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. In the 52-weeks ended December 30, 2017, such discrete tax items were recognized on a U.S. GAAP-basis that would have affected comparability between periods and were therefore removed from the pro forma tax rate. However, 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)
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 $0.04 and $0.09 per share for the 13-weeks and 52-weeks ended December 30, 2017, respectively.
Appendix A – Fiscal 2018 revenue recognition accounting change
The following appendices present 2017 results restated to reflect Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers. These appendices provide comparable information to help investors understand the 2018 guidance.
We adopted ASC Topic 606, Revenue from Contracts with Customers (“ASC Topic 606”), the new revenue recognition standard, in the first quarter of 2018, effective for Garmin’s fiscal year ending December 29, 2018. ASC Topic 606 replaces existing revenue recognition rules with a comprehensive revenue measurement and recognition standard.
Adoption approach
The Company has adopted the new revenue recognition standard utilizing the full retrospective method. Under this method, the new recognition 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. We have provided relevant information below to highlight the financial impact of the new revenue recognition standard, and have also provided relevant restated financial statements under ASC Topic 606 in the following appendix.
ASC Topic 606 impacts
Based on our evaluation of the new revenue standard, Garmin’s recognition will be consistent with our previous accounting policies except for two impacts, both of which are within the Company’s auto segment:
- A portion of the Company’s auto segment contracts have historically been accounted for under Accounting Standards Codification Topic 985-605 Software-Revenue Recognition (Topic 985-605). Under Topic 985-605, the Company deferred 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 recognize the portion of revenue related to the software license at the time of delivery rather than ratably over the map update period.
- For certain multiple-element arrangements within the Company’s auto segment, the Company’s previous policy was to allocate consideration to traffic services and recognize it ratably over the estimated life of the underlying product. Under the new revenue standard, we recognize revenue 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 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.
Both changes noted above accelerate the timing of revenue recognition. See below for an overview of the financial impact to the Company’s results of operations:
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FY 16 |
FY 17 |
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| (USD in millions) | Reported | Restated (1) | Impact (2) | Reported | Restated (1) | Impact (2) | ||||||||||||||
| Revenue - Consolidated | $3,019 | $3,046 | $27 | $3,087 | $3,122 | $35 | ||||||||||||||
| Revenue - Auto segment | 883 | 910 | 27 | 751 | 785 | 35 | ||||||||||||||
| Operating Income - Consolidated | 624 | 633 | 9 | 669 | 684 | 15 | ||||||||||||||
| Operating Income - Auto segment | 102 | 111 | 9 | 68 | 83 | 15 | ||||||||||||||
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(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, and are included for comparability to 2018 earnings guidance. |
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(2) |
This row may not cross-foot as figures are rounded to the nearest million. |
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