filings.toolsItem 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The discussion set forth below, as well as other portions of this Quarterly Report on Form 10-Q, contain statements concerning potential future events. Such forward-looking statements are based upon assumptions by management, as of the date of this Quarterly Report on Form 10-Q, including assumptions about risks and uncertainties faced by the Company. Readers can identify these forward-looking statements by their use of such words as "future", "expects", "anticipates", "believes", “estimates”, “would”, “could”, “can”, “may,” or other similar words or other comparable terms. If any of the Company’s assumptions prove incorrect or should unanticipated circumstances arise, actual results could materially differ from those anticipated by such forward-looking statements. The differences could be caused by a number of factors or combination of factors including, but not limited to, those factors identified in Part II, Item 1A of this Quarterly Report on Form 10-Q and in the Company’s Annual Report on Form 10-K for the year ended December 30, 2023. Readers are strongly encouraged to consider those factors when evaluating any forward-looking statement concerning the Company. These forward-looking statements are made as of the date hereof, and the Company disclaims any obligation to update any forward-looking statements in this Quarterly Report on Form 10-Q to reflect future events or developments, except as required by law.
The information contained in this Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Condensed Consolidated Financial Statements and Notes thereto included in this Quarterly Report on Form 10-Q and the audited financial statements and notes thereto in the Company’s Annual Report on Form 10-K for the year ended December 30, 2023. Unless the context otherwise requires, references in this document to "we", "us", "our", the "Company" and similar terms refer to Garmin Ltd. and its subsidiaries.
Unless otherwise indicated, amounts set forth in the discussion below are in thousands.
Company Overview
The Company is a leading worldwide provider of wireless devices, many of which feature Global Positioning System (GPS) navigation, and applications that are designed for people who live an active lifestyle. We are organized in the five operating segments of fitness, outdoor, aviation, marine, and auto OEM. Our products are sold through a variety of indirect distribution channels, including a large worldwide network of independent retailers, dealers, distributors, installation and repair shops, and original equipment manufacturers (OEMs). We also sell our products and services directly through our online webshop (garmin.com), subscriptions for connected services, and our own retail stores.
Results of Operations
As indicated in Note 1 to the Condensed Consolidated Financial Statements, in the first quarter of fiscal 2024, the Company changed the presentation of operating expense to include advertising expense within selling, general and administrative expenses on the Company's condensed consolidated statements of income, which management believes to be a more meaningful presentation.
This change in presentation had no effect on the Company's consolidated operating or net income. The amounts presented below for selling, general and administrative expenses for the 13-week and 26-week periods ended July 1, 2023 have been recast to conform with the current period presentation.
Comparison of 13-Weeks Ended June 29, 2024 and July 1, 2023
Net Sales
| Net Sales | 13-Weeks Ended June 29, 2024 | Year-over-Year Change | 13-Weeks Ended July 1, 2023 | |||||||||
| Fitness | $ | 428,404 | 28 | % | $ | 334,863 | ||||||
| Percentage of Total Net Sales | 28 | % | 25 | % | ||||||||
| Outdoor | 439,872 | (2 | %) | 448,114 | ||||||||
| Percentage of Total Net Sales | 29 | % | 34 | % | ||||||||
| Aviation | 218,253 | 0 | % | 217,454 | ||||||||
| Percentage of Total Net Sales | 15 | % | 17 | % | ||||||||
| Marine | 272,953 | 26 | % | 215,802 | ||||||||
| Percentage of Total Net Sales | 18 | % | 16 | % | ||||||||
| Auto OEM | 147,189 | 41 | % | 104,562 | ||||||||
| Percentage of Total Net Sales | 10 | % | 8 | % | ||||||||
| Total | $ | 1,506,671 | 14 | % | $ | 1,320,795 |
Net sales increased 14% for the 13-week period ended June 29, 2024 when compared to the year-ago quarter. Total unit sales in the second quarter of 2024 increased to 4,655 when compared to total unit sales of 4,162 in the second quarter of 2023, which differs from the percent increase in revenue primarily due to shifts in segment and product mix. Outdoor was the largest portion of our revenue mix at 29% in the second quarter of 2024 compared to 34% in the second quarter of 2023.
The increase in fitness revenue was primarily driven by sales growth in wearables. The increase in marine revenue was primarily driven by contributions from the Company's acquisition of JL Audio. Auto OEM revenue increased primarily due to growth in domain controllers. Aviation revenue was relatively flat as growth in OEM product categories was offset by declines in aftermarket product categories. Outdoor revenue decreased primarily due to declines in adventure watches.
Gross Profit
| Gross Profit | 13-Weeks Ended June 29, 2024 | Year-over-Year Change | 13-Weeks Ended July 1, 2023 | |||||||||
| Fitness | $ | 245,248 | 42 | % | $ | 173,163 | ||||||
| Percentage of Segment Net Sales | 57 | % | 52 | % | ||||||||
| Outdoor | 284,214 | 1 | % | 280,078 | ||||||||
| Percentage of Segment Net Sales | 65 | % | 63 | % | ||||||||
| Aviation | 161,366 | 0 | % | 160,957 | ||||||||
| Percentage of Segment Net Sales | 74 | % | 74 | % | ||||||||
| Marine | 147,787 | 23 | % | 120,344 | ||||||||
| Percentage of Segment Net Sales | 54 | % | 56 | % | ||||||||
| Auto OEM | 24,276 | (3 | %) | 24,900 | ||||||||
| Percentage of Segment Net Sales | 16 | % | 24 | % | ||||||||
| Total | $ | 862,891 | 14 | % | $ | 759,442 | ||||||
| Percentage of Total Net Sales | 57 | % | 57 | % |
Gross profit dollars in the second quarter of 2024 increased 14%, primarily due to the increase in net sales when compared to the year-ago quarter, as described above. Consolidated gross margin was relatively flat as unfavorable segment mix was offset by favorable product mix within certain segments.
The fitness and outdoor gross margin increases of 550 basis points and 210 basis points, respectively, were primarily attributable to favorable product mix. The aviation gross margin was relatively flat when compared to the year-ago quarter. The marine and auto OEM gross margin decreases of 160 basis points and 730 basis points, respectively, were primarily attributable to unfavorable product mix.
Operating Expense
| Operating Expense | 13-Weeks Ended June 29, 2024 | Year-over-Year Change | 13-Weeks Ended July 1, 2023 | |||||||||
| Research and development expense | 243,151 | 8 | % | 224,394 | ||||||||
| Percentage of Total Net Sales | 16 | % | 17 | % | ||||||||
| Selling, general and administrative expenses | 277,713 | 11 | % | 250,693 | ||||||||
| Percentage of Total Net Sales | 18 | % | 19 | % | ||||||||
| Total | $ | 520,864 | 10 | % | $ | 475,087 | ||||||
| Percentage of Total Net Sales | 35 | % | 36 | % |
Total operating expense in the second quarter of 2024 increased 10% in absolute dollars and decreased 140 basis points as a percent of revenue when compared to the year-ago quarter.
Research and development expense increased 8% in absolute dollars and was relatively flat as a percent of revenue when compared to the year-ago quarter. The absolute dollar expense increase was primarily due to higher engineering personnel costs.
Selling, general and administrative expenses increased 11% in absolute dollars and was relatively flat as a percent of revenue when compared to the year-ago quarter. The absolute dollar expense increase was primarily attributable to increased personnel-related expenses, including the impact of the Company's acquisition of JL Audio.
Operating Income
| Operating Income (Loss) | 13-Weeks Ended June 29, 2024 | Year-over-Year Change | 13-Weeks Ended July 1, 2023 | |||||||||
| Fitness | $ | 107,610 | 98 | % | $ | 54,458 | ||||||
| Percentage of Segment Net Sales | 25 | % | 16 | % | ||||||||
| Outdoor | 135,592 | (2 | %) | 138,255 | ||||||||
| Percentage of Segment Net Sales | 31 | % | 31 | % | ||||||||
| Aviation | 50,485 | (20 | %) | 62,766 | ||||||||
| Percentage of Segment Net Sales | 23 | % | 29 | % | ||||||||
| Marine | 59,892 | 29 | % | 46,377 | ||||||||
| Percentage of Segment Net Sales | 22 | % | 21 | % | ||||||||
| Auto OEM | (11,552 | ) | (34 | %) | (17,501 | ) | ||||||
| Percentage of Segment Net Sales | (8 | %) | (17 | %) | ||||||||
| Total | $ | 342,027 | 20 | % | $ | 284,355 | ||||||
| Percentage of Total Net Sales | 23 | % | 22 | % |
Total operating income in the second quarter of 2024 increased 20% in absolute dollars and increased 120 basis points as a percent of revenue when compared to the year-ago quarter. The increase in operating income as a percent of revenue was driven by increased sales and lower operating expenses as a percent of revenue, as described above. The improved operating income dollar performance in fitness, marine, and auto OEM was partially offset by decreases in outdoor and aviation.
Other Income (Expense)
| Other Income (Expense) | 13-Weeks Ended June 29, 2024 | 13-Weeks Ended July 1, 2023 | ||||||
| Interest income | $ | 29,286 | $ | 18,760 | ||||
| Foreign currency (losses) gains | (4,828 | ) | 10,797 | |||||
| Other (expense) income | (513 | ) | 2,064 | |||||
| Total | $ | 23,945 | $ | 31,621 |
The average interest rate return on cash and investments during the second quarter of 2024 was 3.4%, compared to 2.7% during the same quarter of 2023.
Foreign currency gains and losses for the Company are driven by movements of a number of currencies in relation to the U.S. Dollar. The Taiwan Dollar is the functional currency of Garmin Corporation, the Euro is the functional currency of several subsidiaries, and the U.S. Dollar is the functional currency of Garmin (Europe) Ltd., although some transactions and balances are denominated in British Pounds. Other notable currency exposures include the Australian Dollar, Chinese Yuan, Japanese Yen, and Polish Zloty. The majority of the Company’s consolidated foreign currency gain or loss is typically driven by the significant cash and marketable securities, receivables and payables held in a currency other than the functional currency at a given legal entity.
The $4.8 million currency loss recognized in the second quarter of 2024 was primarily due to the U.S. Dollar strengthening against the Euro and Polish Zloty, offset by the U.S. Dollar strengthening against the Taiwan Dollar, within the 13-week period ended June 29, 2024. During this period, the U.S. Dollar strengthened 0.7% against the Euro and 0.8% against the Polish Zloty, resulting in losses of $3.3 million and $1.7 million, respectively, while the U.S. Dollar strengthened 1.7% against the Taiwan Dollar, resulting in a gain of $8.4 million. The remaining net currency loss of $8.2 million was related to the impacts of other drivers, each of which was individually immaterial.
The $10.8 million currency gain recognized in the second quarter of 2023 was primarily due to the U.S. Dollar weakening against the Polish Zloty, British Pound Sterling, and Euro, and strengthening against the Taiwan Dollar, partially offset by the U.S. Dollar strengthening against the Chinese Yuan, Japanese Yen, and Australian Dollar, within the 13-week period ended July 1, 2023. During this period, the U.S. Dollar weakened 4.7% against the Polish Zloty, 3.0% against the British Pound Sterling, 0.7% against the Euro, and strengthened 2.0% against the Taiwan Dollar, resulting in gains of $9.4 million, $1.4 million, $0.9 million, and $7.1 million, respectively, partially offset by the U.S. Dollar strengthening 5.3% against the Chinese Yuan, 8.0% against the Japanese Yen, and 1.4% against the Australian Dollar, resulting in losses of $3.1 million, $2.1 million, and $0.8 million, respectively. The remaining net currency loss of $2.0 million was related to the impacts of other currencies, each of which was individually immaterial.
Income Tax Provision
The Company recorded income tax expense of $65.3 million in the 13-week period ended June 29, 2024, compared to income tax expense of $28.0 million in the 13-week period ended July 1, 2023. The effective tax rate was 17.9% in the second quarter of 2024, compared to 8.9% in the second quarter of 2023. The increase in effective tax rate between comparative periods was primarily due to the increase in the combined federal and cantonal Switzerland statutory tax rate in response to the implementation of global minimum tax requirements.
Net Income
As a result of the above, net income for the 13-week period ended June 29, 2024 was $300.6 million compared to $287.9 million for the 13-week period ended July 1, 2023, an increase of $12.7 million.
Comparison of 26-Weeks Ended June 29, 2024 and July 1, 2023
Net Sales
| Net Sales | 26-Weeks Ended June 29, 2024 | Year-over-Year Change | 26-Weeks Ended July 1, 2023 | |||||||||
| Fitness | $ | 771,296 | 33 | % | $ | 579,584 | ||||||
| Percentage of Total Net Sales | 27 | % | 24 | % | ||||||||
| Outdoor | 806,065 | 4 | % | 776,776 | ||||||||
| Percentage of Total Net Sales | 28 | % | 31 | % | ||||||||
| Aviation | 435,108 | 1 | % | 431,036 | ||||||||
| Percentage of Total Net Sales | 15 | % | 17 | % | ||||||||
| Marine | 599,689 | 21 | % | 494,777 | ||||||||
| Percentage of Total Net Sales | 21 | % | 20 | % | ||||||||
| Auto OEM | 276,162 | 48 | % | 186,046 | ||||||||
| Percentage of Total Net Sales | 9 | % | 8 | % | ||||||||
| Total | $ | 2,888,320 | 17 | % | $ | 2,468,219 |
Net sales increased 17% for the 26-week period ended June 29, 2024 when compared to the year-ago period. Total unit sales in the first half of 2024 increased to 8,545 when compared to total unit sales of 7,372 in the first half of 2023, which differs from the percent increase in revenue primarily due to shifts in segment and product mix. Outdoor was the largest portion of our revenue mix at 28% in the first half of 2024 compared to 31% in the first half of 2023.
The increase in fitness revenue was driven by sales growth across all categories, led by strong demand for advanced wearables. Outdoor revenue increased primarily due to growth in sportsman products. Aviation revenue increased due to growth in OEM product categories, partially offset by declines in aftermarket categories. Marine revenue increased primarily driven by contributions from the Company's acquisition of JL Audio. Auto OEM revenue increased primarily due to growth in domain controllers.
Gross Profit
| Gross Profit | 26-Weeks Ended June 29, 2024 | Year-over-Year Change | 26-Weeks Ended July 1, 2023 | |||||||||
| Fitness | $ | 440,050 | 50 | % | $ | 294,073 | ||||||
| Percentage of Segment Net Sales | 57 | % | 51 | % | ||||||||
| Outdoor | 526,953 | 9 | % | 485,026 | ||||||||
| Percentage of Segment Net Sales | 65 | % | 62 | % | ||||||||
| Aviation | 323,992 | 3 | % | 315,410 | ||||||||
| Percentage of Segment Net Sales | 74 | % | 73 | % | ||||||||
| Marine | 327,039 | 21 | % | 269,976 | ||||||||
| Percentage of Segment Net Sales | 55 | % | 55 | % | ||||||||
| Auto OEM | 46,996 | (2 | %) | 47,751 | ||||||||
| Percentage of Segment Net Sales | 17 | % | 26 | % | ||||||||
| Total | $ | 1,665,030 | 18 | % | $ | 1,412,236 | ||||||
| Percentage of Total Net Sales | 58 | % | 57 | % |
Gross profit dollars in the first half of 2024 increased 18%, primarily due to the increase in net sales when compared to the year-ago period, as described above. Consolidated gross margin was relatively flat when compared to the year-ago period.
The fitness and outdoor gross margin increases of 630 and 290 basis points, respectively, were primarily attributable to favorable product mix. The aviation gross margin increase of 130 basis points was primarily attributable to lower warranty costs. The marine gross margin was relatively flat when compared to the year-ago period. The auto OEM gross margin decrease of 870 basis points was primarily attributable to unfavorable product mix.
Operating Expense
| Operating Expense | 26-Weeks Ended June 29, 2024 | Year-over-Year Change | 26-Weeks Ended July 1, 2023 | |||||||||
| Research and development expense | $ | 485,686 | 9 | % | $ | 445,878 | ||||||
| Percentage of Total Net Sales | 17 | % | 18 | % | ||||||||
| Selling, General and administrative expenses | 538,907 | 11 | % | 485,021 | ||||||||
| Percentage of Total Net Sales | 19 | % | 20 | % | ||||||||
| Total | $ | 1,024,593 | 10 | % | $ | 930,899 | ||||||
| Percentage of Total Net Sales | 35 | % | 38 | % |
Total operating expense in the first half of 2024 increased 10% in absolute dollars and decreased 220 basis points as a percent of revenue when compared to the year-ago period.
Research and development expense increased 9% in absolute dollars and decreased 130 basis points as a percent of revenue when compared to the year-ago period. The absolute dollar expense increase was primarily due to higher engineering personnel costs.
Selling, general and administrative expense increased 11% in absolute dollars and decreased 100 basis points as a percent of revenue compared to the year-ago period. The absolute dollar expense increase was primarily attributable to increased personnel-related expenses, including the impact of the Company's acquisition of JL Audio.
Operating Income
| Operating Income (Loss) | 26-Weeks Ended June 29, 2024 | Year-over-Year Change | 26-Weeks Ended July 1, 2023 | |||||||||
| Fitness | $ | 175,743 | 170 | % | $ | 65,036 | ||||||
| Percentage of Segment Net Sales | 23 | % | 11 | % | ||||||||
| Outdoor | 242,543 | 13 | % | 214,999 | ||||||||
| Percentage of Segment Net Sales | 30 | % | 28 | % | ||||||||
| Aviation | 102,619 | (15 | %) | 120,460 | ||||||||
| Percentage of Segment Net Sales | 24 | % | 28 | % | ||||||||
| Marine | 147,583 | 25 | % | 118,285 | ||||||||
| Percentage of Segment Net Sales | 25 | % | 24 | % | ||||||||
| Auto OEM | (28,051 | ) | (25 | %) | (37,443 | ) | ||||||
| Percentage of Segment Net Sales | (10 | %) | (20 | %) | ||||||||
| Total | $ | 640,437 | 33 | % | $ | 481,337 | ||||||
| Percentage of Total Net Sales | 22 | % | 20 | % |
Total operating income in the first half of 2024 increased 33% in absolute dollars and 270 basis points as a percent of revenue when compared to the year-ago period. The increase as a percent of revenue was primarily due to increased sales and lower operating expenses as a percent of revenue, as described above. The improved operating income dollar performance in fitness, outdoor, marine, and auto OEM was partially offset by a decrease in aviation.
Other Income (Expense)
| Other Income (Expense) | 26-Weeks Ended June 29, 2024 | 26-Weeks Ended July 1, 2023 | ||||||
| Interest income | $ | 54,313 | $ | 34,659 | ||||
| Foreign currency (losses) gains | (2,547 | ) | 18,484 | |||||
| Other Income | 809 | 3,268 | ||||||
| Total | $ | 52,575 | $ | 56,411 |
The average interest returns on cash and investments during the 26-week periods ended June 29, 2024 and July 1, 2023 were 3.3% and 2.5%, respectively.
Foreign currency gains and losses for the Company are driven by movements of a number of currencies in relation to the U.S. Dollar. The Taiwan Dollar is the functional currency of Garmin Corporation, the Euro is the functional currency of several subsidiaries, and the U.S. Dollar is the functional currency of Garmin (Europe) Ltd., although some transactions and balances are denominated in British Pounds. Other notable currency exposures include the Australian Dollar, Chinese Yuan, Japanese Yen, and Polish Zloty. The majority of the Company’s consolidated foreign currency gain or loss is typically driven by the significant cash and marketable securities, receivables and payables held in a currency other than the functional currency at a given legal entity.
The $2.5 million currency loss recognized in the 26-week period ended June 29, 2024 was primarily due to the U.S. Dollar strengthening against the Polish Zloty, Euro, and Australian Dollar, offset by the U.S. Dollar strengthening against the Taiwan Dollar, within the 26-week period ended June 29, 2024. During this period, the U.S. Dollar strengthened 2.6% against the Polish Zloty, 2.9% against the Euro, and 2.7% against the Australian Dollar, resulting in losses of $8.5 million, $6.2 million, and $2.9 million, respectively, while the U.S. Dollar strengthened 5.6% against the Taiwan Dollar, resulting in a gain of $30.0 million. The remaining net currency loss of $14.9 million was related to the impacts of other drivers, each of which was individually immaterial.
The $18.5 million currency gain recognized in the 26-week period ended July 1, 2023 was primarily due to the U.S. Dollar weakening against the Polish Zloty, British Pound Sterling, and Euro, and strengthening against the Taiwan Dollar, partially offset by the U.S. Dollar strengthening against the Chinese Yuan, Japanese Yen, and Australian Dollar, within the 26-week period ended July 1, 2023. During this period, the U.S. Dollar weakened 7.5% against the Polish Zloty, 5.0% against the British Pound Sterling, 1.9% against the Euro, and strengthened 1.6% against the Taiwan Dollar, resulting in gains of $13.9 million, $2.7 million, $1.4 million, and $5.9 million, respectively, partially offset by the U.S. Dollar strengthening 4.0% against the Chinese Yuan, 9.1% against the Japanese Yen, and 2.4% against the Australian Dollar, resulting in losses of $2.4 million, $2.0 million, and $0.5 million, respectively. The remaining net currency loss of $0.5 million was related to the impacts of other currencies, each of which was individually immaterial.
Income Tax Provision
The Company recorded income tax expense of $116.4 million in the first half of 2024, compared to income tax expense of $47.5 million in the first half of 2023. The effective tax rate was 16.8% in the first half of 2024, compared to 8.8% in the first half of 2023. The increase in effective tax rate between comparative periods was primarily due to the increase in the combined federal and cantonal Switzerland statutory tax rate in response to the implementation of global minimum tax requirements.
Net Income
As a result of the above, net income for the 26-week period ended June 29, 2024 was $576.6 million compared to $490.3 million for the 26-week period ended July 1, 2023, an increase of $86.3 million.
Liquidity and Capital Resources
We primarily use cash flow from operations, and expect that future cash requirements may be used, to fund our capital expenditures, support our working capital requirements, pay dividends, fund share repurchases, and fund strategic acquisitions. We believe that our existing cash balances and cash flow from operations will be sufficient to meet our short- and long-term projected working capital needs, capital expenditures, and other cash requirements.
Cash, Cash Equivalents, and Marketable Securities
As of June 29, 2024, we had approximately $3.4 billion of cash, cash equivalents and marketable securities. Management invests idle or surplus cash in accordance with the Company's investment policy, which has been approved by the Company’s Board of Directors. The investment policy’s primary objectives are to preserve capital, maintain an acceptable degree of liquidity, and maximize yield within the constraint of low credit risk. Garmin’s average interest rate returns on cash and investments during the first halves of 2024 and 2023 were 3.3% and 2.5%, respectively. The fair value of our securities varies from period to period due to changes in interest rates, the performance of the underlying collateral, and the credit performance of the underlying issuer, among other factors. See Note 4 in the Notes to the Condensed Consolidated Financial Statements for additional information regarding marketable securities.
Cash Flows
Cash provided by operating activities totaled $690.6 million for the first half of 2024, compared to $552.9 million for the first half of 2023. The increase was primarily due to an increase in cash received from customers primarily driven by higher net sales as well as less cash paid for income taxes, partially offset by increases in cash paid for cost of goods sold and operating expenses in the first half of 2024 compared to the first half of 2023.
Cash used in investing activities totaled $143.2 million for the first half of 2024, compared to $70.1 million for the first half of 2023. The increase was primarily due to net purchases of marketable securities in the first half of 2024, compared to the net redemptions of marketable securities in the first half of 2023, partially offset by a decrease in purchases of property and equipment.
Cash used in financing activities totaled $285.7 million for the first half of 2024, compared to $337.1 million for the first half of 2023. This decrease was primarily due to lower purchases of treasury shares under share repurchase plans and partially offset by an increase in the purchase of treasury shares related to equity awards in the first half of 2024 compared to the first half of 2023.
Use of Cash
Operating Leases
The Company has lease arrangements for certain real estate properties, vehicles, and equipment. Leased properties are typically used for office space, distribution, and retail. As of June 29, 2024, the Company had fixed lease payment obligations of $147.7 million, with $32.5 million payable within 12 months.
Inventory Purchase Obligations
The Company obtains various raw materials and components for its products from a variety of third party suppliers. The Company’s inventory purchase obligations are primarily noncancelable. As of June 29, 2024, the Company had inventory purchase obligations of $862.7 million, with $685.2 million payable within 12 months.
Other Purchase Obligations
The Company’s other purchase obligations primarily consist of noncancelable commitments for capital expenditures and other indirect purchases in connection with conducting our business. As of June 29, 2024, the Company had other purchase obligations of $373.7 million, with $170.5 million payable within 12 months.
Critical Accounting Policies and Estimates
General
Our discussion and analysis of financial condition and results of operations are based upon the Company’s condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The presentation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to customer sales programs and incentives, product returns, bad debts, inventories, investments, intangible assets, income taxes, warranty obligations, and contingencies and litigation. We base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
For a description of the significant accounting policies and methods used in the preparation of the Company’s condensed consolidated financial statements, refer to Note 1, “Summary of Significant Accounting Policies” in the Notes to the Consolidated Financial Statements in Part II, Item 8 and “Critical Accounting Policies and Estimates” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 30, 2023. There were no significant changes to the Company’s critical accounting policies and estimates in the 13-week and 26-week periods ended June 29, 2024.
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