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NETGEAR, INC
FORM 10-K
(Annual Report)
Filed 02/25/14 for the Period Ending 12/31/13
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 2014, 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 02/25/14 for the Period Ending 12/31/13 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
    ... (State 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) 95134 (Zip Code) Registrant's telephone number, including area code (408) 907-8000 Securities...

  • Page 3
    ... About Market Risk 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 Ownership...

  • Page 4
    ... and digital media products. The commercial business unit consists of business networking, storage and security solutions that bring enterprise class functionality down to small and medium size businesses at an affordable price. The service provider business unit consists of made-to-order and retail...

  • Page 5
    ... lack extensive IT resources and technical knowledge. Therefore, they demand 'plug-and-play' or easy-to-install and use products that require little or no maintenance, and customer service and support. We believe that these users also prefer the convenience of obtaining a networking solution from...

  • Page 6
    ...in multiple configurations to address the needs of our customers in each geographic region in which our products are sold. Commercial business networking. These products are sold primarily in our commercial business unit and include: • • Ethernet switches, which are multiple port devices used to...

  • Page 7
    ...routers and repeaters; video streaming players such Push2TV and NeoTV; home network storage products with an easy to use user interface and remote cloud access, higher capacity and resilience; high speed DOCSIS 3.0, xDSL and fiber gateways with more integrated functions; 4G LTE gateways and Air Card...

  • Page 8
    ..., price, ease-of-installation, maintenance and use, and customer service and support. We believe our products are competitive in these markets based on these factors. To remain competitive, we must invest significant resources in developing new products and enhancing our current products while...

  • Page 9
    ... strategies and tactics. The group focuses on defining our brand promise and marketing messages on a worldwide basis. This group is also responsible for advertising, public relations, events, social media, the corporate website, email marketing and all creative production for all business units. 6

  • Page 10
    ... including phone, chat and email. Customers can also get self-help service through the comprehensive knowledgebase and the user forum on our website. Customer support is provided through a combination of a limited number of permanent employees and use of subcontracted, out-sourced resources. Our...

  • Page 11
    .... Long-lived assets Long-lived assets include purchased intangibles, goodwill and property and equipment. Property and equipment by geographic location are as follows (in thousands): December 31, 2013 December 31, 2012 December 31, 2011 United States Americas (excluding U.S.) EMEA China APAC...

  • Page 12
    ... Mr. Merrill continues to guide the emerging market efforts and work closely the RF engineering team to ensure technical leadership of our wireless networking products. Previously, Mr. Merrill served as our Chief Technology Officer from January 2003 to April 2013. From September 1999 to January 2003...

  • Page 13
    ...the Witwatersrand, South Africa. John P. McHugh serves as our Senior Vice President and General Manager of the Commercial Business Unit, overseeing the development and delivery of the industry's premiere line of networking and storage solutions for SMB customers. Prior to joining us in July 2013, Mr...

  • Page 14
    ... or failure to fulfill orders for our products on a timely basis; allowance for bad debts exposure with our existing customers and new customers, particularly as we expand into new international markets; disruptions or delays related to our financial and enterprise resource planning systems; our...

  • Page 15
    ... common stock could suffer a decline in value. With the continuing uncertainty about economic conditions in Europe, Australia, the United States and elsewhere internationally, there has been significant volatility in the market price and trading volume of securities of technology and other companies...

  • Page 16
    ...commercial business, retail, and service provider markets and quickly develop or acquire, and manufacture and sell products that satisfy these demands in a cost effective manner. In order to differentiate our products from our competitors' products, we must continue to increase our focus and capital...

  • Page 17
    ... Digital. Our principal competitors in the home market for networking devices and television connectivity products include Amped Wireless, Apple, AsusTEK, Belkin, D-Link, the Linksys line of products under Belkin, Roku, TP-Link and Western Digital. Our principal competitors in the broadband service...

  • Page 18
    ...research and development resources to the right projects, we may not be successful in continuing to sell products to service provider customers. In addition, because our service provider customers command significant resources, including for software support, and demand extremely competitive pricing...

  • Page 19
    ... match the lower prices offered by our competitors. Many of the service provider customers will seek to purchase from the lowest cost provider, notwithstanding that our products may be higher quality or that our products were previously validated for use on their proprietary network. Accordingly, we...

  • Page 20
    ... and within our 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...

  • Page 21
    ... internal management or reorganizational issues, such as roll-out of new equipment which may delay or disrupt supply of previously forecasted components. It could be difficult, costly and time consuming to obtain alternative sources for these components, or to change product designs to make use...

  • Page 22
    ...channels or enter into new sales territories. For example, in June 2012 and June 2013 we acquired select assets of two separate engineering operations in India to enhance our wireless product offerings in our commercial business unit. Additionally in July 2012, we closed the acquisition of privately...

  • Page 23
    ...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 costs. To manage manufacturing costs, we must collaborate with our third-party manufacturers to engineer the most cost...

  • Page 24
    ... results. Additionally, the IRS and several foreign tax authorities have increasingly focused attention on intercompany transfer pricing with respect to sales of products and services and the use of intangible assets. Tax authorities could disagree with our intercompany charges, cross-jurisdictional...

  • Page 25
    ... manufacture and assemble our products, as well as the locations where we sell our products. For example, certain regulations limit the use of lead in electronic components. To our knowledge, we maintain compliance with all applicable current government regulations concerning the materials utilized...

  • Page 26
    ... with us on certain projects, such as projects for manufacturing products for our service provider customers. Because our service provider customers command significant resources, including for software support, and demand extremely competitive pricing, our ODMs are starting to refuse to engage on...

  • Page 27
    ... components for the products, lack of software expertise resulting in increased software defects, and lack of resources to properly monitor the manufacturing process. In our typical ODM arrangement, our ODMs are generally responsible for sourcing the components of the products and warranting that...

  • Page 28
    ... malicious software programs that are designed to attack our products and systems, including our internal network, or those of our vendors or customers. Additionally, outside parties may attempt to fraudulently induce our employees or users of our products to disclose sensitive information in order...

  • Page 29
    ..., experience 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 a Powerline Ethernet Adapter made for Europe and...

  • Page 30
    ...as well as customer imposed penalties. In addition, if increases in fuel prices occur, our transportation costs would likely increase. Moreover, the cost of shipping our products by air freight is greater than other methods. From time to time in the past, we have shipped products using extensive air...

  • Page 31
    ... operations and pursuing market opportunities both domestically and internationally in order to grow our sales. As a result of the acquisition of the AirCard business of Sierra Wireless, we have added two new locations with over 80 personnel housed at each site, one in Carlsbad, California, and one...

  • Page 32
    ... be able to understand and use the source code, as we may not have the expertise to do so. We are increasingly exposed to these risks as we continue to develop and market more products containing third-party software, such as our TV connectivity, security and network attached storage products. 29

  • Page 33
    ... for our end-user promotional programs is higher than we estimate, then our net revenue and gross margin will be negatively affected. From time to time we offer promotional incentives, including cash rebates, to encourage end-users to purchase certain of our products. Purchasers must follow specific...

  • Page 34
    ..., 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...

  • Page 35
    ...of our manufacturing vendors and component suppliers. Item 1B. None. Item 2. Unresolved Staff Comments Properties Our principal administrative, sales, marketing and research and development facilities currently occupy approximately 142,700 square feet in an office complex in San Jose, California...

  • Page 36
    ... 32.10 26.82 28.13 28.21 Company Performance Notwithstanding any statement to the contrary in any of our previous or future filings with the SEC, the following information relating to the price performance of our common stock shall not be deemed "filed" with the SEC or "soliciting material" under...

  • Page 37
    ... of Equity Securities by the Company Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) Period Total Number of Shares Purchased (2) Average Price Paid per Share Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs September 30, 2013...

  • Page 38
    ... statements and related notes thereto,...2013 (1) 2012 2011 (In thousands, except per share data) 2010 2009 Net revenue Cost of revenue (3) Gross profit Operating expenses: Research and development (3) Sales and marketing...8 of Part II of this Annual Report on Form 10K. Information regarding calculation...

  • Page 39
    Table of Contents (3) Stock-based compensation expense was allocated as follows: Year Ended December 31, 2013 2012 2011 (In thousands) 2010 20 Cost of revenue Research and development Sales and marketing General and administrative Consolidated Balance Sheet Data: $ 1,577 3,943 5,379 6,563 $ 1,...

  • Page 40
    ... as wireless, Ethernet and powerline, with a focus on reliability and ease-of-use. Our product line consists of wired and wireless devices that enable networking, broadband access and network connectivity. These products are available in multiple configurations to address the needs of our end-users...

  • Page 41
    ... customers. At the time we record the reduction to revenue related to warranty returns, we include within cost of revenue a write-down to reduce the carrying value of such products to net realizable value. Our standard warranty obligation to end-users provides for replacement of a defective product...

  • Page 42
    ...In addition to warranty-related returns, certain distributors and retailers generally have the right to return product for stock rotation purposes. Upon shipment of the product, we reduce revenue for an estimate of potential future stock rotation returns related to the current period product revenue...

  • Page 43
    ... cash flows by considering the following factors: macroeconomic 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 , we determined that it is not more...

  • Page 44
    ... in our expected future cash flows; a sustained, significant decline in our stock price and market capitalization; a significant adverse change in the business climate; and slower growth rates. Recoverability of assets to be held and used is measured by comparing the carrying amount of an asset to...

  • Page 45
    ...for the periods indicated: Year Ended December 31, 2013 % Change 2012 % Change 2011 (In thousands, except percentage data) Net revenue Cost of revenue Gross profit Operating expenses: Research and development Sales and marketing General and administrative Restructuring and other charges Litigation...

  • Page 46
    ..., home security monitoring and automation products, and switches, partially offset by a decrease in sales of our broadband gateways. We experienced an increase in revenues in the Americas and APAC regions, and a decrease in EMEA. In addition, our service provider, retail and commercial business...

  • Page 47
    ...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 average selling prices, end-user customer rebates and other sales incentives, and changes in our cost of goods sold...

  • Page 48
    ...other marketing expenses, product marketing expenses, outbound freight costs, personnel expenses for sales and marketing staff and technical support expenses. The following table presents sales and marketing expense, for the periods indicated: Year Ended December 31, 2013 % Change 2012 % Change 2011...

  • Page 49
    ...compensation expenses, $0.7 million in projects and outside professional services, $0.6 million in marketing expenses and $0.5 million in freight costs. Sales and marketing headcount increased by 35 employees to 387 employees at December 31, 2013 compared to 352 employees at December 31, 2012 . 2012...

  • Page 50
    ... and locations to drive efficiencies and realign resources to better focus on key growth markets, $1.9 million is for transition costs related to the AirCard acquisition, and $0.2 million is related to an office lease exit liability related to the AVAAK acquisition. In addition, the Company recorded...

  • Page 51
    ... million gain on the sale of a cost method investment. In addition, our foreign currency hedging program reduced volatility associated with hedged currency exchange rate movements during the year ended December 31, 2012. Provision for Income Taxes 2013 vs 2012 Provision for income taxes decreased...

  • Page 52
    ... driven by an increase in revenue from sales of our home wireless products, partially offset by a decrease in sales of our powerline, home storage and broadband gateways products. The retail business unit experienced strong revenue growth in the Americas region and moderate growth in the APAC...

  • Page 53
    ... mix. The decrease in our commercial business unit's operating expenses was primarily due to a decrease in sales and marketing cost, partially offset by an increase in research and development costs. Service Provider Year Ended December 31, 2013 % Change 2012 % Change 2011 ( in thousands, except...

  • Page 54
    ... privately-held company that develops, licenses, and provides solutions for the next generation of uses of Wi-Fi, for total purchase consideration of $5.3 million in cash. We believe the acquisition will bolster our wireless product offerings in our commercial business unit and strengthen our market...

  • Page 55
    ... purchase commitments with suppliers. We expect to sell all products for which we have committed purchases from suppliers. As of December 31, 2013 and December 31, 2012 , we had $14.6 million and $13.8 million, respectively, of total gross unrecognized tax benefits and related interest. The timing...

  • Page 56
    ...303(a)(4)(ii) of Regulation S-K. Recent Accounting Pronouncements See Note 1, The Company and Summary of Significant Accounting Policies , in Notes to Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K, for a full description of recent accounting pronouncements...

  • Page 57
    ... with our foreign currency exposures and positions may differ materially from the sensitivity analyses performed as of December 31, 2013 due to the inherent limitations associated with predicting the foreign currency exchange rates, and our actual exposures and positions. For the year ended December...

  • Page 58
    ...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 59
    ...value; 5,000,000 shares authorized; none issued or outstanding Common stock: $0.001 par value; 200,000,000 shares authorized; shared issued and outstanding: 36,839,522 and 38,341,644 at December 31, 2013 and 2012, respectively Additional paid-in capital Cumulative other comprehensive income Retained...

  • Page 60
    ...NETGEAR, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) Year Ended December 31, 2013 2012 2011 Net revenue Cost of revenue Gross profit Operating expenses: Research and development Sales and marketing... Weighted average shares outstanding used to compute net income ...

  • Page 61
    ...) Year Ended December 31, 2013 2012 2011 Net income Other comprehensive income (loss), before tax: Unrealized gain (loss) on derivative instruments Unrealized (loss) gain on available-for-sale securities Other comprehensive income (loss), before tax Tax benefit (expense) related to items of other...

  • Page 62
    ... Stock-based compensation expense Purchase and retirement of common stock Issuance of common stock under stockbased compensation plans Tax benefit from exercises and cancellations of stock options Balance at December 31, 2012 Change in unrealized gains and losses on available-for-sale securities...

  • Page 63
    ... of cash acquired 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-based compensation Net...

  • Page 64
    ... as wireless, Ethernet and powerline, with a focus on reliability and ease-of-use. The product line consists of wired and wireless devices that enable networking, broadband access and network connectivity. These products are available in multiple configurations to address the needs of the end-users...

  • Page 65
    ... risks and current economic conditions that may affect customers' ability to pay, and, generally, requires no collateral from its customers. The Company secures credit insurance for certain customers in international and domestic markets. As of December 31, 2013 and 2012, Best Buy, Inc. represented...

  • Page 66
    ...net Property and equipment are stated at historical cost, less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets as follows: Computer equipment Furniture and fixtures Software Machinery and equipment Leasehold improvements...

  • Page 67
    ... cash flows; a sustained, significant decline in the Company's stock price and market capitalization; a significant adverse change in the business climate; and slower growth rates. Goodwill is tested for impairment at the reporting unit level by first performing a qualitative assessment to determine...

  • Page 68
    ... 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 is fixed or determinable and collection of the related receivable is reasonably assured. Currently, for some of the Company's customers...

  • Page 69
    ...-market strategy. Certain distributors and retailers generally have the right to return product for stock rotation purposes. Upon shipment of the product, the Company reduces revenue for an estimate of potential future product warranty and stock rotation returns related to the current period product...

  • Page 70
    ... of stock options is estimated using the Black-Scholes option pricing model. Estimated compensation cost relating to restricted stock units ("RSUs") is based on the closing fair market value of the Company's common stock on the date of grant. The fair value of Employee Stock Purchase Plan ("ESPP...

  • Page 71
    ... to medium size campus wireless LAN market. The Company paid $4.2 million of the aggregate purchase price in the second quarter of 2013, and expects to pay the remaining $1.1 million , less amounts used to satisfy certain claims, twelve months after the closing of the acquisition. The acquisition...

  • Page 72
    Table of Contents NETGEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The Company paid $140.0 million of the aggregate purchase price in the second quarter of 2013. The acquisition qualified as a business combination and was accounted for using the acquisition method of accounting. ...

  • Page 73
    ...free video networking products for total purchase consideration of $24.0 million in cash. The Company believes the acquisition will bolster its retail business unit product offerings and expand its presence into the smart home market. The Company paid $21.6 million of the aggregate purchase price in...

  • Page 74
    ...intangible assets that existed at the closing date, including IP contracts, technology assets, business technology, and goodwill. The Company believes the acquisition will bolster its wireless product offerings in its commercial business unit and strengthen its market position in the small to medium...

  • Page 75
    ... at the time of purchase of greater than three months and no more than 12 months . Accordingly, none of the short-term investments have unrealized losses greater than 12 months. Cost Method Investments As of December 31, 2013 and December 31, 2012 , the carrying value of the Company's cost method...

  • Page 76
    ... ended December 31, 2013 , 2012 and 2011 , respectively. Intangibles, net The following tables present details of the Company's purchased intangible assets: Accumulated Amortization Gross Net December 31, 2013 Technology Customer contracts and relationships Other Finite-lived intangibles, net...

  • Page 77
    ...addition, the Company purchased $0.3 million in patents during the second quarter of 2013. As of December 31, 2013 , the Company had $0.1 million in indefinite-lived intangible assets. This balance relates to the remaining IPR&D assets acquired in connection with the Company's acquisition of AirCard...

  • Page 78
    ... 31, 2013 December 31, 2012 Non-current deferred income taxes Cost method investment Other Total other non-current assets Other accrued liabilities $ $ 20,235 1,322 5,034 26,591 $ $ 16,856 1,322 4,656 22,834 As of December 31, 2013 December 31, 2012 Sales and marketing programs Warranty...

  • Page 79
    ...previously recorded severance liability for an office lease exit related to the AVAAK acquisition and the consolidation of product groups within the commercial business units. The Company expects to pay the remaining cost related to restructuring over the next three months. Refer to Note 2, Business...

  • Page 80
    ... permitted, it is currently the Company's policy and practice to record all derivative assets and liabilities on a gross basis in the condensed consolidated balance sheets. The following tables set forth the offsetting of derivative assets as of December 31, 2013 and December 31, 2012 (in thousands...

  • Page 81
    ...following tables set forth the offsetting of derivative liabilities as of December 31, 2013 and December 31, 2012 (in ...months. The Company enters into about five forward contracts per quarter with an average size of about $7 million USD equivalent related to its cash flow hedging program. The Company...

  • Page 82
    ... are reflected in current earnings unless they are re-designated as hedges of other transactions. The Company did not recognize any material net gains or losses related to the loss of hedge designation on discontinued cash flow hedges during the years ended December 31, 2013 , 2012 and 2011 . The...

  • Page 83
    ... 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 estimated tax benefit that would be recorded in additional paid-in capital upon exercise are assumed to be used to repurchase...

  • Page 84
    ...NETGEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Net income per share for the years ended December 31, 2013 , 2012 and 2011 are as follows (in thousands, except per share data): Year Ended December 31, 2013 December 31, 2012...stock... 2013 2012 2011 United States International Total...

  • Page 85
    Table of Contents NETGEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Year Ended December 31, 2013 2012 2011 Current: U.S. Federal State Foreign Deferred: U.S. Federal State Foreign Total $ 30,989 3,751 11,224 45,964 (6,741) (1,164) (294) (8,199) 37,765 $ 34,666 4,555 6,097 45...

  • Page 86
    ... million , $1.1 million and $3.5 million related to stock options were credited to additional paid-in capital during the years ended December 31, 2013 , 2012 , and 2011 , respectively. As a result of changes in fair value of available for sale securities, income tax benefit of $16,000 , tax expense...

  • Page 87
    ... UTB is included as a component of non-current 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, 2013 , 2012 , and 2011 , total interest and...

  • Page 88
    ... two years acceleration (for other key executives) of any unvested portion of his or her equity awards. Purchase Obligations The Company has entered into various inventory-related purchase agreements with suppliers. Generally, under these agreements, 50% of orders are cancelable by giving notice 46...

  • Page 89
    ... issue with claims 11-17 cancelled and claims 1-10 and 18-36 confirmed. On November 4, 2009, Ruckus filed a complaint in the U.S. District Court, Northern District of California (case number C09-5271-PJH ("NETGEAR II")), alleging the Company and Rayspan Corporation infringed a patent that is related...

  • Page 90
    ... filed suit against Ruckus in the U.S. District Court, District of Delaware for infringement of four of the Company's patents. The Company alleged that Ruckus's manufacture, use, sale or offers for sale within the United States or importation into the United States of products, including wireless...

  • Page 91
    ... to sell, selling, and/or importing products, such as NETGEAR's N600 Wireless Dual Band Gigabit Routers (WNDR3800). Ruckus also accused the Company of knowingly and actively inducing infringement of the '470 Patent. On August 26, 2013, Ruckus filed an amended complaint that dropped its claims of...

  • Page 92
    ... 17 WiFi-related patents brought in the approximately 15 actions throughout the United 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...

  • Page 93
    ... such as the "Netgear RT311 Internet Gateway Router." The Company received an extension until August 17, 2012 to answer the complaint. USEI has sued, in addition to the Company, the following companies on the same and other of its Ethernet-related patents: Ricoh Americas Corporation, TRENDnet, Inc...

  • Page 94
    ... possible. On March 27, 2013, the Court issued a Memorandum Opinion and Order granting the Company's motion to transfer to the United States District Court for the Northern District of California, effective on April 16, 2013. In response, on April, 12, 2013, USEI filed a motion for clarification and...

  • Page 95
    ... of Texas. The accused products will be the Company's Aircard products that it acquired from Sierra Wireless. On July 20, 2013, the Company's answer and counterclaims were timely filed with the Court. The Court set an initial scheduling conference for September 5, 2013, and at that conference...

  • Page 96
    ... NETGEAR, Inc. On August 1, 2013, Spansion LLC ("Spansion") filed a section 337 complaint with the U.S. International Trade Commission ("ITC") naming: the Company; Belkin International, Inc. ("Belkin"); ASUSTek Computer Inc. and Asus Computer International (collectively, "Asus"); D-Link Corporation...

  • Page 97
    ... as the NTV200, that are responsive to output signals from a telephone. The patent has previously been litigated against Apple, Samsung, RIM, and a number of other wireless companies in Eastern Texas and the ITC. Garnet's lawsuit against the Company is one of multiple cases filed by Garnet in the...

  • Page 98
    ... the United States, Canada, Mexico, China, India, Australia and Japan. The Company continues to monitor WEEE Legislation and similar legislation in other jurisdictions as individual countries issue their implementation guidance. The Company believes it has met the applicable requirements of current...

  • Page 99
    ... to help facilitate tax withholding for RSUs. These shares were retired upon repurchase. The Company's policy related to repurchases of its common stock is to charge the excess of cost over par value to retained earnings. All repurchases were made in compliance with Rule 10b-18 under the Securities...

  • Page 100
    ... Other Comprehensive Income, Net The following table sets forth the changes in accumulated other comprehensive income by component, net of tax, during the years ended December 31, 2013 and 2012 (in thousands): Gains and losses on available for sale securities Gains and losses on derivatives Total...

  • Page 101
    ...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. In June 2012, the Company adopted amendments to the 2006 Plan which increased the...

  • Page 102
    ...an Employee Stock Purchase Plan (the "ESPP"), pursuant to which eligible employees may contribute up to 10% of compensation, subject to certain income limits, to purchase shares of the Company's common stock. Employees may purchase stock semi-annually at a price equal to 85% of the fair market value...

  • Page 103
    ...award. Estimated compensation cost relating to restricted stock units ("RSUs") is based on the closing fair market value of the Company's common stock on the date of grant. The fair value of Employee Stock Purchase Plan ("ESPP") is based on the 15% discount at purchase, since the price of the shares...

  • Page 104
    ... following table sets forth the total stock-based compensation expense resulting from stock options, restricted stock awards, and the Employee Stock Purchase Plan included in the Company's Consolidated Statements of Operations (in thousands): Year Ended December 31, 2013 2012 2011 Cost of revenue...

  • Page 105
    ... digital media products. The commercial business unit consists of business networking, storage and security solutions that bring enterprise class functionality down to the small and medium size business at an affordable price. The service provider business unit consists of made-to-order and retail...

  • Page 106
    ... returns and price protection. For reporting purposes revenue is attributed to each geographic region based on the location of the customer. The following table shows net revenue by geography for the periods indicated (in thousands): Year Ended December 31, 2013 2012 2011 United States Americas...

  • Page 107
    ...'s consolidated balance sheet. Included in prepaid expenses and other current assets on the Company's consolidated balance sheet. As of December 31, 2012 Quoted market prices in active markets (Level 1) Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3) Total...

  • Page 108
    ... 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, 2013 and December 31, 2012 , the adjustment...

  • Page 109
    ... LLP, an independent 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...

  • Page 110
    ... SEC. The current version of our Code of Ethics can be found on our Internet site at http://www.netgear.com. Additional information required by this Item regarding our Code of Ethics is incorporated by reference to the information contained in the section captioned "Corporate Governance Policies and...

  • Page 111
    ... Data (unaudited) Management's Report on Internal Control Over Financial Reporting (2) Financial Statement Schedule. 55 56 57 58 59 60 61 105 37 The following financial statement schedule of NETGEAR, Inc. for the fiscal years ended December 31, 2013 , 2012 and 2011 is filed as part of this Form...

  • Page 112
    ... the Registrant has duly caused 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 25th day of February 2014. NETGEAR, INC. By: /s/ PATRICK C.S. LO Patrick C.S. Lo Chairman of the Board and Chief Executive...

  • Page 113
    ...by and among the registrant, NETGEAR Holdings Limited, NETGEAR International Limited, NETGEAR Canada Limited, NETGEAR Australia PTY, LTD, Sierra Wireless, Inc., Sierra Wireless, Inc., Sierra Wireless America, Inc. and Sierra Wireless (Australia) PTY LTD(8) 10.41** Agreement and Plan of Merger, dated...

  • Page 114
    ... 2013, between NETGEAR, Inc. and John McHugh (19) List of subsidiaries and affiliates Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm Power of Attorney (included on signature page) Certification of Chief Executive Officer pursuant to Securities Exchange Act Rules...

  • Page 115
    ... Exhibit 10.35 of the Registrant's Annual Report on Form 10-K filed on February 26, 2013 with the Securities and Exchange Commission. Incorporated by reference to Exhibit 2.1 of the Registrant's Current Report on Form 8-K filed on May 3, 2007 with the Securities and Exchange Commission. Incorporated...

  • Page 116
    ... CZECH REPUBLIC SRO NETGEAR HONG KONG LIMITED NETGEAR NEW ZEALAND NETGEAR POLAND SP ZOO NETGEAR SWITZERLAND GMBH NETGEAR U.K. LTD Netgear (Beijing) Network Technology Co., Ltd Netgear Australia Pty Ltd. NTGR CYPRUS LTD NETGEAR Italy Srl NETGEAR JAPAN GK NETGEAR NETHERLANDS B.V. NETGEAR TAIWAN CO LTD...

  • Page 117
    ... 333-181892) of NETGEAR, Inc. of our report dated February 25, 2014 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 25...

  • Page 118
    EXHIBIT 31.1 CHIEF EXECUTIVE OFFICER CERTIFICATION I, Patrick C.S. Lo, certify that: 1. 2. I have reviewed this annual report on Form 10-K of NETGEAR, Inc. (the "Registrant"); Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact...

  • Page 119
    ... 31.2 CHIEF FINANCIAL OFFICER CERTIFICATION I, Christine M. Gorjanc, certify that: 1. 2. I have reviewed this annual report on Form 10-K of NETGEAR, Inc. (the "Registrant"); Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact...

  • Page 120
    ...connection with the Annual Report of NETGEAR, Inc. (the "Company") on Form 10-K for the year ended December 31, 2013 , 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, pursuant to...

  • Page 121
    ... In connection with the Annual Report of NETGEAR, Inc. (the "Company") on Form 10-K for the year ended December 31, 2013 , 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 to 18...