Netgear 2013 Annual Report Download - page 23

Table of Contents
As part of undertaking an acquisition, we may also significantly revise our capital structure or operational budget, such as issuing common stock
that would dilute the ownership percentage of our stockholders, assuming liabilities or debt, utilizing a substantial portion of our cash resources to pay
for the acquisition or significantly increasing operating expenses. Our acquisitions have resulted and may in the future result in charges being taken in an
individual quarter as well as future periods, which results in variability in our quarterly earnings. In addition, our effective tax rate in any particular
quarter may also be impacted by acquisitions. Following the closing of an acquisition, we may also have disputes with the seller regarding contractual
requirements and covenants. Any such disputes may be time consuming and distract management from other aspects of our business. In addition, if we
continue to increase the pace or size of acquisitions, as we have done since mid-
2012, we will have to expend significant management time and effort
into the transactions and the integrations and we may not have the proper human resources bandwidth to ensure successful integrations and accordingly,
our business could be harmed.
As part of the terms of acquisition, we may commit to pay additional contingent consideration if certain revenue or other performance milestones
are met. We are required to evaluate the fair value of such commitments at each reporting date and adjust the amount recorded if there are changes to the
fair value.
We cannot ensure that we will be successful in selecting, executing and integrating acquisitions. Particularly with the acquisition of the AirCard
business of Sierra Wireless, our management has been heavily focused on executing a successful integration given the size and significance of that
acquisition. Failure to manage and successfully integrate acquisitions, especially the AirCard business of Sierra Wireless, could materially harm our
business and operating results. In addition, if stock market analysts or our stockholders do not support or believe in the value of the acquisitions that we
choose to undertake, our stock price may decline.
The average selling prices of our products typically decrease rapidly over the sales cycle of the product, which may negatively affect our net
revenue and gross margins.
Our products 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 costs. To manage manufacturing costs, we must collaborate with our third-party manufacturers to engineer the most cost-
effective design
for our products. In addition, we must carefully manage the price paid for components used in our products. We must also successfully manage our
freight and inventory costs to reduce overall product costs. We also need to continually introduce new products with higher sales prices and gross
margins in order to maintain our overall gross margins. If we are unable to manage the cost of older products or successfully introduce new products
with higher gross margins, our net revenue and overall gross margin would likely decline.
Changes in tax rates, adverse changes in tax laws or exposure to additional income tax liabilities could affect our future profitability.
Factors that could materially affect our future effective tax rates include but are not limited to:
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growing or maintaining revenues to justify the purchase price and the increased expenses associated with acquisitions;
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entering into territories or markets with which we have limited or no prior experience;
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establishing or maintaining business relationships with customers, vendors and suppliers who may be new to us;
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overcoming the employee, customer, vendor and supplier turnover that may occur as a result of the acquisition;
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disruption of, and demands on, our ongoing business as a result of integration activities including diversion of management's time and attention
from running the day to day operations of our business;
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inability to implement uniform standards, disclosure controls and procedures, internal controls over financial reporting and other procedures
and policies in a timely manner;
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inability to realize the anticipated benefits of or successfully integrate with our existing business the businesses, products, technologies or
personnel that we acquire; and
• potential post-
closing disputes.
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changes in the regulatory environment;