Netgear 2008 Annual Report Download - page 44

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Table of Contents
due to increased salary and payroll related expenses, including sales commissions, as a result of sales and marketing related headcount growth
and increased commissions due to the revenue growth. Employee headcount increased from 207 employees as of December 31, 2006 to 260
employees as of December 31, 2007. More specifically, 47 of the 53 incremental employees related to expansion in EMEA and Asia Pacific.
Outside service fees related to customer service and technical support increased by $3.8 million, in support of higher call volumes. We also
incurred a $1.9 million increase in advertising and promotion expenses related to our expansion of marketing activities into new geographic
regions. Outbound freight increased $3.2 million, reflecting our higher sales volume. Travel and entertainment increased $1.7 million and rent
increased by $873,000 due to the higher headcount and expansion into new countries. Marketing costs classified as operating expenses remained
relatively constant, as the majority of incremental marketing expenses related to rebates and other items classified as contra-revenue.
Furthermore, information technology infrastructure costs allocated to sales and marketing increased $1.9 million as a result of additional
investments in software and systems in 2007 as well as relatively higher headcount which drove a higher allocation percentage to sales and
marketing. Additionally, stock-based compensation expense increased $1.6 million to $3.0 million for the year ended December 31, 2007, from
$1.4 million for the year ended December 31, 2006.
General and Administrative Expense
General and administrative expenses consist of salaries and related expenses for executive, finance and accounting, human resources,
professional fees, allowance for doubtful accounts and other corporate expenses. In 2009 we expect general and administrative costs to increase
slightly as compared to the year ended December 31, 2008.
2008 General and Administrative Expense Compared to 2007 General and Administrative Expense
General and administrative expenses increased $4.5 million, or 16.6%, to $31.7 million for the year ended December 31, 2008, from $27.2
million for the year ended December 31, 2007. The increase was primarily due to higher outside professional services, due to higher legal
consulting expenses of $3.5 million. Furthermore, stock-based compensation expense increased approximately $1.0 million to $3.8 million for
the year ended December 31, 2008, from $2.8 million for the year ended December 31, 2007. Overall general and administrative compensation
costs were flat, as the increases in salary, related payroll and other employee expenses were offset by a decrease in employee performance
compensation.
2007 General and Administrative Expense Compared to 2006 General and Administrative Expense
General and administrative expenses increased $6.3 million, or 30.2%, to $27.2 million for the year ended December 31, 2007, from $20.9
million for the year ended December 31, 2006. Employee headcount increased by 17% to 77 employees as of December 31, 2007 compared to
66 employees as of December 31, 2006. We also incurred a $3.1 million increase in fees for outside professional services, due to higher
accounting, tax, legal and IT consulting expenses. Software and hardware maintenance increased by $644,000 primarily due to our new
enterprise resource planning system. We experienced an increase in depreciation expense of $731,000 as compared to the previous year due to
the continued investment in our finance and operations systems. Additionally, stock-based compensation expense increased approximately $1.2
million to $2.8 million for the year ended December 31, 2007, from $1.6 million for the year ended December 31, 2006. Offsetting these
increases were higher IT and facilities allocations to research and development as well as sales and marketing due to relatively higher headcount
growth in those areas.
42
Year Ended December 31,
2008
Percentage
Change
2007
Percentage
Change
2006
(In thousands, except percentage data)
General and administrative expense
$
31,733
16.6
%
$
27,220
30.2
%
$
20,905
Percentage of net revenue
4.3
%
3.7
%
3.7
%