Netgear 2012 Annual Report Download - page 50

Table of Contents
9.5 percentage points for 2011. The increase in the effective tax rate from earnings of foreign operations in 2012 compared to 2011 resulted from a
decrease in the profitability of international operations located in tax jurisdictions with rates below 35%. Additionally, the effective tax rate was
higher due to the expiration of tax laws providing for the US federal research credit for the year ended December 31, 2012. Tax rate increases were
partially offset by a reduction in accruals for uncertain tax positions as a result of the completion of a tax audit by the US Internal Revenue Service.
2011 vs 2010
Provision for income taxes decreased $7.5 million, resulting in a provision of $32.8 million for the year ended December 31, 2011, compared to
a provision of $40.3 million for the year ended December 31, 2010. The effective tax rate decreased to 26.4% for the year ended December 31, 2011
from 44.2% for the year ended December 31, 2010. The effective tax rate for both periods differed from the statutory rate of 35% due to earnings
from foreign operations, state taxes, other non-deductible expenses, and tax credits. Non-
deductible expenses in the year ended December 31, 2010
included certain stock based compensation. For the year ended December 31, 2011, tax on earnings from foreign operations reduced the effective tax
rate by 9.5 percentage points compared to an increase of 5.1 percentage points for 2010. The tax rate benefit of earnings from foreign operations in
2011 resulted from improvements in profitability of international operations located in tax jurisdictions with rates below 35%. In 2011, state income
taxes increased the effective tax rate by 1.5 percentage points compared to an increase of 4.2 percentage points for 2010. The lower impact of state
taxes in 2011 compared to 2010 was primarily due to a legislation that was effective as of January 1, 2011 that provided for a more favorable
methodology for computing the amount of income subject to tax in California.
Net Income
2012 vs 2011
Net income decreased $4.9 million to $86.5 million for the year ended December 31, 2012 , from $91.4 million
for the year ended
December 31, 2011 . This decrease was primarily attributable to an increase in the provision for income tax of $9.9 million
, partially offset by an
increase of $3.8 million in other income and expense, net, and operating income of $1.2 million.
2011 vs 2010
Net income increased $40.5 million to $91.4 million for the year ended December 31, 2011, from $50.9 million for the year ended
December 31, 2010. This increase was primarily attributable to an increase in gross profit of $70.2 million and a decrease in provision for income
taxes of $7.5 million. This increase was partially offset by an increase in operating expenses of $36.7 million.
Segment Information
A description of our products and services, as well as segment financial data, for each segment can be found in Note 12,
Segment Information,
Operations by Geographic Area and Customer Concentration
, in Notes to Consolidated Financial Statements in Item 8 of Part II of this Annual
Report on Form 10-K. Future changes to our organizational structure or business may result in changes to the reportable segments disclosed.
Segment contribution income includes all product line segment net revenues less the related cost of sales, research and development, and sales
and marketing costs. Contribution income is used, in part, to evaluate the performance of, and allocate resources to, each of the segments. Certain
operating expenses are not allocated to segments because they are separately managed at the corporate level. These unallocated indirect costs include
corporate costs, such as corporate research and development, general and administrative costs, stock-
based compensation expenses, amortization of
intangibles, acquisition-related integration costs, restructuring costs, litigation reserves, and interest and other income (expense), net.
A reconciliation of segment contribution income to income before income taxes can be found in Note 12,
Segment Information, Operations by
Geographic Area and Customer Concentration
, in Notes to Consolidated Financial Statements in Item 8 of Part II of this Annual Report on
Form 10-K.
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