Garmin 2008 Annual Report Download - page 68

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Foreign currency gains and losses for the Company are primarily tied to movements by the Taiwan Dollar ,
the Euro, and the British Pound Sterling. The U.S. Dollar remains the functional currency of Garmin (Europe) Ltd.
The Euro is the functional currency of all other European subsidiaries excluding Garmin Danmark and Garmin
Sweden. As these entities have grown, Euro currency moves generated material gains and losses. Additionally,
Euro-based inter-company transactions in Garmin Ltd. can also generate currency gains and losses. The Canadian
dollar, Danish Krone, Swedish Krona and Australian Dollar are the functional currency of Dynastream Innovations,
Inc., Garmin Danmark, Garmin Sweden, and Garmin Australasia respectively; due to these entities’ relative size,
currency moves are not expected to have a material impact on the Company’s financial statements.
The $35.3 million currency loss in 2008 was related to the strengthening of the U.S. Dollar offset by a gain
associated with the sales and tender of our Tele Atlas N.V. shares. During 2008, the Taiwan Dollar weakened 1.6%
in comparison to the U.S. Dollar, resulting in a $20.8 million gain. The Euro weakened 4.1% and the British Pound
Sterling weakened 26.1% relative to the U.S. Dollar in 2008 which resulted in a $77.3 million loss. The relative
weakness of the Taiwan Dollar and Euro/British Pound Sterling have offsetting impacts due to the use of the Taiwan
Dollar for manufacturing costs while the Euro and British Pound Sterling transactions relate to revenue. Offsetting
this net loss was a realized gain of $21.5 million due to the strengthening of the Euro between the date of purchase
of the Tele Atlas N.V. shares in October 2007 to the dates of tender in February, March, and June 2008. Other net
currency losses and the timing of transactions created the remaining loss of $0.3 million.
The majority of the $23.0 million currency gain in fiscal 2007 was due to the weakening of the U.S. Dollar
compared to the Euro and the British Pound Sterling. During fiscal 2007, the Taiwan Dollar strengthened relative
to the U.S. Dollar, resulting in a $2.5 million loss. The British Pound Sterling and the Euro strengthened 2% and
11.4% respectively, relative to the U.S. Dollar during fiscal 2007, which resulted in a $25.6 million gain. Other net
currency gains and the timing of transactions created the remaining loss of $0.1 million.
Other income of $50.9 million in 2008 was primarily generated from the sale of our equity interest in Tele
Atlas N.V. which we acquired in 2007 in connection with our announced intent to make a cash offer for all
outstanding shares, which was subsequently abandoned.
Income Tax Provision
Our earnings before taxes fell 6.5% when compared to 2007, yet our income tax expense increased by
$58.2 million, to $181.5 million, for fiscal year 2008 from $123.3 million for fiscal year 2007, due to a higher
effective tax rate. The effective tax rate was 19.9% for fiscal 2008 compared to 12.6% for fiscal 2007. The increase
in tax rate is due to a change in tax law related to the repatriation of earnings from our Taiwan subsidiary and the
unfavorable mix of taxable income among the tax jurisdictions in which the Company operates.
Net Income
As a result of the various factors noted above, net income decreased 14% to $732.8 million for fiscal year
2008 compared to $855.0 million for fiscal year 2007.