Netgear 2011 Annual Report Download - page 53

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Table of Contents
Interest income represents amounts earned on our cash, cash equivalents and short-term investments.
Other income (expense), net, primarily represents gains and losses on transactions denominated in foreign currencies and other
miscellaneous expenses.
2011 Interest Income and Other Income (Expense) Compared to 2010 Interest Income and Other Income (Expense)
Interest income increased $51,000, or 12.0%, to $477,000 for the year ended December 31, 2011, from $426,000 for the year ended
December 31, 2010. The increase in interest income was primarily attributable to an increase in our average balance of cash, cash equivalents,
and short-term investments during the year ended December 31, 2011, as compared to the year ended December 31, 2010, which was partially
offset by falling interest rates.
Other expense, net, increased $572,000 to expense of $1.1 million for year ended December 31, 2011, from expense of $564,000 for year
ended December 31, 2010. Our foreign currency hedging program reduced volatility associated with hedged currency exchange rate movements
during the year ended December 31, 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 Report on Form 10-K.
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, Derivative Financial
Instruments,
in Notes to Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K.
Provision for Income Taxes
2011 Provision for Income Taxes Compared to 2010 Provision for Income Taxes
Provision for income taxes decreased $7.5 million, resulting in a provision of $32.8 million for the year ended December 31, 2011,
compared to a provision of $40.3 million for the year ended December 31, 2010. The effective tax rate decreased to 26.4% for the year ended
December 31, 2011 from 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 state taxes, other non-deductible expenses, and tax credits. Non-deductible expenses in the year ended December 31, 2010 included
certain stock based compensation. For the year ended December 31, 2011, tax on earnings from foreign operations reduced the effective tax rate
by 9.5 percentage points compared to an increase of 5.1 percentage points for 2010. The tax rate benefit of earnings from foreign operations in
2011 resulted from improvements in profitability of international operations located in tax jurisdictions with rates below 35%. In 2011, state
income taxes increased the effective tax rate by 1.5 percentage points compared to an increase of 4.2 percentage points for 2010. The lower
impact of state taxes in 2011 compared to 2010 was primarily due to a legislation that was effective as of January 1, 2011 that provided for a
more favorable methodology for computing the amount of income subject to tax in California.
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