Netgear 2006 Annual Report Download - page 55

Download and view the complete annual report

Please find page 55 of the 2006 Netgear annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 90

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90

Table of Contents
NETGEAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
the option vesting term of four years. Prior to the adoption of SFAS 123R, the Company recognized stock-based
compensation expense in accordance with Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for
Stock Issued to Employees” (“APB 25”). In March 2005, the Securities and Exchange Commission (the “SEC”)
issued Staff Accounting Bulletin No. 107 (“SAB 107”) regarding the SEC’s interpretation of SFAS 123R and the
valuation of share-based payments for public companies. The Company has applied the provisions of SAB 107 in its
adoption of SFAS 123R. See Note 7 for a further discussion on stock-based compensation.
Comprehensive income
Under SFAS 130, “Reporting Comprehensive Income,” the Company is required to display comprehensive
income and its components as part of the financial statements. The Company has displayed its comprehensive
income as part of the Consolidated Statements of Stockholders’ Equity.
Foreign currency translation
The Company’s functional currency is the U.S. dollar for all of its international subsidiaries. Foreign currency
transactions of international subsidiaries are remeasured into U.S. dollars at the end-of-period exchange rates for
monetary assets and liabilities, and historical exchange rates for nonmonetary assets. Expenses are remeasured at
average exchange rates in effect during each period, except for expenses related to non-monetary assets, which are
remeasured at historical exchange rates. Revenue is remeasured at the daily rate in effect as of the date the order
ships. Gains and losses arising from foreign currency transactions are included in net income and were net losses of
$560,000 and $1.8 million for the years ended December 31, 2004 and 2005, respectively, and a net gain of
$2.5 million for the year ended December 31, 2006.
Recent accounting pronouncements
In June 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48,
“Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109” (“FIN 48”), which
clarifies the accounting for uncertainty in income tax positions. FIN 48 prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement of a tax position taken, or expected to
be taken, on a tax return. This Interpretation also provides guidance on derecognition, classification, interest,
penalties, accounting in interim periods, disclosure and transition. The evaluation of a tax position in accordance with
this Interpretation is a two-step process. The first step will determine if it is more likely than not that a tax position
will be sustained upon examination and should therefore be recognized. The second step will measure a tax position
that meets the more likely than not recognition threshold to determine the amount of benefit to recognize in the
financial statements. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company is
currently evaluating the impact of adopting FIN 48 on the consolidated financial statements.
In June 2006, the EITF reached a consensus on EITF Issue No. 06-3, “How Taxes Collected from Customers
and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross versus Net
Presentation)”. EITF Issue No. 06-3 provides that the presentation of taxes assessed by a governmental authority that
is directly imposed on a revenue-producing transaction between a seller and a customer on either a gross basis
(included in revenues and costs) or on a net basis (excluded from revenues) is an accounting policy decision that
should be disclosed. EITF Issue No. 06-3 is effective for fiscal years beginning after December 15, 2006. The
Company is currently evaluating the impact of adopting EITF Issue No. 06-3 on the consolidated financial
statements.
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”), which defines
fair value, establishes guidelines for measuring fair value, and expands disclosures regarding fair value
measurements. SFAS 157 does not require any new fair value measurements but rather eliminates inconsistencies in
guidance found in various prior accounting pronouncements. SFAS 157 is effective for fiscal years beginning after
51