Notes to Condensed Consolidated Financial
Statements (Unaudited)
July 1, 2017
(In thousands, except per share information)
The accompanying unaudited
condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation
have been included. Additionally, the condensed consolidated financial statements should be read in conjunction with Item 2 of
Management's Discussion and Analysis of Financial Condition and Results of Operations, included in this Form 10-Q. Operating results
for the 13-week and 26-week periods ended July 1, 2017 are not necessarily indicative of the results that may be expected for the
year ending December 30, 2017.
The condensed consolidated
balance sheet at December 31, 2016 has been derived from the audited financial statements at that date but does not include all
of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further
information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report
on Form 10-K for the year ended December 31, 2016.
The Company’s fiscal
year is based on a 52-53 week period ending on the last Saturday of the calendar year. Therefore, the financial results of certain
53-week fiscal years, and the associated 14-week quarters, will not be exactly comparable to the prior and subsequent 52-week fiscal
years and the associated 13-week quarters. The quarters ended July 1, 2017 and June 25, 2016 both contain operating results for
13 weeks.
In March 2016, the Financial
Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2016-09, Compensation—Stock Compensation
(Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”), which is intended to simplify
the accounting for share-based payment awards. The Company adopted ASU 2016-09 on a prospective basis during the quarter ended
April 1, 2017. ASU 2016-09 requires excess tax benefits or deficiencies from stock-based compensation to be recognized in the income
tax provision. We previously recorded these amounts to additional paid-in capital. Additionally, under ASU 2016-09, excess tax
benefits and deficiencies 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
under ASU 2016-09, rather than as a cash flow from financing activities. Most significantly, the Company recognized income tax
expense of $7,275 resulting from stock options and stock appreciation rights expiring unexercised during the 13-week and 26-week
periods ended July 1, 2017. The impact of these discrete tax items on diluted earnings per share was $0.04 for both the 13-week
and 26-week periods ended July 1, 2017. The Company believes ASU 2016-09 may have a material effect on forthcoming quarters during
fiscal 2017. However, the Company is unable to reasonably estimate the impact due to the dependency of these items on the underlying
share price of the Company.
The components of inventories
consist of the following:
|
|
July 1,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Raw materials
|
|
$
|
181,514
|
|
|
$
|
162,882
|
|
Work-in-process
|
|
|
82,283
|
|
|
|
68,602
|
|
Finished goods
|
|
|
298,629
|
|
|
|
293,789
|
|
Inventory reserves
|
|
|
(37,259
|
)
|
|
|
(40,452
|
)
|
Inventory, net of reserves
|
|
$
|
525,167
|
|
|
$
|
484,821
|
|
The following table sets
forth the computation of basic and diluted net income per share:
|
|
13-Weeks Ended
|
|
|
|
July 1,
|
|
|
June 25,
|
|
|
|
2017
|
|
|
2016
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Numerator for basic and diluted net income per share - net income
|
|
$
|
170,950
|
|
|
$
|
161,064
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Denominator for basic net income per share – weighted-average common shares
|
|
|
187,757
|
|
|
|
188,892
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities – stock options, stock appreciation rights and restricted stock units
|
|
|
735
|
|
|
|
464
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted net income per share – adjusted weighted-average common shares
|
|
|
188,492
|
|
|
|
189,356
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share
|
|
$
|
0.91
|
|
|
$
|
0.85
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share
|
|
$
|
0.91
|
|
|
$
|
0.85
|
|
|
|
26-Weeks Ended
|
|
|
|
July 1,
|
|
|
June 25,
|
|
|
|
2017
|
|
|
2016
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Numerator for basic and diluted net income per share - net income
|
|
$
|
408,762
|
|
|
$
|
249,155
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Denominator for basic net income per share – weighted-average common shares
|
|
|
187,974
|
|
|
|
189,195
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities – stock options, stock appreciation rights and restricted stock units
|
|
|
717
|
|
|
|
296
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted net income per share – adjusted weighted-average common shares
|
|
|
188,691
|
|
|
|
189,491
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share
|
|
$
|
2.17
|
|
|
$
|
1.32
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share
|
|
$
|
2.17
|
|
|
$
|
1.31
|
|
There were 1,057 and 3,873
anti-dilutive stock options, stock appreciation rights and restricted stock units (collectively “equity awards”) outstanding
during the 13-week periods ended July 1, 2017 and June 25, 2016, respectively.
There were 1,825 and 4,231
anti-dilutive equity awards outstanding during the 26-week periods ended July 1, 2017 and June 25, 2016, respectively.
There were 9 and 11 net
shares issued as a result of exercises and releases of equity awards for the 13-week periods ended July 1, 2017 and June 25, 2016,
respectively.
There were 159 and 13 shares
issued as a result of exercises and releases of equity awards for the 26-week periods ended July 1, 2017 and June 25, 2016, respectively.
There were 248 employee
stock purchase plan (ESPP) shares issued from outstanding Treasury stock during the 13-week and 26-week periods ended July 1, 2017.
There were 285 ESPP shares
issued from outstanding Treasury stock during the 13-week and 26-week periods ended June 25, 2016.
The Company has identified
five reportable segments – auto, aviation, marine, outdoor and fitness. The Company’s Chief Operating Decision Maker
(CODM) assesses segment performance and allocates resources to each segment individually.
Net sales (“revenue”),
gross profit, and operating income for each of the Company’s reportable segments are presented below.
|
|
Reportable Segments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outdoor
|
|
|
Fitness
|
|
|
Marine
|
|
|
Auto
|
|
|
Aviation
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13-Weeks Ended July 1, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
194,776
|
|
|
$
|
181,022
|
|
|
$
|
108,545
|
|
|
$
|
208,482
|
|
|
$
|
124,060
|
|
|
$
|
816,885
|
|
Gross profit
|
|
$
|
127,813
|
|
|
$
|
102,139
|
|
|
$
|
62,368
|
|
|
$
|
93,037
|
|
|
$
|
92,501
|
|
|
$
|
477,858
|
|
Operating income
|
|
$
|
74,284
|
|
|
$
|
37,487
|
|
|
$
|
24,295
|
|
|
$
|
27,926
|
|
|
$
|
39,358
|
|
|
$
|
203,350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13-Weeks Ended June 25, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
133,096
|
|
|
$
|
212,855
|
|
|
$
|
111,599
|
|
|
$
|
245,728
|
|
|
$
|
108,331
|
|
|
$
|
811,609
|
|
Gross profit
|
|
$
|
85,224
|
|
|
$
|
119,805
|
|
|
$
|
64,515
|
|
|
$
|
112,988
|
|
|
$
|
80,426
|
|
|
$
|
462,958
|
|
Operating income
|
|
$
|
48,565
|
|
|
$
|
53,074
|
|
|
$
|
28,548
|
|
|
$
|
39,623
|
|
|
$
|
30,864
|
|
|
$
|
200,674
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26-Weeks Ended July 1, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
310,652
|
|
|
$
|
318,852
|
|
|
$
|
212,990
|
|
|
$
|
366,006
|
|
|
$
|
246,931
|
|
|
$
|
1,455,431
|
|
Gross profit
|
|
$
|
201,282
|
|
|
$
|
179,879
|
|
|
$
|
122,116
|
|
|
$
|
162,970
|
|
|
$
|
183,734
|
|
|
$
|
849,981
|
|
Operating income
|
|
$
|
108,735
|
|
|
$
|
55,959
|
|
|
$
|
42,440
|
|
|
$
|
34,595
|
|
|
$
|
77,966
|
|
|
$
|
319,695
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26-Weeks Ended June 25, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
229,923
|
|
|
$
|
355,273
|
|
|
$
|
194,479
|
|
|
$
|
441,326
|
|
|
$
|
214,647
|
|
|
$
|
1,435,648
|
|
Gross profit
|
|
$
|
144,155
|
|
|
$
|
192,100
|
|
|
$
|
108,664
|
|
|
$
|
199,131
|
|
|
$
|
158,758
|
|
|
$
|
802,808
|
|
Operating income
|
|
$
|
76,450
|
|
|
$
|
69,647
|
|
|
$
|
38,840
|
|
|
$
|
58,190
|
|
|
$
|
61,350
|
|
|
$
|
304,477
|
|
Allocation of certain research
and development expenses, and selling, general, and administrative expenses are made to each segment on a percent of revenue basis.
Net sales and property
and equipment, net by geographic area are as follows as of and for the 26-week periods ended July 1, 2017 and June 25, 2016. Note
that APAC includes Asia Pacific and Australian Continent and EMEA includes Europe, the Middle East and Africa:
|
|
Americas
|
|
|
APAC
|
|
|
EMEA
|
|
|
Total
|
|
July 1, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales to external customers
|
|
$
|
708,281
|
|
|
$
|
205,316
|
|
|
$
|
541,834
|
|
|
$
|
1,455,431
|
|
Property and equipment, net
|
|
$
|
326,125
|
|
|
$
|
153,277
|
|
|
$
|
37,888
|
|
|
$
|
517,290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 25, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales to external customers
|
|
$
|
724,974
|
|
|
$
|
175,226
|
|
|
$
|
535,448
|
|
|
$
|
1,435,648
|
|
Property and equipment, net
|
|
$
|
297,609
|
|
|
$
|
113,295
|
|
|
$
|
39,750
|
|
|
$
|
450,654
|
|
The Company’s products
sold are generally covered by a standard warranty for periods ranging from one to three years. The Company’s estimate of
costs to service its warranty obligations are based on historical experience and expectation of future conditions and are recorded
as a liability on the balance sheet. The following reconciliation provides an illustration of changes in the aggregate warranty
reserve.
|
|
13-Weeks Ended
|
|
|
|
July 1,
|
|
|
June 25,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Balance - beginning of period
|
|
$
|
34,427
|
|
|
$
|
31,407
|
|
Accrual for products sold during the period
|
|
|
15,747
|
|
|
|
17,860
|
|
Expenditures
|
|
|
(13,162
|
)
|
|
|
(14,597
|
)
|
Balance - end of period
|
|
$
|
37,012
|
|
|
$
|
34,670
|
|
|
|
|
|
|
|
|
|
|
|
|
26-Weeks Ended
|
|
|
|
July 1,
|
|
|
June 25,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Balance - beginning of period
|
|
$
|
37,233
|
|
|
$
|
30,449
|
|
Accrual for products sold during the period
|
|
|
23,947
|
|
|
|
30,312
|
|
Expenditures
|
|
|
(24,168
|
)
|
|
|
(26,091
|
)
|
Balance - end of period
|
|
$
|
37,012
|
|
|
$
|
34,670
|
|
|
6.
|
Commitments and Contingencies
|
The Company is party to
certain commitments, which include purchases of raw materials, advertising expenditures, investments in certain low income housing
tax credit projects, and other indirect purchases in connection with conducting our business. The aggregate amount of purchase
orders and other commitments open as of July 1, 2017 was approximately $378,000. 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 based on our current needs and are typically fulfilled within short periods of
time.
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 basis, developments
in legal proceedings, investigations or claims that could affect the amount of any accrual or disclosure. The assessment regarding
whether a loss is probable or a reasonable possibility, and whether the loss or a range of loss is estimable, often involves a
series of complex judgments about future events.
Management of the Company
currently does not believe there is at least a reasonable possibility the Company may have incurred a material loss, or a material
loss in excess of recorded accruals, with respect to loss contingencies individually and in the aggregate, for the fiscal quarter
ended July 1, 2017. The results of legal proceedings, investigations and claims, however, cannot be predicted with certainty. Although
management considers the likelihood to be remote, an adverse resolution of one or more of such matters in excess of management’s
expectations could have a material adverse effect on the Company’s results of operations in a particular quarter or fiscal
year.
The Company settled or
resolved certain matters during the 13-week and 26-week periods ended July 1, 2017 that did not individually or in the aggregate
have a material impact on the Company’s financial condition or results of operations.
The Company recorded an
income tax expense of $57,105 in the 13-week period ended July 1, 2017, compared to income tax expense of $42,737 in the 13-week
period ended June 25, 2016. The effective tax rate was 25.0% in the second quarter of 2017, compared to 21.0% in the second quarter
of 2016. Excluding tax expense of $7,275 associated with the expiration of share-based awards (see Note 1 regarding the impacts
of ASU 2016-09), the second quarter of 2017 effective tax rate increased 90 basis points compared to the effective tax rate in
the prior year quarter. This remaining 90 basis point increase in effective tax rate was primarily due to the Company’s election
in February 2017 to align certain Switzerland corporate tax positions with evolving international tax initiatives, partially offset
by shifts in the projected income mix by jurisdiction during the second quarter of 2017 compared to the second quarter of 2016.
The Company recorded an
income tax benefit of $93,015 for the first half of 2017, compared to income tax expense of $62,192 in the first half of 2016.
The effective tax rate was (29.5%) in the first half of 2017, compared to 20.0% in the first half of 2016. Excluding an income
tax benefit of $168,755 due to revaluation of deferred tax assets, and the $7,275 expense due to the expiration of share-based
awards, the effective tax rate for the first half of 2017 increased 170 basis points compared to the effective tax rate in the
first half of 2016. This remaining 170 basis point increase in effective tax rate was primarily due to the Company’s election
in February 2017 to align certain Switzerland corporate tax positions with evolving international tax initiatives, partially offset
by shifts in the projected income mix by jurisdiction for 2017 compared to the projection at second quarter of 2016.
The Financial Accounting
Standards Board ("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 the identical asset 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.
Available-for-sale securities
measured at fair value on a recurring basis are summarized below:
|
|
Fair Value Measurements as
of July 1, 2017
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
U.S. Treasury securities
|
|
$
|
20,841
|
|
|
$
|
-
|
|
|
$
|
20,841
|
|
|
$
|
-
|
|
Agency securities
|
|
|
56,986
|
|
|
|
-
|
|
|
|
56,986
|
|
|
|
-
|
|
Mortgage-backed securities
|
|
|
205,822
|
|
|
|
-
|
|
|
|
205,822
|
|
|
|
-
|
|
Corporate securities
|
|
|
891,377
|
|
|
|
-
|
|
|
|
891,377
|
|
|
|
-
|
|
Municipal securities
|
|
|
164,168
|
|
|
|
-
|
|
|
|
164,168
|
|
|
|
-
|
|
Other
|
|
|
110,142
|
|
|
|
-
|
|
|
|
110,142
|
|
|
|
-
|
|
Total
|
|
$
|
1,449,336
|
|
|
$
|
-
|
|
|
$
|
1,449,336
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as
of December 31, 2016
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
U.S. Treasury securities
|
|
$
|
29,034
|
|
|
$
|
-
|
|
|
$
|
29,034
|
|
|
$
|
-
|
|
Agency securities
|
|
|
59,541
|
|
|
|
-
|
|
|
|
59,541
|
|
|
|
-
|
|
Mortgage-backed securities
|
|
|
230,823
|
|
|
|
-
|
|
|
|
230,823
|
|
|
|
-
|
|
Corporate securities
|
|
|
893,725
|
|
|
|
-
|
|
|
|
893,725
|
|
|
|
-
|
|
Municipal securities
|
|
|
176,168
|
|
|
|
-
|
|
|
|
176,168
|
|
|
|
-
|
|
Other
|
|
|
90,946
|
|
|
|
-
|
|
|
|
90,946
|
|
|
|
-
|
|
Total
|
|
$
|
1,480,237
|
|
|
$
|
-
|
|
|
$
|
1,480,237
|
|
|
$
|
-
|
|
Marketable securities classified
as available-for-sale securities are summarized below:
|
|
Available-For-Sale Securities as
of July 1, 2017
|
|
|
|
|
|
|
|
Amortized Cost
|
|
|
Gross Unrealized
Gains
|
|
|
Gross Unrealized
Losses
|
|
|
Fair Value
|
|
U.S. Treasury securities
|
|
$
|
20,981
|
|
|
$
|
12
|
|
|
$
|
(152
|
)
|
|
$
|
20,841
|
|
Agency securities
|
|
|
57,828
|
|
|
|
13
|
|
|
|
(855
|
)
|
|
|
56,986
|
|
Mortgage-backed securities
|
|
|
210,659
|
|
|
|
32
|
|
|
|
(4,869
|
)
|
|
|
205,822
|
|
Corporate securities
|
|
|
902,190
|
|
|
|
546
|
|
|
|
(11,359
|
)
|
|
|
891,377
|
|
Municipal securities
|
|
|
165,377
|
|
|
|
264
|
|
|
|
(1,473
|
)
|
|
|
164,168
|
|
Other
|
|
|
110,488
|
|
|
|
9
|
|
|
|
(355
|
)
|
|
|
110,142
|
|
Total
|
|
$
|
1,467,523
|
|
|
$
|
876
|
|
|
$
|
(19,063
|
)
|
|
$
|
1,449,336
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-For-Sale Securities as
of December 31, 2016
|
|
|
|
|
|
|
|
Amortized Cost
|
|
|
Gross Unrealized
Gains
|
|
|
Gross Unrealized
Losses
|
|
|
Fair Value
|
|
U.S. Treasury securities
|
|
$
|
29,291
|
|
|
$
|
31
|
|
|
$
|
(288
|
)
|
|
$
|
29,034
|
|
Agency securities
|
|
|
60,513
|
|
|
|
19
|
|
|
|
(991
|
)
|
|
|
59,541
|
|
Mortgage-backed securities
|
|
|
236,354
|
|
|
|
41
|
|
|
|
(5,572
|
)
|
|
|
230,823
|
|
Corporate securities
|
|
|
914,028
|
|
|
|
252
|
|
|
|
(20,555
|
)
|
|
|
893,725
|
|
Municipal securities
|
|
|
178,804
|
|
|
|
224
|
|
|
|
(2,859
|
)
|
|
|
176,169
|
|
Other
|
|
|
90,934
|
|
|
|
20
|
|
|
|
(9
|
)
|
|
|
90,945
|
|
Total
|
|
$
|
1,509,924
|
|
|
$
|
587
|
|
|
$
|
(30,274
|
)
|
|
$
|
1,480,237
|
|
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. The Company does not intend to sell the securities that have
an unrealized loss shown in the table above, and it is not more likely than not that the Company will be required to sell a security
before recovery of its amortized cost basis, which may be maturity.
The Company recognizes
the credit component of other-than-temporary impairments of debt securities in "Other Income" and the noncredit component
in "Other comprehensive income (loss)" for those securities that we do not intend to sell and for which it is not more
likely than not that we will be required to sell before recovery. During 2016 and the 26-week period ending July 1, 2017, the Company
did not record any material impairment charges on its outstanding securities.
The amortized cost and
fair value of the securities at an unrealized loss position at July 1, 2017 were $1,085,289 and $1,066,225 respectively. Approximately
57.4% of securities in our portfolio were at an unrealized loss position at July 1, 2017. We have the ability to hold these securities
until maturity or their value is recovered. We do not consider these unrealized losses to be other than temporary credit losses
because there has been no material deterioration in credit quality and no change in the cash flows of the underlying securities.
We do not intend to sell the securities and it is not more likely than not that we will be required to sell the securities; therefore,
no material impairment has been recorded in the accompanying condensed consolidated statement of income.
The cost of securities sold is based on the
specific identification method.
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 July 1, 2017 and December 31, 2016.
|
|
As of July 1, 2017
|
|
|
|
Less than 12 Consecutive Months
|
|
|
12 Consecutive Months or Longer
|
|
|
|
Gross Unrealized
Losses
|
|
|
Fair Value
|
|
|
Gross Unrealized
Losses
|
|
|
Fair Value
|
|
U.S. Treasury securities
|
|
$
|
(152
|
)
|
|
$
|
18,710
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Agency securities
|
|
|
(855
|
)
|
|
|
48,997
|
|
|
|
-
|
|
|
|
-
|
|
Mortgage-backed securities
|
|
|
(3,002
|
)
|
|
|
131,732
|
|
|
|
(1,867
|
)
|
|
|
70,739
|
|
Corporate securities
|
|
|
(9,697
|
)
|
|
|
624,546
|
|
|
|
(1,662
|
)
|
|
|
48,251
|
|
Municipal securities
|
|
|
(1,363
|
)
|
|
|
78,904
|
|
|
|
(110
|
)
|
|
|
6,041
|
|
Other
|
|
|
(351
|
)
|
|
|
36,540
|
|
|
|
(4
|
)
|
|
|
1,766
|
|
Total
|
|
$
|
(15,420
|
)
|
|
$
|
939,429
|
|
|
$
|
(3,643
|
)
|
|
$
|
126,797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016
|
|
|
|
Less than 12 Consecutive Months
|
|
|
12 Consecutive Months or Longer
|
|
|
|
Gross Unrealized
Losses
|
|
|
Fair Value
|
|
|
Gross Unrealized
Losses
|
|
|
Fair Value
|
|
U.S. Treasury securities
|
|
$
|
(288
|
)
|
|
$
|
24,260
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Agency securities
|
|
|
(991
|
)
|
|
|
49,255
|
|
|
|
-
|
|
|
|
-
|
|
Mortgage-backed securities
|
|
|
(3,702
|
)
|
|
|
159,665
|
|
|
|
(1,870
|
)
|
|
|
64,645
|
|
Corporate securities
|
|
|
(18,856
|
)
|
|
|
765,712
|
|
|
|
(1,699
|
)
|
|
|
40,910
|
|
Municipal securities
|
|
|
(2,762
|
)
|
|
|
130,994
|
|
|
|
(97
|
)
|
|
|
6,326
|
|
Other
|
|
|
(3
|
)
|
|
|
4,058
|
|
|
|
(6
|
)
|
|
|
6,919
|
|
Total
|
|
$
|
(26,602
|
)
|
|
$
|
1,133,944
|
|
|
$
|
(3,672
|
)
|
|
$
|
118,800
|
|
The amortized cost and
fair value of marketable securities at July 1, 2017, by contractual maturity, are shown below. Expected maturities will differ
from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties.
|
|
Amortized Cost
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
Due in one year or less
|
|
$
|
248,935
|
|
|
$
|
248,904
|
|
Due after one year through five years
|
|
|
999,063
|
|
|
|
988,893
|
|
Due after five years through ten years
|
|
|
214,740
|
|
|
|
206,838
|
|
Due after ten years
|
|
|
4,785
|
|
|
|
4,701
|
|
|
|
$
|
1,467,523
|
|
|
$
|
1,449,336
|
|
On February 13, 2015, the
Board of Directors approved a share repurchase program authorizing the Company to repurchase up to $300,000 of the common shares
of Garmin Ltd. The repurchases may be made from time to time as market and business conditions warrant on the open market or in
negotiated transactions in compliance with the SEC’s Rule 10b-18. The timing and amounts of any repurchases will be determined
by the Company’s management depending on market conditions and other factors including price, regulatory requirements and
capital availability. The program does not require the purchase of any minimum number of shares and may be suspended or discontinued
at any time. In December 2016, the Board of Directors authorized an extension through December 31, 2017 to purchase remaining common
shares. As of July 1, 2017, the Company had repurchased 6,571 shares using cash of $288,603. There remains approximately $11,397
available to repurchase additional shares under this authorization.
|
10.
|
Accumulated Other Comprehensive Income
|
The following provides
required disclosure of changes in accumulated other comprehensive income (AOCI) balances by component for the 13-week and 26-week
periods ended July 1, 2017:
|
|
13-Weeks Ended July 1, 2017
|
|
|
|
Foreign Currency
Translation
Adjustment
|
|
|
Net unrealized gains
(losses) on available-
for-sale securities
|
|
|
Total
|
|
Balance - beginning of period
|
|
$
|
52,913
|
|
|
$
|
(20,449
|
)
|
|
$
|
32,464
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income before reclassification
|
|
|
3,182
|
|
|
|
4,232
|
|
|
|
7,414
|
|
Amounts reclassified from accumulated other comprehensive income
|
|
|
-
|
|
|
|
269
|
|
|
|
269
|
|
Net current-period other comprehensive income
|
|
|
3,182
|
|
|
|
4,501
|
|
|
|
7,683
|
|
Balance - end of period
|
|
$
|
56,095
|
|
|
$
|
(15,948
|
)
|
|
$
|
40,147
|
|
|
|
26-Weeks Ended July 1, 2017
|
|
|
|
Foreign Currency
Translation
Adjustment
|
|
|
Net unrealized gains
(losses) on available-
for-sale securities
|
|
|
Total
|
|
Balance - beginning of period
|
|
$
|
(9,411
|
)
|
|
$
|
(27,350
|
)
|
|
$
|
(36,761
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income before reclassification
|
|
|
65,506
|
|
|
|
10,858
|
|
|
|
76,364
|
|
Amounts reclassified from accumulated other comprehensive income
|
|
|
-
|
|
|
|
544
|
|
|
|
544
|
|
Net current-period other comprehensive income
|
|
|
65,506
|
|
|
|
11,402
|
|
|
|
76,908
|
|
Balance - end of period
|
|
$
|
56,095
|
|
|
$
|
(15,948
|
)
|
|
$
|
40,147
|
|
The following provides
required disclosure of reporting reclassifications out of AOCI for the 13-week and 26-week periods ended July 1, 2017:
13-Weeks Ended July 1, 2017
|
|
|
|
|
|
|
Details about Accumulated Other
Comprehensive Income
Components
|
|
Amount Reclassified
from Accumulated
Other Comprehensive
Income
|
|
|
Affected Line Item
in the Statement
Where Net Income
is Presented
|
|
|
|
|
|
|
Unrealized gains (losses) on available-for-sale securities
|
|
$
|
(293
|
)
|
|
Other income (expense)
|
|
|
|
24
|
|
|
Income tax benefit (provision)
|
|
|
$
|
(269
|
)
|
|
Net of tax
|
|
|
|
|
|
|
|
26-Weeks Ended July 1, 2017
|
|
|
|
|
|
|
Details about Accumulated Other
Comprehensive Income
Components
|
|
Amount Reclassified
from Accumulated
Other Comprehensive
Income
|
|
|
Affected Line Item
in the Statement
Where Net Income
is Presented
|
|
|
|
|
|
|
Unrealized gains (losses) on available-for-sale securities
|
|
$
|
(584
|
)
|
|
Other income (expense)
|
|
|
|
40
|
|
|
Income tax benefit (provision)
|
|
|
$
|
(544
|
)
|
|
Net of tax
|
|
11.
|
Recently Issued Accounting Pronouncements
|
Revenue from Contracts with Customers
In May 2014, the FASB issued
Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”),
which supersedes previous revenue recognition guidance. Subsequently, the FASB has issued several standards amending or relating
to ASU 2014-09 (collectively, the “new revenue standards”). Under Topic 606, a company is required to recognize revenue
at an amount that reflects the consideration to which the company expects to be entitled in exchange for transferring goods or
services to a customer. The new revenue standards also require enhanced disclosures around contract assets and liabilities, increased
disaggregation of revenues, among other enhanced disclosure requirements. The effective date of ASU 2014-09 is for fiscal years,
and interim periods within those years, beginning on or after December 15, 2017. The Company does not intend to early adopt, and
adoption will therefore occur in the Company’s fiscal year ending December 29, 2018.
The new revenue standards
may be applied retrospectively to each prior period presented or in a modified retrospective approach in which the cumulative effect
will be recognized as of the date of adoption. We currently anticipate we will adopt the new revenue standards using the full retrospective
method to restate each prior reporting period presented. Our decision to adopt using the full retrospective method is dependent
on the finalization of our analysis of information necessary to restate prior period financial statements.
We expect the new revenue standards will impact
a portion of the Company’s auto segment, which are currently accounted for under Accounting Standards Codification Topic
985-605 Software-Revenue Recognition (Topic 985-605). Under Topic 985-605, the Company defers all elements of multiple-element
software arrangements if vendor-specific objective evidence of fair value (VSOE) cannot be established for an undelivered element
(e.g. map updates). However, in applying the new revenue standards to certain contracts that include both software licenses and
map updates, we expect to recognize the portion of revenue related to the software license at the time of delivery rather than
ratably over the map update period.
Additionally, for certain
multiple-element arrangements within the Company’s auto segment, the Company’s current policy is to allocate consideration
to traffic services and recognize it ratably over the estimated life of the underlying product. Under the new revenue standards,
we expect to recognize revenue related to certain traffic services at the time of hardware and/or software delivery. Specifically,
the new revenue standards emphasize the timing of the Company’s performance, and upon delivery of the navigation device and/or
software, the Company has performed its obligation with respect to the design and production of the product to receive and interpret
the broadcast traffic signal for the benefit of the end user.
We continue to finalize
our analysis of the impacts of the new revenue standards, and the materiality of which is not yet known. We are also in the process
of quantifying the impacts of the changes in accounting policy, retrospectively adjusting financial information for 2016 and 2017
fiscal periods, and implementing changes to processes and internal controls for the new revenue standards. We will continue to
monitor the work of standard setters, including any impacts from the recently issued amendments, and consider the interpretive
efforts of non-authoritative groups.
Financial Instruments – Recognition, Measurement, Presentation,
and Disclosure
In January 2016, the FASB
issued Accounting Standards Update No. 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement
of Financial Assets and Financial Liabilities (“ASU 2016-01”). The standard addresses certain aspects of recognition,
measurement, presentation, and disclosure of financial instruments. ASU 2016-01 is effective for fiscal years, and interim periods
within those years, beginning after December 15, 2017. The Company is currently evaluating the impact of adopting the new standard
on its 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. ASU 2016-02 requires lessees
to present a right-of-use asset and a corresponding lease liability on the balance sheet. Lessor accounting is substantially unchanged
compared to the current accounting guidance. ASU 2016-02 is effective for fiscal years, and interim periods within those years,
beginning after December 15, 2018. Early adoption is permitted. The Company is currently evaluating the impact of adopting the
new standard on its consolidated financial statements.
Statement of Cash Flows
In August 2016, the FASB
issued Accounting Standards Update No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and
Cash Payments (“ASU 2016-15”), which adds or clarifies guidance on the classification of certain cash receipts and
payments in the statement of cash flows. The standard addresses eight specific cash flow issues with the objective of reducing
diversity in practice. ASU 2016-15 is effective for fiscal years, and interim periods within those years, beginning after December
15, 2017. Early adoption is permitted. The Company is currently evaluating the impact of adopting the new standard on its consolidated
financial statements.
Income Taxes
In October 2016, the FASB
issued Accounting Standards Update No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other than Inventory
(“ASU 2016-16”), which requires recognition of the income tax consequences of an intra-entity transfer of an asset
other than inventory when the transfer occurs. ASU 2016-16 is effective for fiscal years, and interim periods within those years,
beginning after December 15, 2017. Early adoption is permitted. The Company is currently evaluating the impact of adopting the
new standard on its 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. Callable debt securities
held at a discount continue to be amortized to maturity. ASU 2017-08 is effective for fiscal years, and interim periods within
those years, beginning after December 15, 2019. Early adoption is permitted. The Company is currently evaluating the impact of
adopting the new standard on its consolidated financial statements.
On July 20, 2017, the Company
acquired the shares of Alphamantis Technologies Inc., a privately held designer of aerodynamics testing and measurement technology
for the cycling industry. This acquisition was not material.