Netgear 2004 Annual Report Download - page 68

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Table of Contents
NETGEAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS— (Continued)
Shipping and handling costs associated with outbound freight are included in sales and marketing expenses and totaled $2.7million,
$4.2million and $6.4million in the years ended December31, 2002, 2003 and 2004, respectively.
Research and development
Costs incurred in the research and development of new products are charged to expense as incurred.
Advertising costs
Advertising costs are expensed as incurred. Total advertising and promotional expenses were $7.1million, $12.8million and $11.9million
in the years ended December31, 2002, 2003 and 2004, respectively.
Income taxes
The Company accounts for income taxes under the liability method, which recognizes deferred tax assets and liabilities determined
based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the
year in which the differences are expected to affect taxable income. Valuation allowances are established to reduce deferred tax assets
when, based on available objective evidence, it is more likely than not that the benefit of such assets will not be realized.
Stock-based compensation
Pursuant to SFASNo.123, “Accounting for Stock-Based Compensation,” the Company accounts for employee stock options under
Accounting Principles Board Opinion (“APB”) No.25, “Accounting for Stock Issued to Employees,” and follows the disclosure-only
provisions of SFASNo.123. Under APB No.25, compensation expense is based on the difference, if any, on the date of the grant,
between the estimated fair value of the Company’s common stock and the exercise price of options to purchase that stock. For
purposes of estimating the compensation cost of the Company’s option grants in accordance with SFASNo.123, the fair value of each
option grant is estimated on the date of grant using the Black-Scholes option-pricing model.
47
2005. EDGAR Online, Inc.