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NETGEAR, INC
FORM 10-K
(Annual Report)
Filed 02/29/12 for the Period Ending 12/31/11
Address 350 EAST PLUMERIA DRIVE
SAN JOSE, CA 95134
Telephone 4089078000
CIK 0001122904
Symbol NTGR
SIC Code 3661 - Telephone and Telegraph Apparatus
Industry Communications Services
Sector Services
Fiscal Year 12/31
http://www.edgar-online.com
© Copyright 2012, EDGAR Online, Inc. All Rights Reserved.
Distribution and use of this document restricted under EDGAR Online, Inc. Terms of Use.

Table of contents

  • Page 1
    ... INC FORM 10-K (Annual Report) Filed 02/29/12 for the Period Ending 12/31/11 Address Telephone CIK Symbol SIC Code Industry Sector Fiscal Year 350 EAST PLUMERIA DRIVE SAN JOSE, CA 95134 4089078000 0001122904 NTGR 3661 - Telephone and Telegraph Apparatus Communications Services Services 12/31 http...

  • Page 2
    ...or other jurisdiction of incorporation or organization) 77-0419172 (I.R.S. Employer Identification No.) 350 East Plumeria Drive, San Jose, California (Address of principal executive offices) Registrant's telephone number, including area code (408) 907-8000 Securities registered pursuant to Section...

  • Page 3
    The number of outstanding shares of the registrant's Common Stock, $0.001 par value, was 37,803,236 shares as of February 21, 2012. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement for the Registrant's 2012 Annual Meeting of Stockholders are incorporated by reference in Part III ...

  • Page 4
    ... About Market Risk Consolidated Financial Statements and Supplementary Data Changes in and Disagreements With Accountants on Accounting and Financial Disclosure Controls and Procedures Other Information PART III Directors, Executive Officers and Corporate Governance Executive Compensation Security...

  • Page 5
    ... 8, 1996. Our principal executive offices are located at 350 East Plumeria Drive, San Jose, California 95134, and our telephone number at that location is (408) 907-8000. Our website address is www.netgear.com. In the years ended December 31, 2011, 2010, and 2009, we generated net revenue of $1.18...

  • Page 6
    ..., manufacturing and distribution. Sales Channels We sell our products through multiple sales channels worldwide, including traditional retailers, online retailers, wholesale distributors, direct market resellers ("DMRs"), value-added resellers ("VARs"), and broadband service providers. Wholesale...

  • Page 7
    ... are routers with integrated modems, for Internet access; IP telephony products, used for transmitting voice communications over a network; and Media servers, which store files and multimedia content for access by PCs, laptops, smart phones and other Internet enabled devices. Network connectivity...

  • Page 8
    ... controlled Internet usage in families with children. Our broadband products designed for the home market also contain installation software that guides a less sophisticated user through the installation process with their broadband service provider, using a graphical user interface and simple point...

  • Page 9
    ... contract manufacturers who are selling and attempting to sell their products directly to service providers around the world. Many of our existing and potential competitors have longer operating histories, greater name recognition and substantially greater financial, technical, sales, marketing and...

  • Page 10
    ... have existing products fitting our design requirements. In some cases, once a technology supplier's product is selected, we work with the OEM supplier to complete the cosmetic changes to fit into our mechanical and packaging design, as well as our documentation and graphical user interface ("GUI...

  • Page 11
    ...operate via sales and marketing subsidiaries and branch offices worldwide. Customer Support We design our products with "plug and play" ease of use. We respond globally to customer questions through a variety of venues including phone, chat and email. Customers can also get self-help service through...

  • Page 12
    ... and software. We also own, or have applied for registration of trademarks, in connection with our products in the United States and internationally, including NETGEAR, the NETGEAR logo, NETGEAR Green, the NETGEAR Green logo, NETGEAR Digital Entertainer, the NETGEAR Digital Entertainer logo, Genie...

  • Page 13
    ... these reports can be found is http://investor.netgear.com/sec.cfm. Our website also provides a link to Section 16 filings which are available on the same day as such filings are made. Information contained on these websites is not a part of this Form 10-K. Executive Officers of the Registrant The...

  • Page 14
    ... in Electrical Engineering and an M.S. degree in Digital Systems Design from the University of the Witwatersrand, South Africa. David S.G. Soares has served as our Senior Vice President and General Manager of Retail Business Unit since April 2011, and Senior Vice President of Worldwide Sales from...

  • Page 15
    ... pricing policies of or the introduction of new products by us or our competitors; unanticipated shift or decline in profit by geographical region that would adversely impact our tax rate; slow or negative growth in the networking product, personal computer, Internet infrastructure, home electronics...

  • Page 16
    ... by our suppliers and other parties with which we have commercial relationships; delays in the introduction of new products by us or market acceptance of these products; an increase in price protection claims, redemptions of marketing rebates, product warranty and stock rotation returns or allowance...

  • Page 17
    ... contract manufacturers who are selling and attempting to sell their products directly to service providers around the world. Many of our existing and potential competitors have longer operating histories, greater name recognition and substantially greater financial, technical, sales, marketing and...

  • Page 18
    ... is intense in our industry in certain geographical regions and product categories. Specifically in the service provider space, many of our competitors price their products significantly below our product costs in order to gain market share. Average sales prices have declined in the past and may...

  • Page 19
    ... sales channels, we may incur increased and unexpected costs associated with this inventory. We generally allow wholesale distributors and traditional retailers to return a limited amount of our products in exchange for other products. Under our price protection policy, if we reduce the list price...

  • Page 20
    ... from limited sources. These components include connector jacks, plastic casings and physical layer transceivers. We also obtain switching fabric semiconductors, which are used in our Ethernet switches and Internet gateway products, and wireless local area network chipsets, which are used in all...

  • Page 21
    ... typically experience price erosion, a fairly rapid reduction in the average unit selling prices over their respective sales cycles. In order to sell products that have a falling average unit selling price and maintain margins at the same time, we need to continually reduce product and manufacturing...

  • Page 22
    ... rely on a limited number of retailers and wholesale distributors for most of our sales, and if they refuse to pay our requested prices or reduce their level of purchases, our net revenue could decline. We sell a substantial portion of our products through retailers, including Best Buy Co., Inc. and...

  • Page 23
    ..., breadth and depth of our products. In addition, a change in the mix of our customers, or a change in the mix of direct and indirect sales, could adversely affect our revenue and gross margins. During the year ended December 31, 2011, sales to Best Buy and its affiliates accounted for approximately...

  • Page 24
    ... as sales channel partners. We also sell products to broadband service providers. Competition for selling to broadband service providers is intense. Penetrating service provider accounts typically involves a long sales cycle and the challenge of displacing incumbent suppliers with established...

  • Page 25
    .... Our future success depends in large part upon the continued services of our key technical, sales, marketing, finance and senior management personnel. In particular, the services of Patrick C.S. Lo, our Chairman and Chief Executive Officer, who has led our company since its inception, are very...

  • Page 26
    ... competitors, have initiated and may continue to initiate litigation against our manufacturers, suppliers, members of our sales channels or our service provider customers, alleging infringement of their proprietary rights with respect to existing or future products. In the event successful claims...

  • Page 27
    ... change over time and may be interpreted in different manners. Some errors and defects may be discovered only after a product has been installed and used by the end-user. For example, in January 2008, we announced a voluntary recall of the XE103 Powerline Ethernet Adapter made for Europe and...

  • Page 28
    ... customers may be interrupted. If that happens, affected end-users or others may file actions against us alleging product liability, tort, or breach of warranty claims. If disruptions in our transportation network occur or our shipping costs substantially increase, we may be unable to sell or timely...

  • Page 29
    ... source supplier, which over time will reduce the aggregate orders that we receive from that service provider. For example, we have been at the forefront of developing and selling DOCSIS 3.0 products to our service provider customers in 2010 and 2011. As our competitors develop DOCSIS 3.0 products...

  • Page 30
    ... to seek to make, investments in companies around the world to further our strategic objectives and support our key business initiatives. These investments may include equity or debt instruments of public or private companies, and may be nonmarketable at the time of our initial investment. We do...

  • Page 31
    ... and continue to implement for certain countries and customers both invoicing and payment in foreign currencies. Our primary exposure to movements in foreign currency exchange rates relates to non-U.S. dollar denominated sales in Europe, Japan and Australia as well as our global operations, and non...

  • Page 32
    ... a result, our margins, market share, and operating results could be significantly harmed. We also utilize third-party software development companies to develop, customize, maintain and support software that is incorporated into our products. If these companies fail to timely deliver or continuously...

  • Page 33
    ...and market more products containing third-party software, such as our TV connectivity, security and network attached storage products. If the redemption rate for our end-user promotional programs is higher than we estimate, then our net revenue and gross margin will be negatively affected. From time...

  • Page 34
    ... non-public information in connection with our reorganization may also provide our competitors with strategic data which may put us at a competitive disadvantage and harm our business. These new disclosures about our performance may also cause our stock price to decline. If we fail to continue...

  • Page 35
    ...could delay or prevent the acceptance and use of encryption products and public networks for secure communications, resulting in decreased demand for our products and services. In addition, some foreign competitors are subject to less stringent controls on exporting their encryption technologies. As...

  • Page 36
    ... affect our stock price. Maintaining the security of our computer information systems and communication systems is a critical issue for us and our customers. Hackers may develop and deploy viruses, worms and other malicious software programs that are designed to attack our products and systems...

  • Page 37
    ...under a lease entered into in February 2006 and expiring in December 2026. Our international sales personnel are based out of local sales offices or home offices in Austria, Australia, Brazil, Canada, China, Czech Republic, Denmark, France, Germany, Hong Kong, India, Italy, Japan, Korea, Mexico, New...

  • Page 38
    ... of our Board of Directors under all existing equity compensation plans, including the 2000 Plan (which was terminated as to new grants in May 2003), the 2003 Stock Plan, the 2006 Long Term Incentive Plan and the 2003 Employee Stock Purchase Plan. Number of Securities to be Issued Upon Exercise...

  • Page 39
    ...the actual number of holders registered on our books at such date and does not include holders of shares in "street names" or persons, partnerships, associations, corporations or other entities identified in security position listings maintained by depository trust companies. Dividend Policy We have...

  • Page 40
    ...the Company Total Number of Shares Total Number of Period Shares Purchased Average Price Paid per Share Purchased as Part of Publicly Announced Plans or Programs Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs October 3, 2011-November 2, 2011 November 3, 2011-December...

  • Page 41
    ... Statements in Item 8 of Part II of this Annual Report on Form 10-K. Stock-based compensation expense was allocated as follows: Cost of revenue Research and development Sales and marketing General and administrative $ 999 2,476 5,136 5,151 2011 $ 913 2,271 4,710 4,307 2010 $ 959 1,973 4,147 3,945...

  • Page 42
    ... in multiple configurations to address the needs of our end-users in each geographic region in which our products are sold. We sell our networking products through multiple sales channels worldwide, including traditional retailers, online retailers, wholesale distributors, direct market resellers...

  • Page 43
    ... 31, 2011. The increase in net revenue was principally attributable to higher sales in several of our product categories in the Americas, Europe, Middle-East and Africa ("EMEA") and Asia Pacific ("APAC"). These include wireless-N products sold to retailers and existing service provider customers...

  • Page 44
    ... Report on Form 10-K for a discussion of our revenue recognition policies. Revenue from product sales is generally recognized at the time the product is shipped, provided that persuasive evidence of an arrangement exists, title and risk of loss has transferred to the customer, the selling price...

  • Page 45
    ... conditions, industry and market considerations, cost factors, overall company financial performance, events affecting the reporting units, and changes in our share price. Based on these factors and the recent impairment testing in the second fiscal quarter of 2011, we determined that it...

  • Page 46
    ...that management expects to hold and use is based on the fair value of the asset. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell. The carrying value of the asset is reviewed on a regular basis for the existence of facts, both internal...

  • Page 47
    ... Percentage change not ...sets forth the Consolidated Statements of Operations, expressed as a percentage of net revenue, for the periods presented: 2011 Year Ended December 31, 2010 2009 Net revenue Cost of revenue Gross margin Operating expenses: Research and development Sales and marketing...

  • Page 48
    ... paid to customers, sales returns and price protection. Net revenue by geographic location is as follows: December 31, 2011 Twelve Months Ended Percentage Change (In thousands, except percentage data) December 31, 2010 Americas Percentage of net revenue Europe, Middle-East and Africa Percentage of...

  • Page 49
    ...us to better manage our product costs and gross margin. Our gross margin can be affected by a number of factors, including fluctuation in foreign exchange rates, sales returns, changes in net revenues due to changes in average selling prices, end-user customer rebates and other sales incentives, and...

  • Page 50
    ...-use products. In the future, we believe that research and development expenses will increase in absolute dollars as we expand into new networking product technologies and broaden our core competencies. 2011 Research and Development Expense Compared to 2010 Research and Development Expense Research...

  • Page 51
    ... at December 31, 2009. Additionally, marketing expenses and other outside service costs increased by $6.8 million due to increased marketing campaigns. General and Administrative Expense Year Ended December 31, Percentage 2011 Percentage 2009 Change Change 2010 (In thousands, except percentage data...

  • Page 52
    ... locations to our new corporate headquarters in San Jose, California. The last of these operating leases expired in December 2010. During the year ended December 31, 2010, we realized a benefit of $88,000 related to these facilities in Santa Clara and Fremont due to lower than expected common area...

  • Page 53
    ..., 2011. The expense of $1.1 million mainly related to forward points for hedged currency. For details of our hedging program and related foreign currency contracts, please see Note 5, Derivative Financial Instruments , in Notes to Consolidated Financial Statements in Item 8 of Part II of this Annual...

  • Page 54
    ..., Segment Information, Operations by Geographic Area and Customer Concentration , in Notes to Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K. Retail Year Ended December 31, Percent 2011 Percent 2009 Change 2010 Change ( in thousands, except percentage data...

  • Page 55
    ... experienced strong net revenue growth in the retail business unit from 2010 to 2011. The increase was mainly driven by a 34.5% increase in the revenue from our home wireless-N product line due to consumers transitioning from wireless-G to wireless-N technology. We also experienced strong growth in...

  • Page 56
    ... of our common stock upon exercise of stock options and our employee stock purchase program, as well as the excess tax benefit from exercises and cancellations of stock options. Our days sales outstanding decreased from 78 days as of December 31, 2010 to 76 days as of December 31, 2011. Our accounts...

  • Page 57
    ... on a number of factors, such as levels of cash generation from operations, cash requirements for acquisitions and the price of our common stock. We did not repurchase any shares under this authorization during the years ended December 31, 2011, 2010 or 2009. We also repurchase shares to help...

  • Page 58
    ... commitments with suppliers. We expect to sell all products for which we have committed purchases from suppliers. As of December 31, 2011 and December 31, 2010, we had $18.7 million and $19.8 million, respectively, of total gross unrecognized tax benefits and related interest. The timing of any...

  • Page 59
    ... significant impact on our results of operations. For those customers in our international markets that we continue to sell to in U.S. dollars, an increase in the value of the U.S. dollar relative to foreign currencies could make our products more expensive and therefore reduce the demand for our...

  • Page 60
    ...the financial statement schedule, and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform...

  • Page 61
    ...9) Stockholders' equity: Preferred stock: $0.001 par value; 5,000,000 shares authorized; none issued or outstanding. Common stock: $0.001 par value; 200,000,000 shares authorized; shares issued and outstanding: 37,646,872 and 36,173,406 at December 31, 2011 and 2010, respectively. Additional paid-in...

  • Page 62
    Table of Contents NETGEAR, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) 2011 Year Ended December 31, 2010 2009 Net revenue Cost of revenue Gross profit Operating expenses: Research and development Sales and marketing General and administrative Restructuring and ...

  • Page 63
    ... of common stock Issuance of common stock under stock-based compensation plans Tax benefit from exercises and cancellations of stock options Balance at December 31, 2010 Comprehensive income: Change in unrealized gains and losses on availablefor-sale securities, net of tax Change in unrealized...

  • Page 64
    ...in connection with business acquisitions Net cash used in investing activities Cash flows from financing activities: Purchase and retirement of common stock Proceeds from exercise of stock options Proceeds from issuance of common stock under employee stock purchase plan Excess tax benefit from stock...

  • Page 65
    ... technologies such as wireless, Ethernet and powerline, with a focus on reliability and ease-of-use. The Company sells products primarily through a global sales channel network, which includes traditional retailers, online retailers, wholesale distributors, direct market resellers ("DMRs"), value...

  • Page 66
    ... unrealized gains and losses reported as a separate component of stockholders' equity. Certain risks and uncertainties The Company's products are concentrated in the networking industry, which is characterized by rapid technological advances, changes in customer requirements and evolving regulatory...

  • Page 67
    ... secures credit insurance for certain customers in international and domestic markets. As of December 31, 2011, Best Buy, Inc. represented greater than 10% of the Company's total accounts receivable. As of December 31, 2010, Best Buy, Inc. and Wal-Mart Stores, Inc. each represented greater than...

  • Page 68
    ... the Company's stock price and market capitalization; a significant adverse change in the business climate; the testing for recoverability of a significant asset group; and slower growth rates. The Company assesses goodwill impairment at the reporting unit level. In the second fiscal quarter of 2011...

  • Page 69
    ... to its direct customers. At the time the Company records the reduction to revenue related to warranty returns, the Company includes within cost of revenue a write-down to reduce the carrying value of such products to net realizable value. The Company's standard warranty obligation to its end-users...

  • Page 70
    ... modified after January 1, 2010. The Company has an insignificant amount of product offerings with multiple elements. The Company's multiple-element product offerings include networking hardware with embedded software, various software subscription services, and support, which are considered...

  • Page 71
    ...levels, current economic trends and changes in customer demand for the Company's products when evaluating the adequacy of the allowance for sales returns, namely warranty and stock rotation returns. Revenue on shipments is also reduced for estimated price protection and sales incentives deemed to be...

  • Page 72
    ...computation of diluted net income per share when their effect is anti-dilutive. Stock-based compensation Effective January 1, 2006, the Company adopted the fair value recognition provisions of the updated authoritative guidance for stock compensation, using the modified prospective transition method...

  • Page 73
    ... forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. ASU 2010-29 is effective prospectively for the Company for business combinations with an acquisition date on or after January 1, 2011. Since the adoption of the update to the...

  • Page 74
    ..., and liabilities that existed at the closing date, including employee bonuses and product warranties. The acquisition qualifies as a business combination and was accounted for using the acquisition method of accounting. The Company believes the acquisition will bolster its service provider revenue...

  • Page 75
    ... will accelerate the Company's continuing networking technology research and development initiatives. The aggregate purchase price was $2.1 million, of which $2.0 million was paid in cash in the first quarter of 2010 and $100,000 was paid in the three months ended April 3, 2011. Additionally, the...

  • Page 76
    ... Limited On December 18, 2008, the Company completed the acquisition of certain intellectual property and other assets of CP Secure International Holding Limited ("CP Secure"), a privately-held provider of integrated network security solutions. The aggregate purchase price was $14.0 million, paid in...

  • Page 77
    ... uses existed. The Company acquired two in-process research and development projects, which involve improvements to threat management characteristics of future products. These two projects required further research and development to determine technical feasibility and commercial viability...

  • Page 78
    ...and no future alternative uses exist. The Company acquired three in-process research and development projects. Two projects involve development of new products in the ReadyNAS desktop product category, and one project involves development of a higher end version of a product currently selling in the...

  • Page 79
    ... $144,564 - $144,564 Accounts receivable and related allowances As of December 31, 2011 2010 Gross accounts receivable Less: Allowance for doubtful accounts Allowance for sales returns Allowance for price protection Total allowances Accounts receivable, net Inventories $279,932 (1,335) (13,360...

  • Page 80
    ... 2011, the Company recorded $11.7 million of goodwill associated with the acquisition of the Customer Networking Solutions division of Westell Technologies, Inc. ("Westell"). During 2010, the Company recorded $8.5 million of goodwill associated with a $10 million earn-out payment made in connection...

  • Page 81
    ... Intangibles, net Weighted Average Amortization December 31, 2010 Cost December 31, Amortization 2010 Net Additions Expense 2011 Net December 31, Period Remaining (Years) Core technology Existing technology Trademarks Patents Customer contracts and relationships Backlog Total intangible assets...

  • Page 82
    ...) $ $ - - - In July 2008, the Company ceased using buildings leased in Santa Clara and Fremont, California, and consolidated all personnel and operations from those locations to its new corporate headquarters in San Jose, California. The last of these operating leases expired in December 2010. 78

  • Page 83
    ..., and on certain existing assets and liabilities. The Company does not enter into derivatives transactions for trading or speculative purposes. Cash flow hedges To help manage the exposure of gross and operating margins to fluctuations in foreign currency exchange rates, the Company hedges a portion...

  • Page 84
    ... of the Company's derivative instruments and the line items on the Consolidated Balance Sheets to which they were recorded as of December 31, 2011 and December 31, 2010 are summarized as follows: Fair Value at Balance Sheet Location December 31, 2011 (In thousands) Balance Sheet Location Fair Value...

  • Page 85
    ... of the Company's fair value measurements, please see Note 13, Fair Value of Financial Instruments . Year ended Location of Gains or (Losses) Recognized in Income on Derivative December 31, 2011 Amount of Gains or (Losses) Recognized in Income on Derivative (In thousands) December 31, 2010 Amount of...

  • Page 86
    ...reflected in diluted net income per share by application of the treasury stock method. Under the treasury stock method, the amount that the employee must pay for exercising stock options, the amount of stock-based compensation cost for future services that the Company has not yet recognized, and the...

  • Page 87
    ...333 34,485 363 $34,848 $ 0.27 $ 0.27 Anti-dilutive common stock options totaling 2,001,300, 3,251,861 and 3,614,698 were excluded from the weighted average shares outstanding for the diluted per share calculation for 2011, 2010 and 2009, respectively. Note 7-Other Income (Expense), Net Other income...

  • Page 88
    ...31, 2011 2010 Deferred Tax Assets: Accruals and allowances Net operating loss carryforwards Stock-based compensation Deferred ...112 26,444 $ $ $ Management's judgment is required in determining the Company's provision for income taxes, its deferred tax assets and any valuation allowance recorded...

  • Page 89
    ... has recorded its liability for uncertain tax positions as part of its long-term liability as payments cannot be anticipated over the next 12 months. The existing tax positions of the Company continue to generate an increase in the liability for uncertain tax positions. The liability for uncertain...

  • Page 90
    ... income taxes payable within the consolidated balance sheet. The Company recognizes interest and penalties accrued related to unrecognized tax benefits in income tax expense. During the years ended December 31, 2011, December 31, 2010 and December 31, 2009, total interest and penalties expensed...

  • Page 91
    ..., the Company has no liabilities recorded for these agreements as of December 31, 2011. In its sales agreements, the Company typically agrees to indemnify its direct customers, distributors and resellers for any expenses or liability resulting from claimed infringements of patents, trademarks or...

  • Page 92
    ... all claims, known or unknown, under any of the '222, '802 and '323 Patents with respect to the manufacture, use, sale, etc. of products by the Company. Each party agreed to bear its own costs and attorneys' fees. The Company made the required one-time lump sum payment that was due by May 15, 2011...

  • Page 93
    ...lawsuit was filed against the Company by OptimumPath, L.L.C ("OptimumPath"), a patent-holding company existing under the laws of the State of South Carolina, in the U.S. District Court, District of South Carolina. OptimumPath claims that certain of the Company's wireless networking products infringe...

  • Page 94
    ... in its WPN824 RangeMax wireless router. Ruckus also sued Rayspan Corporation alleging similar claims of patent infringement. The Company filed its answer to the lawsuit in the third quarter of 2008. The Company and Rayspan Corporation jointly filed a request for inter partes reexamination of the...

  • Page 95
    ...April 2011, the USPTO issued a final office action rejecting both asserted claims of the '058 patent as being obvious in light of the prior art. The case remains stayed by stipulation, and no trial date has been set. WIAV Networks, LLC v. NETGEAR In July 2009, a lawsuit was filed against the Company...

  • Page 96
    ... VPN Firewall Router, ProSafe Wireless-N VPN Firewall, and ProSafe 802 11 wireless VPN Firewall 8 with 8-port 10/100 Mbps Switch infringe claims of the '926 Patent. On May 17, 2010, the defendants jointly filed a motion to transfer the case to the U.S. District Court, Northern District of California...

  • Page 97
    ...the discovery process. Expert reports and accompanying discovery opens May 4, 2012 and closes June 8, 2012. Dispositive motions are due June 28, 2012, and trial is set to commence on November 26, 2012. Data Network Storage, LLC v. NETGEAR In April 2009, a lawsuit was filed against the Company and 14...

  • Page 98
    ..."), in the San Jose division of the United States District Court, Northern District of California. The complaint alleged that the claims of CSIRO's U.S. Patent No. 5,487,069 are invalid and not infringed by any of Company's products. CSIRO had asserted that the Company's wireless networking products...

  • Page 99
    ... patent based on the Company's use of methods for establishing control relationships between plural devices and names the Company's Powerline AV Ethernet Adapter, Model XAV101, as an accused infringing product. The Company answered the plaintiff's complaint on December 12, 2011, and asserted that it...

  • Page 100
    ... States by Innovatio IP Ventures LLC ("Innovatio") against end user customers of the Company and other companies. Shortly after filing the declaratory judgment action, the Company filed a response supporting Cisco Systems, Inc.'s and Motorola Solutions, Inc.'s Motion to Transfer for Coordinated...

  • Page 101
    ...-holding company. Rembrandt also filed a similar lawsuit in the same jurisdiction against Comcast Corporation, Comcast Cable Communications, LLC and Comcast of Plano, LP. Rembrandt alleged that products implementing the DOCSIS standard, which are supplied to Charter, Comcast Corporation, Comcast...

  • Page 102
    ...Regulation The European Union ("EU") has enacted the Waste Electrical and Electronic Equipment Directive, which makes producers of electrical goods, including home and commercial business networking products, financially responsible for specified collection, recycling, treatment and disposal of past...

  • Page 103
    ...). NSOs may be granted to Company employees, directors and consultants. The Company has reserved 750,000 shares of Common Stock plus any shares which were reserved but not issued under the 2000 Plan as of the date of the approval of the 2003 Plan. The number of shares which were reserved but not...

  • Page 104
    ... an additional 2,500,000 shares. In July 2010, the Company adopted amendments to the 2006 Plan which increased the number of shares of the Company's common stock that may be issued under the 2006 plan by an additional 1,500,000 shares. As of December 31, 2011, 486,349 shares were reserved for future...

  • Page 105
    ... stock semiannually at a price equal to 85% of the fair market value on the purchase date. Since the price of the shares is determined at the purchase date, the Company recognizes expense based on the 15% discount at purchase. For the years ended December 31, 2011, 2010 and 2009, ESPP compensation...

  • Page 106
    ... above represent the total pre-tax intrinsic values (the difference between the Company's closing stock price on the last trading day of 2011, 2010, and 2009 and the exercise price, multiplied by the number of shares underlying the in-themoney options) that would have been received by the option...

  • Page 107
    ... volatility of certain of the Company's industry peers' stock. The Company estimated the forfeiture rate for the years ended December 31, 2011, 2010 and 2009 based on its historical experience. Stock Options Granted Under non-ESPP Plans Year Ended December 31, 2010 2011 2009 Expected life (in...

  • Page 108
    .... The Company's business is now managed in three specific business units: retail, commercial, and service provider. The retail business unit consists of high performance, dependable and easy-to-use home networking, storage and digital media products to connect people with the Internet and their...

  • Page 109
    ...) $ 124,210 Segment contribution income includes all product line segment revenues less the related cost of sales, research and development and sales and marketing costs. Contribution income is used, in part, to evaluate the performance of, and allocate resources to, each of the segments. Certain...

  • Page 110
    ... fixed assets, are reported based on the location of the asset. Long-lived assets by geographic location are as follows (in thousands): Year Ended December 31, 2011 2010 United States Americas (excluding U.S.) EMEA China Asia Pacific (excluding China) $ $ Customer concentration (as a percentage...

  • Page 111
    ... measurement and unobservable (i.e., supported by little or no market activity). The following tables summarize the valuation of the Company's financial instruments by the above categories as of December 31, 2011 and December 31, 2010: As of December 31, 2011 Quoted market prices in active Total...

  • Page 112
    ... of these pricing models using observable market data for related inputs into such models. Additionally, the Company includes an adjustment for non-performance risk in the recognized measure of fair value of derivative instruments. At December 31, 2011 and December 31, 2010, the adjustment...

  • Page 113
    ... registered public accounting firm, as stated in their report which is included in this Annual Report on Form 10-K. Changes in Internal Control Over Financial Reporting There was no change in our internal control over financial reporting that occurred during the fourth quarter of fiscal year 2011...

  • Page 114
    ... by us in reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial...

  • Page 115
    ... by Part III is incorporated herein by reference from our proxy statement related to our 2012 Annual Meeting of Stockholders, which we intend to file no later than 120 days after the end of the fiscal year covered by this Form 10-K. Item 10. Directors, Executive Officers and Corporate Governance...

  • Page 116
    ... Year ended December 31, 2009 Allowance for sales returns and product warranty: Year ended December 31, 2011 Year ended December 31, 2010 Year ended December 31, 2009 Allowance for price protection: Year ended December 31, 2011 Year ended December 31, 2010 Year ended December 31, 2009 $ 1,481 2,038...

  • Page 117
    ... this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Jose, State of California, on the 29th day of February 2012. NETGEAR, Inc. Registrant /s/ P ATRICK C.S. L O Patrick C.S. Lo Chairman of the Board and Chief Executive Officer (Principal...

  • Page 118
    ... Aldover and Zhicheng Qiu(5) Agreement and Plan of Merger, dated as of May 2, 2007, by and among the registrant, NAS Holdings Corporation, Infrant Technologies, Inc., certain Infrant shareholders thereof, and Paul Tien as the Holders Representative(6) Office Lease, dated as of September 25, 2007...

  • Page 119
    ... and Michael Werdann(10) Amendment #2 to Employment Agreement, dated September 21, 2009, between the registrant and Christine Gorjanc(11) Change of Control and Severance Agreement dated March 31, 2011 by and between NETGEAR, Inc. and David Soares(12) List of subsidiaries and affiliates Consent of...

  • Page 120
    ...bearing the same number filed with the Registrant's Current Report on Form 8-K filed on September 23, 2008 with the Securities and Exchange Commission. (2) Incorporated by reference to an exhibit filed with the Registrant's Registration Statement on Form S-1 (Registration Statement 333104419), which...

  • Page 121
    ... Netgear Asia Holdings Ltd. Netgear Hong Kong Ltd. Netgear Switzerland GmbH Netgear do Brasil Produtos Electronicos Ltda Netgear Norway AS Netgear (Beijing) Network Technology Co, Ltd. Netgear Asia Pte Ltd. Infrant Technologies, LLC Netgear Czech Republic s.r.o. Netgear New Zealand Netgear Australia...

  • Page 122
    ... 333-168349) of NETGEAR, Inc. of our report dated February 29, 2012 relating to the financial statements, financial statement schedule and the effectiveness of internal control over financial reporting, which appears in this Form 10-K. /s/ PricewaterhouseCoopers LLP San Jose, California February 29...

  • Page 123
    ... in this report; The Registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15(d)-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15...

  • Page 124
    ... in this report; The Registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15(d)-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15...

  • Page 125
    ... OF 2002 In connection with the Annual Report of NETGEAR, Inc. (the "Company") on Form 10-K for the year ended December 31, 2011, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Patrick C.S. Lo, Chairman and Chief Executive Officer of the Company, certify...

  • Page 126
    ... OF 2002 In connection with the Annual Report of NETGEAR, Inc. (the "Company") on Form 10-K for the year ended December 31, 2011, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Christine M. Gorjanc, Chief Financial Officer of the Company, certify, pursuant...