To supplement our financial results presented in accordance with GAAP, this release includes the following measures defined by the Securities and Exchange Commission as non-GAAP financial measures: pro forma net income (earnings) per share, forward-looking pro forma earnings per share, pro forma effective tax rate, forward-looking pro forma effective tax rate and free cash flow. These non-GAAP measures are not based on any comprehensive set of accounting rules or principles and should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP, and may be different from non-GAAP measures used by other companies, limiting the usefulness of the measures for comparison with other companies. Management believes providing investors with an operating view consistent with how it manages the Company provides enhanced transparency into the operating results of the Company, as described in more detail by category below.
The tables below provide reconciliations between the GAAP and non-GAAP measures.
Pro forma effective tax rate
The Company’s income tax expense is periodically impacted by discrete tax items that are not reflective of income tax expense incurred as a result of current period earnings. Therefore, management believes disclosure of the effective tax rate and income tax provision before the effect of certain discrete tax items are important measures to permit investors' consistent comparison between periods. In the first and second quarters of 2018, there were no such discrete tax items identified.
| Garmin Ltd. And Subsidiaries | |||||||||||||||
| Pro Forma Effective Tax Rate | |||||||||||||||
| (in thousands, except effective tax rate (ETR) information) | |||||||||||||||
| 13-Weeks Ended | 26-Weeks Ended | ||||||||||||||
| July 1, | July 1, | ||||||||||||||
| 2017 | 2017 | ||||||||||||||
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$ |
ETR (1) |
$ |
ETR (1) |
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| U.S. GAAP income tax provision (benefit) | $ | 57,348 | 24.5 | % | $ | (92,680 | ) | (28.7 | %) | ||||||
| Pro forma discrete tax items: | |||||||||||||||
| Switzerland corporate tax election (2) | - | 168,755 | |||||||||||||
| Tax expense from share-based award expirations (3) | (7,275 | ) | (7,275 | ) | |||||||||||
| Total pro forma discrete tax items | (7,275 | ) | 161,480 | ||||||||||||
| Income tax provision (Pro Forma) | $ | 50,073 | 21.4 | % | $ | 68,800 | 21.3 | % | |||||||
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(1) |
Effective tax rate is calculated by taking the income tax provision divided by income before taxes, as presented on the face of the Condensed Consolidated Statements of Income. |
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(2) |
In first quarter 2017, a $169 million tax benefit was recognized resulting primarily from the revaluation of certain Switzerland deferred tax assets. The revaluation is due to the Company's election in the first quarter of 2017 to align certain Switzerland corporate tax positions with international tax initiatives. As this revaluation is not reflective of income tax expense incurred related to the current period earnings, it has been identified as a pro forma discrete tax item. |
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(3) |
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, it has been identified as a pro forma adjustment. |
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