determined to be reasonably possible, but not probable, we disclose the nature of the contingency and an estimate of the possible loss or range of loss or a statement that such an estimate cannot be made. The Company’s aggregate range of reasonably possible losses includes (1) matters where a liability has been accrued and there is a reasonably possible loss in excess of the amount accrued for that liability, and (2) matters where a loss is believed to be reasonably possible, but not probable, and a liability therefore has not been accrued. This aggregate range only represents the Company’s estimate of reasonably possible losses and does not represent the Company’s maximum loss exposure. The assessment regarding whether a loss is probable or reasonably possible, and whether the loss or a range of loss is estimable, often involves a series of complex judgments about future events. In assessing the probability of an outcome in a lawsuit, claim or assessment that could be unfavorable to the Company, we consider the following factors, among others: a) the nature of the litigation, claim, or assessment; b) the progress of the case; c) the opinions or views of legal counsel and other advisers; d) our experience in similar cases; e) the experience of other entities in similar cases; and f) how we intend to respond to the lawsuit, claim, or assessment. Costs incurred in defending lawsuits, claims or assessments are expensed as incurred.

Management of the Company currently does not believe it is reasonably possible that the Company may have incurred a material loss, or a material loss in excess of recorded accruals, with respect to loss contingencies in the aggregate, for the fiscal year ended December 26, 2020. The results of legal proceedings, investigations and claims, however, cannot be predicted with certainty. An adverse resolution of one or more of such matters in excess of management’s expectations could have a material adverse effect in the particular quarter or fiscal year in which a loss is recorded, but based on information currently known, the Company does not believe it is likely that losses from such matters would have a material adverse effect on the Company’s business or its consolidated financial position, results of operations or cash flows.

The Company settled or resolved certain legal matters during the fiscal years ended December 26, 2020, December 28, 2019, and December 29, 2018 that did not individually or in the aggregate have a material impact on the Company’s business or its consolidated financial position, results of operations or cash flows.

Employee Benefit Plans

Certain subsidiaries of the Company sponsor various defined contribution employee retirement plans. GII and the Company’s other U.S.-based subsidiaries sponsor a plan under which their employees may contribute up to 50% of their annual compensation subject to Internal Revenue Code maximum limitations and to which the subsidiaries contribute a specified percentage of each participant’s annual compensation up to certain limits as defined in the retirement plan. During the years ended December 26, 2020, December 28, 2019, and December 29, 2018, expense related to this and other defined contribution plans of $63,908, $55,456, and $52,232, respectively, was recorded within the Company’s Consolidated Statements of Income.

Certain of the Company’s non-U.S. subsidiaries sponsor or participate in local defined benefit pension plans for which contributions are calculated by formulas that consider final pensionable salaries. The obligations, contributions, and associated expense of such plans for the years ended December 26, 2020, December 28, 2019, and December 29, 2018 were not material.

Income Taxes

The Company’s income tax provision (benefit) consists of the following:

	Fiscal Year Ended
	December 26, 2020			December 28, 2019			December 29, 2018
Federal:
Current	$	(25,220	)	$	32,874		$	26,784
Deferred		(7,115	)		20,388			13,249
	$	(32,335	)	$	53,262		$	40,033
State:
Current	$	(3,931	)	$	12,605		$	13,015
Deferred		2,715			831			(1,599	)
	$	(1,216	)	$	13,436		$	11,416
Foreign:
Current	$	133,622		$	77,594		$	53,625
Deferred		11,015			(109,556	)		24,093
	$	144,637		$	(31,962	)	$	77,718
Total	$	111,086		$	34,736		$	129,167

The income tax provision differs from the amount computed by applying the U.S. statutory federal income tax rate to income before taxes. The sources and tax effects of the differences, including the impact of establishing tax contingency accruals, are as follows:

	Fiscal Year Ended
	December 26, 2020			December 28, 2019			December 29, 2018
Federal income tax expense at U.S. statutory rate	$	231,718		$	207,317		$	172,882
State income tax (benefit) expense, net of federal tax effect		(3,404	)		7,827			5,339
Foreign-Derived Intangible Income Deduction		—			(4,966	)		(4,666	)
Foreign tax rate differential		(98,130	)		(57,302	)		(38,563	)
Other foreign taxes less incentives and credits		3,446			6,360			(12,841	)
Withholding Tax		17,026			32,162			33,306
Net Change in Uncertain Tax Positions		(21,391	)		(17,259	)		(13,728	)
Federal Research and Development Credit		(21,342	)		(19,338	)		(16,562	)
Share Based Compensation		(6,114	)		(6,169	)		(2,747	)
Switzerland Tax Reform		11,016			(117,989	)		—
Other, net		(1,739	)		4,093			6,747
Income tax expense (benefit)	$	111,086		$	34,736		$	129,167

The Company recorded income tax expense of $111,086 in the year ended December 26, 2020, which included a $14,308 income tax benefit recognized by the Company in the second quarter of 2020 due to the release of uncertain tax position reserves associated with a 2014 intercompany restructuring and was partially offset by income tax expense of $11,016 recognized by the Company in the fourth quarter of 2020 related to the revaluation of certain Switzerland tax assets related to the Switzerland tax reform transitional measures. The Company recorded income tax expense of $34,736 in the year ended December 28, 2019, which included an income tax benefit of $117,989 related to 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.

The Company’s statutory federal and cantonal income tax rate in Switzerland, the Company's place of incorporation, is 14.03%. If the Company reconciled taxes at the Swiss holding company federal statutory tax rate to the reported income tax expense for 2020 as presented above, the amounts related to tax at the statutory rate would be approximately $77,000 lower, or $155,000, and the foreign tax rate differential would be adjusted by a similar amount to approximately $20,000. The Company’s statutory federal income tax rate in Switzerland prior to 2020 was 7.83%. For 2019, the amounts related to tax at the statutory rate would be approximately $130,000 lower, or $77,000, and the foreign tax rate differential would be adjusted by a similar amount to approximately $73,000. For 2018, the amount related to tax at the statutory rate would be approximately $108,000 lower, or $65,000, and the foreign tax differential would be reduced by a similar amount to approximately $65,000. All other amounts would remain substantially unchanged.

The Company’s income before income taxes attributable to non-U.S. operations was $1,059,074, $606,711, and $532,657, for the years ended December 26, 2020, December 28, 2019, and December 29, 2018, respectively.

Income taxes of $47,236, $35,982, and $36,800 at December 26, 2020, December 28, 2019, and December 29, 2018, respectively, have not been accrued by the Company for the unremitted earnings of several of its foreign subsidiaries because such earnings are intended to be reinvested in the subsidiaries indefinitely.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities are as follows:

	December 26, 2020			December 28, 2019
Deferred tax assets:
Product warranty accruals	$	10,500		$	2,652
Allowance for doubtful accounts		4,874			3,981
Inventory reserves		7,211			7,187
Sales program allowances		1,289			1,185
Reserve for sales returns		2,196			1,732
Accrued vacation		11,438			9,079
Other accruals		10,587			4,320
Share based compensation		10,201			7,501
Tax credit carryforwards		18,523			11,164
Intangible assets		212,695			250,313
Net operating losses		5,566			1,981
Benefit related to uncertain tax positions		5,239			6,095
Operating leases		15,578			12,711
Deferred revenue		26,199			—
Other		1,883			1,755
Valuation allowance related to loss carryforward and tax credits		(10,853	)		(4,562	)
	$	333,126		$	317,094
Deferred tax liabilities:
Fixed assets		37,359			33,754
Operating leases		15,343			12,473
Prepaid and perpetual license assets		22,166			—
Other prepaid expenses		2,564			1,849
Capitalized preproduction design and development costs		8,408			—
Book basis in excess of tax basis for acquired entities		33,154			22,488
Withholding tax		83,329			91,966
Deferred revenue		—			800
Other		2,192			—
	$	204,515		$	163,330
Net deferred tax assets	$	128,611		$	153,764

At December 26, 2020, the Company had $18,523 of tax credit carryover compared to $11,164 at December 28, 2019. At December 26, 2020, the Company had a deferred tax asset of $5,566 related to the future tax benefit of net operating loss (NOL) carryforwards of $29,025. Included in the NOL carryforwards is $16,980 that relates to Switzerland and expires in 2027, $4,990 that relates to Luxembourg and expires in 2037, $409 that relates to Finland and expires in varying amounts between 2025 and 2028, $607 that relates to the Netherlands and expires in 2026, $249 that relates to Thailand and expires in 2025, $54 that relates to Vietnam and expires in 2025, and $5,736 that relates to various other jurisdictions and has no expiration date. The Company has recorded a valuation allowance for a portion of its deferred tax asset relating to various tax attributes that it does not believe are more likely than not to be realized. In the future, if the Company determines, based on existence of sufficient evidence, that it should realize more or less of its deferred tax assets, an adjustment to the valuation allowance will be made in the period such a determination is made.

The total amount of gross unrecognized tax benefits, as of December 26, 2020 was $84,985. A reconciliation of the beginning and ending amount of gross unrecognized tax benefits for years ended December 26, 2020, December 28, 2019, and December 29, 2018 is as follows:

	December 26, 2020			December 28, 2019			December 29, 2018
Balance beginning of year	$	101,251		$	118,287		$	130,798
Additions based on tax positions related to prior years		10,480			398			1,138
Reductions based on tax positions related to prior years		(4,169	)		(6,556	)		(5,340	)
Additions based on tax positions related to current period		16,859			13,806			19,368
Reductions related to settlements with tax authorities		(935	)		(218	)		(527	)
Expiration of statute of limitations		(38,501	)		(24,466	)		(27,150	)
Balance at end of year	$	84,985		$	101,251		$	118,287

Accounting guidance requires unrecognized tax benefits to be classified as noncurrent liabilities, except for the portion that is expected to be paid within one year of the balance sheet date. The balance of net unrecognized benefits of $81,938, $92,056, and $114,682 are required to be classified as noncurrent at December 26, 2020, December 28, 2019, and December 29, 2018, respectively. The net unrecognized tax benefits, if recognized, would reduce the effective tax rate. None of the unrecognized tax benefits are due to uncertainty in the timing of deductibility.

Interest and penalties, if any, accrued on the unrecognized tax benefits are reflected in income tax expense. At December 26, 2020, December 28, 2019, and December 29, 2018, the Company had accrued approximately $5,666, $7,636, and $6,613, respectively, for interest. The interest component of the reserve decreased income tax expense for the year ending December 26, 2020 by $1,970, and increased income tax expense for the years ending December 28, 2019, and December 29, 2018, by $1,023, and $1,008, respectively. The Company did not have significant amounts accrued for penalties for the years ending December 26, 2020, December 28, 2019, and December 29, 2018.

The Company files income tax returns in Switzerland, U.S. federal jurisdiction, as well as various states, local, and foreign jurisdictions. In its major tax jurisdictions, Switzerland, Taiwan, United Kingdom, and U.S. federal and various states, the Company is no longer subject to income tax examinations by tax authorities, with few exceptions, for years prior to 2016, 2015, 2016, and 2017, respectively.

The Company recognized a reduction of income tax expense of $42,185, $26,158, and $27,106 in fiscal years ended December 26, 2020, December 28, 2019, and December 29, 2018, respectively, to reflect the expiration of statutes of limitations and releases due to audit settlement in various jurisdictions.

The Company believes that it is reasonably possible that approximately $5,000 to $25,000 of its reserves for certain unrecognized tax benefits will decrease within the next 12 months as the result of the expiration of statutes of limitations. This potential decrease in unrecognized tax benefits would impact the Company’s effective tax rate within the next 12 months.

Fair Value of Financial Instruments

As required by the Financial Instruments topic of the FASB ASC, the following summarizes required information about the fair value of certain financial instruments for which it is currently practicable to estimate such value. None of the financial instruments are held or issued for trading purposes. The carrying amounts and fair values of the Company’s financial instruments are as follows:

	December 26, 2020				December 28, 2019
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Cash and cash equivalents	$	1,458,442	$	1,458,442	$	1,027,567	$	1,027,567
Restricted cash	$	306	$	306	$	71	$	71
Marketable securities	$	1,518,817	$	1,518,817	$	1,581,938	$	1,581,938

For certain of the Company’s financial instruments, including accounts receivable, accounts payable and other accrued liabilities, the carrying amounts approximate fair value due to their short maturities.

Segment Information

Garmin is organized in the six operating segments of auto OEM, aviation, consumer auto, fitness, marine, and outdoor. 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. Each operating segment is individually reviewed and evaluated by the Chief Operating Decision Maker (CODM), who allocates resources and assesses performance of each 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 products of the Company’s segments are sold through the Company’s network of independent dealers and distributors, our own webshop, as well as through various auto, aviation, and marine OEMs. However, the nature of products and types of customers for the segments vary.

The Company’s Chief Executive Officer, who has been identified as the 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. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. There are no inter-segment sales or transfers.

The Company’s segments share many common resources, infrastructures and assets in the normal course of business. Thus, the Company does not report accounts receivable, inventories, property and equipment, intangible assets, or capital expenditures by segment to the CODM.

In the first quarter of fiscal 2019, the methodology used to allocate certain selling, general, and administrative expenses to the segments was refined, endeavoring to provide the Company’s CODM with a more meaningful representation of segment profit or loss in light of the evolution of its segments. The Company’s composition of operating segments and reportable segments did not change. Results for the 52-weeks ended December 29, 2018 are presented here as they were originally reported, as it is not practicable to accurately restate the activity in accordance with the refined allocation methodology. 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.

Net sales (“revenue”), gross profit, and operating income for each of the Company’s five reported segments are presented below, along with supplemental financial information for the auto OEM and consumer auto operating segments that management believes is useful.

									Auto
	Fitness		Outdoor		Marine		Aviation		Total Auto			Consumer Auto		Auto OEM			Total
52-Weeks Ended December 26, 2020
Net sales	$	1,317,498	$	1,128,081	$	657,848	$	622,820	$	460,326		$	275,493	$	184,833		$	4,186,573
Gross profit		697,539		739,777		384,450		453,008		206,562			139,864		66,698			2,481,336
Operating income		318,884		441,085		175,724		137,203		(18,656	)		41,464		(60,120	)		1,054,240

52-Weeks Ended December 28, 2019
Net sales	$	1,047,527	$	917,567	$	508,850	$	735,458	$	548,103		$	365,511	$	182,592		$	3,757,505
Gross profit		532,604		598,443		302,949		543,385		256,595			172,218		84,377			2,233,976
Operating income		191,858		334,041		109,876		252,943		56,868			63,299		(6,431	)		945,586

52-Weeks Ended December 29, 2018
Net sales	$	858,329	$	809,883	$	441,560	$	603,459	$	634,213		$	425,684	$	208,529		$	3,347,444
Gross profit		471,764		528,254		258,756		450,152		270,793			179,862		90,931			1,979,719
Operating income		181,745		290,510		63,344		204,746		37,998			43,141		(5,143	)		778,343

Net sales, property and equipment, and net assets by geographic area are as shown below for the years ended December 26, 2020, December 28, 2019, and December 29, 2018. Note that APAC includes Asia Pacific and Australian Continent, and EMEA includes Europe, the Middle East and Africa.

	Americas		EMEA		APAC		Total
December 26, 2020
Net sales to external customers (1)	$	1,968,080	$	1,579,749	$	638,744	$	4,186,573
Property and equipment, net		467,269		114,313		273,957		855,539
Net assets (2)		3,327,748		1,163,127		1,025,241		5,516,116

December 28, 2019
Net sales to external customers (1)	$	1,817,770	$	1,350,533	$	589,202	$	3,757,505
Property and equipment, net		435,503		65,323		228,095		728,921
Net assets (2)		3,074,155		714,602		1,004,739		4,793,496

December 29, 2018
Net sales to external customers (1)	$	1,596,716	$	1,204,969	$	545,759	$	3,347,444
Property and equipment, net		408,992		45,571		208,964		663,527
Net assets (2)		2,726,196		441,506		995,272		4,162,974

(1) The U.S. is the only country which constitutes greater than 10% of net sales to external customers.
(2) Americas and APAC net assets are primarily held in the United States and Taiwan, respectively.

Stock Compensation Plans

Accounting for Stock-Based Compensation

The various Company stock compensation plans are summarized below. For all stock compensation plans, the Company’s policy is to issue treasury shares for option/stock appreciation right (SAR) exercises, restricted stock unit (RSU) releases and employee stock purchase plan (ESPP) purchases.

2011 Non-employee Directors’ Equity Incentive Plan

In June 2011, the stockholders adopted an equity incentive plan for non-employee directors (the “2011 Directors Plan”) providing for grants of stock options, SARs, RSUs and/or performance shares, pursuant to which up to 122,592 shares were available for issuance. The term of each award cannot exceed ten years. Awards are subject to a minimum one-year vesting period. In 2020, 2019, and 2018, 6,376, 8,016, and 10,376 RSUs were granted under this plan.

2005 Equity Incentive Plan

In June 2005, the shareholders adopted an equity incentive plan (the “2005 Plan”) providing for grants of incentive and nonqualified stock options, SARs, RSUs and/or performance shares to employees of the Company and its subsidiaries, pursuant to which up to 10,000,000 common shares were available for issuance. In 2013, the shareholders approved an additional 3,000,000 shares to the plan, making the total shares authorized under the plan 13,000,000. Option and SAR grants vest evenly over a period of five years or as otherwise determined by the Board of Directors or the Compensation Committee and generally expire ten years from the date of grant, if not exercised. RSUs granted prior to December 10, 2012 vested evenly over a period of five years, while RSUs granted on and after that date vested or are vesting evenly over a period of three years. In addition to time-based vesting requirements, the vesting of certain RSU grants is also contingent upon the Company’s achievement of certain financial performance goals. During 2020, 2019, and 2018, 753,976, 786,346, and 1,040,001 RSUs were granted under the 2005 Plan. No SARs were granted under the 2005 Plan in 2020, 2019, or 2018.

2000 Equity Incentive Plan

In October 2000, the shareholders adopted an equity incentive plan (the “2000 Plan”) providing for grants of incentive and nonqualified stock options, SARs, RSUs and/or performance shares to employees of the Company and its subsidiaries, pursuant to which up to 7,000,000 common shares were available for issuance. The stock options and SARs vest evenly over a period of five years or as otherwise determined by the Board of Directors or the Compensation Committee and generally expire ten years from the date of grant, if not exercised. The Company did not grant any stock awards from the 2000 Plan in 2020, 2019, or 2018.

Stock-Based Compensation Activity

A summary of the Company’s stock-based compensation activity and related information under the 2011 Directors Plan, the 2005 Plan, and the 2000 Plan for the years ended December 26, 2020, December 28, 2019, and December 29, 2018 is provided below:

	Stock Options and SARs
	Weighted-Average Exercise Price		Number of Shares
			(In Thousands)
Outstanding at December 30, 2017	$	48.94		392
Granted				—
Exercised	$	48.16		(304	)
Forfeited/Expired	$	83.01		(2	)
Outstanding at December 29, 2018	$	50.92		86
Granted				—
Exercised	$	49.07		(20	)
Forfeited/Expired				—
Outstanding at December 28, 2019	$	51.46		66
Granted				—
Exercised	$	51.23		(53	)
Forfeited/Expired				—
Outstanding at December 26, 2020	$	52.44		13

Exercisable at December 26, 2020	$	52.44		13
Expected to vest after December 26, 2020				—

Stock Options and SARs as of December 26, 2020
Exercise Price	Awards Outstanding		Remaining Life (Years)		Awards Exercisable
	(In Thousands)				(In Thousands)
$18.00 - $40.00		—		—		—
$40.01 - $60.00		13		3.97		13
$60.01 - $80.00		—		—		—
$80.01 - $100.00		—		—		—
$100.01 - $120.00		—		—		—
$120.01 - $140.00		—		—		—
		13		4		13

	Restricted Stock Units
	Weighted-Average Grant Date Fair Value		Number of Shares
			(In Thousands)
Outstanding at December 30, 2017	$	45.30		2,062
Granted	$	58.66		1,050
Released/Vested	$	42.55		(961	)
Cancelled	$	47.91		(52	)
Outstanding at December 29, 2018	$	53.17		2,099
Granted	$	85.93		794
Released/Vested	$	50.02		(1,053	)
Cancelled	$	58.62		(61	)
Outstanding at December 28, 2019	$	69.47		1,779
Granted	$	99.57		760
Released/Vested	$	64.07		(915	)
Cancelled	$	72.10		(42	)
Outstanding at December 26, 2020	$	86.98		1,582

The weighted-average remaining contract life for stock options and SARs outstanding and exercisable at December 26, 2020 were 3.97 years. The weighted-average remaining contract life of restricted stock units at December 26, 2020 was 1.18 years.

The total fair value of awards vested during 2020, 2019, and 2018, was $58,602, $52,780, and $41,092, respectively. The aggregate intrinsic values of options and SARs outstanding and exercisable at December 26, 2020 were $859. The aggregate intrinsic values of options and SARs exercised during 2020, 2019, and 2018 were $3,701, $952, and $4,452, respectively. The aggregate intrinsic value of RSUs outstanding at December 26, 2020 was $190,203. The aggregate intrinsic values of RSUs released during 2020, 2019, and 2018 were $109,952, $103,702, and $60,361, respectively. Aggregate intrinsic value of options and SARs represents the applicable number of awards multiplied by the positive difference between the exercise price and the Company’s closing stock price on the last trading day of the relevant fiscal period. Aggregate intrinsic value of RSUs represents the applicable number of awards multiplied by the Company’s closing stock price on the last trading day of the relevant fiscal period. The Company’s closing stock price was $120.21 on December 26, 2020 (based on the closing stock price on December 25, 2020). As of December 26, 2020, there was $98,315 of total unrecognized compensation cost related to unvested share-based compensation awards granted to employees under the stock compensation plans. That cost is expected to be recognized over the weighted average remaining vesting period.

Employee Stock Purchase Plan

The shareholders have adopted an ESPP. Up to 8,000,000 shares of common stock have been reserved for the ESPP. Shares are offered to employees at a price equal to the lesser of 85% of the fair market value of the stock on the date of purchase or 85% of the fair market value on the first day of the ESPP period. The ESPP is intended to qualify as an “employee stock purchase plan” under Section 423 of the Internal Revenue Code. During 2020, 2019, and 2018, 195,540, 451,625, and 463,066 shares, respectively, were purchased under the plan for a total purchase price of $15,955, $27,048, and $23,709, respectively. During 2020, 2019, and 2018, the purchases were issued from treasury shares. At December 26, 2020, approximately 1,860,115 shares were available for future issuance. On December 30, 2020, subsequent to Garmin’s fiscal 2020 year end, 215,143 shares were purchased under the plan for a total purchase price of $17,762.

Earnings Per Share

The following table sets forth the computation of basic and diluted net income per share:

	Fiscal Year Ended
	December 26, 2020		December 28, 2019		December 29, 2018
Numerator:
Numerator for basic and diluted net income per share - net income	$	992,324	$	952,486	$	694,080

Denominator (in thousands):
Denominator for basic net income per share – weighted-average common shares		191,085		189,931		188,635

Effect of dilutive equity awards		810		968		1,099

Denominator for diluted net income per share – adjusted weighted-average common shares		191,895		190,899		189,734

Basic net income per share	$	5.19	$	5.01	$	3.68

Diluted net income per share	$	5.17	$	4.99	$	3.66

There were 307,724 and 297,995 outstanding stock options, stock appreciation rights, and restricted stock units (collectively “equity awards”) excluded from the computation of diluted earnings per share for the 2020 and 2019 fiscal years, respectively, because the effect would have been anti-dilutive.

Share Repurchase Plan

On February 13, 2015, the Board of Directors approved a share repurchase program authorizing the Company to purchase up to $300,000 of its common shares through December 31, 2016. In December 2016, the Board of Directors authorized an extension through December 31, 2017 to purchase remaining common shares. The Company did not repurchase any shares in fiscal 2020, fiscal 2019 or fiscal 2018.

Accumulated Other Comprehensive Income

The following provides required disclosure of changes in accumulated other comprehensive income (AOCI) balances by component for the year ended December 26, 2020:

	Foreign currency translation adjustment		Net gains (losses) on available-for-sale securities			Total
Balance - beginning of period	$	55,289	$	585		$	55,874
Other comprehensive income before reclassification, net of income tax expense of $3,358		107,664		21,080			128,744
Amounts reclassified from Accumulated other comprehensive income to Other income (expense), net of income tax expense of $201 included in Income tax provision		—		(1,191	)		(1,191	)
Net current-period other comprehensive income		107,664		19,889			127,553
Balance - end of period	$	162,953	$	20,474		$	183,427

Revenue

In order to further depict how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors, we disaggregate revenue (or “net sales”) by geographic region, major product category, and pattern of recognition.

Disaggregated revenue by geographic region (Americas, APAC, and EMEA) is presented in Note 8 – Segment Information. Note 8 also contains disaggregated revenue information of the six major product categories identified by the Company – auto OEM, aviation, consumer auto, fitness, marine, and outdoor.

A large majority of the Company’s sales are recognized on a point in time basis, usually once the product is shipped and title and risk of loss have transferred to the customer. Sales recognized over a period of time are primarily within the auto segment and relate to performance obligations that are satisfied over the life of the product or contractual service period. Revenue disaggregated by the timing of transfer of the goods or services is presented in the table below:

	Fiscal Year Ended
	December 26, 2020		December 28, 2019		December 29, 2018
Point in time	$	3,998,251	$	3,577,715	$	3,176,949
Over time		188,322		179,790		170,495
Net sales	$	4,186,573	$	3,757,505	$	3,347,444

Transaction price and costs associated with the Company’s unsatisfied performance obligations are reflected as deferred revenue and deferred costs, respectively, on the Company’s Consolidated Balance Sheets. Such amounts are recognized ratably over the applicable service period or estimated useful life. Changes in deferred revenue and costs during the 52-week periods ending December 26, 2020 and December 28, 2019, are presented below:

	Fiscal Year Ended
	December 26, 2020						December 28, 2019
	Deferred Revenue (1)			Deferred Costs (2)			Deferred Revenue (1)			Deferred Costs (2)
Balance, beginning of period	$	161,891		$	48,598		$	172,938		$	57,935
Deferrals in period		163,230			17,850			168,743			25,751
Recognition of deferrals in period		(188,322	)		(29,793	)		(179,790	)		(35,088	)
Balance, end of period	$	136,799		$	36,655		$	161,891		$	48,598

(1) Deferred revenue is comprised of both Deferred revenue and Noncurrent deferred revenue per the Consolidated Balance Sheets
(2) Deferred costs are comprised of both Deferred costs and Noncurrent deferred costs per the Consolidated Balance Sheets

Of the $188,322 of deferred revenue recognized in the 52-weeks ended December 26, 2020, $92,618 was deferred as of the beginning of the period. Of the $179,790 of deferred revenue recognized in the 52-weeks ended December 28, 2019, $95,009 was deferred as of the beginning of the period.

Of the $136,799 and $161,891 of deferred revenue at the end of the periods, December 26, 2020 and December 28, 2019, respectively, approximately two-thirds is recognized ratably over a period of three years or less.

Leases

The following table represents lease costs recognized in the Company’s Consolidated Statements of Income for the 52-weeks ended December 26, 2020. Lease costs are included in Selling, general and administrative expense and Research and development expense on the Company’s Condensed Consolidated Statements of Income.

		Fiscal Year Ended
		December 26, 2020				December 28, 2019
Operating lease cost (1)		$	29,894			$	25,238

(1) Operating lease cost includes short-term lease costs and variable lease costs, which were not material in the period presented.

Prior to the adoption of the new lease standard, lease expense for the year ended December 29, 2018 was $21,096.

The following table represents the components of leases that are recognized on the Company’s Consolidated Balance Sheets as of December 26, 2020 and December 28, 2019.

	December 26, 2020			December 28, 2019
Operating lease right-of-use assets	$	94,626		$	63,589

Other accrued expenses	$	18,874		$	14,762
Noncurrent operating lease liabilities		75,958			49,238
Total lease liabilities	$	94,832		$	64,000

Weighted average remaining lease term	6.3 years			5.7 years
Weighted average discount rate		3.6	%		4.1	%

The following table represents the maturity of lease liabilities.

Year	Amount
2021	$	22,900
2022		19,251
2023		17,714
2024		14,289
2025		10,676
Thereafter		23,029
Total		107,859
Less: imputed interest		(13,027	)
Present value of lease liabilities		94,832

The following table presents supplemental cash flow and noncash information related to leases.

	Fiscal Year Ended
	December 26, 2020		December 28, 2019
Cash paid for amounts included in the measurement of operating lease liabilities (2)	$	20,401	$	18,636
Right-of-use assets obtained in exchange for new operating lease liabilities	$	39,009	$	18,248

(2) Included in Net cash provided by operating activities on the Company's Statements of Cash Flows

Selected Quarterly Information (Unaudited)

	52-Weeks Ended December 26, 2020
	Quarter Ending
	March 28		June 27		September 26		December 26
Net sales	$	856,108	$	869,867	$	1,109,194	$	1,351,405
Gross profit		506,940		515,430		667,983		790,983
Net income		161,180		184,180		313,417		333,547
Basic net income per share	$	0.84	$	0.96	$	1.64	$	1.73
Diluted net income per share	$	0.84	$	0.96	$	1.63	$	1.73

	52-Weeks Ended December 28, 2019
	Quarter Ending
	March 30		June 29		September 28		December 28
Net sales	$	766,050	$	954,840	$	934,383	$	1,102,233
Gross profit		451,698		575,365		567,458		639,456
Net income		140,173		223,656		227,866		360,792
Basic net income per share	$	0.74	$	1.18	$	1.20	$	1.90
Diluted net income per share	$	0.74	$	1.17	$	1.19	$	1.89

The above quarterly financial data is unaudited, but in the opinion of management, all adjustments necessary for a fair presentation of the selected data for these interim periods presented have been included. These results are not necessarily indicative of future quarterly results, and the table may not foot due to rounding.

Subsequent Events

On December 31, 2020, subsequent to Garmin’s fiscal 2020 year end, the Company acquired substantially all of the assets of GEOS Worldwide Limited and its subsidiaries, a privately held provider of emergency monitoring and incident response services. This acquisition was not material.

Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A.	Controls and Procedures

	(a)	Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b) as of the end of the period covered by this report. Based on the evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective.

	(b)	Management’s Report on Internal Control over Financial Reporting

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management of the Company assessed the effectiveness of the Company’s internal control over financial reporting as of December 26, 2020. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in “Internal Control-Integrated Framework” (2013 framework).

Based on such assessment and those criteria, management believes that the Company maintained effective internal control over financial reporting as of December 26, 2020.

Ernst & Young LLP, the independent registered public accounting firm that audited the Company’s consolidated financial statements, issued an attestation report on management’s effectiveness of the Company’s internal control over financial reporting as of December 26, 2020, as stated in their report which is included herein. That attestation report appears below.

	(c)	Attestation Report of the Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Garmin Ltd. and Subsidiaries

Opinion on Internal Control over Financial Reporting

We have audited Garmin Ltd. and Subsidiaries’ internal control over financial reporting as of December 26, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), (the COSO criteria). In our opinion, Garmin Ltd. and Subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 26, 2020, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 26, 2020 and December 28, 2019, the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 26, 2020, and the related notes and financial statement schedule listed in the Index at Item 15(a) and our report dated February 17, 2021 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

/s/ Ernst & Young LLP

Kansas City, Missouri

February 17, 2021

	(d)	Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended December 26, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B.	Other Information

Not applicable.

PART III

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