Netgear 2011 Annual Report Download - page 43

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Table of Contents
and Africa (“EMEA”) and APAC. For further detail, refer to Note 12, Segment Information, Operations by Geographic Area and Customer
Concentration , in Item 8 Part II of this Annual Report on Form 10-K.
Our net revenue increased 30.9% during the year ended December 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, Powerline products, ReadyNAS products, and switch
products.
Our gross margin decreased to 31.3% for the year ended December 31, 2011 from 33.2% for the year ended December 31, 2010. The
decrease in gross margin was primarily attributable to a higher percentage of our total revenue derived from sales to service providers, which
generally carry lower gross margins. Operating expenses for the year ended December 31, 2011 were $244.6 million, or 20.7% of net revenue,
compared to $207.9 million, or 23.1% of net revenue, for the year ended December 31, 2010. This increase was primarily attributable to
increases of $24.0 million in salary and other employee related expenses due to headcount growth, and $6.1 million in outside service costs
related to increased investments in research and development projects and increased call center costs driven by greater sales volume. In addition,
the increase was also attributable to a $2.2 million increase in restructuring and other charges primarily due to employee severance resulting
from the reorganization into three specific business units.
Net income increased $40.5 million, or 79.5%, to $91.4 million for the year ended December 31, 2011, from $50.9 million for the year
ended December 31, 2010. This increase was primarily attributable to an increase in gross profit of $70.2 million and a decrease in the provision
for income tax of $7.5 million, which was partially offset by an increase in operating expenses of $36.7 million.
The commercial business, consumer, and broadband service provider markets are intensely competitive and subject to rapid technological
change. We expect our competition to continue to intensify. We believe that the principal competitive factors in these markets for networking
products include product breadth, size and scope of the sales channel, brand name, timeliness of new product introductions, product availability,
performance, features, functionality and reliability, ease-of-installation, maintenance and use, and customer service and support. To remain
competitive, we believe we must continue to aggressively invest resources in developing new products and enhancing our current products while
continuing to expand our channels and maintaining customer satisfaction worldwide.
Critical Accounting Policies and Estimates
Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States
of America and pursuant to the rules and regulations of the SEC. The preparation of these financial statements requires management to make
assumptions, judgments and estimates that can have a significant impact on the reported amounts of assets, liabilities, revenues and expenses.
We base our estimates on historical experience and on various other assumptions believed to be applicable and reasonable under the
circumstances. Actual results could differ significantly from these estimates. These estimates may change as new events occur, as additional
information is obtained and as our operating environment changes. On a regular basis we evaluate our assumptions, judgments and estimates and
make changes accordingly. We also discuss our critical accounting estimates with the Audit Committee of the Board of Directors. Note 1, The
Company and Summary of Significant Accounting Policies , of the Notes to Consolidated Financial Statements describes the significant
accounting policies used in the preparation of the consolidated financial statements. We have listed below our critical accounting policies that we
believe to have the greatest potential impact on our consolidated financial statements. Historically, our assumptions, judgments and estimates
relative to our critical accounting policies have not differed materially from actual results.
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