Netgear 2012 Annual Report Download - page 21

Table of Contents
As part of undertaking an acquisition, we may also significantly revise our capital structure or operational budget, such as issuing common
stock that would dilute the ownership percentage of our stockholders, assuming liabilities or debt, utilizing a substantial portion of our cash resources
to pay for the acquisition or significantly increasing operating expenses. Our acquisitions have resulted and may in the future result in charges being
taken in an individual quarter as well as future periods, which results in variability in our quarterly earnings. In addition, our effective tax rate in any
particular quarter may also be impacted by acquisitions. Following the closing of an acquisition, we may also have disputes with the seller regarding
contractual requirements and covenants. Any such disputes may be time consuming and distract management from other aspects of our business. In
addition, if we continue to increase the pace of acquisitions, as we did in June and July 2012, we will have to expend significant management time
and effort into the transactions and the integrations and we may not have the proper human resources bandwidth to ensure successful integrations and
accordingly, our business could be harmed.
As part of the terms of acquisition, we may commit to pay additional contingent consideration if certain revenue or other performance
milestones are met. We are required to evaluate the fair value of such commitments at each reporting date and adjust the amount recorded if there are
changes to the fair value.
We cannot ensure that we will be successful in selecting, executing and integrating acquisitions. Particularly with the contemplated closing of
the AirCard business of Sierra Wireless, our management will be singularly focused on executing a successful integration given the size and
significance of that acquisition. Failure to manage and successfully integrate acquisitions, especially the AirCard business of Sierra Wireless, could
materially harm our business and operating results. In addition, if stock market analysts or our stockholders do not support or believe in the value of
the acquisitions that we choose to undertake, our stock price may decline.
Changes in tax rates, adverse changes in tax laws or exposure to additional income tax liabilities could affect our future profitability.
Factors that could materially affect our future effective tax rates include but are not limited to:
We are subject to income taxes in the United States and numerous foreign jurisdictions. Our effective tax rate has fluctuated in the past and may
fluctuate in the future. Future effective tax rates could be affected by changes in the composition of earnings in countries with differing tax rates,
changes in deferred tax assets and liabilities, or changes in tax laws.
We are also subject to examination by the Internal Revenue Service (“IRS”)
and other tax authorities, including state revenue agencies and
foreign governments. In 2011, the IRS commenced an examination of our 2008 and 2009 tax years. The audit was completed in October 2012, and
all issues under examination by the IRS were effectively settled. While we regularly assess the likelihood of favorable or unfavorable outcomes
resulting from examinations by the IRS and other tax authorities to determine the adequacy of our provision for income taxes, there can be no
assurance that the actual outcome resulting from these examinations will not materially adversely affect our financial condition and operating results.
Additionally, the IRS and other tax authorities have increasingly focused attention on intercompany transfer pricing with respect to sales of products
and services and the use of intangible assets. Tax authorities could disagree with our intercompany charges, cross-
jurisdictional transfer pricing or
other matters and assess additional taxes. If we do not prevail in any such disagreements, our profitability may be affected.
17
•
entering into territories or markets that we have limited or no prior experience with;
•
establishing or maintaining business relationships with customers, vendors and suppliers who may be new to us;
•
overcoming the employee, customer, vendor and supplier turnover that may occur as a result of the acquisition;
•
diverting management's attention from running the day to day operations of our business; and
• potential post-
closing disputes.
•
changes in the regulatory environment;
•
changes in accounting and tax standards or practices
•
changes in the composition of operating income by tax jurisdiction; and
•
our operating results before taxes.