Quantcast
Last updated on April 16, 2014 at 1:21 EDT

NETGEAR® Reports Third Quarter 2012 Results

October 25, 2012

SAN JOSE, Calif., Oct. 25, 2012 /PRNewswire/ — NETGEAR, Inc. (NASDAQGM: NTGR), a global networking company that delivers innovative products to consumers, businesses and service providers, today reported financial results for the third quarter ended September 30, 2012.

Net revenue for the third quarter ended September 30, 2012 was $315.2 million, as compared to $301.8 million for the third quarter ended October 2, 2011, and $320.7 million in the second quarter ended July 1, 2012. Net income, computed in accordance with GAAP, for the third quarter of 2012 was $23.8 million, or $0.61 per diluted share. This compared to GAAP net income of $26.7 million, or $0.70 per diluted share, for the third quarter of 2011, and GAAP net income of $21.5 million, or $0.56 per diluted share, in the second quarter of 2012.

Gross margin on a non-GAAP basis in the third quarter of 2012 was 31.6%, as compared to 32.4% in the year ago comparable quarter, and 29.9% in the second quarter of 2012. Non-GAAP operating margin was 11.5% in the third quarter of 2012, as compared to 12.5% in the third quarter of 2011, and 11.0% in the second quarter of 2012. Non-GAAP net income was $0.65 per diluted share in the third quarter of 2012, as compared to non-GAAP net income of $0.79 per diluted share in the third quarter of 2011, and non-GAAP net income of $0.64 per diluted share in the second quarter of 2012. Our tax rate in the third quarter 2012 reflects a one-time benefit which accounts for an incremental $0.05 per diluted share of earnings. This compares to a one-time tax rate benefit in the third quarter 2011, which accounted for an incremental $0.09 per diluted share of earnings.

The differences between GAAP and non-GAAP financial measures include adjustments, net of any tax effect, for amortization of purchased intangibles, stock-based compensation, restructuring and other charges, acquisition related compensation, impact to cost of sales from acquisition accounting adjustments to inventory, litigation reserves, and gain on sale of cost method investment. The accompanying schedules provide a reconciliation of financial measures computed on a GAAP basis to financial measures computed on a non-GAAP basis.

Patrick Lo, Chairman and Chief Executive Officer of NETGEAR commented, “NETGEAR’s financial results for the third quarter of 2012 are a reflection of the current difficult economic climate. The uncertainty in the European and Australian markets has affected consumer, small business, and service provider sales for the quarter.”

“Our Retail Business Unit revenue for the quarter ended September 30, 2012 was up 9% quarter-on-quarter, driven by back-to-school seasonal demand and market share gains in North America. On a year-over-year basis, Retail was down 3% as a result of the challenging European market. Commercial was down 2% on a sequential basis and down 13% year-over-year. This reflects the tightened spending of European and Australian businesses facing widespread economic uncertainty. Our Service Provider Business Unit revenues were up 34% on a year-over-year basis, and down 11% quarter-over-quarter as service providers reduced their purchases in Q3.”

Christine Gorjanc, Chief Financial Officer of NETGEAR, said, “Despite the current challenges we are facing in Europe and Australia, we are continuing our increased investment in research and development. This increased investment positions us for the long term success we believe we can achieve in all geographies, especially when the economic environment improves. We expect that the continuous flow of innovative new products from our R&D team will enable us to gain market share worldwide now and in the future. However, facing the current weakened market demand in Europe, we are shifting our sales and marketing resources to the emerging markets where we believe there is growth to achieve and market share to be gained. We will continue to spend wisely and streamline our operations to achieve more efficiency. As always, we are very focused on managing expenses, inventory levels, and cash.”

Mr. Lo added, “Looking forward, we expect to continue to face a challenging economic climate in Europe. We are also seeing a further reduction in capital expenditures budget for broadband gateways in Q4 among our service provider customers in Europe and Australia. Despite the difficult market situation, we continue to innovate and expect to release approximately 25 new products in Q4, setting us up for growth in 2013. Specifically, for the fourth quarter of 2012, we expect net revenue to be in the range of approximately $300 million to $315 million, with non-GAAP operating margin to be in the range of 11% to 12%.”

Investor Conference Call / Webcast Details
NETGEAR will review the third quarter 2012 results and discuss management’s expectations for the third quarter of 2012 today, Thursday, October 25, 2012 at 5 p.m. EDT (2 p.m. PDT). The dial-in number for the live audio call is (201) 689-8471. A live webcast of the conference call will be available on NETGEAR’s website at http://investor.netgear.com. A replay of the call will be available 2 hours following the call through midnight EDT (9 p.m. PDT) on Thursday, November 1, 2012 by telephone at (858) 384-5517 and via the web at http://investor.netgear.com. The account number to access the phone replay is 401042.

About NETGEAR, Inc.
NETGEAR (NASDAQGM: NTGR) is a global networking company that delivers innovative products to consumers, businesses and service providers. For consumers, the company makes high performance, dependable and easy to use home networking, storage and digital media products to connect people with the Internet and their content and devices. For businesses, NETGEAR provides networking, storage and security solutions without the cost and complexity of Big IT. The company also supplies top service providers with retail proven, whole home solutions for their customers. NETGEAR products are built on a variety of proven technologies such as wireless, Ethernet and powerline, with a focus on reliability and ease-of-use. NETGEAR products are sold in approximately 32,000 retail locations around the globe, and through approximately 40,000 value-added resellers. The company’s headquarters are in San Jose, Calif., with additional offices in over 25 countries. NETGEAR is an ENERGY STAR partner. More information is available at http://investor.netgear.com or by calling (408) 907-8000. Connect with NETGEAR at http://twitter.com/NETGEAR and http://www.facebook.com/NETGEAR.

© 2012 NETGEAR, Inc. NETGEAR, and the NETGEAR logo are trademarks or registered trademarks of NETGEAR, Inc. and its affiliates in the United States and/or other countries. Other brand and product names are trademarks or registered trademarks of their respective holders. The information contained herein is subject to change without notice. NETGEAR shall not be liable for technical or editorial errors or omissions contained herein. All rights reserved.

Contact:
NETGEAR Investor Relations
Christopher Genualdi
netgearIR@netgear.com
(408) 890-3520

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 for NETGEAR, Inc.:

This press release contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. The words “anticipate”, “expect”, “believe”, “will”, “may”, “should”, “estimate”, “project”, “outlook”, “forecast” or other similar words are used to identify such forward-looking statements. However, the absence of these words does not mean that the statements are not forward-looking. The forward-looking statements represent NETGEAR, Inc.’s expectations or beliefs concerning future events based on information available at the time such statements were made and include statements, among others, regarding NETGEAR’s expected revenue and operating margin, investment in research and development, expectations of the economic environment especially in Europe and Australia, expectations on growth and market share gains, expectations on emerging markets, our intent to continue to spend wisely and streamline operations, reductions in capital expenditures budget for broadband gateways in Q4 for service provider customers in Europe and Australia, and the number of new products to be introduced in the fourth quarter. These statements are based on management’s current expectations and are subject to certain risks and uncertainties, including, without limitation, the following: future demand for the Company’s products may be lower than anticipated; consumers may choose not to adopt the Company’s new product offerings or adopt competing products; product performance may be adversely affected by real world operating conditions; the Company may be unsuccessful or experience delays in manufacturing and distributing its new and existing products; telecommunications service providers may choose to slow their deployment of the Company’s products or utilize competing products; the Company may be unable to collect receivables as they become due; the Company may fail to manage costs, including the cost of developing new products and manufacturing and distribution of its existing offerings; the Company may fail to successfully continue to effect operating expense savings; channel inventory information reported is estimated based on the average number of weeks of inventory on hand on the last Saturday of the quarter, as reported by certain of NETGEAR’s customers; changes in the level of NETGEAR’s cash resources and the Company’s planned usage of such resources; changes in the Company’s stock price and developments in the business that could increase the Company’s cash needs, fluctuations in foreign exchange rates, and the actions and financial health of the Company’s customers. Further, certain forward-looking statements are based on assumptions as to future events that may not prove to be accurate. Therefore, actual outcomes and results may differ materially from what is expressed or forecast in such forward-looking statements. Further information on potential risk factors that could affect NETGEAR and its business are detailed in the Company’s periodic filings with the Securities and Exchange Commission, including, but not limited to, those risks and uncertainties listed in the section entitled “Part II – Item 1A. Risk Factors,” pages 45 through 63, in the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended July 1, 2012, filed with the Securities and Exchange Commission on August 8, 2012. NETGEAR undertakes no obligation to release publicly any revisions to any forward-looking statements contained herein to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

Use of Non-GAAP Financial Information:

To supplement our consolidated financial statements presented on a GAAP basis, NETGEAR uses non-GAAP financial measures, which are adjusted to exclude certain expenses and tax benefits, where applicable. We believe non-GAAP financial measures are appropriate to enhance an overall understanding of our past financial performance and also our prospects for the future. These adjustments to our current period GAAP results are made with the intent of providing both management and investors a more complete understanding of NETGEAR’s underlying operational results and trends and our marketplace performance. For example, the non-GAAP results are an indication of our baseline performance before charges that are considered by management to be outside of our core operating results. In addition, these adjusted non-GAAP results are among the primary indicators management uses as a basis for our planning and forecasting of future periods. The presentation of this additional information is not meant to be considered in isolation or as a substitute for financial measures prepared in accordance with generally accepted accounting principles in the United States.

                                                                                   NETGEAR, INC.
                                                                       CONDENSED CONSOLIDATED BALANCE SHEETS
                                                                                   (In thousands)
                                                                                    (Unaudited)

                                                                                                                                                                                 September 30,              December 31,
                                                                                                                                                                                          2012                      2011
                                                                                                                                                                                          ----                      ----

    ASSETS
    Current assets:
    Cash and cash equivalents                                                                                                                                                                     $134,601                            $208,898
    Short-term investments                                                                                                                                                             227,819                            144,797
    Accounts receivable, net                                                                                                                                                           248,862                            261,307
    Inventories                                                                                                                                                                        178,916                            163,724
    Deferred income taxes                                                                                                                                                               22,705                             23,088
    Prepaid expenses and other current assets                                                                                                                                           38,173                             32,415
                                                                                                                                                                                        ------                             ------
    Total current assets                                                                                                                                                               851,076                            834,229
    Property and equipment, net                                                                                                                                                         18,927                             15,884
    Intangibles, net                                                                                                                                                                    27,701                             20,956
    Goodwill                                                                                                                                                                           100,880                             85,944
    Other non-current assets                                                                                                                                                            20,053                             14,357
                                                                                                                                                                                        ------                             ------
    Total assets                                                                                                                                                                                $1,018,637                            $971,370
                                                                                                                                                                                                ==========                            ========

    LIABILITIES AND STOCKHOLDERS' EQUITY
    Current liabilities:
    Accounts payable                                                                                                                                                                               $91,070                            $117,285
    Accrued employee compensation                                                                                                                                                       21,116                             26,896
    Other accrued liabilities                                                                                                                                                          120,829                            120,480
    Deferred revenue                                                                                                                                                                    28,205                             40,093
    Income taxes payable                                                                                                                                                                 1,829                              4,207
    Total current liabilities                                                                                                                                                          263,049                            308,961
    Non-current income taxes payable                                                                                                                                                    17,525                             18,657
    Other non-current liabilities                                                                                                                                                        5,286                              4,995
                                                                                                                                                                                         -----                              -----
    Total liabilities                                                                                                                                                                  285,860                            332,613
    Stockholders' equity:
    Common stock                                                                                                                                                                            38                                 38
    Additional paid-in capital                                                                                                                                                         388,812                            364,243
    Cumulative other comprehensive (loss) income                                                                                                                                          (171)                                23
    Retained earnings                                                                                                                                                                  344,098                            274,453
    Total stockholders' equity                                                                                                                                                         732,777                            638,757
                                                                                                                                                                                       -------                            -------
    Total liabilities and stockholders' equity                                                                                                                                                  $1,018,637                            $971,370
                                                                                                                                                                                                ==========                            ========

                                                                                                                                           NETGEAR, INC.
                                                                                                                          CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                                                                                                               (In thousands, except per share data)
                                                                                                                                            (Unaudited)

                                                                      Three Months Ended                          Nine
                                                                                                                   Months
                                                                                                                   Ended
                                                                                            ------------------    ---
                                                        September 30,                              July                     October                    September                   October
                                                                                                    1,                         2,                         30,                         2,
                                                                                                                                                          2012
                                                                        2012                                2012               2011                                                   2011
                                                                        ----                                 ---                ---                                                    ---

    Net revenue                                                               $315,210                                               $320,655                                               $301,800                                              $961,485                                              $871,863
    Cost of
     revenue                                                         217,522                                                226,017                                                205,490                                               669,310                                               597,390
    Gross
     profit                                                           97,688                                                 94,638                                                 96,310                                               292,175                                               274,473
                                                                      ------                                                   ---                                                   ---                                                  ---                                                  ---
    Operating expenses:
    Research and development                                          17,399                                                14,757                                                12,738                                               46,277                                               35,102
    Sales
     and
     marketing                                                        37,600                                                 37,677                                                 39,600                                               114,247                                               115,284
    General
     and
     administrative                                                   11,888                                                 11,219                                                 10,851                                                33,520                                                31,044
     Restructuring
     and
     other
     charges                                                               -                                                      -                                                      -                                                     -                                                 2,094
     Litigation
     reserves,
     net                                                                 269                                                      -                                                     44                                                   420                                                  (234)

    Total
     operating
     expenses                                                         67,156                                                 63,653                                                 63,233                                               194,464                                               183,290
                                                                      ------                                                   ---                                                   ---                                                  ---                                                  ---
    Income
     from
     operations                                                       30,532                                                 30,985                                                 33,077                                                97,711                                                91,183
     Interest
     income                                                              109                                                    116                                                    115                                                   344                                                   350
    Other
     income
     (expense),
     net                                                               3,070                                                    354                                                   (267)                                                2,823                                                  (938)
                                                                       -----                                                   ---                                                   ---                                                  ---                                                  ---
    Income
     before
     income
     taxes                                                            33,711                                                 31,455                                                 32,925                                               100,878                                                90,595
     Provision
     for
     income
     taxes                                                             9,920                                                  9,933                                                  6,178                                                30,418                                                22,062
                                                                       -----                                                   ---                                                   ---                                                  ---                                                  ---
    Net
     income                                                                    $23,791                                                $21,522                                                $26,747                                               $70,460                                               $68,533
                                                                                  ====                                                   ====                                                   ====                                                  ====                                                  ====

    Net income per share:
    Basic                                                                        $0.62                                                  $0.57                                                  $0.71                                                 $1.86                                                 $1.85
                                                                                 =====                                                  =====                                                  =====                                                 =====                                                 =====
    Diluted                                                                      $0.61                                                  $0.56                                                  $0.70                                                 $1.82                                                 $1.81
                                                                                 =====                                                  =====                                                  =====                                                 =====                                                 =====

    Weighted average shares outstanding used to compute net income per
     share:
    Basic                                                             38,162                                                37,978                                                37,483                                               37,978                                               36,967
                                                                      ======                                                   ===                                                   ===                                                  ===                                                  ===
    Diluted                                                           38,802                                                38,595                                                38,080                                               38,682                                               37,812
                                                                      ======                                                   ===                                                   ===                                                  ===                                                  ===

    Stock-based compensation expense was allocated as follows:
    Cost of revenue                                                               $473                                                   $278                                                   $259                                                $1,021                                                  $737
     Research
     and
     development                                                         778                                                    677                                                    606                                                           2,066                                       1,873
    Sales
     and
     marketing                                                         1,238                                                  1,191                                                  1,264                                                           3,623                                       3,949
    General
     and
     administrative                                                    1,530                                                  1,249                                                  1,325                                                           4,096                                       3,775

                                                                                                                                           NETGEAR, INC.
                                                                                                                     NON-GAAP CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
    Excluding amortization of purchased intangibles, stock-based compensation, restructuring and other charges, acquisition related compensation, impact to cost of sales from acquisition accounting adjustments to inventory, litigation reserves, net of tax, and gain on sale of cost method investment.
                                                                                                                               (In thousands, except per share data)
                                                                                                                                            (Unaudited)

                                                                      Three Months Ended                          Nine
                                                                                                                   Months
                                                                                                                   Ended
                                                                                            ------------------    ---
                                                        September 30,                              July                     October                    September                   October
                                                                                                    1,                         2,                         30,                         2,
                                                                        2012                                2012               2011                                2012               2011
                                                                        ----                                 ---                ---                                 ---                ---

    Net revenue                                                               $315,210                                               $320,655                                               $301,800                                              $961,485                                              $871,863
    Cost of
     revenue                                                         215,695                                                224,723                                                204,167                                               664,972                                               592,434
    Gross
     profit                                                           99,515                                                 95,932                                                 97,633                                               296,513                                               279,429
                                                                      ------                                                   ---                                                   ---                                                  ---                                                  ---

    Operating expenses:
    Research and development                                          16,621                                                14,080                                                12,132                                               44,211                                               33,189
    Sales
     and
     marketing                                                        36,362                                                 36,486                                                 38,336                                               110,624                                               111,335
    General
     and
     administrative                                                   10,358                                                  9,970                                                  9,526                                                29,424                                                27,269

    Total
     operating
     expenses                                                         63,341                                                 60,536                                                 59,994                                               184,259                                               171,793
                                                                      ------                                                   ---                                                   ---                                                  ---                                                  ---
    Income
     from
     operations                                                       36,174                                                 35,396                                                 37,639                                               112,254                                               107,636
     Interest
     income                                                              109                                                    116                                                    115                                                   344                                                   350
    Other
     income
     (expense),
     net                                                                 (56)                                                   354                                                   (267)                                                 (303)                                                 (938)
                                                                         ---                                                   ---                                                   ---                                                  ---                                                  ---
    Income
     before
     income
     taxes                                                            36,227                                                 35,866                                                 37,487                                               112,295                                               107,048
     Provision
     for
     income
     taxes                                                            10,959                                                 11,262                                                  7,561                                                34,315                                                28,300
                                                                      ------                                                   ---                                                   ---                                                  ---                                                  ---
    Net
     income                                                                    $25,268                                                $24,604                                                $29,926                                               $77,980                                               $78,748
                                                                                  ====                                                   ====                                                   ====                                                  ====                                                  ====

    Net income per share:
    Basic                                                                        $0.66                                                  $0.65                                                  $0.80                                                 $2.05                                                 $2.13
                                                                                 =====                                                  =====                                                  =====                                                 =====                                                 =====
    Diluted                                                                      $0.65                                                  $0.64                                                  $0.79                                                 $2.02                                                 $2.08
                                                                                 =====                                                  =====                                                  =====                                                 =====                                                 =====

    Weighted average shares outstanding used to compute net income per
     share:
    Basic                                                             38,162                                                37,978                                                37,483                                               37,978                                               36,967
                                                                      ======                                                   ===                                                   ===                                                  ===                                                  ===
    Diluted                                                           38,802                                                38,595                                                38,080                                               38,682                                               37,812
                                                                      ======                                                   ===                                                   ===                                                  ===                                                  ===

                                                                                                                                                     NETGEAR, INC.
                                                                                                                                 RECONCILIATIONS OF GAAP MEASURES TO NON-GAAP MEASURES
                                                                                                                                         (In thousands, except per share data)
                                                                                                                                                      (Unaudited)

    STATEMENT OF OPERATIONS DATA:

                                                                                                                   Three Months Ended                           Nine
                                                                                                                                                                  Months
                                                                                                                                                                   Ended
                                                                                                                                   ------------------           ---
                                                               September 30,                               July                         October                  September                      October
                                                                                                            1,                             2,                       30,                            2,
                                                                                   2012                            2012                    2011                            2012                    2011
                                                                                   ----                             ---                     ---                             ---                     ---

    GAAP gross profit                                                                    $97,688                                                 $94,638                                                 $96,310                                                $292,175                                                    $274,473
    Amortization
     of
     intangible
     assets                                                                       1,354                                                   1,016                                                   1,064                                                  3,317                                                       3,610
    Stock-based
     compensation
     expense                                                                        473                                                     278                                                     259                                                  1,021                                                         737
    Impact to
     cost of
     sales from
     acquisition
     accounting
     adjustments
     to
     inventory                                                                        -                                                                             -                                                                             -                                                                            -                                                                                  609
                                                                                    ---                                                    ---                                                    ---                                                   ---                                                        ---
    Non-GAAP
     gross
     profit                                                                              $99,515                                                 $95,932                                                 $97,633                                                $296,513                                                    $279,429
                                                                                            ====                                                    ====                                                    ====                                                    ====                                                        ====
    Non-GAAP
     gross
     margin                                                                        31.6%                                                   29.9%                                                   32.4%                                                  30.8%                                                       32.0%

    GAAP research and development                                                        $17,399                                                 $14,757                                                 $12,738                                                 $46,277                                                     $35,102
    Stock-based
     compensation
     expense                                                                       (778)                                                   (677)                                                   (606)                                                (2,066)                                                     (1,873)
    Acquisition
     related
     compensation                                                                     -                                                       -                                                       -                                                      -                                                         (40)
    Non-GAAP
     research
     and
     development                                                                         $16,621                                                 $14,080                                                 $12,132                                                 $44,211                                                     $33,189
                                                                                            ====                                                    ====                                                    ====                                                    ====                                                        ====

    GAAP sales and marketing                                                             $37,600                                                 $37,677                                                 $39,600                                                $114,247                                                    $115,284
    Stock-based
     compensation
     expense                                                                     (1,238)                                                 (1,191)                                                 (1,264)                                                (3,623)                                                     (3,949)
    Non-GAAP
     sales and
     marketing                                                                           $36,362                                                 $36,486                                                 $38,336                                                $110,624                                                    $111,335
                                                                                            ====                                                    ====                                                    ====                                                    ====                                                        ====

    GAAP general and administrative                                                      $11,888                                                 $11,219                                                 $10,851                                                 $33,520                                                     $31,044
    Stock-based
     compensation
     expense                                                                     (1,530)                                                 (1,249)                                                 (1,325)                                                (4,096)                                                     (3,775)
    Non-GAAP
     general and
     administrative                                                                      $10,358                                                  $9,970                                                  $9,526                                                 $29,424                                                     $27,269
                                                                                            ====                                                    ====                                                    ====                                                    ====                                                        ====

    GAAP total operating expenses                                                        $67,156                                                 $63,653                                                 $63,233                                                $194,464                                                    $183,290
    Stock-based
     compensation
     expense                                                                     (3,546)                                                 (3,117)                                                 (3,195)                                                (9,785)                                                     (9,597)
     Restructuring
     and other
     charges                                                                          -                                                       -                                                       -                                                      -                                                      (2,094)
    Acquisition
     related
     compensation                                                                     -                                                       -                                                       -                                                      -                                                         (40)
    Litigation
     reserves,
     net                                                                           (269)                                                      -                                                     (44)                                                  (420)                                                        234
    Non-GAAP
     total
     operating
     expenses                                                                            $63,341                                                 $60,536                                                 $59,994                                                $184,259                                                    $171,793
                                                                                            ====                                                    ====                                                    ====                                                    ====                                                        ====

                                                                                                                                                    NETGEAR, INC.
                                                                                                                          RECONCILIATIONS OF GAAP MEASURES TO NON-GAAP MEASURES (CONTINUED)
                                                                                                                                        (In thousands, except per share data)
                                                                                                                                                     (Unaudited)

    STATEMENT OF OPERATIONS DATA (CONTINUED):

                                                                                                             Three Months Ended                               Nine
                                                                                                                                                               Months
                                                                                                                                                                Ended
                                                                                                                                 ------------------           ---
                                                              September 30,                             July                         October                  September                      October
                                                                                                         1,                             2,                       30,                            2,
                                                                                2012                            2012                    2011                            2012                    2011
                                                                                ----                             ---                     ---                             ---                     ---

    GAAP operating income                                                             $30,532                                                 $30,985                                                 $33,077                                                 $97,711                                                     $91,183
    Amortization
     of
     intangible
     assets                                                                    1,354                                                   1,016                                                   1,064                                                  3,317                                                       3,610
    Stock-based
     compensation
     expense                                                                   4,019                                                   3,395                                                   3,454                                                 10,806                                                      10,334
     Restructuring
      and other
      charges                                                                      -                                                       -                                                       -                                                      -                                                       2,094
    Acquisition
     related
     compensation                                                                  -                                                       -                                                       -                                                      -                                                          40
    Impact to
     cost of
     sales from
     acquisition
     accounting
     adjustments
     to
     inventory                                                                     -                                                                             -                                                                             -                                                                            -                                                                                  609
    Litigation
     reserves,
     net                                                                         269                                                       -                                                      44                                                    420                                                        (234)
    Non-GAAP
     operating
     income                                                                           $36,174                                                 $35,396                                                 $37,639                                                $112,254                                                    $107,636
                                                                                         ====                                                    ====                                                    ====                                                    ====                                                        ====
    Non-GAAP
     operating
     margin                                                                     11.5%                                                   11.0%                                                   12.5%                                                  11.7%                                                       12.3%

    GAAP other income (expense),net                                                    $3,070                                                    $354                                                   $(267)                                                 $2,823                                                       $(938)
    Gain on sale
     of cost
     method
     investment                                                               (3,126)                                                      -                                                       -                                                 (3,126)                                                          -
    Non-GAAP
     other
     income
     (expense),
     net                                                                                 $(56)                                                   $354                                                   $(267)                                                  $(303)                                                      $(938)
                                                                                         ====                                                    ====                                                    ====                                                    ====                                                        ====

    GAAP net income                                                                   $23,791                                                 $21,522                                                 $26,747                                                 $70,460                                                     $68,533
    Amortization
     of
     intangible
     assets                                                                    1,354                                                   1,016                                                   1,064                                                  3,317                                                       3,610
    Stock-based
     compensation
     expense                                                                   4,019                                                   3,395                                                   3,454                                                 10,806                                                      10,334
     Restructuring
      and other
      charges                                                                      -                                                       -                                                       -                                                      -                                                       2,094
    Acquisition
     related
     compensation                                                                  -                                                       -                                                       -                                                      -                                                          40
    Impact to
     cost of
     sales from
     acquisition
     accounting
     adjustments
     to
     inventory                                                                     -                                                                             -                                                                             -                                                                            -                                                                                  609
    Litigation
     reserves,
     net                                                                         269                                                       -                                                      44                                                    420                                                        (234)
    Gain on sale
     of cost
     method
     investment                                                               (3,126)                                                      -                                                       -                                                 (3,126)                                                          -
    Tax effect                                                                (1,039)                                                (1,329)                                                (1,383)                                               (3,897)                                                    (6,238)
    Non-GAAP
     net income                                                                       $25,268                                                 $24,604                                                 $29,926                                                 $77,980                                                     $78,748
                                                                                         ====                                                    ====                                                    ====                                                    ====                                                        ====

                                                                                                                                NETGEAR, INC.
                                                                                                      RECONCILIATIONS OF GAAP MEASURES TO NON-GAAP MEASURES (CONTINUED)
                                                                                                                    (In thousands, except per share data)
                                                                                                                                 (Unaudited)

    STATEMENT OF OPERATIONS DATA (CONTINUED):

                                                                                                  Three Months Ended                        Nine
                                                                                                                                              Months
                                                                                                                                              Ended
                                                                                                                 ------------------         ---
                                                                                        September 30,                                                            July                                              October                                      September                October
                                                                                                                                                                      1,                                                     2,                                            30,                     2,
                                                                                                     2012                                                         2012                                                2011                                           2012                       2011
                                                                                                     ----                                                          ---                                                 ---                                            ---                        ---

    NET INCOME PER DILUTED SHARE:
    GAAP net income per diluted share                                       $0.61                                                $0.56                                       $0.70                                          $1.82                                                   $1.81
     Amortization
     of
     intangible
     assets                                                          0.03                                                 0.03                                        0.03                                         0.09                                                      0.10
    Stock-
     based
     compensation
     expense                                                         0.10                                                 0.09                                        0.09                                         0.28                                                      0.27
     Restructuring
      and
      other
     charges                                                            -                                                    -                                           -                                            -                                                      0.06
     Acquisition
     related
     compensation                                                       -                                                    -                                           -                                            -                                                      0.00
    Impact
     to
     cost
     of
     sales
     from
     acquisition
     accounting
     adjustments
     to
     inventory                                                          -                                                                           -                                                            -                                                              -                                                                             0.02
     Litigation
     reserves,
     net                                                             0.01                                                    -                                        0.00                                         0.01                                                     (0.01)
    Gain on
     sale
     of
     cost
     method
     investment                                                     (0.08)                                                                          -                                                            -                                                          (0.08)                                                                               -
    Tax
     effect                                                         (0.02)                                               (0.04)                                      (0.03)                                       (0.10)                                                    (0.17)
    Non-
     GAAP
     net
     income
     per
     diluted
     share                                                                  $0.65                                                $0.64                                       $0.79                                          $2.02                                                   $2.08
                                                                            =====                                                =====                                       =====                                          =====                                                   =====

                                                                                                          SUPPLEMENTAL FINANCIAL INFORMATION
                                                                        (In thousands, except per share data, DSO, inventory turns, weeks of channel inventory and headcount)
                                                                                                                     (Unaudited)

                                                                                                                                                                      Three Months Ended
                                                                                                                                                                      ------------------
                                                                                                                             September 30,                July 1,                    April 1,          December 31,      October 2,
                                                                                                                                      2012                  2012                       2012               2011          2011
                                                                                                                                      ----                  ----                       ----               ----          ----

    Cash, cash equivalents and short-term investments                                                                             $362,420                         $360,428                   $369,420              $353,695        $321,059
    Cash, cash equivalents and short-term investments per diluted share                                                              $9.34                            $9.34                      $9.58                 $9.24           $8.43

    Accounts receivable, net                                                                                                      $248,862                         $271,769                   $249,208              $261,307        $218,653
    Days sales outstanding (DSO)                                                                                                        72                               77                         70                    76              66

    Inventories                                                                                                                   $178,916                         $152,820                   $134,314              $163,724        $135,963
    Ending inventory turns                                                                                                             4.9                              5.9                        6.7                   5.2             6.0

    Weeks of channel inventory:
    U.S. retail channel                                                                                                                9.8                             12.3                        9.8                   7.3            10.0
    U.S. distribution channel                                                                                                          8.4                              8.6                        8.6                   9.0             6.6
    EMEA distribution channel                                                                                                          4.4                              4.1                        5.0                   5.4             4.3
    APAC distribution channel                                                                                                          4.7                              5.7                        5.6                   6.7             3.9

    Deferred revenue                                                                                                               $28,205                          $25,478                    $25,156               $40,093         $23,934

    Headcount                                                                                                                          854                              818                        810                   791             756
    Non-GAAP diluted shares                                                                                                         38,802                           38,595                     38,576                38,260          38,080

    NET REVENUE BY GEOGRAPHY

                                                    Three Months Ended                                           Nine Months Ended
                                                    ------------------                                           -----------------
                             September 30,              July 1,                October 2,          September 30,                            October 2,
                                      2012                 2012                      2011                   2012                                   2011
                                      ----                 ----                      ----                   ----                                   ----
    Americas                               $177,647          56%                 $163,438      51%                                $149,009                   49%     $509,440      53%     $430,482  50%
    EMEA                           104,368          33%                117,815            37%            119,735                        40%             347,264  36%          352,686  40%
    APAC                            33,195          11%                 39,402            12%             33,056                        11%             104,781  11%           88,695  10%
    Total                                  $315,210         100%                 $320,655     100%                                $301,800                  100%     $961,485     100%     $871,863 100%
                                           ========         ===                  ========     ===                                 ========                  ===      ========     ===      ======== ===

    NET REVENUE BY SEGMENT

                                                  Three Months Ended                                           Nine Months Ended
                                                  ------------------                                           -----------------
                           September 30,              July 1,                October 2,          September 30,                            October 2,
                                    2012                 2012                      2011                   2012                                   2011
                                    ----                 ----                      ----                   ----                                   ----
    Retail                               $123,457          39%                 $113,824      36%                                $127,082                   42%     $366,258      38%     $352,076  41%
    Commercial                    79,240          25%                 80,626            25%             91,059                        30%             234,498  24%          247,793  28%
    Service
     Provider                    112,513          36%                126,205            39%             83,659                        28%             360,729  38%          271,994  31%
    Total                                $315,210         100%                 $320,655     100%                                $301,800                  100%     $961,485     100%     $871,863 100%
                                         --------         ---                  --------     ---                                 --------                  ---      --------     ---      -------- ---

SOURCE NETGEAR, Inc.


Source: PR Newswire