Netgear 2012 Annual Report Download - page 40

Table of Contents
brand name, timeliness of new product introductions, product availability, performance, features, functionality and reliability, ease-of-
installation,
maintenance and use, and customer service and support. To remain competitive, we believe we must continue to aggressively invest resources in
developing new products and enhancing our current products while continuing to expand our channels and maintaining customer satisfaction
worldwide.
Looking forward, we expect the service provider business unit to grow at a slower pace, before consideration of our pending acquisition of the
Sierra Wireless, Inc. ("Sierra Wireless") AirCard business. For further detail, refer to Note 14, Subsequent Event
, in Notes to Consolidated Financial
Statements in Item 8 of Part II of this Annual Report on Form 10-K.
We expect to see continued success in our retail business unit, driven by 11ac
wireless technology and our expansion into new technology areas , including Over the Top content streaming with our NeoTV line of products, and
home monitoring with our VueZone cameras, WiFi repeaters and other Smart Home solutions and we believe that the rapid growth of this market
will drive revenue growth. We also expect to see growth in our commercial business unit, driven by our newer products in 10Gig Ethernet switches,
Unified Storage, and campus wireless LAN targeting the move into the Hybrid Cloud and Access Network environment among small and medium
enterprises. In addition, we will continue to closely manage our expenses, inventory, and cash.
Critical Accounting Policies and Estimates
Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of
America and pursuant to the rules and regulations of the SEC. The preparation of these financial statements requires management to make
assumptions, judgments and estimates that can have a significant impact on the reported amounts of assets, liabilities, revenues and expenses. We
base our estimates on historical experience and on various other assumptions believed to be applicable and reasonable under the circumstances.
Actual results could differ significantly from these estimates. These estimates may change as new events occur, as additional information is obtained
and as our operating environment changes. On a regular basis we evaluate our assumptions, judgments and estimates and make changes accordingly.
We also discuss our critical accounting estimates with the Audit Committee of the Board of Directors. Note 1,
The Company and Summary of
Significant Accounting Policies , of the Notes to Consolidated Financial Statements of this Annual Report on Form 10-
K describes the significant
accounting policies used in the preparation of the consolidated financial statements. We have listed below our critical accounting policies that we
believe to have the greatest potential impact on our consolidated financial statements. Historically, our assumptions, judgments and estimates relative
to our critical accounting policies have not differed materially from actual results.
Revenue Recognition
Refer to Note 1, The Company and Summary of Significant Accounting Policies
, of the Notes to Consolidated Financial Statements of this
Annual Report on Form 10-
K for a discussion of our revenue recognition policies. Revenue from product sales is generally recognized at the time the
product is shipped, provided that persuasive evidence of an arrangement exists, title and risk of loss has transferred to the customer, the selling price
is fixed or determinable and collection of the related receivable is reasonably assured. Currently, for some of our customers, title passes to the
customer upon delivery to the port or country of destination, upon their receipt of the product, or upon the customer’
s resale of the product. At the
end of each fiscal quarter, we estimate and defer revenue related to product where title has not transferred. The revenue continues to be deferred until
such time that title passes to the customer. We have not made any material changes in the accounting methodology we use to estimate deferred
revenue related to product where title has not transferred. We do not believe there will be a material change in the future estimates or assumptions
used in our estimate of deferred revenue. We assess collectability based on a number of factors, including general economic and market conditions,
past transaction history with the customer, and the creditworthiness of the customer. If we determine that collection of the corresponding receivable
is not reasonably assured, we defer the revenue until receipt of payment.
Allowances for Product Warranties, Returns due to Stock Rotation, Sales Incentives and Doubtful Accounts
Our standard warranty obligation to our direct customers generally provides for a right of return of any product for a full refund in the event that
such product is not merchantable or is found to be damaged or defective. At the time revenue is recognized, an estimate of future warranty returns is
recorded to reduce revenue in the amount of the expected credit or refund to be provided to our direct customers. At the time we record the reduction
to revenue related to warranty returns, we include within cost of revenue a write-
down to reduce the carrying value of such products to net realizable
value. Our standard warranty obligation to end-
users provides for replacement of a defective product for one or more years. Factors that affect the
warranty obligation include product failure rates, material usage, and service delivery costs incurred in correcting product failures. The estimated cost
associated with fulfilling the warranty obligation to end-users is recorded in cost of revenue. Because our products are manufactured by third-
party
manufacturers, in certain cases we have recourse to the third-
party manufacturer for replacement or credit for the defective products. We give
consideration to amounts recoverable from our third-
party manufacturers in determining our warranty liability. Our estimated allowances for product
warranties can vary from actual results and we may have to record additional revenue reductions or charges to cost of revenue, which could
materially impact our financial position and results of operations.
36