Netgear 2011 Annual Report Download - page 35

Table of Contents
the income tax provision for the three months ended March 29, 2009, resulted in adjustments related to income taxes in our financial statements.
In our previously filed financial statements for the three months ended March 29, 2009, we incorrectly included a particular foreign entity in
calculating our estimated annualized tax provision. This foreign entity should not have been included in the calculation because the anticipated
losses in that entity would not give rise to tax benefits. While our overall annual tax provision was not affected for the entire year, we made an
error in inter-quarter allocations of the tax provision. Material changes to our previously reported financial information occurred as a result of
this error.
In connection with this restatement we identified certain control deficiencies relating to the application of applicable accounting literature
related to recordation of tax expenses. These deficiencies constituted a material weakness in internal control over financial reporting as of
March 29, 2009, which led to items requiring correction in our financial statements and our conclusion to restate such financial statements to
correct those items. Specifically, the control deficiencies related to our failure to correctly apply the authoritative guidance for income taxes in
determining the proper allocation of our annualized tax provision.
Although this material weakness had been remediated by December 31, 2009, we cannot be certain that the measures we have taken since
this restatement will ensure that restatements will not occur in the future. Execution of restatements like the one described above create a
significant strain on our internal resources and could cause delays in our filing of quarterly or annual financial results, increase our costs and
cause management distraction. Restatements may also significantly affect our stock price in an adverse manner.
Governmental regulations of imports or exports affecting Internet security could affect our net revenue.
Any additional governmental regulation of imports or exports or failure to obtain required export approval of our encryption technologies
could adversely affect our international and domestic sales. The United States and various foreign governments have imposed controls, export
license requirements, and restrictions on the import or export of some technologies, particularly encryption technology. In addition, from time to
time, governmental agencies have proposed additional regulation of encryption technology, such as requiring the escrow and governmental
recovery of private encryption keys. In response to terrorist activity, governments could enact additional regulation or restriction on the use,
import, or export of encryption technology. This additional regulation of encryption technology 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 a result, they may be able to
compete more effectively than we can in the United States and the international Internet security market.
We are exposed to credit risk and fluctuations in the market values of our investment portfolio.
Although we have not recognized any material losses on our cash equivalents and short-term investments, future declines in their market
values could have a material adverse effect on our financial condition and operating results. Given the global nature of our business, we have
investments with both domestic and international financial institutions. Accordingly, we face exposure to fluctuations in interest rates, which
may limit our investment income. If these financial institutions default on their obligations or their credit ratings are negatively impacted by
liquidity issues, credit deterioration or losses, financial results, or other factors, the value of our cash equivalents and short-term investments
could decline and result in a material impairment, which could have a material adverse effect on our financial condition and operating results.
Economic conditions, political events, war, terrorism, public health issues, natural disasters and other circumstances could materially
adversely affect us.
Our corporate headquarters are located in Northern California and one of our warehouses is located in Southern California, both of which
are regions known for seismic activity. Significantly all of our critical enterprise-wide information technology systems, including our main
servers, are currently housed in colocation
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