Netgear 2008 Annual Report Download - page 23

Table of Contents
results. As a result, we may incur substantial impairment charges to earnings in our financial statements should an impairment of our goodwill or
amortizable intangible assets be determined resulting in an adverse impact on our results of operations.
Our income tax provision and liability for uncertain tax positions may be insufficient if any taxing authorities are successful in asserting
tax positions that are contrary to our positions.
Significant judgment is required to determine our provision for income taxes and liability for uncertain tax positions. In the ordinary course
of our business, there may be matters for which the ultimate tax outcome is uncertain. Although we believe our approach to determining the
appropriate tax treatment is reasonable, no assurance can be given that the final tax authority determination will not be materially different than
that which is reflected in our income tax provision and liability for uncertain tax positions. Such differences could have a material adverse effect
on our income tax provision or benefit and liability for uncertain tax positions in the period in which such determination is made and,
consequently, on our results of operations for such period.
From time to time, we are audited by various federal, state and foreign authorities regarding tax matters. Our audits are in various stages of
completion; however, no outcome for a particular audit can be determined with certainty prior to the conclusion of the audit and, in some cases,
appeal or litigation process. As each audit is concluded, adjustments, if any, are appropriately recorded in our financial statements in the period
determined. To provide for potential tax exposure, we maintain a liability for uncertain tax positions in accordance with Financial Accounting
Standards Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement
No. 109,
” (“FIN 48”). However, if these accrued liabilities and/or reserves are insufficient upon completion of any audit process, there could be
an adverse impact on our financial position and results of operations.
Changes in our tax rates could affect our future results.
Our future effective tax rates are affected by changes in the mix of earnings in countries with differing statutory tax rates, changes in the
valuation of deferred tax assets and liabilities, or by changes in tax laws or their interpretation. As a result our effective tax rates are difficult to
predict and may fluctuate substantially from quarter-to-quarter or year-to-year for a variety of reasons, many of which are beyond our control. If
our effective tax rates were to increase significantly, our quarterly and annual results would be negatively impacted and the price of our stock
could decline. Therefore, period-to-period comparisons of our operating results may not be meaningful, and you should not rely on them as an
indication of our future performance. In addition, our future operating results may fall below the expectations of public market analysts or
investors. In that event, our stock price could decline significantly.
We depend on a limited number of third party manufacturers for substantially all of our manufacturing needs. If these third party
manufacturers experience any delay, disruption or quality control problems in their operations, we could lose market share and our
brand may suffer.
All of our products are manufactured, assembled, tested and generally packaged by a limited number of original design manufacturers
(“ODMs”), contract manufacturers (“CMs”) and original equipment manufacturers (“OEMs”). We rely on our manufacturers to procure
components and, in some cases, subcontract engineering work. Some of our products are manufactured by a single manufacturer. We do not
have any long-term contracts with any of our third party manufacturers. Some of these third party manufacturers produce products for our
competitors. Due to weakening economic conditions, the viability of some of these third party manufacturers may be at risk. The loss of the
services of any of our primary third party manufacturers could cause a significant disruption in operations and delays in product shipments.
Qualifying a new manufacturer and commencing volume production is expensive and time consuming.
Our reliance on third party manufacturers also exposes us to the following risks over which we have limited control:
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unexpected increases in manufacturing and repair costs;