Garmin 2005 Annual Report Download - page 76

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46
offset such higher costs through price increases. Our inability or failure to do so could adversely affect our business,
financial condition and results of operations.
Foreign Currency Exchange Rate Risk
The operation of the Company’s subsidiaries in international markets results in exposure to movements in
currency exchange rates. We generally have not been significantly affected by foreign exchange fluctuations
because, until recently, the New Taiwan Dollar has 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 principal currency involved is the New Taiwan Dollar. 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 in U.S. dollars. As discussed above, the New Taiwan dollar/U.S. dollar
exchange rate can be volatile. The exchange rate increased 2.0% during 2005 and resulted in a foreign currency
gain of $15.3 million. The exchange rate decreased 5.5% during 2004 and resulted in a foreign currency loss of
$24.8 million. The exchange rate decreased 3.0% during 2003 and resulted in a foreign currency loss of $6.7
million. A 10% positive or negative change in the US dollar exchange rate versus the New Taiwan Dollar would
have resulted in a foreign currency gain of $76.5 million (positive 10% change) or a foreign currency loss of $76.5
million (negative 10% change) during 2005. The majority of our worldwide sales are transacted in U.S. Dollars.
Therefore, the impact on sales related to foreign currency movements is minimal.
Interest Rate Risk
We have no outstanding long-term debt, and therefore no 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 31, 2005, unrealized losses on those securities were $3.3 million.