Netgear 2006 Annual Report Download - page 38

Table of Contents
Sales and marketing expenses increased $20.6 million, or 28.8%, to $91.9 million for the year ended
December 31, 2006, from $71.3 million for the year ended December 31, 2005. We note that sales and marketing
expenses grew in line with revenue growth. Of this increase, $9.4 million was due to increased salary and payroll
related expenses as a result of sales and marketing related headcount growth and increased commissions earned in
EMEA due to substantial revenue growth. Employee headcount increased from 157 employees as of December 31,
2005 to 207 employees as of December 31, 2006. More specifically, 46 of the 50 incremental employees relate to
expansion in EMEA and Asia Pacific, which represents our continued geographic expansion and increasing sales
staffing in these regions. For example, we established a Technical Support Center in our Ireland office, which
accounted for 7 new individuals. Outside service fees related to customer service and technical support also increased
by $4.9 million, in support of higher call volumes related to increased units sold. We also incurred a $1.7 million
increase in advertising, travel, and promotion expenses related to our expansion of marketing activities into new
geographies. Outbound freight increased $1.6 million, reflecting our higher sales volume. Marketing costs classified
as operating expenses remained relatively constant, as the majority of incremental marketing expenses related to
rebates and other items classified as contra-revenue. Additionally, stock-based compensation expense increased
$1.0 million to $1.4 million for the year ended December 31, 2006, from $375,000 for the year ended December 31,
2005, as a result of the adoption of SFAS 123R.
Sales and marketing expenses increased $9.1 million, or 14.6%, to $71.3 million for the year ended
December 31, 2005, from $62.2 million for the year ended December 31, 2004. Of this increase, $5.1 million was
due to product promotion, including intensified in-store staffing and training programs, advertising, and outside
technical support expenses, all in support of increased volume. In addition, salary and related expenses for additional
sales and marketing personnel increased by $2.7 million as a result of sales and marketing related headcount growth
from 125 employees as of December 31, 2004 to 157 employees as of December 31, 2005. We attributed 28 of the 32
incremental employee additions to expansion in EMEA and Asia Pacific, where sales and marketing employee
headcount grew 46% and 35%, respectively. The increase was also attributable to additional allocated overhead costs
such as facilities and information systems costs amounting to $851,000, which reflects sales and marketing’s larger
relative headcount growth rate and correspondingly higher share of overhead costs. Additionally, stock-based
compensation expense decreased $358,000 to $375,000 for the year ended December 31, 2005, from $733,000 for
the year ended December 31, 2004.
General and administrative expense
General and administrative expenses consist of salaries and related expenses for executive, finance and
accounting, human resources, professional fees, allowance for bad debts, and other corporate expenses. We expect
general and administrative costs to increase in absolute dollars related to the general growth of the business,
continued international expansion, and increased investments in infrastructure such as a new enterprise resource
planning system.
General and administrative expenses increased $6.3 million, or 43.6%, to $20.9 million for the year ended
December 31, 2006, from $14.6 million for the year ended December 31, 2005. The increase was primarily due to
higher salary and payroll related expenses of $3.3 million due to an increase in general and administrative related
headcount. Employee headcount increased by 25% to 66 employees as of December 31, 2006 compared to
53 employees as of December 31, 2005. Of the incremental 13 additions, 8 personnel were hired into accounting and
finance departments in our new Ireland office. We also incurred a $1.4 million increase in fees for outside
professional services, which was in part related to an increase in IT consulting costs, tax consulting and general legal
expenses. Additionally, stock-based compensation expense increased approximately $1.4 million to $1.6 million for
the year ended December 31, 2006, from $249,000 for the year ended December 31, 2005, as a result of the adoption
of SFAS 123R.
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Year Ended December 31,
Percentage
Percentage
2004 Change 2005 Change 2006
(In thousands, except percentage data)
General and administrative expense
$
14,905
−
2.3
%
$
14,559
43.6
%
$
20,905
Percentage of net revenue
3.9
%
3.2
%
3.7
%