Netgear 2009 Annual Report Download - page 49

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Table of Contents
2008 Provision for Income Taxes Compared to 2007 Provision for Income Taxes
Provision for income taxes decreased $3.6 million, resulting in a provision of $27.3 million for the year ended December 31, 2008,
compared to a provision of $30.9 million for the year ended December 31, 2007. The effective tax rate increased from 40.2% for the year ended
December 31, 2007 to 60.2% for the year ended December 31, 2008. The effective tax rate for both periods differed from the statutory rate of
approximately 35% due to non-deductible stock-based compensation, state taxes, other non-deductible expenses, and tax credits. In 2008, there
was no rate effect from in-process research and development expensed in connection with the acquisition of CP Secure since such in-process
research and development was deductible for tax purposes. In 2007, the acquisition of Infrant resulted in non-deductible in-process research and
development expense which resulted in an increase in the effective tax rate. Additionally, in 2008 compared to 2007, tax attributable to foreign
operations increased the effective tax rate by 19.4 percentage points. This was primarily caused by the tax effect of non-deductible losses in
foreign jurisdictions where no benefit can be claimed as well as increases in earnings in countries with rates higher than 35%.
Net Income
Net income decreased $8.8 million, or 48.3%, to $9.3 million for the year ended December 31, 2009, from $18.1 million for the year ended
December 31, 2008. This decrease was primarily attributable to a decrease in gross profit of $34.6 million. This decrease was offset by a
decrease in operating expenses of $17.3 million and a decrease in other expense, net of $8.3 million.
Net income decreased $27.9 million, or 60.7%, to $18.1 million for the year ended December 31, 2008, from $46.0 million for the year
ended December 31, 2007. This decrease was primarily attributable to an increase in operating expenses of $14.1 million, a decrease in other
income (expense), net, of $11.7 million, and a decrease in interest income, net, of $4.1 million. These decreases in pre-
tax income were offset by
a decrease in provision for income taxes of $3.6 million.
Liquidity and Capital Resources
As of December 31, 2009, we had cash, cash equivalents and short-term investments totaling $247.1 million.
Our cash and cash equivalents balance decreased from $192.8 million as of December 31, 2008 to $172.2 million as of December 31,
2009. Our short-term investments, which represent the investment of funds available for current operations, increased from $10.2 million as of
December 31, 2008 to $74.9 million as of December 31, 2009, as we shifted assets from low risk money market funds to Treasuries with higher
returns. Operating activities during the year ended December 31, 2009 generated cash of $48.1 million. Investing activities during the year ended
December 31, 2009 used $72.3 million, which includes the net purchases of short-term investments of $89.8 million, payments made in
connection with our acquisition of CP Secure of $3.5 million, and purchases of property and equipment amounting to $3.9 million, offset
primarily by net proceeds from the sale of short-term investments of $25.0 million. During the year ended December 31, 2009, financing
activities provided $3.6 million, primarily due to the issuance of our common stock upon exercise of stock options and our employee stock
purchase program, as well as the excess tax benefit from exercise of stock options.
Our days sales outstanding decreased from 81 days as of December 31, 2008 to 71 days as of December 31, 2009 due to our increased
focus on collections.
Our accounts payable increased from $60.1 million at December 31, 2008 to $69.1 million at December 31, 2009 primarily as a result of
timing of payments.
Inventory decreased by $21.6 million from $112.2 million at December 31, 2008 to $90.6 million at December 31, 2009 in part due to
greater sales in the three months ended December 31, 2009. Ending inventory
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