Netgear 2006 Annual Report Download - page 42

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Table of Contents
Off-Balance Sheet Arrangements
As of December 31, 2006, 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 of the Notes to Consolidated Financial Statements for recent accounting pronouncements.
Item 7A. Quantitative and Qualitative Disclosures About Market 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 short-term securities. 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 are exposed to risks associated with foreign exchange rate fluctuations due to our international
manufacturing and sales activities. We generally have not hedged currency exposures. These exposures may change
over time as business practices evolve and could negatively impact our operating results and financial condition. In
the second quarter of 2005 we began to invoice some of our international customers in foreign currencies including,
but not limited to, the Euro, Great Britain Pound, Japanese Yen and the Australian dollar. 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 could
reduce sales and negatively impact our operating results. Certain operating expenses of our foreign operations require
payment in the local currencies. As of December 31, 2006, we had net assets in various local currencies. A
hypothetical 10% movement in foreign exchange rates would result in an after tax positive or negative impact of
$2.6 million to net income at December 31, 2006.
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