| Accounting Policies | 1. Accounting Policies Basis
of Presentation 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 June 30, 2018 are not necessarily indicative of the results that may
be expected for the year ending December 29, 2018. The
condensed consolidated balance sheet at December 30, 2017 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 30, 2017. 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 June 30, 2018 and July 1, 2017 both contain
operating results for 13 weeks. As
previously announced and discussed below within the “Recently Adopted Accounting Standards” section of this footnote,
effective beginning in the 2018 fiscal year, we adopted the requirements of Accounting Standards Update (“ASU”) No.
2014-09, Revenue from Contracts with Customers (Topic 606), using the full retrospective method. All amounts and disclosures set
forth in this Form 10-Q reflect these changes. Further, as a result of the adoption of certain other accounting standards described
below, effective beginning in the 2018 fiscal year, certain amounts in prior periods have been reclassified to conform to the
current period presentation. Recently
Adopted Accounting Standards Revenue
from Contracts with Customers In
May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which
supersedes previous revenue recognition guidance. The FASB issued several updates amending or relating to ASU 2014-09 (collectively,
the “new revenue standard”). The Company has adopted the new revenue standard effective beginning in the 2018 fiscal
year using the full retrospective method, which requires the Company to restate each prior reporting period presented in future
financial statement issuances. The impacts of the new revenue standard relate to our accounting for certain arrangements within
the auto segment. A
portion of the Company’s auto segment contracts have historically been accounted for under Accounting Standards Codification
(ASC) Topic 985-605 Software-Revenue Recognition (Topic 985-605). Under Topic 985-605, the Company deferred revenue and associated
costs of all elements of multiple-element software arrangements if vendor-specific objective evidence of fair value (VSOE) could
not be established for an undelivered element (e.g. map updates). In applying the new revenue standard to certain contracts that
include both software licenses and map updates, we will recognize the portion of revenue and costs 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 policy has been to allocate
consideration to traffic services and recognize the revenue and associated cost of royalties ratably over the estimated life of
the underlying product. Under the new revenue standard, we will recognize revenue and associated costs of royalties related to
certain traffic services at the time of hardware and/or software delivery. Specifically, the new revenue standard emphasizes the
timing of the Company’s performance, and upon delivery of the navigation device and/or software, the Company has fully 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. The
changes in accounting policy described above collectively result in reductions to deferred costs (asset) and deferred revenue
(liability) balances, and accelerate the recognition of revenues and deferred costs in the auto segment going forward. Summarized
financial information depicting the impact of the new revenue standard is presented below. The Company’s historical net
cash flows provided by or used in operating, investing, and financing activities are not impacted by adoption of the new revenue
standard.
13-Weeks
Ended July 1, 2017 26-Weeks
Ended July 1, 2017
As
reported Restated (1) Impact As
reported Restated (1) Impact
Net sales $ 816,885 $ 831,486 $ 14,601 $ 1,455,431 $ 1,472,996 $ 17,565
Gross profit 477,858 484,130 6,272 849,981 856,936 6,955
Operating income 203,350 209,622 6,272 319,695 326,650 6,955
Income tax (benefit) 57,105 57,348 243 (93,015 ) (92,680 ) 335
Net income $ 170,950 $ 176,979 $ 6,029 $ 408,762 $ 415,382 $ 6,620
Diluted net income per share $ 0.91 $ 0.94 $ 0.03 $ 2.17 $ 2.20 $ 0.03
(1) The Restated results
presented above are restated under 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 press release attached as Exhibit 99.1 to our Current Report on Form 8-K
filed with the Securities and Exchange Commission (SEC) on February 21, 2018 have been revised in this Note by immaterial
amounts in connection with our adoption of ASC Topic 606.
December
30, 2017 December
31, 2016
As
reported Restated (2) Impact As
reported Restated (2) Impact
Current assets:
Deferred
costs $ 48,312 $ 30,525 $ (17,787 ) $ 47,395 $ 34,665 $ (12,730 )
Total current assets 2,363,925 2,346,138 (17,787 ) 2,263,016 2,250,286 (12,730 )
Deferred income taxes 199,343 195,981 (3,362 ) 110,293 107,655 (2,638 )
Noncurrent deferred
costs 73,851 33,029 (40,822 ) 56,151 30,934 (25,217 )
Total assets $ 5,010,260 $ 4,948,289 $ (61,971 ) $ 4,525,133 $ 4,484,549 $ (40,584 )
Current liabilities:
Deferred
revenue 139,681 103,140 (36,541 ) 146,564 118,496 (28,068 )
Total current liabilities 828,656 792,115 (36,541 ) 782,735 754,667 (28,068 )
Deferred income taxes 75,215 76,612 1,397 61,220 62,617 1,397
Non-current deferred
revenue 163,840 87,060 (76,780 ) 140,407 91,238 (49,169 )
Retained
earnings 2,368,874 2,418,444 49,570 2,056,702 2,092,221 35,519
Accumulated
other comprehensive income 56,045 56,428 383 (36,761 ) (37,024 ) (263 )
Total stockholders'
equity 3,802,466 3,852,419 49,953 3,418,003 3,453,259 35,256
Total liabilities and
stockholders' equity $ 5,010,260 $ 4,948,289 $ (61,971 ) $ 4,525,133 $ 4,484,549 $ (40,584 )
52-Weeks
Ended December 30, 2017 53-Weeks
Ended December 31, 2016
As
reported Restated (2) Impact As
reported Restated (2) Impact
Net sales $ 3,087,004 $ 3,121,560 $ 34,556 $ 3,018,665 $ 3,045,797 $ 27,132
Gross profit 1,783,164 1,797,941 14,777 1,679,570 1,688,525 8,955
Operating income 668,860 683,637 14,777 623,909 632,864 8,955
Income tax (benefit)
provision (12,661 ) (11,936 ) 725 118,856 120,901 2,045
Net income $ 694,955 $ 709,007 $ 14,052 $ 510,814 $ 517,724 $ 6,910
Diluted net income per share $ 3.68 $ 3.76 $ 0.08 $ 2.70 $ 2.73 $ 0.03
(2) The Restated results
presented above are restated under ASC Topic 606. Amounts related to the income tax effect of the new standard that were previously
disclosed as the anticipated adoption impact in Note 2, Summary of Significant Accounting Policies, in the notes to the consolidated
financial statements of our fiscal 2017 Annual Report on Form 10-K filed with the SEC on February 21, 2018 have been revised
in this Note by immaterial amounts in connection with our adoption of ASC Topic 606. 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. The Company has adopted the
new standard effective beginning in the 2018 fiscal year. The adoption did not have a material impact on the Company’s financial
position or results of operations. 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. In November 2016, the FASB issued Accounting Standards Update No. 2016-18, Statement of Cash
Flows (Topic 230): Restricted Cash (“ASU 2016-18”), which requires restricted cash and restricted cash equivalents
to be included with cash and cash equivalents when reconciling changes in the total amounts within the statement of cash flows.
The Company has adopted the new standards effective beginning in the 2018 fiscal year. The adoption of ASU 2016-15 did not have
a material impact to the Company’s statements of cash flows. The amendments of ASU 2016-18 were applied using a retrospective
transition method, resulting in immaterial changes to the presentation of the Company’s statements of cash flows. The
total of cash and cash equivalents and restricted cash balances presented on the condensed consolidated balance sheet reconciles
to the total cash, cash equivalents, and restricted cash shown in the condensed consolidated statements of cash flows. 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. The Company has adopted the new standard effective beginning
in the 2018 fiscal year, which resulted in a reclassification of $1,700 of certain prepaid tax balances in a cumulative effect
to retained earnings as of the date of adoption. Income
Statement – Reporting Comprehensive Income In
February 2018, the FASB issued Accounting Standards Update No. 2018-02, Income Statement – Reporting Comprehensive Income
(Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (“ASU 2018-02”),
which allows for stranded tax effects in accumulated other comprehensive income resulting from the U.S. Tax Cuts and Jobs Act
to be reclassified to retained earnings. The Company has elected to early adopt the new standard effective beginning in the 2018
fiscal year, resulting in reclassification of approximately $452 from accumulated other comprehensive income into retained earnings.
The tax effects that were reclassified only relate to amounts resulting from the U.S. Tax Cuts and Jobs Act. Significant
Accounting Policies 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 2, “Summary of Significant Accounting Policies” in the Notes to the Consolidated
Financial Statements in Part II, Item 8 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 30,
2017. Other than the policies discussed below, there were no material changes to the Company’s significant accounting policies
during the 26-week period ended June 30, 2018. 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 we have identified such services 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. For
products that include tangible hardware that contains software essential to the tangible product’s functionality and ongoing
services identified as separately identifiable performance obligations, the Company allocates revenue to all performance obligations
based on their 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 lifetime map updates (LMU) 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 equipment
manufacturers (OEMs). The Company has determined that directly observable prices do not exist for LMU, 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 the LMU, map care, and traffic performance obligations.
The revenue and associated costs allocated to the LMU, 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 contractual map care period in OEM contracts
of 3-10 years as we believe our efforts as it relates 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/or communication service subscriptions, aviation database subscriptions,
and extended warranties that are individually immaterial. 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. 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 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 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 condensed consolidated
financial statements. |
