Netgear 2004 Annual Report Download - page 45

Table of Contents
required redemption guidelines, resulting in an incentive redemption rate of less than 100%. Based on historical data, we estimate an
incentive redemption rate for our promotional programs. If the actual redemption rate is higher than our estimated rate, our net
revenues and gross margins will be negatively affected.
Recently enacted and proposed changes in securities laws and related regulations are resulting in increased costs to us.
Recently enacted and proposed changes in the laws and regulations affecting public companies, including the provisions of the
Sarbanes-Oxley Act of 2002 and recent rules enacted and proposed by the SEC and the Nasdaq National Market, are resulting in
increased costs to us as we respond to their requirements. In particular, complying with the internal control audit requirements of
Sarbanes-Oxley Section404 is resulting in increased internal efforts and higher fees from our independent accounting firm and
compliance consultant. The new rules could make it more difficult for us to obtain certain types of insurance, including director and
officer liability insurance, and we may be forced to accept reduced policy limits and coverage and/or incur substantially higher costs to
obtain the same or similar coverage. The impact of these events could also make it more difficult for us to attract and retain qualified
persons to serve on our Board of Directors, on committees of our Board of Directors, or as executive officers. We cannot predict or
estimate the amount of the additional costs we may incur or the timing of such costs that we may incur as we implement these new and
proposed rules.
We are required to evaluate our internal control under Section404 of the Sarbanes-Oxley Act of 2002 and any adverse results from
such evaluation could impact the reliability of our internal controls over financial reporting.
Pursuant to Section404 of the Sarbanes-Oxley Act of 2002, beginning with our Annual Report on Form10-K for the fiscal year ending
December31, 2004, we are required to furnish a report by our management on our internal control over financial reporting. Such report
will contain among other matters, an assessment of the effectiveness of our internal control over financial reporting as of the end of
our fiscal year, including a statement as to whether or not our internal control over financial reporting is effective. This assessment
must include disclosure of any material weaknesses in our internal control over financial reporting identified by management. Such
report must also contain a statement that our auditors have issued an attestation report on management’s assessment of such internal
controls. Public Company Oversight Board Auditing Standard No.2 provides the professional standards and related performance
guidance for auditors to attest to, and report on, management’s assessment of the effectiveness of internal control over financial
reporting under Section404.
We will continue to perform the system and process documentation and evaluation needed to comply with Section404, which is both
costly and challenging. During this process, if our management identifies one or more material weaknesses in our internal control over
financial reporting, we will be unable to assert such internal control is effective. If we are unable to assert that our internal control over
financial reporting is effective as of the end of a fiscal year, or if our auditors are unable to attest that our management’s report is fairly
stated or they are unable to express an opinion on the effectiveness of our internal controls, we could lose investor confidence in the
accuracy and completeness of our financial reports, which would have an adverse effect on our stock price.
We depend on a limited number of third-party contract manufacturers for substantially all of our manufacturing needs. If these
contract manufacturers experience any delay, disruption or quality control problems in their operations, we could lose market share
and our brand may suffer.
All of our products are manufactured, assembled, tested and generally packaged by a limited number of original design manufacturers,
or ODMs, and original equipment manufacturers, or OEMs. Substantially all of our products are manufactured by ASUSTek Computer,
Inc., Cameo Communications Corporation, Delta Networks, Inc., Hon Hai Precision Industry Co., Ltd., SerComm Corporation and
Z-Com, Inc. We rely on our contract manufacturers to procure components and, in some cases, subcontract engineering work. Some of
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2005. EDGAR Online, Inc.