CORRESP 1 filename1.htm NTGR-2014.10.06 CORRESP

October 7, 2014



VIA EDGAR and Overnight Delivery

United States Securities and Exchange Commission
Division of Corporation Finance
100 F Street, NE
Washington, D.C. 20549
Attn:    Larry Spirgel, Assistant Director
Kathryn T. Jacobson, Senior Staff Accountant
Dean Suehiro, Senior Staff Accountant
Emily Drazan, Staff Attorney

Re:
NETGEAR, Inc.
Form 10-K for the Year Ended December 31, 2013
Filed February 25, 2014
Form 10-Q for the Quarterly Period Ended March 30, 2014
Filed May 6, 2014
Response dated September 8, 2014
File No. 000-50350

Ladies and Gentlemen:

On behalf of NETGEAR, Inc. (the “Company”), I am submitting this letter to you in response to your letter of September 23, 2014, which letter set forth additional comments of the Staff (the “Staff”) of the Securities and Exchange Commission (the “Commission”) regarding the Form 10-K filed by the Company with the Commission on February 25, 2014 and the Form 10-Q filed by the Company with the Commission on May 6, 2014, with the file number set forth above, as well as the Company’s prior response letters to the Staff dated August 27, 2014 and September 8, 2014. This letter sets forth the Company’s responses to the Staff’s comments.

For your convenience, we have restated your comments in italics.

Note 8. Income Taxes, page 83

1.    We note your response to comment 1. Please expand your disclosure to explain how your transfer pricing strategy is substantiated with objective positive evidence to support the realization of your deferred tax assets. Refer to the material terms of your Advance Pricing Agreements, as appropriate. In your tabular reconciliation of gross unrecognized tax benefits (UTB), please disclose transfer pricing uncertainties exclusive of corresponding benefits in other jurisdictions.


netgear.com    O 408.907.8000    F 408.907.8097    350 E. Plumeria Drive San Jose, CA 95134-1911



RESPONSE: We acknowledge the Staff’s request for expanded disclosure related to the recognition of deferred tax assets and respectfully advise the Staff that, in applicable future filings, we will expand and modify our disclosure of income taxes in the critical accounting policies sections of MD&A and the Notes to Consolidated Financial Statements to state substantially the following (new text underlined below):
“In addition, deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences resulting from different treatment for tax versus accounting for certain items, such as accruals and allowances not currently deductible for tax purposes. These differences result in deferred tax assets and liabilities, which are included within the consolidated balance sheet. The Company must then assess the likelihood that the Company’s deferred tax assets will be recovered from future taxable income and to the extent the Company believes that recovery is not more likely than not, the Company must establish a valuation allowance. The Company’s assessment considers the recognition of deferred tax assets on a jurisdictional basis. Accordingly, in assessing its future taxable income on a jurisdictional basis, the Company considers the effect of its transfer pricing policies on that income.”
We note that the Company does not have any Advanced Pricing Agreements with any jurisdiction at this time.
With regard to the tabular reconciliation of gross unrecognized tax benefits, we confirm that we have disclosed and will continue to disclose all unrecognized tax benefits on a gross basis in the table. We respectfully believe that no further clarification is required to ensure that the reader understands that amounts reported in the tabular reconciliation are reported on a gross and not a net basis.

Form 10-Q for the Quarter Ended March 30, 2014
5. Product Warranties, page 13

2.    We note your response to comment 2. You attribute much of the revenue increase in the Americas during the first quarter ended March 30, 2014 to the revenue increase in the Service Provider Business unit. However, in your earnings call for that period, Mr. C. S. Lo, the Company’s CEO, had stated that “Our Service Provider Business Unit ended a solid first quarter, driven largely by revenue growth from the EMEA region.” In order that we may better understand your disclosure and your response, please supplementally provide us a comparative breakdown of your segment revenues by geographic region for the first and second quarters of 2013 and 2014.

RESPONSE: We supplementally advise the Staff that the Company experienced a decline in shipments to its retail customers located in the Americas and a resulting decline in its Retail Business Unit net revenue in the Americas of 9.2% in the three months ended March 30, 2014 compared to the three months ended March 31, 2013. This decline was offset by year-over-year net revenue increases in the Company’s Service Provider and Commercial Business Units of 105.9% and 6.0%, respectively. These changes in net revenues are year-over-year comparisons of the three months ended March 30, 2014 compared to the three months ended March 31, 2013.
During the Company’s earnings call for the first quarter of 2014, Mr. Patrick C. S. Lo’s comments on the Service Provider Business unit growth in EMEA were with regard to the sequential trend between the three months ended March 30, 2014 and the three months ended December 31, 2013.





For the three months ended March 30, 2014, revenue from our Service Provider Business unit in EMEA increased 44.3% sequentially from the three months ended December 31, 2013.

We have attached to this letter a comparative breakdown of our quarterly segment net revenue by geographic region for the fiscal year ended December 31, 2013 and first and second quarters of 2014 as Appendix A for the Staff’s review and understanding.


We hope that the above responses clarify these matters. Should you have any questions regarding these responses, please contact the undersigned at 408-890-3055 or akim@netgear.com, or Christine Gorjanc, the Company’s Chief Financial Officer, at 408-890-3062 or cgorjanc@netgear.com.

Sincerely,

NETGEAR, Inc.

/s/ Andrew W. Kim

Andrew W. Kim
Senior Vice President, Corporate Development and General Counsel





Appendix A
NETGEAR, Inc.
Quarterly Segment Net Revenue by Geographic Region
In thousands
(unaudited)
 
 
Fiscal 2013
 
Fiscal 2014
 
 
 
 
 
 
Three Months Ended
 
Three Months Ended
 
% Variance
 
 
3/31/2013
 
6/30/2013
 
9/29/2013
 
12/31/2013
 
3/30/2014
 
6/29/2014
 
3/30/2014 vs 3/31/2013
 
3/30/2014 vs 12/31/2013
Retail Business Unit
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Americas
 
$
82,953

 
$
74,570

 
$
88,862

 
$
88,867

 
$
75,349

 
$
73,858

 
-9.2
 %
 
-15.2
 %
EMEA
 
30,844

 
25,425

 
30,039

 
34,295

 
27,171

 
22,144

 
-11.9
 %
 
-20.8
 %
APAC
 
12,525

 
17,400

 
11,400

 
12,744

 
15,712

 
14,661

 
25.4
 %
 
23.3
 %
Total Retail Business Unit
 
126,322

 
117,395

 
130,301

 
135,906

 
118,232

 
110,663

 
-6.4
 %
 
-13.0
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial Business Unit
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Americas
 
32,414

 
39,592

 
33,856

 
30,455

 
34,356

 
32,207

 
6.0
 %
 
12.8
 %
EMEA
 
29,077

 
35,347

 
29,956

 
32,598

 
31,871

 
32,285

 
9.6
 %
 
-2.2
 %
APAC
 
9,360

 
13,507

 
13,145

 
11,954

 
12,636

 
10,955

 
35.0
 %
 
5.7
 %
Total Commercial Business Unit
 
70,851

 
88,446

 
76,957

 
75,007

 
78,863

 
75,447

 
11.3
 %
 
5.1
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Service Provider Business Unit
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Americas
 
41,309

 
86,686

 
97,769

 
91,985

 
85,074

 
81,469

 
105.9
 %
 
-7.5
 %
EMEA
 
47,204

 
47,595

 
37,225

 
33,083

 
47,751

 
46,007

 
1.2
 %
 
44.3
 %
APAC
 
7,713

 
17,597

 
19,643

 
20,639

 
19,471

 
24,018

 
152.4
 %
 
-5.7
 %
Total Service Provider Business Unit
 
96,226

 
151,878

 
154,637

 
145,707

 
152,296

 
151,494

 
58.3
 %
 
4.5
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated Net Revenue
 
$
293,399

 
$
357,719

 
$
361,895

 
$
356,620

 
$
349,391

 
$
337,604

 
19.1
 %
 
-2.0
 %