Netgear 2010 Annual Report Download - page 51

Download and view the complete annual report

Please find page 51 of the 2010 Netgear annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 116

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116

Table of Contents
2010 Interest Income and Other Income (Expense) Compared to 2009 Interest Income and Other Income (Expense)
Interest income decreased $203,000, or 32.3%, to $426,000 for the year ended December 31, 2010, from $629,000 for the year ended
December 31, 2009. The decrease in interest income was primarily attributable to a decrease in the average interest rate earned in the year ended
December 31, 2010, as compared to the year ended December 31, 2009.
Other expense, net, increased $436,000 to expense of $564,000 for year ended December 31, 2010, from expense of $128,000 for year
ended December 31, 2009. Our foreign currency hedging program reduced volatility associated with hedged currency exchange rate movements
during the year ended December 31, 2010. The expense of $564,000 is primarily related to exposures in currencies that are not included in our
hedging program. For details of our hedging program and related foreign currency contracts, please see Note 5 of the Notes to Consolidated
Financial Statements.
2009 Interest Income and Other Income (Expense) Compared to 2008 Interest Income and Other Income (Expense)
The aggregate of interest income, interest expense, other income, and other expense amounted to net other income of $501,000 for the year
ended December 31, 2009, compared to net other expense of $4.0 million for the year ended December 31, 2008. We recorded a net foreign
exchange loss of $8.4 million during the year ended December 31, 2008 due to the continued strengthening of the U.S. dollar against the euro,
the British pound, the Australian dollar and the Japanese yen during 2008. We implemented a hedging program in November 2008, and therefore
the impact of fluctuations in currency decreased significantly during the year ended December 31, 2009, resulting in a decrease in net foreign
exchange losses of $8.3 million. This decrease in net other expense is partially offset by decrease in interest income of $3.7 million, which is a
result of a decrease in interest rates on our cash, cash equivalents, and short-term investments balances during the year.
Provision for Income Taxes
2010 Provision for Income Taxes Compared to 2009 Provision for Income Taxes
Provision for income taxes increased $17.1 million, resulting in a provision of $40.3 million for the year ended December 31, 2010,
compared to a provision of $23.2 million for the year ended December 31, 2009. The effective tax rate decreased from 71.3% for the year ended
December 31, 2009 to 44.2% for the year ended December 31, 2010. The effective tax rate for both periods differed from the statutory rate of
35% due to non-deductible stock-based compensation, state taxes, other non-deductible expenses, and tax credits. Additionally, in 2010 tax
attributable to foreign operations increased the effective tax rate by 5.1 percentage points compared to an increase of 28.4 percentage points for
2009. In both years, this was primarily caused by the tax effect of non-deductible losses in foreign jurisdictions where no benefit could be
claimed. The unfavorable rate impact of foreign operations was lower in 2010 compared with 2009 because of improvements in both
international and worldwide earnings.
2009 Provision for Income Taxes Compared to 2008 Provision for Income Taxes
Provision for income taxes decreased $4.1 million, resulting in a provision of $23.2 million for the year ended December 31, 2009,
compared to a provision of $27.3 million for the year ended December 31, 2008. The effective tax rate increased from 60.2% for the year ended
December 31, 2008 to 71.3% for the year ended December 31, 2009. The effective tax rate for both periods differed from the statutory rate of
35% due to non-deductible stock-based compensation, state taxes, other non-deductible expenses, and tax credits. Additionally, in 2009 tax
attributable to foreign operations increased the effective tax rate by 28.4 percentage points compared to an increase of 19.4 percentage points for
2008. 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%.
49