Netgear 2013 Annual Report Download - page 56

Table of Contents
because reasonable estimates cannot be made of whether, or when, any cash payments for such items might occur. The possible reduction in liabilities
for uncertain tax positions in multiple jurisdictions that may impact the statement of operations in the next 12 months is approximately $2.8 million,
excluding the interest, penalties and the effect of any related deferred tax assets or liabilities.
Off-Balance Sheet Arrangements
As of December 31, 2013 , we did not have any off-balance sheet arrangements as defined in Item 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, including the expected dates of adoption and estimated
effects on financial condition and results of operations, which are hereby incorporated by reference.
Interest Rate Risk
We do not use derivative financial instruments in our investment portfolio. We have an investment portfolio of fixed income securities that are
classified as “available-for-sale”
securities. These securities, like all fixed income instruments, are subject to interest rate risk and will fall in value if
market interest rates increase. We attempt to limit this exposure by investing primarily in highly rated short-
term securities. Our investment policy
requires investments to be rated triple-
A with the objective of minimizing the potential risk of principal loss. Due to the short duration and conservative
nature of our investment portfolio, a movement of 10% by market interest rates would not have a material impact on our operating results and the total
value of the portfolio over the next fiscal year. We monitor our interest rate and credit risks, including our credit exposure to specific rating categories
and to individual issuers. There were no impairment charges on our investments during fiscal 2013 .
Foreign Currency Transaction Risk
We invoice some of our international customers in foreign currencies including, but not limited to, the Australian dollar, British pound, euro, and
Japanese yen. As the customers that are currently invoiced in local currency become a larger percentage of our business, or to the extent we begin to bill
additional customers in foreign currencies, the impact of fluctuations in foreign exchange rates could have a more significant impact on our results of
operations. For those customers in our international markets that we continue to sell to in U.S. dollars, an increase in the value of the U.S. dollar relative
to foreign currencies could make our products more expensive and therefore reduce the demand for our products. Such a decline in the demand for our
products could reduce sales and negatively impact our operating results. Certain operating expenses of our foreign operations require payment in the
local currencies.
We are exposed to risks associated with foreign exchange rate fluctuations due to our international sales and operating activities. These exposures
may change over time as business practices evolve and could negatively impact our operating results and financial condition. We began using foreign
currency forward contract derivatives in the fourth quarter of 2008 to partially offset our business exposure to foreign exchange risk on our foreign
currency denominated assets and liabilities. Additionally, in the second quarter of 2009 we began entering into certain foreign currency forward
contracts that have been designated as cash flow hedges under the authoritative guidance for derivatives and hedging to partially offset our business
exposure to foreign exchange risk on portions of our anticipated foreign currency revenue, costs of revenue, and certain operating expenses. The
objective of these foreign currency forward contracts is to reduce the impact of currency exchange rate movements on our operating results by offsetting
gains and losses on the forward contracts with increases or decreases in foreign currency transactions. The contracts are marked-to-
market on a monthly
basis with gains and losses included in other income (expense), net in the Consolidated Statements of Operations, and in cumulative other
comprehensive income on the Consolidated Balance Sheets. We do not use foreign currency contracts for speculative or trading purposes. Hedging of
our balance sheet and anticipated cash flow exposures may not always be effective to protect us against currency exchange rate fluctuations. In addition,
we do not fully hedge our balance sheet and anticipated cash flow exposures, leaving us at risk to foreign exchange gains and losses on the un-
hedged
exposures. If there were an adverse movement in exchange rates, we might suffer significant losses. See Note 5, Derivative Financial Instruments,
of
the Notes to Consolidated Financial Statements for additional disclosure on our foreign currency contracts, which are hereby incorporated by reference
into this Part II, Item 7A.
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Item 7A. Quantitative and Qualitative Disclosures About Market Risk