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Table of Contents NETGEAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company did not recognize any
net gain or loss related to the ineffective portion of cash flow hedges during the years ended December 31,
2013 , 2012 and 2011 .
Non-designated hedges
The Company enters into non-designated hedges under the authoritative guidance for derivatives and hedging to manage the exposure of non-
functional currency monetary assets and liabilities held on its financial statements to fluctuations in foreign currency exchange rates, as well as to reduce
volatility in other income and expense. The non-designated hedges are generally expected to offset the changes in value of its net non-
functional
currency asset and liability position resulting from foreign exchange rate fluctuations. Foreign currency denominated accounts receivable and payable
are hedged with non-designated hedges when the related anticipated foreign revenue and expenses are recognized in the Company’
s financial
statements. The Company also hedges certain non-
functional currency monetary assets and liabilities that may not be incorporated into the cash flow
hedge program. The Company adjusts its non-designated hedges monthly and enters into about 13 non-
designated derivatives per quarter. The average
size of its non-designated hedges is about $2 million USD equivalent and these hedges normally range from one to five months in duration.
The effects of the Company’
s derivatives not designated as hedging instruments in other income (expense), net in the consolidated statements of
operations for the years ended December 31, 2013 and 2012 , are as follows (in thousands):
Note 6. Net Income Per Share
Basic net income per share is computed by dividing the net income for the period by the weighted average number of common shares outstanding
during the period. Diluted net income per share is computed by dividing the net income for the period by the weighted average number of shares of
common stock and potentially dilutive common stock outstanding during the period. Potentially dilutive common shares include outstanding stock
options and unvested restricted stock awards, which are reflected in diluted net income per share by application of the treasury stock method. Under the
treasury stock method, the amount 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 shares.
80
Derivatives Designated as
Hedging Instruments
Year Ended December 31, 2011
Gain or (Loss)
Recognized in
OCI -
Effective
Portion (a)
Location of
Gain or (Loss)
Reclassified from OCI
into Income -
Effective
Portion
Gain or (Loss)
Reclassified
from
OCI into
Income -
Effective
Portion (a)
Location of
Gain or (Loss)
Recognized in
Income and
Excluded from
Effectiveness Testing
Amount of Gain or
(Loss) Recognized in
Income and
Excluded from
Effectiveness Testing
Cash flow hedges:
Foreign currency forward contracts
$
542
Net revenue
$
967
Other income
(expense), net
$
(310
)
Foreign currency forward contracts
—
Cost of revenue
(4
)
Other income
(expense), net
—
Foreign currency forward contracts
—
Operating
expenses
(154
)
Other income
(expense), net
—
Total
$
542
$
809
$
(310
)
(a) Refer to Note 10, Stockholders' Equity
, which summarizes the cumulative other comprehensive income activity related to derivatives.
Derivatives Not Designated as Hedging Instruments
Location of Gains or (Losses)
Recognized in Income on Derivative
Amount of Gains or (Losses)
Recognized in Income on Derivative
Year Ended
December 31,
2013
Year Ended
December 31,
2012
Foreign currency forward contracts
Other (expense) income, net
458
$
(502
)