Netgear 2012 Annual Report Download - page 54

Table of Contents
We lease office space, cars and equipment under non-
cancelable operating leases with various expiration dates through December 2026. Rent
expense in the years ended December 31, 2012 , 2011 , and 2010 was $7.6 million , $7.0 million and $6.4 million
, respectively. The terms of some
of the office leases provide for rental payments on a graduated scale. We recognize rent expense on a straight-
line basis over the lease period, and
have accrued for rent expense incurred but not paid. The amounts presented are consistent with contractual terms and are not expected to differ
significantly, unless a substantial change in our headcount needs requires us to exit an office facility early or expand our occupied space.
We enter into various inventory-
related purchase agreements with suppliers. Generally, under these agreements, 50% of the orders are
cancelable by giving notice 46 to 60 days prior to the expected shipment date and 25% of orders are cancelable by giving notice 31 to 45 days prior
to the expected shipment date. Orders are not cancelable within 30 days prior to the expected shipment date. At December 31, 2012 , we had
$149.6
million in non-
cancelable purchase commitments with suppliers. We expect to sell all products for which we have committed purchases from
suppliers.
As of December 31, 2012 and December 31, 2011
, we had $13.8 million and $18.7 million, respectively, of total gross unrecognized tax
benefits and related interest. The timing of any payments that could result from these unrecognized tax benefits will depend upon a number of
factors.
The unrecognized tax benefits have been excluded from the contractual obligations table because reasonable estimates cannot be
made of whether, or when, any cash payments for such items might occur.
The possible reduction in liabilities for uncertain tax positions in
multiple jurisdictions that may impact the statement of operations in the next 12 months is approximately $2.2 million, excluding the interest,
penalties and the effect of any related deferred tax assets or liabilities.
Off-Balance Sheet Arrangements
As of December 31, 2012 , we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.
Recent Accounting Pronouncements
See Note 1, The Company and Summary of Significant Accounting Policies
, in Notes to Consolidated Financial Statements in Item 8 of Part II
of this Annual Report on Form 10-
K, for a full description of recent accounting pronouncements, including the expected dates of adoption and
estimated effects on financial condition and results of operations, which are hereby incorporated by reference.
Interest Rate Risk
We do not use derivative financial instruments in our investment portfolio. We have an investment portfolio of fixed income securities that are
classified as “available-for-sale”
securities. These securities, like all fixed income instruments, are subject to interest rate risk and will fall in value if
market interest rates increase. We attempt to limit this exposure by investing primarily in highly rated short-
term securities. Our investment policy
requires investments to be rated triple-
A with the objective of minimizing the potential risk of principal loss. Due to the short duration and
conservative nature of our investment portfolio, a movement of 10% by market interest rates would not have a material impact on our operating
results and the total value of the portfolio over the next fiscal year. We monitor our interest rate and credit risks, including our credit exposure to
specific rating categories and to individual issuers. There were no impairment charges on our investments during fiscal 2012 .
Foreign Currency Transaction Risk
We invoice some of our international customers in foreign currencies including, but not limited to, the Australian dollar, British pound, euro,
and Japanese yen. As the customers that are currently invoiced in local currency become a larger percentage of our business, or to the extent we
begin to bill additional customers in foreign currencies, the impact of fluctuations in foreign exchange rates could have a more significant impact on
our results of operations. For those customers in our international markets that we continue to sell to in U.S. dollars, an increase in the value of the
U.S. dollar relative to foreign currencies could make our products more expensive and therefore reduce the demand for our products. Such a decline
in the demand for our products could reduce sales and negatively impact our operating results. Certain operating expenses of our foreign operations
require payment in the local currencies.
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Item 7A. Quantitative and Qualitative Disclosures About Market Risk