Netgear 2008 Annual Report Download - page 39

Table of Contents
Income Taxes
We account for income taxes under an asset and liability approach. Under this method, income tax expense is recognized for the amount of
taxes payable or refundable for the current year. In addition, deferred tax assets and liabilities are recognized for the expected future tax
consequences of temporary differences resulting from different treatments for tax versus accounting of certain items, such as accruals and
allowances not currently deductible for tax purposes. These differences result in deferred tax assets and liabilities, which are included within the
consolidated balance sheet. We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income and to
the extent we believe that recovery is not more likely than not, we must establish a valuation allowance. As of December 31, 2008, we believe
that all of our deferred tax assets are recoverable; however, if there were a change in our ability to recover our deferred tax assets, we would be
required to take a charge in the period in which we determined that recovery was not more likely than not.
We adopted FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement
No. 109,
” (“FIN 48”) on January 1, 2007. FIN 48 clarifies the accounting for uncertain income tax positions recognized in an enterprise’s
financial statements in accordance with Statement SFAS No. 109, “Accounting for Income Taxes.” It provides that a company should use a
more-likely-than-not recognition threshold based on the technical merits of the income tax position taken. Income tax positions that meet the
more-likely-than-not recognition threshold should be measured in order to determine the tax benefit to be recognized in the financial statements.
As a result of adoption, we recorded a reduction in tax liability of $255,000 and a corresponding increase in retained earnings as of January 1,
2007. We include interest expense and penalties related to uncertain tax positions as additional tax expense.
Results of Operations
The following table sets forth the Consolidated Statements of Operations and the percentage change from the preceding year for the
periods indicated:
37
Year Ended December 31,
2008
Percentage
Change 2007
Percentage
Change 2006
(In thousands, except percentage data)
Net revenue
$
743,344
2.1
%
$
727,787
26.9
%
$
573,570
Cost of revenue
502,320
3.5
%
485,180
27.7
%
379,911
Gross profit
241,024
(0.7
)%
242,607
25.3
%
193,659
Operating expenses:
Research and development
33,773
20.3
%
28,070
52.2
%
18,443
Sales and marketing
121,687
3.2
%
117,938
28.4
%
91,881
General and administrative
31,733
16.6
%
27,220
30.2
%
20,905
Restructuring
1,929
*
*
—
*
*
—
In
-
process research and development
1,800
(56.1
)%
4,100
41.4
%
2,900
Litigation reserves, net
711
325.7
%
167
*
*
—
Total operating expenses
191,633
8.0
%
177,495
32.3
%
134,129
Income from operations
49,391
(24.1
)%
65,112
9.4
%
59,530
Interest income, net
4,336
(48.5
)%
8,426
20.8
%
6,974
Other income (expense), net
(8,384
)
*
*
3,298
32.2
%
2,495
Income before income taxes
45,343
(41.0
)%
76,836
11.4
%
68,999
Provision for income taxes
27,293
(11.6
)%
30,882
10.8
%
27,867
Net income
$
18,050
(60.7
)%
$
45,954
11.7
%
$
41,132
**
Percentage change not meaningful as prior year basis is zero or a negative amount.