Garmin 2008 Annual Report Download - page 71

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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 weakened 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.
Foreign currency gains and losses for the Company in 2006 were primarily tied to movements by the
Taiwan Dollar and the British Pound Sterling relative to the U.S. Dollar. The U.S. dollar weakened when compared
to the Taiwan Dollar during fiscal 2006, creating a $3.0 million loss, which was offset almost entirely by a $4.5
million gain as a result of strengthening in the U.S. Dollar relative to the British Pound Sterling. Other net currency
gains and the timing of transactions created the remaining loss of $0.9 million.
Income Tax Provision
Income tax expense increased by $42.9 million, to $123.3 million, for fiscal year 2007 from $80.4 million
for fiscal year 2006, due to our higher taxable income. The effective tax rate was 12.6% for fiscal 2007 versus
13.5% for fiscal 2006. The decrease in tax rate is due to additional tax benefits received from Taiwan as a result of
our continued capital investment in our manufacturing facilities in Taiwan, tax credits resulting from our decision to
repatriate certain of our Taiwan earnings to our parent company, and the increased contribution to our income from
lower tax jurisdictions during 2007 relative to 2006. This lower effective tax rate resulted in a decrease in the ratio
of income tax as a percentage of revenue of approximately 0.7% from fiscal 2006 to fiscal 2007.
Net Income
As a result of the various factors noted above, net income increased 66% to $855.0 million for fiscal year
2007 compared to $514.1 million for fiscal year 2006.
Liquidity and Capital Resources
Net cash generated by operations was $862.2 million, $682.1 million, and $361.9 million for fiscal years
2008, 2007 and 2006, respectively. We experienced reductions in both accounts receivable and inventories that
contributed to cash generated by operations in 2008. Accounts payable also decreased representing a use of cash.
We are focused on reducing accounts receivable days outstanding as we negotiate shorter payment terms with our
customers. With regard to inventory, we operate with a customer-oriented approach and seek to maintain sufficient
inventory to meet customer demand. Because we desire to respond quickly to our customers and minimize order
fulfillment time, our inventory levels are generally substantial enough to meet most demand. We also attempt to
carry sufficient inventory levels of key components so that potential supplier shortages have as minimal an impact as
possible on our ability to deliver our finished products. We do plan to further reduce inventory levels in 2009 in
response to slowing consumer demand.
Capital expenditures in 2008 totaled $119.6 million, a decrease of $37.2 million from fiscal 2007. This
amount in 2008 reflects the build-out of additional manufacturing lines in Lin-Kou, Taiwan, completion of our
expanded North American distribution facility and maintenance activities. Capital expenditures in 2007 totaled
$156.8 million, an increase of $63.9 million from fiscal 2006. This amount in 2007 reflects the purchase and build-
out of an additional manufacturing facility in Lin-Kou, Taiwan, continued expansion of research and development
facilities in our Taiwan facilities, as well as ordinary capital expenditures for fiscal 2007. Capital expenditures in
2006 totaled $92.9 million, an increase of $65.8 million from fiscal 2005. This amount in 2006 reflects the
purchase and renovation of an additional manufacturing facility in Jhongli, Taiwan, the purchase of a new European
headquarters in the United Kingdom, as well as ordinary capital expenditures for fiscal 2006.
We have budgeted approximately $60 million of capital expenditures during fiscal 2009 to include normal
ongoing capital expenditures, as well as completion of the aviation manufacturing expansion in Olathe, Kansas.