Netgear 2013 Annual Report Download - page 28

Table of Contents
of whom are potential competitors, have initiated and may continue to initiate litigation against our manufacturers, suppliers, members of our sales
channels or our service provider customers or even end user customers, alleging infringement of their proprietary rights with respect to existing or future
products. In the event successful claims of infringement are brought by third parties, and we are unable to obtain licenses or independently develop
alternative technology on a timely basis, we may be subject to indemnification obligations, be unable to offer competitive products, or be subject to
increased expenses. Finally, consumer class-
action lawsuits related to the marketing and performance of our home networking products have been
asserted and may in the future be asserted against us. For additional information regarding certain of the lawsuits in which we are involved, see the
information set forth under Note 9, Commitments and Contingencies,
in Notes to Consolidated Financial Statements in Item 8 of Part II of this Annual
Report on Form 10-
K. If we do not resolve these claims on a favorable basis, our business, operating results and financial condition could be
significantly harmed.
We are required to evaluate our internal controls under Section 404 of the Sarbanes-
Oxley Act of 2002 and any adverse results from such
evaluation, including restatements of our issued financial statements, could impact investor confidence in the reliability of our internal controls
over financial reporting.
Pursuant to Section 404 of the Sarbanes-
Oxley Act of 2002, we are required to furnish a report by our management on our internal control over
financial reporting. Such report must contain among other matters, an assessment of the effectiveness of our internal control over financial reporting as
of the end of our fiscal year, including a statement as to whether or not our internal control over financial reporting is effective. This assessment must
include disclosure of any material weaknesses in our internal control over financial reporting identified by management. From time to time, we conduct
internal investigations as a result of whistleblower complaints. In some instances, the whistleblower complaint may implicate potential areas of
weakness in our internal controls. Although all known material weaknesses have been remediated, we cannot be certain that the measures we have taken
ensure that restatements will not occur in the future. Execution of restatements 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.
Continued performance of the system and process documentation and evaluation needed to comply with Section 404 is both costly and
challenging. During this process, if our management identifies one or more material weaknesses in our internal control over financial reporting, we will
be unable to assert such internal control is effective. If we are unable to assert that our internal control over financial reporting is effective as of the end
of a fiscal year or if our independent registered public accounting firm is unable to express an opinion on the effectiveness of our internal control over
financial reporting, we could lose investor confidence in the accuracy and completeness of our financial reports, which may have an adverse effect on
our stock price.
System security risks, data protection breaches and cyber-
attacks could disrupt our internal operations or information technology or
networking services provided to customers, and any such disruption could reduce our expected revenue, increase our expenses, damage our
reputation and adversely affect our stock price.
Maintaining the security of our computer information systems and communication systems is a critical issue for us and our customers. Hackers
may develop and deploy viruses, worms and other 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 to gain access to our data or our customers' data. We have established a crisis management plan and
business continuity program. While we regularly test the plan and the program, there can be no assurance that the plan and program can withstand an
actual or serious disruption in our business, including a data protection breach or cyber-
attack. While we have established infrastructure and geographic
redundancy for our critical systems, our ability to utilize these redundant systems requires further testing and we cannot be assured that such systems are
fully functional. For example, much of our order fulfillment process is automated and the order information is stored on our servers. A significant
business interruption could result in losses or damages and harm our business. If our computer systems and servers go down at the end of a fiscal
quarter, our ability to recognize revenue may be delayed until we are able to utilize back-
up systems and continue to process and ship our orders. This
could cause our stock price to decline significantly. Moreover, potential breaches of our security measures and the accidental loss, inadvertent disclosure
or unapproved dissemination of proprietary information or sensitive or confidential data about us or our customers, including the potential loss or
disclosure of such information or data as a result of hacking, fraud, trickery or other forms of deception, could expose us, our customers or the
individuals affected to a risk of loss or misuse of this information, result in litigation and potential liability for us, damage our brand and reputation or
otherwise harm our business.
In connection with our acquisition of AVAAK, Inc. in July 2012, we expanded our business into offering a comprehensive online service offering
with the new VueZone cloud monitoring service. If this cloud service is compromised by hackers, or if customer confidential information is accessed
without authorization, our business will be harmed. Furthermore, operating an online cloud service is a new business for us and we may not have the
expertise to properly manage risks related to data security and
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