Netgear 2006 Annual Report Download - page 63

Table of Contents
NETGEAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Leases
The Company leases office space, cars and equipment under non-cancelable operating leases with various
expiration dates through December 2026. Rent expense in the years ended, December 31, 2004, 2005 and 2006 was
$1.3 million, $1.5 million, and $2.2 million, respectively. The terms of some of the Company’s office leases provide
for rental payments on a graduated scale. The Company recognizes rent expense on a straight-line basis over the
lease period, and has accrued for rent expense incurred but not paid.
Future minimum lease payments under non-cancelable operating leases are as follows (in thousands):
Guarantees and Indemnifications
The Company has entered into various inventory related purchase agreements with suppliers. Generally, under
these agreements, 50% of orders are cancelable by giving notice 46 to 60 days prior to the expected shipment date
and 25% of orders are cancelable by giving notice 31 to 45 days prior to the expected shipment date. Orders are non-
cancelable within 30 days prior to the expected shipment date. At December 31, 2006, the Company had
$55.2 million in non-cancelable purchase commitments with suppliers. The Company expects to sell all products for
which it has committed purchases from suppliers.
The Company, as permitted under Delaware law and in accordance with its Bylaws, indemnifies its officers and
directors for certain events or occurrences, subject to certain limits, while the officer or director is or was serving at
the Company’s request in such capacity. The term of the indemnification period is for the officer’s or director’s
lifetime. The maximum amount of potential future indemnification is unlimited; however, the Company has a
Director and Officer Insurance Policy that limits its exposure and enables it to recover a portion of any future
amounts paid. As a result of its insurance policy coverage, the Company believes the fair value of these
indemnification agreements is minimal. Accordingly, the Company has no liabilities recorded for these agreements
as of December 31, 2006.
In its sales agreements, the Company typically agrees to indemnify its distributors and resellers for any expenses
or liability resulting from claimed infringements of patents, trademarks or copyrights of third parties. The terms of
these indemnification agreements are generally perpetual any time after execution of the agreement. The maximum
amount of potential future indemnification is unlimited. To date the Company has not paid any amounts to settle
claims or defend lawsuits. As a result, the Company believes the estimated fair value of these agreements is minimal.
Accordingly, the Company has no liabilities recorded for these agreements as of December 31, 2006.
Note 7 — Stock-Based Compensation:
At December 31, 2006, the Company had five stock-based employee compensation plans as described below.
The total compensation expense related to these plans was approximately $4.5 million for the year ended
December 31, 2006. Prior to January 1, 2006, the Company accounted for those plans under the recognition and
measurement provisions of APB 25. Accordingly, the Company generally recognized compensation expense
59
Year Ending December 31,
2007
2,371
2008
1,298
2009
718
2010
544
2011
509
2012 and thereafter
3,214
Total minimum lease payments
$
8,654