Forward-looking pro forma tax rate and pro forma earnings per share are calculated before the effect of certain discrete tax items. Management believes certain discrete tax items may not be reflective of income tax expense incurred as a result of current period earnings. Therefore, in order to permit consistent comparison between periods, the tax rate and earnings per share before the effect of such discrete tax items are important measures. At this time management is unable to determine whether or not significant discrete tax items will be identified in fiscal 2018.
Forward-looking pro forma earnings per share (EPS)
In addition to the discrete tax items discussed in the forward-looking pro forma effective tax rate section above, our 2018 pro forma EPS excludes foreign currency exchange gains and losses. The estimated impact of such foreign currency gains and losses cannot be reasonably estimated on a forward-looking basis due to the high variability and low visibility with respect to non-operating foreign currency exchange gains and losses and the related tax effects of such gains and losses. The impact of such foreign currency gains and losses, net of tax effects, was less than $0.01 for the 13-weeks ended March 31, 2018.
APPENDIX A – New revenue standard
In the first quarter of 2018 we adopted Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“ASC Topic 606”), the new revenue standard. ASC Topic 606 replaces existing revenue recognition rules with a comprehensive revenue measurement and recognition standard. The Company adopted the new revenue standard utilizing the full retrospective method. Under this method, the new revenue standard is applied to each prior period reported in the forthcoming 2018 Form 10-Q and Form 10-K filings. This adoption approach enhances comparability, as all periods presented in the forthcoming filings are reported under the new standard.
The following tables contain restated summarized financial information resulting from the adoption of ASC Topic 606. Amounts related to the income tax effect of the new standard that were previously disclosed as the anticipated adoption impact in our fourth quarter 2017 press release attached as Exhibit 99.1 to our Current Report on Form 8-K and in Note 2 of our fiscal 2017 Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) on February 21, 2018 have been revised in the tables below and in Note 1 of the Company’s first quarter 2018 Form 10-Q filing by immaterial amounts in connection with our adoption of ASC Topic 606. Restated revenue, gross profit and operating income were not affected by this revision. Finalized balance sheet information can be found within Note 1 of the Company’s first quarter 2018 Form 10-Q filing. Historical net cash flows provided by or used in operating, investing, and financing activities were not impacted by adoption of the new revenue standard. Within this appendix, the references to periods such as “FY 17”or “Q1 17” refer to the corresponding periods as reported in the applicable Form 10-K or Form 10-Q filings.
| Garmin Ltd. And Subsidiaries | |||||||||||||||||||||
| Condensed Consolidated Statements of Income (Unaudited) | |||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||
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Restated(1) |
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| FY 16 | Q1 17 | Q2 17 | Q3 17 | Q4 17 | FY 17 | ||||||||||||||||
| Net sales | $ | 3,045,797 | $ | 641,510 | $ | 831,486 | $ | 751,244 | $ | 897,319 | $ | 3,121,560 | |||||||||
| Cost of goods sold | 1,357,272 | 268,704 | 347,356 | 313,721 | 393,837 | 1,323,619 | |||||||||||||||
| Gross profit | 1,688,525 | 372,806 | 484,130 | 437,523 | 503,482 | 1,797,941 | |||||||||||||||
| Total operating expense | 1,055,661 | 255,778 | 274,508 | 263,875 | 320,142 | 1,114,304 | |||||||||||||||
| Operating income | 632,864 | 117,028 | 209,622 | 173,648 | 183,340 | 683,637 | |||||||||||||||
| Total other income (expense) | 5,761 | (28,653 | ) | 24,705 | 16,266 | 1,115 | 13,434 | ||||||||||||||
| Income before income taxes | 638,625 | 88,375 | 234,327 | 189,914 | 184,455 | 697,071 | |||||||||||||||
| Income tax provision (benefit) | 120,901 | (150,029 | ) | 57,348 | 38,840 | 41,905 | (11,936 | ) | |||||||||||||
| Net income | $ | 517,724 | $ | 238,404 | $ | 176,979 | $ | 151,074 | $ | 142,550 | $ | 709,007 | |||||||||
| (1) | Effective for the fiscal year ending December 29, 2018, we have adopted ASC Topic 606. The results above are restated under ASC Topic 606. | |
| Garmin Ltd. And Subsidiaries | |||||||||||||||||||||||||
| Pro Forma Effective Tax Rate | |||||||||||||||||||||||||
| (In thousands, except effective tax rate (ETR) information) | |||||||||||||||||||||||||
|
Restated (1) |
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| FY 16 | Q1 17 | Q2 17 | Q3 17 | Q4 17 | FY 17 | ||||||||||||||||||||
| Income before income taxes | $ | 638,625 | $ | 88,375 | $ | 234,327 | $ | 189,914 | $ | 184,455 | $ | 697,071 | |||||||||||||
| Income tax provision (benefit) | 120,901 | (150,029 | ) | 57,348 | 38,840 | 41,905 | (11,936 | ) | |||||||||||||||||
|
U.S. GAAP ETR (2) |
18.9 | % | (169.8 | %) | 24.5 | % | 20.5 | % | 22.7 | % | (1.7 | %) | |||||||||||||
| Pro forma discrete tax items: | |||||||||||||||||||||||||
|
Switzerland corporate tax election (3) |
- | 168,755 | - | - | 11,279 | 180,034 | |||||||||||||||||||
|
Impact of share-based award expirations (4) |
- | - | (7,275 | ) | - | (15,345 | ) | (22,620 | ) | ||||||||||||||||
| Total pro forma discrete tax items | - | 168,755 | (7,275 | ) | - | (4,066 | ) | 157,414 | |||||||||||||||||
|
Income tax provision adjusted for pro forma discrete tax items |
$ | 120,901 | $ | 18,726 | $ | 50,073 | $ | 38,840 | $ | 37,839 | $ | 145,478 | |||||||||||||
|
Pro Forma ETR (2) |
18.9 | % | 21.2 | % | 21.4 | % | 20.5 | % | 20.5 | % | 20.9 | % | |||||||||||||
|
(1) |
Effective for the fiscal year ending December 29, 2018, we have adopted ASC Topic 606. The results above are restated under ASC Topic 606. |
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(2) |
U.S. GAAP ETR is calculated by taking the Income tax provision (benefit) divided by Income before income taxes. Pro Forma ETR is calculated by taking the Income tax provision adjusted for Pro forma discrete tax items divided by Income before income taxes. |
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(3) |
In first quarter 2017, a $169 million tax benefit was recognized resulting from the revaluation of certain Switzerland deferred tax assets. The revaluation is due to the Company’s election in February 2017 to align certain Switzerland corporate tax positions with international tax initiatives. In the fourth quarter 2017, an additional $11 million benefit was recognized as a result of this Switzerland election. These impacts during the transitional period following the election are not reflective of current income tax expense incurred and therefore affect period-to-period comparability. |
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(4) |
Following adoption in fiscal 2017 of Accounting Standards Update No. 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”), the Company may periodically incur tax expense resulting from stock options and stock appreciation rights (SARs) expiring unexercised. New grants of stock options and SARs no longer comprise a significant component of the Company’s compensation arrangements. As the tax expense from expired awards is not related to current period earnings or compensation activities, and affects period-to-period comparability, it has been identified as a pro forma adjustment. |
|
| Garmin Ltd. And Subsidiaries | |||||||||||||||||||||||||
| Pro Forma Net Income (Earnings) Per Share | |||||||||||||||||||||||||
| (in thousands, except per share information) | |||||||||||||||||||||||||
|
Restated (1) |
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| FY 16 | Q1 17 | Q2 17 | Q3 17 | Q4 17 | FY 17 | ||||||||||||||||||||
| Net income (GAAP) | $ | 517,724 | $ | 238,404 | $ | 176,979 | $ | 151,074 | $ | 142,550 | $ | 709,007 | |||||||||||||
|
Foreign currency gains / losses (2) |
31,651 | 37,497 | (15,110 | ) | (8,579 | ) | 8,772 | 22,579 | |||||||||||||||||
|
Tax effect of foreign currency gains / losses (3) |
(5,992 | ) | (7,945 | ) | 3,229 | 1,755 | (1,799 | ) | (4,712 | ) | |||||||||||||||
|
Discrete tax items (4) |
- | (168,755 | ) | 7,275 | - | 4,066 | (157,414 | ) | |||||||||||||||||
| Net income (Pro Forma) | $ | 543,383 | $ | 99,201 | $ | 172,373 | $ | 144,250 | $ | 153,589 | $ | 569,460 | |||||||||||||
| Diluted earnings per share (GAAP) | $ | 2.73 | $ | 1.26 | $ | 0.94 | $ | 0.80 | $ | 0.75 | $ | 3.76 | |||||||||||||
| Diluted earnings per share (Pro Forma) | $ | 2.87 | $ | 0.52 | $ | 0.91 | $ | 0.77 | $ | 0.81 | $ | 3.02 | |||||||||||||
| Weighted average common shares outstanding: | |||||||||||||||||||||||||
| Diluted | 189,343 | 189,031 | 188,492 | 188,490 | 188,915 | 188,732 | |||||||||||||||||||
|
(1) |
Effective for the fiscal year ending December 29, 2018, we have adopted ASC Topic 606. The results above are restated under ASC Topic 606. |
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(2) |
The majority of the Company’s consolidated foreign currency gains and losses are typically driven by movements in the Taiwan Dollar, Euro, and British Pound Sterling in relation to the U.S. Dollar and the related exchange rate impact on the significant cash, receivables, and payables held in a currency other than the functional currency at one of the Company’s subsidiaries. However, there is minimal cash impact from such foreign currency gains and losses. |
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(3) |
The tax effect of foreign currency gains and losses is calculated using the pro forma ETR for the respective period, as presented above. The quarterly tax effects may not cross-foot to the annual tax effect due to quarterly variances in pro forma ETR. |
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(4) |
The discrete tax items are discussed in the pro forma effective tax rate section above. |
