GARMIN LTD. The following discussion and analysis of our financial condition and results of operations focuses on and is intended to clarify the results of our operations, certain changes in our financial position, liquidity, capital structure and business developments for the periods covered by the consolidated financial statements included in this Form 10-K. This discussion should be read in conjunction with, and is qualified by reference to, the other related information including, but not limited to, the audited consolidated financial statements (including the notes thereto), the description of our business, all as set forth in this Form 10-K, as well as the risk factors discussed above in Item 1A. This section provides discussion and a year-to-year comparison for the fiscal years endedDecember 31, 2022 andDecember 25, 2021 . Discussion regarding our results of operations for the fiscal year endedDecember 26, 2020 and a year-to-year comparison between the fiscal years endedDecember 25, 2021 andDecember 26, 2020 can be found in Item 7 of our Annual Report on Form 10-K for the fiscal year endedDecember 25, 2021 . As previously noted, the discussion set forth below, as well as other portions of this Form 10-K, contain statements concerning potential future events. Readers can identify these forward-looking statements by their use of such verbs as "expects," "anticipates," "believes", or similar verbs or conjugations of such verbs. If any of our assumptions on which the statements are based prove incorrect or should unanticipated circumstances arise, our actual results could materially differ from those anticipated by such forward-looking statements. The differences could be caused by a number of factors or combination of factors including, but not limited to, those discussed above in Item 1A. Readers are strongly encouraged to consider those factors when evaluating any such forward-looking statement. Except as may be required by law, we do not undertake to update any forward-looking statements in this Form 10-K. Garmin's fiscal year is a 52-53 week period ending on the last Saturday of the calendar year. Fiscal year 2022 contained 53 weeks and fiscal years 2021 and 2020 contained 52 weeks. Unless otherwise stated, all years and dates refer to the Company's fiscal year and fiscal periods. Unless the context otherwise requires, references in this document to "we", "us", "our" and similar terms refer toGarmin Ltd. and its subsidiaries.
Unless otherwise indicated, dollar amounts set forth in the tables are in thousands, except per share data.
Overview
The Company is a leading worldwide provider of wireless devices, many of which feature Global Positioning System (GPS) navigation, and applications that are designed for people who live an active lifestyle. During 2022, 2021, and 2020, Garmin was organized in the six operating segments of fitness, outdoor, aviation, marine, consumer auto, and auto OEM. The Company's Chief Executive Officer, who has been identified as the Chief Operating Decision Maker (CODM), allocates resources and assesses performance of each operating segment individually. The fitness, outdoor, aviation, and marine operating segments represented reportable segments during 2022, 2021, and 2020. The consumer auto and auto OEM operating segments, which serve the auto market, did not meet the quantitative thresholds to separately qualify as reportable segments, and they are therefore reported together in an "all other" category captioned as auto. Fitness, outdoor, aviation, marine, and auto are collectively referred to as our reported segments. Business Environment Update A number of headwinds including high inflation, rising interest rates, and the strengthening of theU.S. Dollar relative to other major currencies affected the economic environment and consumer behaviors in 2022. Additionally, while our global supply chain is routinely subject to component shortages, increased lead times, cost fluctuations, and logistics constraints, these factors have been further amplified by the current environment, includingRussia's invasion ofUkraine and the lingering impacts of the COVID-19 pandemic. We expect certain of these challenges to persist into 2023. 33 -------------------------------------------------------------------------------- WhileRussia's invasion ofUkraine has not had a material direct impact on our business, and our related direct exposure is limited, the nature and degree of the effects of that conflict, as well as the other effects of the current business environment over time remain uncertain. Refer to Part I, Item 1A, "Risk Factors" of this Annual Report for further discussion of the risks and uncertainties facing our Company.
Critical Accounting Estimates
General
Our discussion and analysis of financial condition and results of operations are based upon the Company's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted inthe United States . The presentation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to customer sales programs and incentives, product returns, bad debts, inventories, investments, intangible assets, income taxes, warranty obligations, and contingencies and litigation. We base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Refer to Note 1 in the Notes to the Consolidated Financial Statements for our significant accounting policies related to our critical accounting estimates.
We allocate goodwill to reporting units in proportion to the expected benefit from each business combination. Each of the Company's operating segments represent a distinct reporting unit.Goodwill is tested for impairment at the reporting unit level on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. These events or circumstances could include a significant change in the operating performance indicators, competition, or expectations about future market or economic conditions. Application of the goodwill impairment test requires significant judgment, including the identification of reporting units, assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units, and determination of the fair value of each reporting unit. The fair value of each reporting unit is estimated through the use of a discounted cash flow methodology. This analysis requires significant assumptions, including discount rate, projected future revenues, projected future operating margins, and terminal growth rates. The estimates used to calculate the fair value of a reporting unit change from year to year based on operating results, market conditions, and other factors. Changes in these estimates and assumptions could materially affect the determination of fair value and goodwill impairment for each reporting unit.
Unrecognized Income Tax Benefits
We recognize liabilities associated with uncertain income tax positions,
including those related to transfer pricing, based on our estimate of whether,
and the extent to which, additional taxes will be due. We recognize the tax
benefits from an uncertain tax position only if payment of these amounts
ultimately proves to be not required or it is more likely than not that the tax
position will be sustained upon examination by the taxing authorities, based on
the technical merits of the position. The tax benefits recognized in the
financial statements from such positions are measured based on the largest
amount of benefit that is more likely than not to be realized upon ultimate
settlement.
Assessing uncertain tax positions requires significant judgment, including the
evaluation of unique facts and circumstances and the interpretation of laws and
regulations, especially the assessment of pricing analyses that may produce
various ranges of outcomes. Variations in the actual outcome of these future tax
consequences could materially impact our consolidated financial statements.
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Accounting Terms and Characteristics
Our net sales are primarily generated through sales to our retail partners, dealer and distributor network, installation and repair shops, original equipment manufacturers (OEMs), our online webshop (garmin.com), subscriptions for connected services, and our own retail stores. Refer to the Revenue Recognition discussion in Note 1 of the Notes to Consolidated Financial Statements. We aim to achieve a quick turnaround on orders we receive from our retail, dealer, and distributor customers. Certain arrangements with OEM customers are entered into at the beginning of an aircraft, boat, or vehicle life cycle with the intent to fulfill customer purchasing requirements for the entire production life, although there are generally no firm volume commitments, and sales are therefore generated on an order-by-order basis. As a result, we do not believe backlog information is material to the understanding of our business. Net sales are subject to seasonal fluctuation. Typically, sales of our consumer products are highest in the fourth quarter due to increased demand during the holiday buying season, and in the second quarter due to increased demand during the spring and summer season. Our aviation and auto OEM products do not experience much seasonal variation but are more influenced by the timing of aircraft certifications, regulatory mandates, auto program manufacturing, and the release of new products when the initial demand is typically the strongest.
Cost of Goods Sold and Gross Profit
Raw material costs are our most significant component of cost of goods sold. Our existing practice of performing the design and manufacture of our products in-house has enabled us to source components from different suppliers and, where possible, to redesign our products to leverage lower-cost or more readily available components.
We believe that our flexible production model allows our factories to experience
relatively low costs of manufacturing. In general, products manufactured in
Shipping and handling costs associated with the transportation and delivery of our products are included in cost of goods sold. Such costs fluctuate due to a number of factors, including market pricing and the mix of modes of transportation we utilize.
Sales price variability, including that which is associated with foreign currency fluctuations, has had and can be expected to have an effect on our gross profit. Our consolidated gross margin, representing gross profit as a percentage of net sales, is dependent on segment mix, and to a lesser extent, product mix within each segment.
Advertising Expense
Our advertising expenses consist primarily of costs for media advertising, cooperative advertising with our retail partners, point of sale displays, and sponsorships.
Selling, General and Administrative Expenses
Our selling, general and administrative expenses consist primarily of:
•
information systems and infrastructure costs;
•
salaries for sales, marketing and product support personnel;
•
salaries and related costs for executives and administrative personnel;
•
marketing, and other brand building costs;
•
finance and legal costs;
•
human resource costs;
•
travel and related costs; and
•
occupancy and other overhead costs.
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Research and Development
The majority of our research and development costs represent engineering personnel costs, costs of test equipment and components used in product and prototype development, and outside product development costs.
We are committed to increasing the level of innovative design and development of new products as we strive for expanded ability to serve our existing consumer and aviation markets as well as new auto OEM programs and new markets for active lifestyle products. Results of Operations In the first quarter of fiscal 2022 the Company refined the methodology used in classifying certain indirect costs as research and development expense, which we believe provides a more meaningful representation of costs incurred to support research and development activities. Additionally, in the first quarter of fiscal 2022 the methodology used to allocate certain selling, general, and administrative expenses to the segments was refined to allocate these expenses in a more direct manner to provide the Company's CODM with a more meaningful representation of segment profit or loss. The Company's composition of operating segments and reportable segments did not change at that time. These changes in classification and allocation had no effect on the Company's consolidated operating or net income. The amounts presented below for selling, general, and administrative expense, research and development expense, segment operating expense, and segment operating income for the 52-week periods endedDecember 25, 2021 andDecember 26, 2020 have been recast to conform with the current period presentation.
The following table sets forth our results of operations as a percentage of net sales during the periods shown (the table may not foot due to rounding):
53-Weeks Ended 52-Weeks Ended 52-Weeks Ended
December 31, 2022 December 25, 2021 December 26, 2020
Net sales 100 % 100 % 100 %
Cost of goods sold 42 % 42 % 41 %
Gross profit 58 % 58 % 59 %
Operating expenses:
Advertising 3 % 3 % 4 %
Selling, general and
administrative 16 % 14 % 15 %
Research and development 17 % 16 % 16 %
Total operating expenses 37 % 34 % 34 %
Operating income 21 % 24 % 25 %
Other income (expense), net 1 % -% 1 %
Income before income taxes 22 % 24 % 26 %
Provision for income taxes 2 % 3 % 2 %
Net income 20 % 22 % 24 %
The table below sets forth our results of operations through operating income
for each of our five reported segments and supplemental information for the
consumer auto and auto OEM operating segments that management believes is
useful. The Company's CODM uses operating income as the measure of profit or
loss, combined with other measures, to assess segment performance and allocate
resources. Operating income represents net sales less costs of goods sold and
operating expenses. Net sales are directly attributed to each segment. Most
costs of goods sold and the majority of operating expenses are also directly
attributed to each segment, while certain other costs of goods sold and
operating expenses are allocated to the segments in a reasonable manner
considering the specific facts and circumstances of the expenses being
allocated. For each line item in the table below, the total of the reported
segments' amounts equals the amount in the consolidated statements of income.
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Auto
53-Weeks Ended December Total Consumer Auto
31, 2022 Fitness Outdoor Aviation Marine Auto Auto OEM
Net sales $ 1,109,419 $ 1,495,167 $ 792,799 $ 903,983 $ 558,918 $ 275,108 $ 283,810
Cost of goods sold 557,002 525,357 219,736 412,526 338,890 145,510 193,380
Gross profit 552,417 969,810 573,063 491,457 220,028 129,598 90,430
Total operating expenses 447,679 413,362 359,877 276,153 281,859 112,765 169,094
Operating income (loss)
52-Weeks Ended December Total Consumer Auto 25, 2021 Fitness Outdoor Aviation Marine Auto Auto OEM Net sales$ 1,533,788 $ 1,281,933 $ 712,468 $ 875,151 $ 579,455 $ 324,731 $ 254,724 Cost of goods sold 720,463 447,096 192,647 379,841 352,289 170,906 181,383 Gross profit 813,325 834,837 519,821 495,310 227,166 153,825 73,341
Total operating expenses 454,124 358,715 326,633 245,529 286,838 105,478 181,360
Operating income (loss)
52-Weeks Ended December Total Consumer Auto 26, 2020 Fitness Outdoor Aviation Marine Auto Auto OEM Net sales$ 1,317,498 $ 1,128,081 $ 622,820 $ 657,848 $ 460,326 $ 275,493 $ 184,833 Cost of goods sold 619,959 388,304 169,812 273,398 253,764 135,629 118,135 Gross profit 697,539 739,777 453,008 384,450 206,562 139,864 66,698
Total operating expenses 392,256 301,580 306,400 207,266 219,594 94,831 124,763
Operating income (loss)$ 305,283 $ 438,197 $ 146,608 $ 177,184 $ (13,032 ) $ 45,033 $ (58,065 ) Net Sales 53-Weeks Ended 52-Weeks Ended 52-Weeks Ended December 31, Year-over-Year Change December 25, Year-over-Year Change December 26, Net Sales 2022 2021 2020 Fitness$ 1,109,419 (28 %)$ 1,533,788 16 %$ 1,317,498 Percentage of Total Net Sales 23 % 31 % 31 % Outdoor 1,495,167 17 % 1,281,933 14 % 1,128,081 Percentage of Total Net Sales 31 % 26 % 27 % Aviation 792,799 11 % 712,468 14 % 622,820 Percentage of Total Net Sales 16 % 14 % 15 % Marine 903,983 3 % 875,151 33 % 657,848 Percentage of Total Net Sales 19 % 17 % 16 % Auto 558,918 (4 %) 579,455 26 % 460,326 Percentage of Total Net Sales 11 % 12 % 11 % Consumer Auto 275,108 (15 %) 324,731 18 % 275,493 Percentage of Total Net Sales 6 % 7 % 7 % Auto OEM 283,810 11 % 254,724 38 % 184,833 Percentage of Total Net Sales 6 % 5 % 4 % Total$ 4,860,286 (2 %)$ 4,982,795 19 %$ 4,186,573 Net sales decreased 2% in fiscal year 2022 when compared to the year-ago period primarily due to the strengthening of theU.S. Dollar relative to other major currencies. Total unit sales decreased approximately 9% to 15.0 million units in 2022 from 16.6 million units in 2021, which differs from the percent change in revenue primarily due to shifts in segment and product mix. Outdoor revenue represented the largest portion of our revenue mix at 31% in 2022, compared to Fitness at 31% in 2021. The increase in outdoor revenue was driven by sales growth across multiple product categories, led by adventure watches. Aviation revenue increased due to contributions from both aftermarket and OEM categories. The increase in marine revenue was driven by sales growth in multiple categories, led by strong demand for our sonar products. Fitness revenue decreased due to declines across all product categories. Auto revenue decreased as a sales decline in our consumer auto products more than offset the growth from auto OEM program model launches. 37
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Gross Profit
53-Weeks Ended 52-Weeks Ended 52-Weeks Ended
December 31, December 25, December 26,
Gross Profit 2022 Year-over-Year Change 2021 Year-over-Year Change 2020
Fitness $ 552,417 (32 %) $ 813,325 17 % $ 697,539
Percentage of
Segment Net Sales 50 % 53 % 53 %
Outdoor 969,810 16 % 834,837 13 % 739,777
Percentage of
Segment Net Sales 65 % 65 % 66 %
Aviation 573,063 10 % 519,821 15 % 453,008
Percentage of
Segment Net Sales 72 % 73 % 73 %
Marine 491,457 (1 %) 495,310 29 % 384,450
Percentage of
Segment Net Sales 54 % 57 % 58 %
Auto 220,028 (3 %) 227,166 10 % 206,562
Percentage of
Segment Net Sales 39 % 39 % 45 %
Consumer Auto 129,598 (16 %) 153,825 10 % 139,864
Percentage of
Segment Net Sales 47 % 47 % 51 %
Auto OEM 90,430 23 % 73,341 10 % 66,698
Percentage of
Segment Net Sales 32 % 29 % 36 %
Total $ 2,806,775 (3 %) $ 2,890,459 16 % $ 2,481,336
Percentage of Total 58 % 58 % 59 %
Net Sales
Gross profit dollars in fiscal year 2022 decreased 3%, primarily due to the decrease in net sales compared to the year-ago period as described above. Consolidated gross margin was relatively flat when compared to the year-ago period.
Gross margin remained relatively flat within the outdoor, aviation, and consumer auto segments. The auto OEM gross margin increase of 310 basis points was primarily attributable to favorable product mix. The fitness gross margin decrease of 320 basis points was primarily due to a strongerU.S. Dollar relative to other major currencies in fiscal 2022 when compared to fiscal 2021. The marine gross margin decrease of 220 basis points was primarily due to sales mix. Operating Expense 53-Weeks Ended 52-Weeks Ended 52-Weeks Ended December 31, December 25, December 26, Operating Expense 2022 Year-over-Year Change 2021 Year-over-Year Change 2020 Advertising Expense$ 168,040 (2 %)$ 171,829 14 %$ 151,166 Percentage of Total Net Sales 3 % 3 % 4 % Selling, general, and administrative expenses 775,963 8 % 721,260 16 % 623,588 Percentage of Total Net Sales 16 % 14 % 15 % Research and development expense 834,927 7 % 778,750 19 % 652,342 Percentage of Total Net Sales 17 % 16 % 16 % Total$ 1,778,930 6 %$ 1,671,839 17 %$ 1,427,096 Percentage of Total Net Sales 37 % 34 % 34 % Total operating expense as a percent of revenue increased 310 basis points due to an increase of 6% in absolute dollars in fiscal year 2022 compared to fiscal year 2021, while revenue declined, as discussed above. Advertising expense as a percent of revenue was relatively flat and decreased 2% in absolute dollars when compared to the prior year. The total absolute dollar decrease was primarily attributable to decreased cooperative spend in the fitness segment. Selling, general and administrative expense as a percent of revenue increased 150 basis points and 8% in absolute dollars when compared to the prior year. The absolute dollar increase was primarily attributable to personnel related expenses and information technology costs. 38
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Research and development expense as a percent of revenue increased 160 basis
points and 7% in absolute dollars when compared to the year-ago period. The
absolute dollar increase was primarily due to higher engineering personnel
costs.
Operating Income
52-Weeks Ended
Operating Income 53-Weeks Ended 52-Weeks Ended December 26,
(Loss) December 31, 2022 Year-over-Year Change December 25, 2021 Year-over-Year Change 2020
Fitness $ 104,738 (71 %) $ 359,201 18 % $ 305,283
Percentage of
Segment Net Sales 9 % 23 % 23 %
Outdoor 556,448 17 % 476,122 9 % 438,197
Percentage of
Segment Net Sales 37 % 37 % 39 %
Aviation 213,186 10 % 193,188 32 % 146,608
Percentage of
Segment Net Sales 27 % 27 % 24 %
Marine 215,304 (14 %) 249,781 41 % 177,184
Percentage of
Segment Net Sales 24 % 29 % 27 %
Auto (61,831 ) 4 % (59,672 ) 358 % (13,032 )
Percentage of
Segment Net Sales (11 %) (10 %) -3 %
Consumer Auto 16,833 (65 %) 48,347 7 % 45,033
Percentage of
Segment Net Sales 6 % 15 % 16 %
Auto OEM (78,664 ) (27 %) (108,019 ) 86 % (58,065 )
Percentage of
Segment Net Sales (28 %) (42 %) (31 %)
Total $ 1,027,845 (16 %) $ 1,218,620 16 % $ 1,054,240
Percentage of Total
Net Sales 21 % 24 % 25 %
Total operating income decreased 16% in absolute dollars and 330 basis points as
a percent of revenue when compared to fiscal year 2021. The decrease as a
percent of revenue was primarily due to higher operating expenses, while net
sales declined, as described above. Decreases in operating income in fitness,
marine, and consumer auto were partially offset by improved performance in
outdoor, aviation and auto OEM. Auto OEM experienced an operating loss in fiscal
year 2022 driven by investments in auto OEM programs, and we expect auto OEM to
experience an operating loss in 2023.
Other Income (Expense)
53-Weeks Ended 52-Weeks Ended 52-Weeks Ended
Other Income (Expense) December 31, 2022 December 25, 2021 December 26, 2020
Interest income $ 40,826 $ 28,573 $ 37,002
Foreign currency (losses) gains (11,274 ) (45,263 ) 2,825
Other income 7,577 4,866 9,343
Total $ 37,129 $ (11,824 ) $ 49,170
The average interest rate returns on cash and investments during the 53-weeks
ended December 31, 2022 and 52-weeks ended December 25, 2021 were 1.4% and 1.0%,
respectively. Interest income increased primarily due to higher yields on
fixed-income securities.
39
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Foreign currency gains and losses for the Company are driven by movements of a
number of currencies in relation to the U.S. Dollar. The Taiwan Dollar is the
functional currency of Garmin Corporation , the Euro is the functional currency
of several subsidiaries, and the U.S. Dollar is the functional currency of
Garmin (Europe) Ltd. , although some transactions and balances are denominated in
British Pounds. Other notable currency exposures include the Australian Dollar,
Chinese Yuan, Japanese Yen, Polish Zloty, and Swiss Franc. The majority of the
Company's consolidated foreign currency gain or loss is typically driven by the
significant cash and marketable securities, receivables and payables held in a
currency other than the functional currency at a given legal entity.
The $11.3 million currency loss recognized in fiscal 2022 was primarily due to
the U.S. Dollar strengthening against the Australian Dollar, Polish Zloty,
Chinese Yuan, Euro, Japanese Yen, and British Pound Sterling, partially offset
by the U.S. Dollar strengthening against the Taiwan Dollar. During this period,
the U.S. Dollar strengthened 6.4% against the Australian Dollar, 7.1% against
the Polish Zloty, 8.5% against the Chinese Yuan, 5.4% against the Euro, 12.7%
against the Japanese Yen, and 9.6% against the British Pound Sterling, resulting
in losses of $8.9 million , $6.0 million , $5.8 million , $5.1 million , $3.7
million , and $1.9 million , respectively, partially offset by the U.S. Dollar
strengthening 9.7% against the Taiwan Dollar, resulting in a gain of $28.0
million . The remaining net currency loss of $7.9 million was related to the
impacts of other currencies, each of which was individually immaterial.
The $45.3 million currency gain recognized in fiscal 2021 was primarily due to
the U.S. Dollar strengthening against the Euro, Polish Zloty, Japanese Yen,
Swiss Franc, and Australian Dollar, while the U.S. Dollar weakened against the
Taiwan Dollar. During fiscal 2021, the U.S. Dollar strengthened 7.3% against the
Euro, 9.6% against the Polish Zloty, 9.6% against the Japanese Yen, 3.0% against
the Swiss Franc, and 4.7% against the Australian Dollar, resulting in losses of
$20.0 million , $6.6 million , $2.6 million , $2.5 million , and $2.4 million ,
respectively, while the U.S. Dollar weakened 1.6% against the Taiwan Dollar,
resulting in a loss of $6.2 million . The remaining net currency loss of $5.0
million was related to the impacts of other currencies, each of which was
individually immaterial.
Income Tax Provision
Income tax expense for the fiscal year endedDecember 31, 2022 was$91.4 million compared to income tax expense of$124.6 million for the fiscal year endedDecember 25, 2021 , representing a net decrease of$33.2 million . The decrease was primarily due to income mix by jurisdiction and an increase inU.S. tax deductions and credits in the fiscal year endedDecember 31, 2022 compared to the fiscal year endedDecember 25, 2021 . CertainSwitzerland tax assets related to theOctober 2019 enactment ofSwitzerland federal andSchaffhausen cantonal tax reform and related transitional measures were revalued in the fourth quarter of 2022 resulting in$7.2 million income tax expense. In connection with these transitional measures included inSwitzerland tax reform, a reduced income tax rate will be utilized on certainSwitzerland taxable income for up to five years. Excluding the aforementioned$7.2 million income tax expense in fiscal 2022, income tax expense for fiscal year 2022 was$84.2 million . InFebruary 2020 the Company initiated a transaction between wholly-owned subsidiaries to migrate ownership of certain intellectual property fromSwitzerland tothe United States , the primary location of research, development, and executive management. The migration, which includes a multi-year intercompany license of intellectual property, has resulted in a favorable shift of income mix by jurisdiction and a reduction in expense related to uncertain tax positions. The Company is pursuing an advance pricing agreement between relevant jurisdictions related to this transaction. However, we are unable to predict the outcome of the final advanced pricing agreement and related negotiations, which could have a material adverse impact on our income tax provision, net income and cash flows for periods during negotiation and upon finalization. At the end of the license agreement, a higher percentage of income will be recognized inthe United States . Numerous countries have signed theOECD global minimum tax initiative, includingSwitzerland , theU.S. , and theU.K. Recently,Switzerland's Federal Council proposed legislation which would implement a minimum tax of 15% in 2024. The passage of a minimum tax inSwitzerland or other jurisdictions where we operate would result in an increase in the tax paid by the Company which could have a material adverse impact on our income tax provision and financial statements.
Net Income
As a result of the various factors noted above net income decreased 10% to
40
--------------------------------------------------------------------------------Liquidity and Capital Resources
We primarily use cash flow from operations, and expect that future cash requirements may be used, to fund our capital expenditures, support our working capital requirements, pay dividends, fund share repurchases, and fund strategic acquisitions. We believe that our existing cash balances and cash flow from operations will be sufficient to meet our short- and long-term projected working capital needs, capital expenditures, and other cash requirements.
Cash, Cash Equivalents, and
As ofDecember 31, 2022 , we had approximately$2.7 billion of cash, cash equivalents and marketable securities. Management invests idle or surplus cash in accordance with the investment policy, which has been approved by the Company's Board of Directors. The investment policy's primary objectives are to preserve capital, maintain an acceptable degree of liquidity, and maximize yield within the constraint of low credit risk. Garmin's average interest rate returns on cash and investments during fiscal 2022 and 2021 were 1.4% and 1.0%, respectively. 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. See Note 4 for additional information regarding marketable securities.
Cash Flows
Cash provided by operating activities totaled$788.3 million for fiscal 2022, compared to$1,012.4 million for fiscal 2021. The decrease was primarily due to a higher use of cash on purchases of inventory, principally associated with the Company's strategy to optimize shipping methods and mitigate increased lead times for raw materials. Additionally, the Company used more cash for income taxes and operating expenses in fiscal 2022 compared to fiscal 2021. These factors were partially offset by more timely cash collections of net sales in fiscal 2022 when compared to fiscal 2021. Cash used in investing activities totaled$145.1 million for fiscal 2022, compared to$475.4 million for fiscal 2021. The decrease was primarily due to net redemptions of marketable securities in fiscal 2022 to fund financing activities described below, compared to the net purchases of marketable securities in fiscal 2021, as well as a decrease in purchases of property and equipment in fiscal 2022 compared to fiscal 2021. Cash used in financing activities totaled$840.6 million for fiscal 2022, compared to$486.7 million for fiscal 2021. This increase was primarily due to the purchase of treasury stock under the share repurchase plan, and higher cash dividend payments in fiscal 2022. Fiscal 2022 included five dividend payments compared to four dividend payments in fiscal 2021 due to the timing of dividend dates and our fiscal period end dates, and our declared dividend increased from$0.61 per share for the four calendar quarters beginning inJune 2020 to$0.67 per share for the four calendar quarters beginning inJune 2021 , and to$0.73 per share for the four calendar quarters beginning inJune 2022 .
Uses of Cash
Operating Leases
The Company has lease arrangements for certain real estate properties, vehicles, and equipment. Leased properties are typically used for office space, distribution, and retail. As ofDecember 31, 2022 , the Company had fixed lease payment obligations of$161.3 million , with$30.7 million payable within 12 months.
Inventory Purchase Obligations
The Company obtains various raw materials and components for its products from a variety of third party suppliers. The Company's inventory purchase obligations are primarily noncancelable. As ofDecember 31, 2022 , the Company had inventory purchase obligations of$760.0 million , with$520.7 million payable within 12 months. Other Purchase Obligations 41
-------------------------------------------------------------------------------- The Company's other purchase obligations primarily consist of noncancelable commitments for capital expenditures and other indirect purchases in connection with conducting our business. As ofDecember 31, 2022 , the Company had other purchase obligations of$395.8 million , with$173.3 million payable within 12 months. Other Uses of Cash The 2017 United States Tax Cuts and Jobs Act (the "2017 Act") included provisions, which became effective during 2022 tax year, related to the capitalization of certain research and development costs for tax purposes. The provisions require us to capitalize certain research and development costs and amortize those capitalized costs on ourU.S. tax returns over a period of five or fifteen years, depending on where the associated costs were incurred. While these provisions did not have a material impact on our fiscal 2022 effective tax rate, and we do not expect a material impact on our fiscal 2023 effective tax rate, this capitalization rule did increase our cash paid for taxes in fiscal 2022, and we expect it to continue to cause an increased level of cash paid for taxes in fiscal 2023. Cash paid for taxes will also increase in 2023 as compared to 2022 due to the payment of taxes in arrears related to the intercompany transaction to migrate ownership of certain intellectual property fromSwitzerland tothe United States .
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