| Income Taxes | 6.
Income Taxes The
CompanyÂ’s income tax provision (benefit) consists of the following:
Fiscal
Year Ended
December
26, December
27, December
28,
2015 2014 2013
Federal:
Current $ 49,138 $ (18,665 ) $ (11,907 )
Deferred 4,216 58,164 1,913
53,354 39,499 (9,994 )
State:
Current 9,354 5,575 2,584
Deferred (5,858 ) 4,368 (408 )
3,496 9,943 2,176
Foreign:
Current 55,730 287,197 37,094
Deferred (1,620 ) 22,895 11,870
54,110 310,092 48,964
Total $ 110,960 $ 359,534 $ 41,146 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, December
27, December
28,
2015 2014 2013
Federal income tax
expense at U.S. statutory rate $ 198,516 $ 253,260 $ 229,420
State income tax expense,
net of federal tax effect 1,931 6,463 1,414
Foreign tax rate differential (100,010 ) (154,338 ) (121,279 )
Taiwan tax holiday
benefit (3,488 ) (3,147 ) (4,944 )
Other foreign taxes
less incentives and credits (8,592 ) 5,947 (2,032 )
Withholding Tax 16,969 21,039 7,073
Intercompany Restructuring 0 307,635 -
Net change in uncertain
tax positions 21,246 (67,231 ) (50,700 )
U.S. federal domestic production activities
deduction (4,589 ) (3,606 ) (3,550 )
U.S. federal research
and development credit (8,573 ) (8,373 ) (14,876 )
Other,
net (2,450 ) 1,885 620
Income
tax expense $ 110,960 $ 359,534 $ 41,146 In
the third quarter of 2014, the Company initiated an inter-company restructuring that realigned our corporate entity structure.
This change in corporate structure provides access to historical earnings that were previously permanently reinvested and allows
us to efficiently repatriate future earnings. As a result of the change in corporate structure, Garmin recorded tax expense
of $307,635. Approximately $263,000 of this amount has been paid. The remainder of the accrued tax is expected to be paid
incrementally as the cash is repatriated. The
holding company statutory federal income tax rate in Switzerland, the Company's place of incorporation since the Redomestication
effective June 27, 2010, is 7.83%. If the Company reconciled taxes at the Swiss holding company federal statutory tax rate
to the reported income tax for 2015 as presented above, the amounts related to tax at the statutory rate would be $154,000 lower,
or $44,000, and the foreign tax rate differential would be adjusted by a similar amount to $52,000. For 2014, the amounts related
to tax at the statutory rate would be approximately $197,000 lower, or $57,000, and the foreign tax rate differential would be
adjusted by a similar amount to approximately $44,000. For 2013, the amount related to tax at the statutory rate would be approximately
$178,000 lower, or $51,000, and the foreign tax differential would be reduced by a similar amount to approximately $64,000. All
other amounts would remain substantially unchanged. The
CompanyÂ’s income before income taxes attributable to non-U.S. operations was $403,242, $546,790, and $502,423, for the years
ended December 26, 2015, December 27, 2014, and December 28, 2013, respectively. The Taiwan tax holiday benefits included in the
table above reflect $0.02, $0.02, and $0.03 per weighted-average common share outstanding for the years ended December 26, 2015,
December 27, 2014, and December 28, 2013, respectively. The Company currently expects to benefit from these Taiwan tax holidays
through 2017, at which time these tax benefits will likely expire. Income
taxes of $21,085, $20,606, and $307,990 at December 26, 2015, December 27, 2014, and December 28, 2013, 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. These balances decreased in 2014 as a result of the inter-company restructuring
which reduced the amount of earnings 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 CompanyÂ’s deferred tax assets
and liabilities are as follows:
December
26, December
27,
2015 2014
Deferred tax assets:
Product
warranty accruals $ 2,990 $ 3,560
Allowance
for doubtful accounts 10,323 9,111
Inventory
reserves 10,904 8,161
Sales
program allowances 1,783 1,081
Reserve
for sales returns 1,457 -
Other
accruals 10,799 11,058
Stock
option compensation 35,360 38,265
Tax
credit carryforwards 3,906 2,726
Amortization 20,005 21,595
Deferred
revenue 32,809 43,644
Net
operating losses of subsidiaries 5,228 12,456
Benefit
related to uncertain tax positions 5,546 4,246
Other 4,106 3,485
Valuation
allowance related to loss carryforward and tax credits (2,781 ) (11,358 )
142,435 148,030
Deferred tax liabilities:
Depreciation 18,029 16,192
Reserve
for sales returns - 419
Prepaid
expenses 2,821 3,283
Book
basis in excess of tax basis for acquired entities 1,307 2,099
Unrealized
investment loss 3,198 6,384
Withholding
tax 54,865 50,561
Other 1,907 2,448
82,127 81,386
Net
deferred tax assets $ 60,308 $ 66,644 The
stock options outstanding related to the deferred tax asset of $35,360 will begin to expire over the next several years. Given
the exercise price of the options expiring over the next 12 months compared to the current market price it is possible that these
options will expire unexercised, resulting in a potential write-off of $6,000 that would reduce the deferred tax asset and reduce
equity. In
November 2015, the FASB issued Accounting Standards Update No. 2015-17, Balance Sheet Classification of Deferred Taxes (“ASU
2015-17”), requiring all deferred tax assets and liabilities, and any related valuation allowance, to be classified as non-current
on the balance sheet, which simplifies the presentation of deferred income taxes. The standard is effective for financial statements
issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is
permitted, and the Company elected to prospectively adopt the accounting standard as of December 26, 2015. Prior periods in our
Consolidated Financial Statements were not retrospectively adjusted. At
December 26, 2015, the Company had $3,906 of tax credit carryover compared to $2,726 at December 27, 2014. The surtax credit carryover
from 2013 of $52,618 was adjusted and subsequently fully utilized in 2014 upon the execution of the inter-company restructuring.
In turn, the entire valuation allowance regarding the surtax credit was released. At
December 26, 2015, the Company had a deferred tax asset of $5,228 related to the future tax benefit on net operating loss (NOL)
carryforwards of $19,580. Included in the NOL carryforwards is $7,092 that relates to Spain and expires in varying amounts
between 2022 and 2027, $338 that relates to Switzerland and expires in 2022, $4,238 related to the Netherlands and expires in
varying amounts between 2017 and 2022, $1,317 that relates to Finland and expires in 2025, $1,300 that relates to the United States
and expires in 2035, and $5,295 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, 2015 was $97,904. A reconciliation of the beginning and
ending amount of gross unrecognized tax benefits for years ended December 26, 2015, December 27, 2014, and December 28, 2013 is
as follows:
December
26, December
27, December
28,
2015 2014 2013
Balance at beginning
of year $ 77,495 $ 133,015 $ 182,870
Additions
based on tax positions related to prior years 89 2,889 2,668
Reductions
based on tax positions related to prior years (1,671 ) (60,967 ) (8,195 )
Additions
based on tax positions related to current period 29,019 39,115 30,262
Reductions
related to settlements with tax authorities (364 ) (401 ) (416 )
Expiration
of statute of limitations (6,664 ) (36,156 ) (74,174 )
Balance
at end of year $ 97,904 $ 77,495 $ 133,015 Accounting
guidance requires unrecognized tax benefits to be classified as non-current liabilities, except for the portion that is expected
to be paid within one year of the balance sheet date. The entire balance of net unrecognized benefits of $93,654, $74,205
and $125,918 are required to be classified as non-current at December 26, 2015, December 27, 2014, and December 28, 2013, 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, 2015,
December 27, 2014, and December 28, 2013, the Company had accrued approximately $2,479, $2,159, and $5,111, respectively, for
interest. The interest component of the reserve increased (decreased) income tax expense for the years ending December 26,
2015, December 27, 2014, and December 28, 2013 by $320, ($2,953), and ($3,111), respectively. The Company had no amounts accrued
for penalties as the nature of the unrecognized tax benefits, if recognized, would not warrant the imposition of penalties. The
Company files income tax returns in Switzerland and U.S. federal jurisdictions, as well as various state, local and foreign jurisdictions.
With few exceptions, the Company is no longer subject to U.S. federal, state, or local tax examinations by tax authorities for
years 2012 and prior. The Company is no longer subject to Taiwan income tax examinations by tax authorities for years 2009
and prior. The Company is no longer subject to United Kingdom tax examinations by tax authorities for years 2012 and prior.
The Company is subject to Switzerland income tax examinations by tax authorities for years 2011 through 2015. The
Company recognized a reduction of income tax expense of $6,971, $83,006, and $74,217 in fiscal years ended December 26, 2015,
December 27, 2014, and December 28, 2013, 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 10,000 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 CompanyÂ’s effective tax rate within the next 12 months |
