Garmin 2007 Annual Report Download - page 77

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51
because the Taiwan Dollar, the Euro and British Pound have proven to be relatively stable. However, periodically
we have experienced significant foreign currency gains and losses due to the strengthening and weakening of the
U.S. dollar. The potential of volatile foreign exchange rate fluctuations in the future could have a significant effect
on our results of operations.
The currencies that create a majority of the Company’s exchange rate exposure are the Taiwan Dollar, the
Euro, and British Pound. Garmin Corporation, located in Shijr, Taiwan, uses the local currency as the functional
currency. The Company translates all assets and liabilities at year-end exchange rates and income and expense
accounts at average rates during the year. In order to minimize the effect of the currency exchange fluctuations on
our net assets, we have elected to retain most of our Taiwan subsidiary’s cash and investments in marketable
securities denominated in U.S. dollars. The NTD/USD exchange rate decreased 0.3% during 2007, which resulted
in a cumulative translation adjustment of negative $0.3 million at the end of fiscal 2007 and a net foreign currency
loss of $2.5 million at Garmin Corporation during 2007.
Garmin France SAS, Garmin Deutschland GmbH, Garmin Italia S.p.A., and Garmin Iberia S.A., located in
France, Germany, Italy, and Spain respectively, use the Euro as the functional currency. However, the functional
currency of our largest European subsidiary, Garmin (Europe) Ltd. remains the U.S. dollar, and as some transactions
occurred in British Pounds or Euros, foreign currency gains or losses have been realized historically related to the
movements of those currencies relative to the U.S. dollar. The Company believes that gains and losses will become
more material in the future as our European presence grows. In 2007, the Euro strengthened 10.2% relative to the
U.S. dollar and the British Pound Sterling strengthened 1.7% relative to the U.S. dollar. These currency moves
resulted in a foreign currency gain of $25.6 million in Garmin Ltd. and our European subsidiaries. These gains were
offset by currency moves in the Taiwan dollar that generated losses described above, combined with other losses of
$0.1 million, and the timing of transactions during the year for a net gain of $23.0 million for the Company.
If the TD/USD exchange rate had decreased 10% and the GBP/USD and EUR/USD exchange rate had each
increased 10% in 2007, the cumulative translation adjustment would have been a negative $0.4 million at the end of
fiscal 2007 and the foreign currency loss would have been $109.5 million without the use of any hedging strategies.
Interest Rate Risk
We have no outstanding long-term debt as of December 29, 2007. We, therefore, have no meaningful
debt-related interest rate risk.
We are exposed to interest rate risk in connection with our investments in marketable securities. As
interest rates change, the unrealized gains and losses associated with those securities will fluctuate accordingly. A
hypothetical change of 10% in interest rates would not have a material effect on such unrealized gains or losses. At
December 29, 2007, cumulative unrealized gains on those securities were $46.4 million.
Equity Price Risk
We are also exposed to equity price risk inherent in our portfolio of publicly-traded equity securities, which
had an estimated fair value of $235.6 million at December 29, 2007 and $57.5 million at December 30, 2006. We
monitor our equity investments for impairment on a periodic basis. In the event that the carrying value of the equity
investment exceeds its fair value, and we determine the decline in value to be other than temporary, we reduce the
carrying value to its current fair value. Generally, we do not attempt to reduce or eliminate our market exposure on
these equity securities. We do not purchase our equity securities with the intent to use them for speculative purposes.
A hypothetical 10% adverse change in the stock prices of our publicly-traded equity securities would result in a loss
in the fair values of our marketable equity securities of $23.5 million at December 29, 2007 and $5.8 million at
December 30, 2006.