10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended July 2, 2017.

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the transition period from                    to         

Commission file number: 000-50350

NETGEAR, Inc.

(Exact name of registrant as specified in its charter)

Delaware	77-0419172
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)
350 East Plumeria Drive, San Jose, California	95134
(Address of principal executive offices)	(Zip Code)

(408) 907-8000

(Registrant’s telephone number including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company”, and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large Accelerated filer	x	Accelerated filer	¨
Non-Accelerated filer	¨	Smaller reporting company	¨
		Emerging growth company	¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.			¨

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).    Yes  o    No  x

The number of outstanding shares of the registrant’s Common Stock, $0.001 par value, was 31,604,537 as of July 28, 2017.

1

TABLE OF CONTENTS

PART I: FINANCIAL INFORMATION
Item 1.	Financial Statements	3
	Unaudited Condensed Consolidated Balance Sheets	3
	Unaudited Condensed Consolidated Statements of Operations	4
	Unaudited Condensed Consolidated Statements of Comprehensive Income	5
	Unaudited Condensed Consolidated Statements of Cash Flows	6
	Notes to Unaudited Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	39
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	49
Item 4.	Controls and Procedures	50
PART II: OTHER INFORMATION
Item 1.	Legal Proceedings	51
Item 1A.	Risk Factors	51
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	73
Item 3.	Defaults Upon Senior Securities	73
Item 4.	Mine Safety Disclosures	73
Item 5.	Other Information	73
Item 6.	Exhibits	73
Signatures		74

2

PART I: FINANCIAL INFORMATION

Item 1. Financial Statements

NETGEAR, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

	As of
	July 2, 2017			December 31, 2016
ASSETS
Current assets:
Cash and cash equivalents	$	190,676		$	240,468
Short-term investments	114,847			125,514
Accounts receivable, net	304,588			313,839
Inventories	263,773			247,862
Prepaid expenses and other current assets	27,705			35,102
Total current assets	901,589			962,785
Property and equipment, net	18,829			19,473
Intangibles, net	30,215			37,899
Goodwill	85,463			85,463
Other non-current assets	79,493			78,836
Total assets	$	1,115,589		$	1,184,456
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	72,886		$	112,436
Accrued employee compensation	24,017			33,096
Other accrued liabilities	173,714			170,674
Deferred revenue	36,533			35,301
Income taxes payable	—			5,146
Total current liabilities	307,150			356,653
Non-current income taxes payable	15,721			15,119
Other non-current liabilities	16,796			15,865
Total liabilities	339,667			387,637
Commitments and contingencies (Note 8)
Stockholders’ equity:
Common stock	32			33
Additional paid-in capital	584,097			566,307
Accumulated other comprehensive income (loss)	(4,810		)	1,938
Retained earnings	196,603			228,541
Total stockholders’ equity	775,922			796,819
Total liabilities and stockholders’ equity	$	1,115,589		$	1,184,456

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

3

NETGEAR, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

	Three Months Ended					Six Months Ended
	July 2, 2017		July 3, 2016			July 2, 2017		July 3, 2016
Net revenue	$	330,723	$	311,655		$	654,380	$	621,911
Cost of revenue	238,787		213,867			465,512		423,558
Gross profit	91,936		97,788			188,868		198,353
Operating expenses:
Research and development	23,357		21,804			46,040		43,941
Sales and marketing	36,461		36,089			74,690		73,366
General and administrative	12,950		13,035			26,144		25,884
Restructuring and other charges	22		1,311			59		3,989
Litigation reserves, net	53		35			53		45
Total operating expenses	72,843		72,274			146,986		147,225
Income from operations	19,093		25,514			41,882		51,128
Interest income	482		279			887		513
Other income (expense), net	383		(332		)	718		(698		)
Income before income taxes	19,958		25,461			43,487		50,943
Provision for income taxes	5,376		9,427			12,911		18,320
Net income	$	14,582	$	16,034		$	30,576	$	32,623
Net income per share:
Basic	$	0.45	$	0.49		$	0.94	$	1.00
Diluted	$	0.44	$	0.48		$	0.91	$	0.98
Weighted average shares used to compute net income per share:
Basic	32,352		32,639			32,650		32,578
Diluted	33,116		33,493			33,656		33,390

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

4

NETGEAR, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

	Three Months Ended						Six Months Ended
	July 2, 2017			July 3, 2016			July 2, 2017			July 3, 2016
Net income	$	14,582		$	16,034		$	30,576		$	32,623
Other comprehensive income (loss), before tax:
Unrealized gains (losses) on derivative instruments	(6,003		)	511			(7,700		)	(36		)
Unrealized gains (losses) on available-for-sale securities	(27		)	46			(82		)	147
Other comprehensive income (loss), before tax	(6,030		)	557			(7,782		)	111
Tax benefit related to derivative instruments	809			—			1,005			—
Tax benefit (provision) related to available-for-sale securities	9			(17		)	29			(55		)
Other comprehensive income (loss), net of tax	(5,212		)	540			(6,748		)	56
Comprehensive income	$	9,370		$	16,574		$	23,828		$	32,679

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

5

NETGEAR, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	Six Months Ended
	July 2, 2017			July 3, 2016
Cash flows from operating activities:
Net income	$	30,576		$	32,623
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	14,224			16,887
Purchase premium amortization/discount accretion on investments, net	100			56
Non-cash stock-based compensation	10,829			9,430
Income tax impact associated with stock option exercises	—			768
Deferred income taxes	1,788			3,857
Changes in assets and liabilities:
Accounts receivable	9,252			60,092
Inventories	(15,911		)	5,277
Prepaid expenses and other assets	5,519			3,066
Accounts payable	(39,283		)	(9,866		)
Accrued employee compensation	(9,079		)	3,349
Other accrued liabilities	(1,322		)	(34,091		)
Deferred revenue	1,232			136
Income taxes payable	(4,544		)	(1,482		)
Net cash provided by operating activities	3,381			90,102
Cash flows from investing activities:
Purchases of short-term investments	(56,876		)	(80,254		)
Proceeds from maturities of short-term investments	67,648			50,147
Purchase of property and equipment	(6,162		)	(5,060		)
Cost method investment	(1,400		)	—
Payments made in connection with business acquisition, net of cash acquired	(737		)	—
Net cash provided by (used in) investing activities	2,473			(35,167		)
Cash flows from financing activities:
Repurchases of common stock	(56,631		)	(23,252		)
Restricted stock unit withholdings	(5,649		)	(3,915		)
Proceeds from exercise of stock options	3,972			14,653
Proceeds from issuance of common stock under employee stock purchase plan	2,662			1,645
Net cash used in financing activities	(55,646		)	(10,869		)
Net increase (decrease) in cash and cash equivalents	(49,792		)	44,066
Cash and cash equivalents, at beginning of period	240,468			181,945
Cash and cash equivalents, at end of period	$	190,676		$	226,011

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

6

NETGEAR, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. The Company and Basis of Presentation

NETGEAR, Inc. (“NETGEAR” or the “Company”) was incorporated in Delaware in January 1996. The Company is a global company that delivers innovative networking and Internet connected products to consumers and growing businesses. The Company's products are built on a variety of proven technologies such as wireless (WiFi and LTE), Ethernet and powerline, with a focus on reliability and ease-of-use. The product line consists of devices that create and extend wired and wireless networks as well as devices that provide a special function and attach to the network, such as IP security cameras and home automation devices and services. These products are available in multiple configurations to address the changing needs of the customers in each geographic region in which the Company's products are sold.

The accompanying unaudited condensed consolidated financial statements include the accounts of NETGEAR, Inc. and its wholly owned subsidiaries. They have been prepared in accordance with established guidelines for interim financial reporting and with the instructions of Form 10-Q and Article 10 of Regulation S-X. All significant intercompany balances and transactions have been eliminated in consolidation. The balance sheet dated December 31, 2016 has been derived from audited financial statements at such date. Accordingly, these unaudited condensed consolidated financial statements do not include all of the information and footnotes typically found in the audited consolidated financial statements and footnotes thereto included in the Annual Report on Form 10-K. In the opinion of management, the unaudited condensed consolidated financial statements reflect all adjustments considered necessary (consisting only of normal recurring adjustments) to fairly state the Company’s financial position, results of operations, comprehensive income and cash flows for the periods indicated. These unaudited condensed consolidated financial statements should be read in conjunction with the notes to the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016.

The Company’s fiscal year begins on January 1 of the year stated and ends on December 31 of the same year. The Company reports its interim results on a fiscal quarter basis rather than on a calendar quarter basis. Under the fiscal quarter basis, each of the first three fiscal quarters ends on the Sunday closest to the calendar quarter end, with the fourth quarter ending on December 31.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect (i) the reported amounts of assets and liabilities, (ii) the disclosure of contingent assets and liabilities at the date of the financial statements, and (iii) the reported amounts of net revenue and expenses during the reported period. Actual results could differ materially from those estimates and operating results for the six months ended July 2, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017 or any future period.

Reclassification

In the first quarter of fiscal 2017, the Company reorganized its operating segment structure resulting in a change to its reportable segments. This change primarily impacted Goodwill in Note 4, Balance Sheet Components and Note 11, Segment Information. The prior-year segment financial information has been reclassified to conform to the current-year presentation. None of the changes impact previously reported consolidated net revenue, income from operations, net income per share, total assets, or stockholders’ equity. Refer to Note 11, Segment Information, for a further discussion of the segment reorganization. Additionally, in the first quarter of fiscal 2017, upon adoption of ASU 2016-09, the Company elected to apply the presentation requirements for cash flows related to excess tax benefits retrospectively to all periods presented. Refer to recently adopted accounting pronouncement under Note 2, Summary of Significant Accounting Policies, for a further discussion of the impact from the adoption of ASU 2016-09.

Note 2. Summary of Significant Accounting Policies

The Company’s significant accounting policies are disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. The Company’s significant accounting policies have not materially changed during the six months ended July 2, 2017.

7

NETGEAR, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Recent accounting pronouncements

Accounting Pronouncement Recently Adopted

In March 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-09, "Improvements to Employee Share-Based Payment Accounting" (Topic 718), which simplifies the accounting for share-based payment transactions. The new guidance requires excess tax benefits and tax deficiencies to be recorded in the income statement when stock awards vest or are settled. In addition, cash flows related to excess tax benefits will no longer be separately classified as an inflow from financing activities with a corresponding outflow from operating activities but will be classified along with other income tax cash flows as an operating activity. The standard also allows the entity to repurchase more of an employee’s vesting shares for tax withholding purposes without triggering liability accounting, clarifies that all cash payments made to tax authorities on an employee’s behalf for withheld shares should be presented as a financing activity on the cash flows statement, and provides an accounting policy election to account for forfeitures as they occur. The new guidance became effective for the Company in the first quarter of fiscal 2017.

Upon adoption on January 1, 2017, the Company prospectively recorded all excess tax benefits and tax deficiencies arising from stock awards vesting or settlement as income tax expense or benefit rather than in equity. For the three and six months ended July 2, 2017, the impact of the adoption was the recognition of $1.0 million and $1.8 million, respectively, excess tax benefits as a component of the provision for income taxes. The Company elected to account for forfeitures as they occur, rather than estimating expected forfeitures, which resulted in net cumulative-effect adjustment of $0.2 million decrease to retained earnings as of January 1, 2017. The Company elected to apply the presentation requirements for cash flows related to excess tax benefits retrospectively to all periods presented, which resulted in an increase to both net cash provided by operating activities and net cash used in financing activities of $1.4 million for the six months ended July 3, 2016, respectively, on the unaudited condensed consolidated statements of cash flows. The presentation requirement for cash flows related to employee taxes paid for withheld shares had no impact to any of the periods presented on the consolidated statements of cash flows since the Company has historically been presented such cash flows as a financing activity.

Accounting Pronouncements Not Yet Effective

In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers" (Topic 606), which was further updated in March, April, May and December 2016. The guidance in this update supersedes the revenue recognition requirements in Topic 605, "Revenue Recognition". Under the new guidance, an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance also specifies the accounting for some costs to obtain or fulfill a contract with a customer. An entity should apply the amendments in the update either retrospectively to each prior reporting period presented (full retrospective method) or retrospectively with the cumulative effect of initially applying this update recognized at the date of initial application (modified retrospective method). On July 9, 2015, the FASB concluded to delay the effective date of the new revenue standard by one year. ASU 2014-09 is effective for the Company beginning in the first quarter of fiscal 2018 and early adoption is permitted.

The Company anticipates adopting the new standard effective January 1, 2018. Although the Company is still in the process of evaluating the impact of the new standard on its financial statements, at this stage of the process, it does not believe the adoption of ASU 2014-09 will have a significant impact on the amount or timing of its revenues. The Company has identified major revenue streams, performed an analysis of a sample of contracts to evaluate the impact of the standard, and begun the drafting of its accounting policies and evaluating the new disclosure requirements. To date, the Company believes it will be impacted by the requirement of the new standard to estimate for yet to be committed sales incentives at the time revenue is recognized. Under Topic 605, these incentives are recognized as a reduction of revenue at the later of when the related revenue is recognized or when the program is offered to the channel partner. Applying Topic 606, where customary business practice of providing such incentives is determined, there is a timing difference and will require the Company upon adoption to record an estimate of yet to be committed future sales incentives with respect to revenue already recognized. The actual impact upon adoption will be based on open contracts existing at December 31, 2017 and is subject to the finalization of its transition method. In addition, the Company has determined that the presentation of certain reserve balances currently shown net within accounts receivable will be presented as refund liabilities within current liabilities upon adoption. The Company expects to complete the assessment process, including selecting a transition method for adoption, by the end of the third quarter of fiscal 2017, and to complete the implementation process, including adding procedures and evaluating necessary disclosures, prior to the first quarter of fiscal 2018.

8

NETGEAR, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

In January 2016, the FASB issued ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities" (Subtopic 825-10), which addresses certain aspects of recognition, measurement, presentation and disclosure of financial instruments. This guidance also clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets.ASU 2016-01 is effective for the Company in the first quarter of fiscal 2018 and early adoption is permitted. The Company does not plan to early adopt the guidance and is currently evaluating the impact the update will have on its financial position, results of operations and cash flows and related disclosures.

In February 2016, FASB issued ASU 2016-02, "Leases" (Topic 842), which requires lessees to recognize on the balance sheets a right-of-use asset, representing its right to use the underlying asset for the lease term, and a corresponding lease liability for all leases with terms greater than twelve months. The liability will be equal to the present value of lease payments while the right-of-use asset will be based on the liability, subject to adjustment, such as for initial direct costs. In addition, ASU 2016-02 expands the disclosure requirements for lessees. Upon adoption, the Company will be required to record a lease asset and lease liability related to its operating leases. ASU 2016-02 will be applied using a modified retrospective transition method and is effective for the Company in the first quarter fiscal 2019, with early adoption permitted. The Company does not plan to early adopt the guidance and is currently evaluating the impact the update will have on its financial position, results of operations and cash flows and related disclosures.

In June 2016, the FASB issued ASU 2016-13, "Measurement of Credit Losses on Financial Instruments" (Topic 326), which replaces the incurred-loss impairment methodology and requires immediate recognition of estimated credit losses expected to occur for most financial assets, including trade receivables. Credit losses on available-for-sale debt securities with unrealized losses will be recognized as allowances for credit losses limited to the amount by which fair value is below amortized cost. ASU 2016-13 is effective for the Company beginning in the first quarter of 2020 and early adoption is permitted. The Company continues to assess the potential impact of the new guidance, but does not expect it to have material impacts on its financial position, results of operations or cash flows.

In October 2016, the FASB issued ASU 2016-16, "Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory" (Topic 740), which requires the recognition of the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. This removes the exception to postpone recognition until the asset has been sold to an outside party. ASU 2016-16 is effective for the Company in the first quarter of fiscal 2018 and early adoption is permitted. The Company is currently evaluating what impact, if any, the adoption of this guidance will have on its financial position, results of operations and cash flows.

In January 2017, the FASB issued ASU 2017-01, "Business Combinations: Clarifying the Definition of a Business" (Topic 805), which changes the definition of a business to assist entities with evaluating when a set of transferred assets and activities is a business. The guidance requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets; if so, the set of transferred assets and activities is not a business. ASU 2017-01 is effective for the Company in the first quarter of fiscal 2018 and early adoption is permitted. The guidance should be applied prospectively to any transactions occurring on or after the adoption date. The Company does not expect it to have material impacts on its financial position, results of operations or cash flows.

In January 2017, the FASB issued ASU 2017-04, "Intangibles-Goodwill and Other: Simplifying the Test for Goodwill Impairment" (Topic 350), which simplifies the subsequent measurement of goodwill by removing Step 2 of goodwill impairment test that requires the determination of the fair value of individual assets and liabilities of a reporting unit. The new guidance requires goodwill impairment to be measured as the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 will be applied prospectively and is effective for the Company in the first quarter of fiscal 2020, with early adoption permitted. The Company does not expect it to have material impacts on its financial position, results of operations or cash flows.

In May 2017, the FASB issued ASU 2017-09, "Compensation—Stock Compensation: Scope of Modification Accounting" (Topic 718), which clarifies when changes to the terms or conditions of a share-based payment award must by accounted for as modifications. Under the new guidance, an entity will not apply modification accounting if the award's fair value, vesting conditions and classification are the same immediately before and after the change. ASU 2017-09 is effective for the Company in the first quarter of fiscal 2018 and early adoption is permitted. The guidance should be applied prospectively

9

NETGEAR, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

to award modified on or after the adoption date. The Company does not expect it to have material impacts on its financial position, results of operations or cash flows.

Note 3. Business Acquisition

Placemeter, Inc.

On November 30, 2016, the Company acquired Placemeter, Inc. ("Placemeter"), an industry leader in computer vision analytics, for total purchase consideration of $9.6 million. The Company believes that Placemeter’s engineering talent will add value to NETGEAR’s Arlo smart security team, and that their proprietary computer vision algorithms will help to build video analytics solutions for the Arlo platform.

The Company paid $8.8 million of the aggregate purchase price in the fourth quarter of 2016 and paid the remaining $0.8 million in the first quarter of fiscal 2017. The acquisition qualified as a business combination and was accounted for using the acquisition method of accounting. The results of Placemeter have been included in the unaudited condensed consolidated financial statements since the date of acquisition. Proforma results of operations for the acquisition are not presented as the financial impact to the Company's consolidated results of operations is not material.

The allocation of the purchase price was as follows (in thousands):

Cash and cash equivalents	$	8
Accounts receivable, net	11
Prepaid expenses and other current assets	130
Property and equipment, net	83
Intangibles, net	6,000
Goodwill	3,742
Accounts payable	(40		)
Other accrued liabilities	(74		)
Deferred tax liabilities, net	(308		)
Total purchase price	$	9,552

The $3.7 million of goodwill recorded on the acquisition of Placemeter is not deductible for U.S. federal or U.S. state income tax purposes. The goodwill recognized, which was assigned to the Company's former retail segment upon acquisition and was allocated to the Arlo segment under its current reporting structure, is primarily attributable to expected synergies resulting from the acquisition.

In connection with the acquisition, the Company recorded $0.3 million of deferred tax liabilities net of deferred tax assets. The deferred tax liabilities were recorded for the book basis of intangible assets for which the Company has no tax basis. The deferred tax liabilities are reduced by the tax benefit of the net operating losses as of the date of the acquisition after consideration of limitations on the use under U.S. Internal Revenue Code section 382.

The Company designated $5.5 million of the acquired intangibles as software technology and a further $0.2 million of the acquired intangibles as database. The valuations were arrived at using the replacement cost method, with consideration having been given to the estimated time, investment and resources required to recreate the acquired intangibles. A discount rate of 15.0% was used in the valuation of each intangible. The acquired intangibles are being amortized over an estimated useful life of four years.

The Company designated $0.3 million of the acquired intangibles as non-compete agreements. The value was calculated based on the present value of the future estimated cash flows derived from projections of future operations attributable to the non-compete agreements and discounted at 20.0%. The acquired agreements are being amortized over an estimated useful life of three years.

10

NETGEAR, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Note 4. Balance Sheet Components

Available-for-sale short-term investments

	As of
	July 2, 2017									December 31, 2016
	Cost		Unrealized Gain		Unrealized Loss			Estimated Fair Value		Cost		Unrealized Gain		Unrealized Loss			Estimated Fair Value
	(In thousands)
U.S. treasuries	$	112,987	$	—	$	(113	)	$	112,874	$	123,869	$	9	$	(40	)	$	123,838
Certificates of deposit	158		—		—			158		148		—		—			148
Total	$	113,145	$	—	$	(113	)	$	113,032	$	124,017	$	9	$	(40	)	$	123,986

The Company’s short-term investments are primarily comprised of marketable securities that are classified as available-for-sale and consist of government securities with an original maturity or remaining maturity at the time of purchase of greater than three months and no more than twelve months. Accordingly, none of the available-for-sale securities have unrealized losses greater than twelve months.

Accounts receivable, net

	As of
	July 2, 2017			December 31, 2016
	(In thousands)
Gross accounts receivable	$	323,291		$	333,080
Allowance for doubtful accounts	(1,256		)	(1,255		)
Allowance for sales returns	(15,029		)	(13,506		)
Allowance for price protection	(2,418		)	(4,480		)
Total allowances	(18,703		)	(19,241		)
Total accounts receivable, net	$	304,588		$	313,839

Inventories

	As of
	July 2, 2017		December 31, 2016
	(In thousands)
Raw materials	$	3,691	$	4,596
Work in process	5		—
Finished goods	260,077		243,266
Total inventories	$	263,773	$	247,862

The Company records provisions for excess and obsolete inventory based on assumptions about future demand and market conditions. While management believes the estimates and assumptions underlying its current forecasts are reasonable, there is risk that additional charges may be necessary if current forecasts are greater than actual demand.

11

NETGEAR, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Property and equipment, net

	As of
	July 2, 2017			December 31, 2016
	(In thousands)
Computer equipment	$	10,174		$	10,557
Furniture, fixtures and leasehold improvements	21,324			20,827
Software	28,789			28,663
Machinery and equipment	57,073			63,446
Total property and equipment, gross	117,360			123,493
Accumulated depreciation and amortization	(98,531		)	(104,020		)
Total property and equipment, net	$	18,829		$	19,473

Depreciation and amortization expense pertaining to property and equipment was $3.1 million and $6.5 million for the three and six months ended July 2, 2017, respectively, and $4.2 million and $8.1 million for the three and six months ended July 3, 2016, respectively.

Intangibles, net

	As of July 2, 2017
	Gross		Accumulated Amortization			Net
	(In thousands)
Technology	$	66,599	$	(60,920	)	$	5,679
Customer contracts and relationships	56,500		(33,918		)	22,582
Other	11,045		(9,091		)	1,954
Total intangibles, net	$	134,144	$	(103,929	)	$	30,215

	As of December 31, 2016
	Gross		Accumulated Amortization			Net
	(In thousands)
Technology	$	66,599	$	(57,381	)	$	9,218
Customer contracts and relationships	56,500		(30,375		)	26,125
Other	11,045		(8,489		)	2,556
Total intangibles, net	$	134,144	$	(96,245	)	$	37,899

Amortization of intangibles was $3.2 million and $7.7 million for the three and six months ended July 2, 2017, respectively, and $4.3 million and $8.5 million for the three and six months ended July 3, 2016, respectively.

12

NETGEAR, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Estimated amortization expense related to intangibles for each of the next five years and thereafter is as follows:

	As of July 2, 2017
	(In thousands)
2017 (remaining six months)	$	5,227
2018	9,396
2019	7,544
2020	6,622
2021	1,413
Thereafter	13
Total estimated amortization expense	$	30,215

Goodwill

As discussed in Note 11, Segment Information, during the first quarter of fiscal 2017, the Company's Chief Operating Decision Maker requested changes in the information that he regularly reviews for purposes of allocating resources and assessing performance. With these changes, the Company revised its reportable segments. Beginning fiscal 2017, the Company operates and reports in three segments: Arlo, Connected Home, and Small and Medium Business ("SMB"). Goodwill was reallocated to the reportable segments using a relative fair value approach. As a result, the Company completed assessments of any potential goodwill impairment for all reportable segments immediately prior to and after the reallocation and determined that no impairment existed.

The carrying amount of goodwill under these segments during the six months ended July 2, 2017 are as follows:

	Arlo		Connected Home		SMB		Total
	(In thousands)
Goodwill as of January 1, 2017	$	21,149	$	28,035	$	36,279	$	85,463
Goodwill as of July 2, 2017	$	21,149	$	28,035	$	36,279	$	85,463

Other non-current assets

	As of
	July 2, 2017		December 31, 2016
	(In thousands)
Non-current deferred income taxes	$	70,168	$	70,859
Other	9,325		7,977
Total other non-current assets	$	79,493	$	78,836

13

NETGEAR, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Other accrued liabilities

	As of
	July 2, 2017		December 31, 2016
	(In thousands)
Sales and marketing	$	72,026	$	74,330
Warranty obligation	60,451		58,520
Freight	5,510		8,980
Other	35,727		28,844
Total other accrued liabilities	$	173,714	$	170,674

Note 5. Derivative Financial Instruments

The Company’s subsidiaries have had, and will continue to have material future cash flows, including revenue and expenses, which are denominated in currencies other than the Company’s functional currency. The Company and all its subsidiaries designate the U.S. dollar as the functional currency. Changes in exchange rates between the Company’s functional currency and other currencies in which the Company transacts business will cause fluctuations in cash flow expectations and cash flow realized or settled. Accordingly, the Company uses derivatives to mitigate its business exposure to foreign exchange risk. The Company enters into foreign currency forward contracts in Australian dollars, British pounds, Euros, Canadian dollars, and Japanese yen to manage the exposures to foreign exchange risk related to expected future cash flows on certain forecasted revenue, costs of revenue, operating expenses and existing assets and liabilities. The Company does not enter into derivatives transactions for trading or speculative purposes.

The Company’s foreign currency forward contracts do not contain any credit-risk-related contingent features. The Company is exposed to credit losses in the event of nonperformance by the counter-parties of its forward contracts. The Company enters into derivative contracts with high-quality financial institutions. In addition, the derivative contracts typically mature in less than eleven months and the Company continuously evaluates the credit standing of its counter-party financial institutions. The counter-parties to these arrangements are large, highly rated financial institutions and the Company does not consider non-performance a material risk.

The Company may choose not to hedge certain foreign exchange exposures for a variety of reasons, including, but not limited to, materiality, accounting considerations and the prohibitive economic cost of hedging particular exposures. There can be no assurance the hedges will offset more than a portion of the financial impact resulting from movements in foreign exchange rates. The Company’s accounting policies for these instruments are based on whether the instruments are designated as hedge or non-hedge instruments in accordance with the authoritative guidance for derivatives and hedging. The Company records all derivatives on the balance sheet at fair value. The effective portions of cash flow hedges are recorded in other comprehensive income ("OCI") until the hedged item is recognized in earnings. Derivatives that are not designated as hedging instruments and the ineffective portions of its designated hedges are adjusted to fair value through earnings in other income (expense), net in the unaudited condensed consolidated statement of operations.

The fair values of the Company’s derivative instruments and the line items on the unaudited condensed consolidated balance sheets to which they were recorded as of July 2, 2017 and December 31, 2016 are summarized as follows:

Derivative Assets	Balance Sheet Location	Fair Value at July 2, 2017		Balance Sheet Location	Fair Value at December 31, 2016
		(In thousands)			(In thousands)
Derivative assets not designated as hedging instruments	Prepaid expenses and other current assets	$	438	Prepaid expenses and other current assets	$	5,873
Derivative assets designated as hedging instruments	Prepaid expenses and other current assets	1,237		Prepaid expenses and other current assets	2,890
Total		$	1,675		$	8,763

14

NETGEAR, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Derivative Liabilities	Balance Sheet Location	Fair Value at July 2, 2017		Balance Sheet Location	Fair Value at December 31, 2016
		(In thousands)			(In thousands)
Derivative liabilities not designated as hedging instruments	Other accrued liabilities	$	2,935	Other accrued liabilities	$	1,002
Derivative liabilities designated as hedging instruments	Other accrued liabilities	6,365		Other accrued liabilities	703
Total		$	9,300		$	1,705

For details of the Company’s fair value measurements, see Note 12, Fair Value Measurements.

Offsetting Derivative Assets and Liabilities

The Company has entered into master netting arrangements which allow net settlements under certain conditions. Although netting is permitted, it is currently the Company's policy and practice to record all derivative assets and liabilities on a gross basis in the unaudited condensed consolidated balance sheets.

The following tables set forth the offsetting of derivative assets as of July 2, 2017 and December 31, 2016:

As of July 2, 2017							Gross Amounts Not Offset in the Condensed Consolidated Balance Sheets
	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Condensed Consolidated Balance Sheets		Net Amounts Of Assets Presented in the Condensed Consolidated Balance Sheets		Financial Instruments			Cash Collateral Pledged		Net Amount
	(In thousands)
Bank of America	$	1,180	$	—	$	1,180	$	(1,180	)	$	—	$	—
Wells Fargo	495		—		495		(495		)	—		—
Total	$	1,675	$	—	$	1,675	$	(1,675	)	$	—	$	—

As of December 31, 2016							Gross Amounts Not Offset in the Condensed Consolidated Balance Sheets
	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Condensed Consolidated Balance Sheets		Net Amounts Of Assets Presented in the Condensed Consolidated Balance Sheets		Financial Instruments			Cash Collateral Pledged		Net Amount
	(In thousands)
J.P. Morgan Chase	$	1,492	$	—	$	1,492	$	(442	)	$	—	$	1,050
Wells Fargo	7,271		—		7,271		(1,263		)	—		6,008
Total	$	8,763	$	—	$	8,763	$	(1,705	)	$	—	$	7,058

15

NETGEAR, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The following tables set forth the offsetting of derivative liabilities as of July 2, 2017 and December 31, 2016:

As of July 2, 2017							Gross Amounts Not Offset in the Condensed Consolidated Balance Sheets
	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Condensed Consolidated Balance Sheets		Net Amounts Of Liabilities Presented in the Condensed Consolidated Balance Sheets		Financial Instruments			Cash Collateral Pledged		Net Amount
	(In thousands)
Bank of America	$	6,587	$	—	$	6,587	$	(1,180	)	$	—	$	5,407
Wells Fargo	2,713		—		2,713		(495		)	—		2,218
Total	$	9,300	$	—	$	9,300	$	(1,675	)	$	—	$	7,625

As of December 31, 2016							Gross Amounts Not Offset in the Condensed Consolidated Balance Sheets
	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Condensed Consolidated Balance Sheets		Net Amounts Of Liabilities Presented in the Condensed Consolidated Balance Sheets		Financial Instruments			Cash Collateral Pledged		Net Amount
	(In thousands)
J.P. Morgan Chase	$	442	$	—	$	442	$	(442	)	$	—	$	—
Wells Fargo	1,263		—		1,263		(1,263		)	—		—
Total	$	1,705	$	—	$	1,705	$	(1,705	)	$	—	$	—

Cash flow hedges

To help manage the exposure of operating margins to fluctuations in foreign currency exchange rates, the Company hedges a portion of its anticipated foreign currency revenue, costs of revenue and certain operating expenses. These hedges are designated at the inception of the hedge relationship as cash flow hedges under the authoritative guidance for derivatives and hedging. Effectiveness is tested at least quarterly both prospectively and retrospectively using regression analysis to ensure that the hedge relationship has been effective and is likely to remain effective in the future. The Company typically hedges portions of its anticipated foreign currency exposure for five to eleven months. The Company enters into about ten forward contracts per quarter with an average size of approximately $8.0 million USD equivalent related to its cash flow hedging program.

The Company expects to reclassify to earnings all of the amounts recorded in OCI associated with its cash flow hedges over the next twelve months. OCI associated with cash flow hedges of foreign currency revenue is recognized as a component of net revenue in the same period as the related revenue is recognized. OCI associated with cash flow hedges of foreign currency costs of revenue and operating expenses are recognized as a component of cost of revenue and operating expense in the same period as the related costs of revenue and operating expenses are recognized.

Derivative instruments designated as cash flow hedges must be de-designated as hedges when it is probable the forecasted hedged transaction will not occur within the designated hedge period or if not recognized within 60 days following the end of the hedge period. Deferred gains and losses in OCI with such derivative instruments are reclassified immediately into earnings through other income (expense), net. Any subsequent changes in fair value of such derivative instruments also are reflected in current earnings unless they are re-designated as hedges of other transactions. The Company did not recognize any material net gains or losses related to the loss of hedge designation as there were no discontinued cash flow hedges during the six months ended July 2, 2017 and July 3, 2016.

16

NETGEAR, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The pre-tax effects of the Company’s derivative instruments on OCI and the unaudited condensed consolidated statement of operations for the three and six months ended July 2, 2017 and July 3, 2016 are summarized as follows:

Derivatives Designated as Hedging Instruments	Three Months Ended July 2, 2017
	Gains (Losses) Recognized in OCI - Effective Portion			Location of Gain (Loss) Reclassified from OCI into Income - Effective Portion	Gains (Losses) Reclassified from OCI into Income - Effective Portion (1)			Location of Gains (Losses) Recognized in Income and Excluded from Effectiveness Testing	Amount of Gains (Losses) Recognized in Income and Excluded from Effectiveness Testing
	(In thousands)
Cash flow hedges:
Foreign currency forward contracts	$	(6,935	)	Net revenue	$	(1,008	)	Other income (expense), net	$	381
Foreign currency forward contracts	—			Cost of revenue	(1		)	Other income (expense), net	—
Foreign currency forward contracts	—			Operating expenses	77			Other income (expense), net	—
Total	$	(6,935	)		$	(932	)		$	381

_________________________

⁽¹⁾ Refer to Note 9, Stockholders' Equity, which summarizes the accumulated other comprehensive income activity related to derivatives.

Derivatives Designated as Hedging Instruments	Six Months Ended July 2, 2017
	Gains (Losses) Recognized in OCI - Effective Portion			Location of Gain (Loss) Reclassified from OCI into Income - Effective Portion	Gains (Losses) Reclassified from OCI into Income - Effective Portion (1)			Location of Gains (Losses) Recognized in Income and Excluded from Effectiveness Testing	Amount of Gains (Losses) Recognized in Income and Excluded from Effectiveness Testing
	(In thousands)
Cash flow hedges:
Foreign currency forward contracts	$	(7,052	)	Net revenue	$	1,027		Other income (expense), net	$	668
Foreign currency forward contracts	—			Cost of revenue	(14		)	Other income (expense), net	—
Foreign currency forward contracts	—			Operating expenses	(365		)	Other income (expense), net	—
Total	$	(7,052	)		$	648			$	668

_________________________

⁽¹⁾ Refer to Note 9, Stockholders' Equity, which summarizes the accumulated other comprehensive income activity related to derivatives.

17

NETGEAR, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Derivatives Designated as Hedging Instruments	Three Months Ended July 3, 2016
	Gains (Losses) Recognized in OCI - Effective Portion		Location of Gain (Loss) Reclassified from OCI into Income - Effective Portion	Gains (Losses) Reclassified from OCI into Income - Effective Portion (1)			Location of Gains (Losses) Recognized in Income and Excluded from Effectiveness Testing	Amount of Gains (Losses) Recognized in Income and Excluded from Effectiveness Testing
	(In thousands)
Cash flow hedges:
Foreign currency forward contracts	$	88	Net revenue	$	(407	)	Other income (expense), net	$	18
Foreign currency forward contracts	—		Cost of revenue	(2		)	Other income (expense), net	—
Foreign currency forward contracts	—		Operating expenses	(14		)	Other income (expense), net	—
Total	$	88		$	(423	)		$	18

_________________________

⁽¹⁾ Refer to Note 9, Stockholders' Equity, which summarizes the accumulated other comprehensive income activity related to derivatives.

Derivatives Designated as Hedging Instruments	Six Months Ended July 3, 2016
	Gains (Losses) Recognized in OCI - Effective Portion			Location of Gain (Loss) Reclassified from OCI into Income - Effective Portion	Gains (Losses) Reclassified from OCI into Income - Effective Portion (1)			Location of Gains (Losses) Recognized in Income and Excluded from Effectiveness Testing	Amount of Gains (Losses) Recognized in Income and Excluded from Effectiveness Testing
	(In thousands)
Cash flow hedges:
Foreign currency forward contracts	$	(699	)	Net revenue	$	(719	)	Other income (expense), net	$	53
Foreign currency forward contracts	—			Cost of revenue	—			Other income (expense), net	—
Foreign currency forward contracts	—			Operating expenses	56			Other income (expense), net	—
Total	$	(699	)		$	(663	)		$	53

_________________________

⁽¹⁾ Refer to Note 9, Stockholders' Equity, which summarizes the accumulated other comprehensive income activity related to derivatives.

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 four non-designated derivatives per quarter. The average size of its non-designated hedges is approximately $2.0 million USD equivalent and these hedges range from one to three months in duration.

18

NETGEAR, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The effects of the Company’s non-designated hedge included in other income (expense), net in the unaudited condensed consolidated statements of operations for the six months ended July 2, 2017 and July 3, 2016 are as follows:

Derivatives Not Designated as Hedging Instruments	Location of Gains (Losses) Recognized in Income on Derivative	Three Months Ended					Six Months Ended
		July 2, 2017			July 3, 2016		July 2, 2017			July 3, 2016
		(In thousands)
Foreign currency forward contracts	Other income (expense), net	$	(2,893	)	$	1,185	$	(4,246	)	$	(759	)

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 common shares issuable upon exercise of stock options, vesting of restricted stock awards, and issuances of shares under the Employee Stock Purchase Plan (the "ESPP"), which are reflected in diluted net income per share by application of the treasury stock method.

Net income per share for the three and six months ended July 2, 2017 and July 3, 2016 are as follows:

	Three Months Ended				Six Months Ended
	July 2, 2017		July 3, 2016		July 2, 2017		July 3, 2016
	(In thousands, except per share data)
Numerator:
Net income	$	14,582	$	16,034	$	30,576	$	32,623
Denominator:
Weighted average common shares - basic	32,352		32,639		32,650		32,578
Potentially dilutive common share equivalent	764		854		1,006		812
Weighted average common shares - dilutive	$	33,116	$	33,493	$	33,656	$	33,390
Basic net income per share	$	0.45	$	0.49	$	0.94	$	1.00
Diluted net income per share	$	0.44	$	0.48	$	0.91	$	0.98
Anti-dilutive employee stock-based awards, excluded	782		431		271		310

Note 7. Income Taxes

The income tax provision for the three and six months ended July 2, 2017, was $5.4 million, or an effective tax rate of 26.9%, and $12.9 million, or an effective tax rate of 29.7%, respectively. The income tax provision for the three and six months ended July 3, 2016, was $9.4 million, or an effective tax rate of 37.0%, and $18.3 million, or an effective tax rate of 36.0%, respectively. The effective tax rate for the three and six months ended July 2, 2017 compared to the three and six months ended July 3, 2016, decreased mainly due to lower pre-tax earnings and differences in the accounting treatment of excess tax benefits related to stock awards. The Company adopted ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting" on January 1, 2017, which requires excess tax benefits or deficiencies to be reflected in the unaudited condensed consolidated statements of operations as a component of the provision for income taxes whereas they previously were recorded in equity. Total excess tax benefits recognized in the three and six months ended July 2, 2017 was $1.0 million and $1.8 million, respectively. Additionally, for the three months ended July 2, 2017, the Company had a one-time benefit related to the geographic distribution of earnings for tax purposes of $0.4 million. The Company is subject to income taxes in the U.S. and numerous foreign jurisdictions. The future foreign tax rate could be affected by changes in the composition in earnings in countries with tax rates differing from the U.S. federal rate. The Company is under examination in various U.S. and foreign jurisdictions.

19

NETGEAR, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The Company files income tax returns in the U.S. federal jurisdiction as well as various state, local, and foreign jurisdictions. Due to the uncertain nature of ongoing tax audits, the Company has recorded its liability for uncertain tax positions as part of its long-term liability as payments cannot be anticipated over the next twelve months. The existing tax positions of the Company continue to generate an increase in the liability for uncertain tax positions. The liability for uncertain tax positions may be reduced for liabilities that are settled with taxing authorities or on which the statute of limitations could expire without assessment from tax authorities. The possible reduction in liabilities for uncertain tax positions resulting from the expiration of statutes of limitation in multiple jurisdictions in the next twelve months is approximately $1.0 million, excluding the interest, penalties and the effect of any related deferred tax assets or liabilities.

Note 8. Commitments and Contingencies

Leases

The Company leases office space, cars and equipment under operating leases, some of which are non-cancelable, with various expiration dates through December 2026. The terms of some of the Company’s office leases provide for rental payments on a graduated scale. The Company recognizes rent expense on a straight-line basis over the lease period, and has accrued for rent expense incurred but not paid.

Purchase Obligations

The Company has entered into various inventory-related purchase agreements with suppliers. Generally, under these agreements, 50% of orders are cancelable by giving notice 46 to 60 days prior to the expected shipment date and 25% of orders are cancelable by giving notice 31 to 45 days prior to the expected shipment date. Orders are non-cancelable within 30 days prior to the expected shipment date. As of July 2, 2017, the Company had approximately $152.8 million in non-cancelable purchase commitments with suppliers. The Company establishes a loss liability for all products it does not expect to sell for which it has committed purchases from suppliers. Such losses have not been material to date. From time to time the Company’s suppliers procure unique complex components on the Company's behalf. If these components do not meet specified technical criteria or are defective, the Company should not be obligated to purchase the materials. However, disputes may arise as a result and significant resources may be spent resolving such disputes.

Warranty Obligation

Changes in the Company’s warranty obligation, which is included in other accrued liabilities in the unaudited condensed consolidated balance sheets, are as follows:

	Three Months Ended						Six Months Ended
	July 2, 2017			July 3, 2016			July 2, 2017			July 3, 2016
	(In thousands)
Balance as of beginning of the period	$	56,336		$	49,908		$	58,520		$	56,706
Provision for warranty obligation made during the period	34,515			18,593			61,268			34,808
Settlements made during the period	(30,400		)	(18,108		)	(59,337		)	(41,121		)
Balance at end of period	$	60,451		$	50,393		$	60,451		$	50,393

Guarantees and Indemnifications

The Company, as permitted under Delaware law and in accordance with its Bylaws, indemnifies its officers and directors for certain events or occurrences, subject to certain limits, while the officer or director is or was serving at the Company’s request in such capacity. The term of the indemnification period is for the officer’s or director’s lifetime. The maximum amount of potential future indemnification is unlimited; however, the Company has a Director and Officer Insurance Policy that enables it to recover a portion of any future amounts paid. As a result of its insurance policy coverage, the Company believes the fair value of each indemnification agreement is minimal. Accordingly, the Company has no liabilities recorded for these agreements as of July 2, 2017.

20

NETGEAR, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

In its sales agreements, the Company typically agrees to indemnify its direct customers, distributors and resellers for any expenses or liability resulting from claimed infringements by the Company's products of patents, trademarks or copyrights of third parties, subject to customary carve outs. The terms of these indemnification agreements are generally perpetual any time after execution date of the respective agreement. The maximum amount of potential future infringement indemnification is generally unlimited. The Company believes the estimated fair value of these agreements is minimal. Accordingly, the Company has no liabilities recorded for these agreements as of July 2, 2017.

Employment Agreements

The Company has signed various employment agreements with key executives pursuant to which, if their employment is terminated without cause, such employees are entitled to receive their base salary (and commission or bonus, as applicable) for 52 weeks (for the Chief Executive Officer), 39 weeks (for the Senior Vice President of Worldwide Operations and Support) and up to 26 weeks (for other key executives). Such employees will also continue to have equity awards vest for up to a one-year period following such termination without cause. If a termination without cause or resignation for good reason occurs within one year of a change in control, such employees are entitled to full acceleration (for the Chief Executive Officer) and up to two years acceleration (for other key executives) of any unvested portion of his or her equity awards. The Company has no liabilities recorded for these agreements as of July 2, 2017.

Litigation and Other Legal Matters

The Company is involved in disputes, litigation, and other legal actions, including, but not limited to, the matters described below. In all cases, at each reporting period, the Company evaluates whether or not a potential loss amount or a potential range of loss is probable and reasonably estimable under the provisions of the authoritative guidance that addresses accounting for contingencies. In such cases, the Company accrues for the amount, or if a range, the Company accrues the low end of the range, only if there is not a better estimate than any other amount within the range, as a component of legal expense within litigation reserves, net. The Company monitors developments in these legal matters that could affect the estimate the Company had previously accrued. In relation to such matters, the Company currently believes that there are no existing claims or proceedings that are likely to have a material adverse effect on its financial position within the next twelve months, or the outcome of these matters is currently not determinable. There are many uncertainties associated with any litigation, and these actions or other third-party claims against the Company may cause the Company to incur costly litigation and/or substantial settlement charges. In addition, the resolution of any intellectual property litigation may require the Company to make royalty payments, which could have an adverse effect in future periods. If any of those events were to occur, the Company's business, financial condition, results of operations, and cash flows could be adversely affected. The actual liability in any such matters may be materially different from the Company's estimates, which could result in the need to adjust the liability and record additional expenses.

Ericsson v. NETGEAR, Inc.

On September 14, 2010, Ericsson Inc. and Telefonaktiebolaget LM Ericsson (collectively “Ericsson”) filed a patent infringement lawsuit against the Company and defendants D-Link Corporation, D-Link Systems, Inc., Acer, Inc., Acer America Corporation, and Gateway, Inc. in the U.S. District Court, Eastern District of Texas alleging that the defendants infringe certain Ericsson patents. The Company has been accused of infringing eight U.S. patents: 5,790,516 (the “‘516 Patent”); 6,330,435 (the “‘435 Patent”); 6,424,625 (the “‘625 Patent”); 6,519,223 (the “‘223 Patent”); 6,772,215 (the “‘215 Patent”); 5,987,019 (the “‘019 Patent”); 6,466,568 (the “‘568 Patent”); and 5,771,468 (the “'468 Patent"). Ericsson generally alleged that the Company and the other defendants have infringed and continue to infringe the Ericsson patents through the defendants' IEEE 802.11-compliant products. In addition, Ericsson alleged that the Company infringed the claimed methods and apparatuses of the '468 Patent through the Company's PCMCIA routers. The Company filed its answer to the Ericsson complaint on December 17, 2010 where it asserted the affirmative defenses of non-infringement and invalidity of the asserted patents. On June 8, 2011, Ericsson filed an amended complaint that added Dell, Toshiba and Belkin as defendants. At the status conference held on June 9, 2011, the Court set a Markman (claim construction) hearing for June 28, 2012 and trial for June 3, 2013. On June 21, 2012, Ericsson dismissed the '468 Patent (“Multi-purpose base station”) with prejudice and gave the Company a covenant not to sue as to products in the marketplace now or in the past. On June 22, 2012, Intel filed its Complaint in Intervention, meaning that Intel became an official defendant in the Ericsson case. During the exchange of the expert reports, Ericsson dropped the '516 Patent (the OFDM “pulse shaping” patent). In addition, Ericsson dropped the '223 Patent (packet discard patent) against all the defendants' products, except for those products that use Intel chips. Thus, Ericsson has now dropped the '468 Patent (wireless base station), the '516 Patent (OFDM pulse shaping), and the '223 Patent (packet discard patent) for all non-Intel products.

21

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

A jury trial in the Ericsson case occurred in the Eastern District of Texas from June 3 through June 13, 2013. After hearing the evidence, the jury found no infringement of the '435 and '223 Patents, and the jury found infringement of claim 1 of the '625 Patent, claims 1 and 5 of the '568 Patent, and claims 1 and 2 of the '215 Patent. The jury also found that there was no willful infringement by any defendant. Additionally, the jury found no invalidity of the asserted claims of the '435 and '625 Patents. The jury assessed the following damages against the defendants: D-Link: $435,000; NETGEAR: $3,555,000; Acer/Gateway: $1,170,000; Dell: $1,920,000; Toshiba: $2,445,000; Belkin: $600,000. The damages awards equated to 15 cents per unit for each accused 802.11 device sold by each defendant (5 cents per patent).

On December 16, 2013, the Company and defendants submitted their appeal brief to the Federal Circuit. Ericsson filed its response brief on February 20, 2014, and the defendants filed their reply brief before on March 24, 2014. The oral arguments before the Federal Circuit took place on June 5, 2014.

On December 4, 2014, the Federal Circuit issued its opinion and order in the Company’s Ericsson appeal. The Federal Circuit vacated the entirety of the $3.6 million jury verdict against the Company and the ongoing 15 cents per unit royalty verdict, and also vacated the entirety of the verdict against the other defendants and their ongoing royalties, finding that the District Court hadn’t properly instructed the jury on royalty rates and Ericsson’s licensing promises. The Federal Circuit held that the lower court had failed to adequately instruct the jury about Ericsson’s actual commitments to license the infringed patents on reasonable and nondiscriminatory (“RAND”) terms. Further, the Federal Circuit stated that the lower court had neglected to inform the jury that a royalty for a patented technology must be removed from the value of the entire standard, and that a RAND royalty rate should be based on the invention’s value, rather than any added value from standardization. The jury’s damages awards were therefore completely vacated, and the case was remanded for further proceedings.

While the Federal Circuit found the district court had inadequate jury instructions, it held that there was enough evidence for the jury to find infringement of two claims of U.S. Patent Number 6,466,568 and two claims of U.S. Patent Number 6,772,215, but reversed the lower court’s decision not to grant a noninfringement judgment as a matter of law regarding the third patent, U.S. Patent Number 6,424,625, finding that no reasonable jury could find that the ‘625 Patent was infringed by the defendants.

In September 2013, Broadcom filed petitions in the USPTO at the Patent Trial and Appeal Board (PTAB) seeking inter partes review (“IPR”) of Ericsson’s three patents that the jury found were infringed by the Company and other defendants. On March 6, 2015, the PTAB invalidated all the claims of these three patents that were asserted against the Company and other defendants at trial -- claim 1 of the '625 Patent, claims 1 and 5 of the '568 Patent, and claims 1 and 2 of the '215 Patent -- ruling these claims were anticipated or obvious in light of prior art. The PTAB also rejected two motions to amend by Ericsson, which sought to substitute certain proposed claims in the '625 and '568 patents, should they be found unpatentable by the PTAB. This PTAB decision comes on top of the Federal Circuit decision (a) vacating the jury verdict after finding that the district court had not properly instructed the jury on royalty rates and Ericsson’s licensing promises, and (b) ruling that no reasonable jury could have found the ‘625 Patent infringed. Ericsson appealed the PTAB decision to the Federal Circuit and also requested that the PTAB reconsider its decision, but the PTAB denied Ericsson’s request for reconsideration. Accordingly, the Company reversed the accruals related to this case in the first fiscal quarter of 2015. On September 16, 2016, the Federal Circuit upheld the invalidity of certain claims of the '625 Patent, the '568 Patent, and '215 Patent, as previously determined by the PTAB. The Federal Circuit only issued one precedential written opinion, on the 215 Patent; the PTAB invalidity rulings on the '625 and '568 Patents were upheld without a written decision. Ericsson petitioned the Federal Circuit for an en banc rehearing of the Federal Circuit's appeal decision, and the Federal Circuit agreed to the en banc rehearing. Arguments before the en banc panel of the Federal Circuit took place in May 2017, and the Federal Circuit has not yet released its en banc opinion. The present status of the case continues to be that the Company does not infringe on any valid Ericsson patent.

Agenzia Entrate Provincial Revenue Office 1 of Milan v. NETGEAR International, Inc.

In November 2012, the Italian tax police began a comprehensive tax audit of NETGEAR International, Inc.’s Italian Branch. The scope of the audit initially was from 2004 through 2011 and was subsequently expanded to include 2012. The tax audit encompassed Corporate Income Tax (IRES), Regional Business Tax (IRAP) and Value-Added Tax (VAT). In December 2013, December 2014, August 2015, and December 2015 an assessment was issued by Inland Revenue Agency, Provincial Head Office No. 1 of Milan-Auditing Department (Milan Tax Office) for the 2004 tax year, the 2005 through 2007 tax years, the 2008 through 2010 tax years, and the 2011 through 2012 tax years, respectively.

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In May 2014, the Company filed with the Provincial Tax Court of Milan an appeal brief, including a Request for Hearing in Open Court and Request for Suspension of the Tax Assessment for the 2004 year. The hearing was held and decision was issued on December 19, 2014. The Tax Court decided in favor of the Company and nullified the assessment by the Inland Revenue Agency for 2004. The Inland Revenue Agency appealed the decision of the Tax Court on June 12, 2015. The Company filed its counter appeal with respect to the 2004 year during September 2015. On February 26, 2016 the Regional Tax Court conducted the appeals hearing for the 2004 year, ruling in favor of the Company. On June 13, 2016, the Inland Revenue Agency appealed the decision to the Supreme Court. The Company filed a counter appeal on July 23, 2016 and is awaiting scheduling of the hearing.

In June 2015, the Company filed with the Provincial Tax Court of Milan an appeal brief including a Request for Hearing in Open Court and Request for Suspension of the Tax Assessment for the 2005 through 2006 tax years. The hearing for suspension was held and the Request for Suspension of payment was granted. The hearing for the validity of the tax assessment for 2005 and 2006 was held in December 2015 with the Provincial Tax Court issuing its decision in favor of the Company. The Inland Revenue Agency filed its appeal with the Regional Tax Court. The Company filed its counter brief on September 30, 2016 and the hearing was held on March 22, 2017. A decision favorable to the Company was issued by the Court on July 5, 2017. The Italian Tax Authority has until November 10, 2017 to appeal the decision.

The hearing for the validity of the tax assessment for 2007 was held on March 10, 2016 with the Provincial Tax Court who issued its decision in favor of the Company on April 7, 2016. The Inland Revenue Agency has filed its appeal to the Regional Tax Court and the Company has submitted its counter brief. The hearing has not yet been scheduled.

With respect to 2008 through 2010, the Company filed its briefs with the Tax Court in October 2015 and the hearing for the validity of the tax assessments was held on April 21, 2016 and a decision favorable to the Company was issued on May 12, 2016. The Inland Revenue Agency has filed its appeal to the Regional Tax Court. The Company filed its counter brief on February 5, 2017.

With respect to 2011 through 2012, the Company has filed its appeal brief on February 26, 2016 with the Provincial Tax Court to contest this assessment. The hearing for suspension was held and the Request for Suspension of payment was granted. On October 13, 2016, the Company filed its brief with the Provincial Tax Court. The hearing was held on October 24, 2016 and a decision favorable to the Company was issued by the Court. The Inland Revenue Agency appealed the decision on April 24, 2017. The Company filed its counter brief on June 16, 2017.

With regard to all tax years, it is too early to reasonably estimate any financial impact to the Company resulting from this litigation matter.

Via Vadis v. NETGEAR, Inc.

On August 22, 2014, the Company was sued by Via Vadis, LLC and AC Technologies, S.A. (“Via Vadis”), in the Western District of Texas. The complaint alleges that the Company’s ReadyNAS and Stora products “with built-in BitTorrent software" allegedly infringe three related patents of Via Vadis (U.S. Patent Nos. 7,904,680, RE40, 521, and 8,656,125). Via Vadis filed similar complaints against Belkin, Buffalo, Blizzard, D-Link, and Amazon.

By referring to “built-in BitTorrent software,” the Company believes that the complaint is referring to the BitTorrent Sync application, which was released by BitTorrent Inc. in spring of 2014. At a high-level, the application allows file synchronization across multiple devices by storing the underlying files on multiple local devices, rather than on a centralized server. The Company’s ReadyNAS products do not include BitTorrent software when sold. The BitTorrent application is provided as one of a multitude of potential download options, but the software itself is not included on the Company’s devices when shipped. Therefore, the only viable allegation at this point is an indirect infringement allegation.

On November 10, 2014, the Company answered the complaint denying that it infringes the patents in suit and also asserting the affirmative defenses that the patents in suit are invalid and barred by the equitable doctrines of laches, waiver, and/or estoppel.

On February 6, 2015, the Company filed its motion to transfer venue from the Western District of Texas to the Northern District of California with the Court; on February 13, 2015, Via Vadis filed its opposition to the Company’s motion to transfer; and on February 20, 2015, the Company filed its reply brief on its motion to transfer. In early April 2015, the Company received the plaintiff’s infringement contentions, and on June 12, 2015, the defendants served invalidity contentions. On July 30, 2015

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the Court granted the Company’s motion to transfer venue to the Northern District of California. In addition, the Company learned that Amazon and Blizzard filed petitions for the inter partes reviews (“IPRs”) for the patents in suit. On October 30, 2015, the Company and Via Vadis filed a joint stipulation requesting that the Court vacate all deadlines and enter a stay of all proceedings in the case pending the Patent Trial and Appeal Board’s final non-appealable decision on the IPRs initiated by Amazon and Blizzard. On November 2, 2015 the Court granted the requested stay. On March 8, 2016, the Patent Trial and Appeal Board issued written decisions instituting the IPRs jointly filed by Amazon and Blizzard. In early March of 2017, The Patent Trial and Appeal Board (PTAB) issued various decisions regarding Amazon’s and Blizzard’s IPRs of the patents in suit. One of the IPRs of the '125 patent resulted in a finding by the PTAB that Amazon and Blizzard had had failed to show invalidity. The second IPR on the '125 patent, however, resulted in cancelation of all claims asserted in Via Vadis’s suit against the Company. Reissue '521 did not have any claims found invalid by the PTAB, and some dependent claims of the '680 patent survived the IPRs, and some claims of the '680 patent were canceled. The Northern District of California case against the Company remains stayed.

It is too early to reasonably estimate any financial impact to the Company resulting from this litigation matter.

Chrimar Systems, Inc. v NETGEAR, Inc.

On July 1, 2015, the Company was sued by a non-practicing entity named Chrimar Systems, Inc., doing business as CMS Technologies and Chrimar Holding Company, LLC (collectively, “CMS”), in the Eastern District of Texas for allegedly infringing four patents-U.S. Patent Nos. 8,155,012 (the “'012 Patent”), entitled “System and method for adapting a piece of terminal equipment”; 8,942,107 (the “'107 Patent”), entitled “Piece of ethernet terminal equipment”; 8,902,760 (the “'760 Patent”), entitled “Network system and optional tethers”; and 9,019,838 (the “'838 Patent”), entitled “Central piece of network equipment” (collectively “patents-in-suit”). 

The patents-in-suit relate to using or embedding an electrical DC current or signal into an existing Ethernet communication link in order to transmit additional data about the devices on the communication link, and the specifications for the patents are identical. It appears that CMS has approximately 40 active cases in the Eastern District of Texas, as well as some cases in the Northern District of California on the patents-in-suit and the parent patent to the patents-in-suit.

The Company answered the complaint on September 15, 2015. On November 24, 2015, CMS served its infringement contentions on the Company, and CMS is generally attempting to assert that the patents in suit cover the Power over Ethernet standard (802.3af and 802.3at) used by certain of the Company's products.

On December 3, 2015, the Company filed with the Court a motion to transfer venue to the District Court for the Northern District of California and their memorandum of law in support thereof. On December 23, 2015, CMS filed its response to the Company’s motion to transfer, and, on January 8, 2016, the Company filed its reply brief in support of its motion to transfer venue. On January 15, 2016, the Court granted the Company’s motion to transfer venue to the District Court for the Northern District of California. The initial case management conference in the Northern District of California occurred on May 13, 2016, and on August 19, 2016, the parties exchanged preliminary claim constructions and extrinsic evidence. On August 26, 2016, the Company and three defendants in other Northern District of California CMS cases (Juniper Networks, Inc., Ruckus Wireless, Inc., and Fortinet, Inc.) submitted motions to stay their cases. The defendants in part argued that stays were appropriate pending the resolution of the currently-pending IPRs of the patents-in-suit before the Patent Trial and Appeal Board (PTAB), including four IPR Petitions filed by Juniper. On September 9, 2016, CMS submitted its opposition to the motions to stay the cases. On September 26, 2016, the Court ordered the cases stayed in their entirety, until the PTAB reaches institution decisions with respect to Juniper’s four pending IPR petitions. Juniper’s four IPR petitions were instituted by the PTAB in January 2017, and the Company subsequently moved to join the IPR petitions as an “understudy” to Juniper, only assuming a more active role in the petitions in the event Juniper settles with CMS. For all four patents in suit against the Company, the PTAB ordered that (a) the Petitioners’ (the Company, Ruckus, and Brocade) Motion for Joinder to the Juniper IPRs is granted; (b) the Petitioners IPRs are instituted on the same grounds as in the Juniper ‘IPRs and Petitioners are joined with the Juniper IPRs; and (c) all further filings by Petitioners in the joined proceedings will be in the Juniper IPRs. The Company is now proceeding on the Juniper IPR schedule. The Northern District of California CMS cases remain stayed in their entirety by the Court.

It is too early to reasonably estimate any financial impact to the Company resulting from this litigation matter.

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Tessera v. NETGEAR, Inc.

On May 23, 2016, Tessera Technologies, Inc., Tessera, Inc., and Invensas Corp. (collectively, “Tessera”) filed a complaint requesting that the U.S. International Trade Commission (“Commission”) commence an investigation pursuant to Section 337 by reason of alleged infringement of certain patent claims by the Company and other respondents. On June 20, 2016, the Commission issued the related Notice of Investigation, and the Investigation was instituted on June 24, 2016.

The Tessera complaint alleges that the following respondents unlawfully import into the U.S., sell for importation, and/or sell within the U.S. after importation certain semiconductor devices, semiconductor device packages, and products containing the same that infringe one or more claims of U.S. Patent Nos. 6,856,007 (the ‘007 patent), 6,849,946 (the ‘946 patent), and 6,133,136 (the ‘136 patent) (collectively, the “asserted patents”): Broadcom Limited of Singapore; Broadcom Corp. of Irvine, California; Avago Technologies Limited of Singapore; Avago Technologies U.S. Inc. of San Jose, California; Arista Networks, Inc. of Santa Clara, California; ARRIS International plc of Suwanee, Georgia; ARRIS Group, Inc. of Suwanee, Georgia; ARRIS Technology, Inc. of Horsham, Pennsylvania; ARRIS Enterprises LLC of Suwanee, Georgia; ARRIS Solutions, Inc. of Suwanee, Georgia; Pace Ltd. (formerly Pace plc) of England; Pace Americas, LLC of Boca Raton, Florida; Pace USA, LLC of Boca Raton, Florida; ASUSTeK Computer Inc. of Taiwan; ASUS Computer International of Fremont, California; Comcast Cable Communications, LLC of Philadelphia, Pennsylvania; Comcast Cable Communications Management, LLC of Philadelphia, Pennsylvania; Comcast Business Communications, LLC of Philadelphia, Pennsylvania; HTC Corp. of Taiwan; HTC America, Inc. of Bellevue, Washington; Technicolor S.A. of France; Technicolor USA, Inc. of Indianapolis, Indiana; Technicolor Connected Home USA LLC of Indianapolis, Indiana; and the Company.

According to the complaint, the asserted patents generally relate to semiconductor packaging technology. In particular, the ‘007 patent relates to a compact and economical semiconductor chip assembly that includes a packaged semiconductor chip, a chip carrier with a metallic thermal conductor, and a circuit panel with a thermal conductor mounting. The ‘946 patent relates to a semiconductor layout configuration and method that results in a more efficient planarization process for a semiconductor chip. Lastly, the ‘136 patent relates to a structure for metal interconnects used in semiconductor packaging.

In the complaint, Tessera states that the respondents import and sell products that infringe the asserted patents. In particular, the complaint refers to multiple categories of accused semiconductor products associated with Broadcom and asserts that the remaining respondents import and sell products that contain these infringing Broadcom semiconductor products. Tessera requested that the Commission issue a permanent limited exclusion order and a permanent cease and desist order directed at the respondents and related entities.

Concurrently with the filing of the instant ITC complaint, Tessera also filed a complaint against Broadcom Corp. in the U.S. District Court for the District of Delaware alleging infringement of the asserted patents. The Company has not been sued in Delaware or any other jurisdiction other than the ITC.

The Company stipulated to certain facts regarding its importation and inventory of Broadcom-based products in return for various relief from discovery, such as reduced depositions and discovery responses in the ITC case. As per the ITC schedule, the parties exchanged direct exhibits and witness statements on February 20, 2017; rebuttal exhibits and witness statements on March 3, 2017; pre-trial briefs on March 9, 2017; and Motions in limine on March 13, 2017. The 5-day evidentiary hearing before the ITC Administrative Law Judge (“ALJ”) commenced on March 27, 2017 and ended on March 31, 2017. The ITC rules provide for possible closing arguments before the ALJ after post-hearing briefing, which were submitted on April 19, 2017. Reply post-trial briefs were submitted on May 1, 2017.

On June 30, 2017 the ALJ released the Initial Determination based on the 5-day evidentiary hearing and related briefing. For the ‘946 patent, the ALJ found the four (4) claims infringed and valid, and that there is a domestic industry. For the ‘136 patent, the ALJ found the nine (9) claims were infringed and valid, but no domestic industry. For the ‘007 patent, the ALJ found (1) one claim infringed by the Company and Technicolor, claims 13 and 16 not infringed, all three asserted claims invalid, including the one claim found to be infringed, and no domestic industry.

In summary, the ALJ found a violation of section 337 of the Tariff Act due to infringement by the Company and other respondents of the ‘946 patent, but not as to the ‘136 patent or ‘007 patent. There is no violation with respect to the ‘136 patent even though it was found to be infringed and valid by the ALJ because Tessera could not show a domestic industry.

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At this point, there is one patent remaining in the ITC action (the ‘946 patent), but this one patent could prevent the Company (and all the other respondents) from importing Broadcom-based products into the United States. There is no immediate legal effect from the ALJ’s Initial Determination, and the respondents will appeal the adverse portions of the Initial Determination ahead of the Commission’s Final Determination on October 30, 2017. If the Final Determination is not favorable to the respondents or the matter is not otherwise resolved, e.g.,via settlement, then any exclusion order (injunction) on the Company (and all the other respondents) importing Broadcom-based products into the U.S. would go into effect the next day (October 31, 2017) (subject to postponement by up to two months until December 31, 2017 during the presidential review period upon posting of a bond by the Company). Such exclusion order on the Company’s (and all the other respondents’) importation of Broadcom-based products into the United States would potentially last until the ‘946 patent expires on August 31, 2018.

It is too early to reasonably estimate any financial impact to the Company resulting from this litigation matter.

e.Digital v. NETGEAR, Inc.

On September 12, 2016, e.Digital Corporation ("e.Digital") filed a lawsuit against the Company in the Northern District of California accusing the Company of infringing U.S. Patent Nos. 8,311,522 (“the ’522 patent”); 8,311,524 (“the ’524 patent”); 9,002,331 (“the ’331 patent”); and 9,178,983 (“the ’983 patent”) (collectively, the “patents-in-suit”), which purportedly cover systems and methods for the remote detection, classification, and communication of sensor data. In the complaint, e.Digital broadly accuses the Company’s Arlo wireless camera systems, including the Arlo Wire-Free, Arlo Q, and Arlo Q Plus cameras (collectively, the “Accused Products”). The allegations are generally directed at the “remote monitoring and communication” functionality of the Accused Products. Specifically, the complaint alleges that the Accused Products infringe the patents-in-suit by utilizing sensors-such as cameras and microphones-to collect data and perform various operations-such as send alerts, trigger video recording, or take a snapshot-in response to a classification of the collected sensor data.

Beginning with a lawsuit against Dropcam in July, 2014, e.Digital has litigated the patents-in-suit, and related portfolio, against a handful of other companies with products similar to the Arlo wireless camera systems. The previous litigation includes the lawsuit against Dropcam along with suits against ArcSoft, Inc., ShenZhen Gospell Smarthome Electronic Co., Ltd., iBaby Labs, Inc., iSmart Alarm, Inc., MivaTek International, Inc., MyFox, Inc., and Nest. Concurrent with the filing of the instant complaint against the Company, e.Digital also filed similar suits against Netatmo LLC and Y-Cam Solutions, LLC. The Company submitted its answer to the e.Digital complaint in early November 2016, denying the infringement allegations and asserting several defenses.

In February of 2017, the Court consolidated some, but not all, of the e.Digital cases for purposes of claim construction. In particular, the Court ordered that the iSmart case, for which claim construction is already fully briefed, move forward as scheduled, while the later Company, Netatmo, and Utility Associates cases be informally consolidated for claim construction purposes. As such, claim construction briefing is set to begin in August 2017, and a claim construction hearing is set for October 2017. The Court has not yet set a trial date. The Company served invalidity contentions on March 6, 2017.

Without admitting any wrongdoing or violation of law and to avoid the distraction and expense of continued litigation and the uncertainty of a jury verdict on the merits, on June 27, 2017, the Company and e.Digital settled the lawsuit for a one-time payment from the Company to e.Digital in return for a license to the Company to the e.Digital patents and applications that are currently owned by e.Digital. The lawsuit against the Company was dismissed with prejudice on July 5, 2017, and the case was closed by the Court.

This litigation matter did not have a material financial impact on the Company.

Script Security Solutions v. NETGEAR, Inc.

On December 12, 2016, Script Security Solutions L.L.C. (“Script”) sued the Company in U.S. District Court, Eastern District of Texas for alleged patent infringement of U.S. Patent Nos. 6,542,078 and 6,828,909. Script is a non-practicing entity and has filed over twenty other lawsuits alleging infringement of the same patents. A first wave of cases was filed in March 2015 against 11 defendants. All but one of those cases has settled or been terminated. A second wave of cases was filed in June 2015 against six defendants. Only two of those cases remain active. The third and most recent wave of cases was filed on December 12, 2016, against the Company and six other defendants.

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The asserted patents are related. The ‘909 patent is a continuation-in-part of the ’078 patent. The asserted patents are titled “Portable Motion Detector and Alarm System and Method” and allegedly claim priority to May 30, 1996. The asserted patents generally are directed to a portable security alarm system that detects movement of objects relative to a variety of predetermined positions.

The complaint is directed to the Company’s Arlo Home Security Systems and VueZone wireless home video system and alleges that the Company directly infringes at least claim 1 of the ’078 patent and claim 1 of the ’909 patent.

The answer was originally due on January 12, 2017, but the Company received an extension until February 21, 2017 to answer the complaint.  On that date, the Company answered the complaint by submitting a motion to dismiss the complaint because of Script’s failure to properly and sufficiently state a claim for relief. On March 3, 2017, Script filed its consolidated response to the various Defendants’ (including the Company’s) Motions to Dismiss for Failure to State a Claim. The Company’s reply brief was submitted on March 10, 2017. The Company also recently received Script’s infringement contentions.

Without admitting any wrongdoing or violation of law and to avoid the distraction and expense of continued litigation and the uncertainty of a jury verdict on the merits, on July 18, 2017, the Company and Script Security came to verbal agreement in principle to settle the lawsuit for a one-time payment from the Company to Script Security in return for a license to the Company to the Script Security patents and applications that are currently owned by Script Security. The parties are drafting the written settlement agreement, and the Company anticipates that the case will ultimately settle and be dismissed with prejudice.

The proposed settlement will not have a material financial impact on the Company.

Realtime Data v. NETGEAR, Inc.

On February 27, 2017, the Company was sued in the Eastern District of Texas by Realtime Data LLC (“Realtime”), which claims to do business as “Ixo.” The complaint includes four (4) asserted patents:

•     US 9,054,728, Data compression systems and methods;

•     US 7,415,530, System and methods for accelerated data storage and retrieval;

•     US 9,116,908, System and methods for accelerated data storage and retrieval; and

•     US 8,717,204, Methods for encoding and decoding data

The accused products specifically include the Company’s “ReadyDATA RD5200, RDD516, ReadyRECOVER” products. Generally, the complaint alleges that the asserted patents are directed to various compression / decompression algorithms and systems and is directed at the Company’s ReadyDATA, ReadyNAS, and ReadyRECOVER products.

Realtime has filed several patent suits over the last few years and the asserted patents have gone through various rounds of litigation and IPRs. In this particular tranche of Realtime lawsuits, Realtime also sued Array Networks, Barracuda Networks, Carbonite, Circadence, Comm Vault, Exinda and Snacor.

The Company received an extension until May 8, 2017 to answer the complaint and answered the complaint on that date. It is too early to reasonably estimate any financial impact to the Company resulting from this litigation matter.

Hybrid Audio v. NETGEAR, Inc.

On March 8, 2017, Hybrid Audio, LLC (“Hybrid Audio”) filed a patent infringement suit against the Company in the District of Massachusetts. Hybrid Audio alleges that the Company infringes United States Patent No. RE40,281 (the ’281 Patent), titled “Signal Processing Utilizing a Tree-Structured Array,” via the sale of EVA2000, EVA9100, and EVA9150 digital media players and other Company products because of their capability of playing MP3 encoded content.

The ’281 Patent was originally filed on February 25, 1997, and it issued as U.S. Patent No. 6,252,909 on June 26, 2001. A reissue application was filed on November 23, 2004, which issued on April 29, 2008. The ’281 Patent claims priority to September 21, 1992 via a chain of divisional and continuation-in-part applications. It includes 121 claims, which can be grouped into four categories: Claims directed towards (1) a communication system, (2) a signal processing method or system, (3) an information storage medium, and (4) a method of regenerating or reconstructing a signal. In short, the ’281 Patent covers a method of compressing and decompressing signal information using a tree-structured array of sub-band filter banks.

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The ’281 Patent expired on September 21, 2012, and thus, the statute of limitations period for damages calculations is limited to March 8, 2011 to September 21, 2012.

The Company has not yet answered the complaint, and after requesting an extension to answer, the Company’s answer is now due on May 22, 2017. The Company received an additional extension to answer the complaint. Before answering, however, without admitting any wrongdoing or violation of law and to avoid the distraction and expense of continued litigation and the uncertainty of a jury verdict on the merits, on June 27, 2017, the Company and Hybrid settled the lawsuit for a one-time payment from the Company to Hybrid in return for a license to the Company to the Hybrid patent in suit and all related patents and patent applications. The lawsuit against the Company was dismissed with prejudice on June 30, 2017, and the case was closed by the Court.

This litigation matter did not have a material financial impact on the Company.

Magnacross v. NETGEAR, Inc.

On April 12, 2017, Magnacross LLC (“Magnacross”) sued the Company in U.S. District Court, Eastern District of Texas for alleged patent infringement of exemplary claim 12 of US Patent 6,917,304, and appears to contend that compliance with 802.11 standards necessarily results in infringement, specifically mentioning 802.11b/g and 802.11n-compliant radios in the Company’s products. Magnacross sued five other companies on April 12, 2017, seven others in December 2016, and 17 others in May 2016 on the same patent. The complaint identifies the AC1750, AC1450, AC1200, and AC750 WiFi routers as exemplary accused products and also references the Company’s Arlo cameras.

The Company received an extension until June 7, 2017 to answer the complaint, and the Company answered the complaint on that date by requesting a transfer out of the Eastern District of Texas, as the Company’s legal position is that venue is improper in the Eastern District of Texas.

It is too early to reasonably estimate any financial impact to the Company resulting from this litigation matter.

Williams v. NETGEAR, Inc.

On April 14, 2017, Plaintiff Stewart Williams filed a putative class action against the Company in the United States District Court for the Northern District of California. Plaintiff is represented by Schubert Jonckheer & Kolbe LLP.

Plaintiff Stewart Williams alleges violations of California and Nevada state consumer protection laws based on NETGEAR’s sale and marketing of its CM700 cable modem (the “Modem”). Specifically, Plaintiff alleges that the Modem contains a defect that causes severe network latency, impairing network connectivity and preventing consumers from utilizing the maximum advertised network bandwidth. According to Plaintiff, NETGEAR had exclusive knowledge of this alleged defect and actively concealed the defect from consumers with false marketing and labeling.

Based on these allegations, Plaintiff seeks to bring his lawsuit as a class action representing a nationwide class of consumers. Plaintiff states causes of action under California’s (1) Song-Beverly Consumer Warranty Act; (2) Consumer Legal Remedies Act, (3) False Advertising Law, and (4) Unfair Competition Law. In addition, Plaintiff seeks to represent a subclass of Nevada consumers and brings a claim under Nevada’s Deceptive Trade Practices Act.

On June 15, 2017, Plaintiffs filed an amended complaint, adding two new named plaintiffs, both residents of California, and also adding the Company’s C6300 cable gateway as a product at issue. The parties agreed to extend the Company’s time to answer the complaint to August 11, 2017.

It is too early to reasonably estimate any financial impact to the Company resulting from this litigation matter.

Vivato v. NETGEAR, Inc.

On April 19, 2017, the Company was sued by XR Communications (d/b/a) Vivato (“Vivato”) in the United States District Court, Central District of California.

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Based on its complaint, Vivato purports to be a research and development and product company in the Wi-Fi area, but it appears that Vivato is not currently a manufacturer of commercial products. The three (3) patents that Vivato asserts against the Company are U.S. Patent Nos. 7,062,296, 7,729,728, and 6,611,231. The ’296 and ’728 patents are entitled “Forced Beam Switching in Wireless Communication Systems Having Smart Antennas.” The ’231 patent is entitled “Wireless Packet Switched Communication Systems and Networks Using Adaptively Steered Antenna Arrays.” Vivato also has recently asserted the same patents in the Central District of California against D-Link, Ruckus, and Aruba, among others.

According to the complaint, the accused products include WiFi access points and routers supporting MU-MIMO, including without limitation access points and routers utilizing the IEEE 802.11ac-2013 standard. The accused technology is standards-based, and more specifically, based on the transmit beamforming technology in the 802.11ac Wi-Fi standard.

The Company answered an amended complaint on July 7, 2017. In its answer, the Company objected to venue and recited that objection as a specific affirmative defense, so as to expressly reserve the same. The Company also raised several other affirmative defenses in its answer.

It is too early to reasonably estimate any financial impact to the Company resulting from this litigation matter.

Hera Wireless v. NETGEAR, Inc.

On July 14, 2017, the Company was sued by Sisvel (via Hera Wireless) in the District of Delaware on three related patents allegedly covering the 802.11n standard. Similar complaints were filed against Amazon, ARRIS, Belkin, Buffalo, and Roku. The Company has not yet answered the complaint.

It is too early to reasonably estimate any financial impact to the Company resulting from this litigation matter.

IP Indemnification Claims

In its sales agreements, the Company typically agrees to indemnify its direct customers, distributors and resellers (the “Indemnified Parties”) for any expenses or liability resulting from claimed infringements by the Company's products of patents, trademarks or copyrights of third parties that are asserted against the Indemnified Parties, subject to customary carve outs. The terms of these indemnification agreements are generally perpetual after execution of the agreement. The maximum amount of potential future indemnification is generally unlimited. From time to time, the Company receives requests for indemnity and may choose to assume the defense of such litigation asserted against the Indemnified Parties.

Environmental Regulation

The Company is required to comply and is currently in compliance with the European Union ("EU") and other Directives on the Restrictions of the use of Certain Hazardous Substances in Electrical and Electronic Equipment (“RoHS”), Waste Electrical and Electronic Equipment ("WEEE") requirements, Energy Using Product (“EuP”) requirements, the REACH Regulation, Packaging Directive and the Battery Directive.

The Company is subject to various federal, state, local, and foreign environmental laws and regulations, including those governing the use, discharge, and disposal of hazardous substances in the ordinary course of our manufacturing process. The Company believes that its current manufacturing and other operations comply in all material respects with applicable environmental laws and regulations; however, it is possible that future environmental legislation may be enacted or current environmental legislation may be interpreted to create an environmental liability with respect to its facilities, operations, or products. See further discussion of the business risks associated with environmental legislation under the risk titled, "We are subject to, and must remain in compliance with, numerous laws and governmental regulations concerning the manufacturing, use, distribution and sale of our products, as well as any such future laws and regulations. Some of our customers also require that we comply with their own unique requirements relating to these matters. Any failure to comply with such laws, regulations and requirements, and any associated unanticipated costs, may adversely affect our business, financial condition and results of operations." within Item 1A Risk Factors of this Form 10-Q.

29

NETGEAR, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Note 9. Stockholders' Equity

Stock Repurchases

From time to time, the Company’s Board of Directors has authorized programs under which the Company may repurchase shares of its common stock, depending on market conditions, in the open market or through privately negotiated transactions. Under the authorizations, the timing and actual number of shares subject to repurchase are at the discretion of management and are contingent on a number of factors, such as levels of cash generation from operations, cash requirements for acquisitions and the price of the Company’s common stock. On April 25, 2017, the Company's Board of Directors authorized the repurchase of up to 3.0 million shares of the Company’s outstanding common stock which, at the time of authorization, were incremental to the remaining shares under the Company's previous share repurchase program. As of July 2, 2017, 3.2 million shares remained authorized for repurchase under the repurchase programs approved by the Board in July 2015 and April 2017. All shares authorized under previously approved programs were fully utilized. The Company repurchased, as reported based on trade date, 1.1 million shares of common stock at a cost of $56.6 million during the six months ended July 2, 2017. The Company repurchased, reported based on trade date, 0.6 million shares of common stock at a cost of $23.3 million under the repurchase authorization during the six months ended July 3, 2016.

The Company repurchased, as reported based on trade date, approximately 0.1 million shares of common stock at a cost of $5.6 million to help administratively facilitate the withholding and subsequent remittance of personal income and payroll taxes for individuals receiving RSUs during the six months ended July 2, 2017. Similarly, during the six months ended July 3, 2016, the Company repurchased, as reported based on trade date, approximately 91,000 shares of common stock at a cost of $3.9 million to help facilitate tax withholding for RSUs.

These shares were retired upon repurchase. The purchase price for the shares of the Company’s stock repurchased is reflected as a reduction to stockholders’ equity. The Company’s policy related to repurchases of its common stock is to charge the excess of cost over par value to retained earnings. All repurchases were made in compliance with Rule 10b-18 under the Securities Exchange Act of 1934, as amended.

Accumulated Other Comprehensive Income

The following table sets forth the changes in accumulated other comprehensive income ("AOCI") by component for the six months ended July 2, 2017 and July 3, 2016:

	Unrealized gains (losses) on available-for-sale securities			Unrealized gains (losses) on derivatives			Estimated tax benefit (provision)			Total
	(In thousands)
Balance as of December 31, 2016	$	(31	)	$	2,230		$	(261	)	$	1,938
Other comprehensive loss before reclassifications	(82		)	(7,052		)	807			(6,327		)
Less: Amount reclassified from accumulated other comprehensive income	—			648			(227		)	421
Net current period other comprehensive income (loss)	(82		)	(7,700		)	1,034			(6,748		)
Balance as of July 2, 2017	$	(113	)	$	(5,470	)	$	773		$	(4,810	)

30

NETGEAR, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

	Unrealized gains (losses) on available-for-sale securities			Unrealized gains (losses) on derivatives			Estimated tax benefit (provision)			Total
	(In thousands)
Balance as of December 31, 2015	$	(64	)	$	43		$	24		$	3
Other comprehensive income (loss) before reclassifications	147			(699		)	177			(375		)
Less: Amount reclassified from accumulated other comprehensive income	—			(663		)	232			(431		)
Net current period other comprehensive income (loss)	147			(36		)	(55		)	56
Balance as of July 3, 2016	$	83		$	7		$	(31	)	$	59

The following tables provide details about significant amounts reclassified out of each component of AOCI for the three and six months ended July 2, 2017 and July 3, 2016:

Details about Accumulated Other Comprehensive Income Components	Three Months Ended July 2, 2017				Six Months Ended July 2, 2017
	Amount Reclassified from AOCI			Affected Line Item in the Statements of Operations	Amount Reclassified from AOCI			Affected Line Item in the Statement of Operations
	(In thousands)				(In thousands)
Gains (losses) on cash flow hedge:
Foreign currency forward contracts	$	(1,008	)	Net revenue	$	1,027		Net revenue
Foreign currency forward contracts	$	(1	)	Cost of revenue	$	(14	)	Cost of revenue
Foreign currency forward contracts	77			Operating expenses	(365		)	Operating expenses
	$	(932	)	Total before tax	$	648		Total before tax
	326			Tax impact	(227		)	Tax impact
	$	(606	)	Total, net of tax	$	421		Total, net of tax

Details about Accumulated Other Comprehensive Income Components	Three Months Ended July 3, 2016				Six Months Ended July 3, 2016
	Amount Reclassified from AOCI			Affected Line Item in the Statements of Operations	Amount Reclassified from AOCI			Affected Line Item in the Statement of Operations
	(In thousands)				(In thousands)
Gains (losses) on cash flow hedge:
Foreign currency forward contracts	$	(407	)	Net revenue	$	(719	)	Net revenue
Foreign currency forward contracts	(2		)	Cost of revenue	—			Cost of revenue
Foreign currency forward contracts	(14		)	Operating expenses	56			Operating expenses
	(423		)	Total before tax	(663		)	Total before tax
	148			Tax impact	232			Tax impact
	$	(275	)	Total, net of tax	$	(431	)	Total, net of tax

Note 10. Employee Benefit Plans

The Company grants options and RSUs under the 2016 Incentive Plan (the "2016 Plan"), under which awards may be granted to all employees. Award vesting periods for this plan are generally four years. As of July 2, 2017, approximately 2.0 million shares were reserved for future grants under the 2016 Plan.

Additionally, the Company sponsors the ESPP, pursuant to which eligible employees may contribute up to 10% of base compensation, subject to certain income limits, to purchase shares of the Company’s common stock. The terms of the plan include a look-back feature that enables employees to purchase stock semi-annually at a price equal to 85% of the lesser of the fair market value at the beginning of the offering period or the purchase date. As of July 2, 2017, approximately 0.9 million shares were available for issuance under the ESPP.

31

NETGEAR, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Option Activity

Stock option activity during the six months ended July 2, 2017 was as follows:

	Number of shares		Weighted Average Exercise Price Per Share
	(In thousands)		(In dollars)
Outstanding as of December 31, 2016	1,884		$	31.14
Granted	328		42.70
Exercised	(142	)	27.84
Cancelled	—		—
Expired	(1	)	30.66
Outstanding as of July 2, 2017	2,069		$	33.20

RSU Activity

RSU activity during the six months ended July 2, 2017 was as follows:

	Number of shares		Weighted Average Grant Date Fair Value Per Share
	(In thousands)		(In dollars)
Outstanding as of December 31, 2016	996		$	36.22
Granted	544		49.59
Vested	(361	)	34.99
Cancelled	(28	)	44.61
Outstanding as of July 2, 2017	1,151		$	42.72

Valuation and Expense Information

The fair value of each option award and share granted under the ESPP commencing February 16, 2016 is estimated on the date of grant using a Black-Scholes-Merton option valuation model that uses the assumptions noted in the following table. The estimated expected term of options granted is derived from historical data on employee exercise and post-vesting employment termination behavior. The risk free interest rate for options and ESPP shares is based on the implied yield currently available on U.S. Treasury securities with a remaining term commensurate with the estimated expected term. Expected volatility for options and ESPP shares is based on historical volatility over the most recent period commensurate with the estimated expected term. Upon the adoption of ASU 2016-09, the Company elected to account for forfeitures as they occur, rather than estimating expected forfeitures. Refer to recently adopted accounting pronouncement under Note 2, Summary of Significant Accounting Policies, for a further discussion of the impact from the adoption of ASU 2016-09.

32

NETGEAR, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The table below sets forth the weighted average assumptions used to estimate the fair value of option grants and purchase rights granted under the ESPP during the three and six months ended July 2, 2017 and July 3, 2016.

	Three Months Ended					Six Months Ended
	Stock Options			ESPP		Stock Options				ESPP
	July 2, 2017		July 3, 2016	July 2, 2017	July 3, 2016	July 2, 2017		July 3, 2016		July 2, 2017		July 3, 2016
Expected life (in years)	4.4		NA	NA	NA	4.4		4.4		0.5		0.5
Risk-free interest rate	1.65	%	NA	NA	NA	1.65	%	1.28	%	0.66	%	0.42	%
Expected volatility	31.6	%	NA	NA	NA	31.6	%	35.4	%	27.6	%	44.7	%
Dividend yield	—		NA	NA	NA	—		—		—		—

The following table sets forth the stock-based compensation expense resulting from stock options, RSUs and the ESPP included in the Company’s unaudited condensed consolidated statements of operations:

	Three Months Ended				Six Months Ended
	July 2, 2017		July 3, 2016		July 2, 2017		July 3, 2016
	(In thousands)
Cost of revenue	$	542	$	451	$	978	$	890
Research and development	1,373		1,118		2,692		1,984
Sales and marketing	1,438		1,338		2,685		2,535
General and administrative	2,348		2,112		4,474		4,021
Total stock-based compensation	$	5,701	$	5,019	$	10,829	$	9,430

As of July 2, 2017, $9.0 million of unrecognized compensation cost related to stock options, adjusted for estimated forfeitures, is expected to be recognized over a weighted-average period of 2.8 years. $44.3 million of unrecognized compensation cost related to unvested RSUs is expected to be recognized over a weighted-average period of 2.8 years.

Note 11. Segment Information

Operating segments are components of an enterprise about which separate financial information is available and is regularly evaluated by management, namely the Chief Operating Decision Maker (“CODM”) of an organization, in order to determine operating and resource allocation decisions. By this definition, the Company has identified its CEO as the CODM.

In the first quarter of fiscal 2017, the Company's CODM requested changes to the information that he regularly reviews for purposes of allocating resources and assessing performance. The Company reorganized its operating segment structure, resulting in a change to its reportable segments. The former Service Provider segment was integrated into the current segments which are organized by product groups. Beginning fiscal 2017, the Company operates and reports in three segments: Arlo, Connected Home, and Small and Medium Business ("SMB"):

•Arlo: Focused on intelligent internet-connected products for consumers and business that provide security and safety;

• Connected Home: Focused on consumers and consists of high-performance, dependable and easy-to-use LTE and WiFi internet networking solutions; and

• SMB: Focused on small and medium-sized businesses and consists of business networking, storage and security solutions that bring enterprise-class functionality to small and medium-sized businesses at an affordable price.

The Company believes that this structure reflects its current operational and financial management, and provides the best structure for the Company to focus on growth opportunities while maintaining financial discipline. Each segment contains leadership focused on the product development efforts, both from a product marketing and engineering standpoint, to service the unique needs of their customers.

33

NETGEAR, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The results of the reportable segments are derived directly from the Company’s management reporting system. The results are based on the Company’s method of internal reporting and are not necessarily in conformity with accounting principles generally accepted in the United States. Management measures the performance of each segment based on several metrics, including contribution income. Segment contribution income includes all product line segment revenues less the related cost of revenue, research and development and sales and marketing expenses. Contribution income is used, in part, to evaluate the performance of, and allocate resources to, each of the segments. The CODM does not evaluate operating segments using discrete asset information. Certain operating expenses are not allocated to segments because they are separately managed at the corporate level. These unallocated indirect costs include corporate expenses, such as corporate research and development, corporate marketing expense and general and administrative expense, amortization of intangibles, stock-based compensation expense, restructuring and other charges, litigation reserves, net, interest income and other income (expense), net.

Financial information for each reportable segment and a reconciliation of segment contribution income to income before income taxes is as follows:

	Three Months Ended						Six Months Ended
	July 2, 2017			July 3, 2016*			July 2, 2017			July 3, 2016*
	(In thousands, except percentage data)
Net revenue:
Arlo	$	78,732		$	38,585		$	139,444		$	62,850
Connected Home	185,905			198,654			380,266			414,764
SMB	66,086			74,416			134,670			144,297
Total net revenue	$	330,723		$	311,655		$	654,380		$	621,911
Contribution income:
Arlo	$	3,172		$	389		$	3,493		$	(3,441	)
Arlo contribution margin	4.0		%	1.0		%	2.5		%	(5.5		)%
Connected Home	$	25,124		$	33,228		$	56,836		$	75,257
Connected Home contribution margin	13.5		%	16.7		%	14.9		%	18.1		%
SMB	$	16,752		$	18,846		$	35,256		$	34,241
SMB contribution margin	25.3		%	25.3		%	26.2		%	23.7		%
Total segment contribution income	$	45,048		$	52,463		$	95,585		$	106,057
Corporate and unallocated costs	(17,033		)	(16,418		)	(35,234		)	(33,134		)
Amortization of intangibles (1)	(3,146		)	(4,166		)	(7,528		)	(8,331		)
Stock-based compensation expense	(5,701		)	(5,019		)	(10,829		)	(9,430		)
Restructuring and other charges	(22		)	(1,311		)	(59		)	(3,989		)
Litigation reserves, net	(53		)	(35		)	(53		)	(45		)
Interest income	482			279			887			513
Other income (expense), net	383			(332		)	718			(698		)
Income before income taxes	$	19,958		$	25,461		$	43,487		$	50,943

_________________________

⁽¹⁾  Amount excludes amortization expense related to patents within purchased intangibles in cost of revenue.

* Prior year financial information for each reportable segment has been recast to conform to the current reportable segment structure effective on January 1, 2017.

34

NETGEAR, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The following table shows net revenue from service provider customers within each of the reportable segments for the periods indicated:

	Three Months Ended				Six Months Ended
	July 2, 2017		July 3, 2016		July 2, 2017		July 3, 2016
	(In thousands)
Arlo	$	7,972	$	5,236	$	9,949	$	11,217
Connected Home	48,485		61,356		101,678		138,208
SMB	588		746		1,378		2,194
Total service provider net revenue	$	57,045	$	67,338	$	113,005	$	151,619

The Company conducts business across three geographic regions: Americas, Europe, Middle-East and Africa (“EMEA”) and Asia Pacific ("APAC"). Net revenue by geography comprises gross revenue less such items as end-user customer rebates and other channel sales incentives deemed to be a reduction of net revenue per the authoritative guidance for revenue recognition, sales returns and price protection. For reporting purposes revenue is attributed to each geographic region based on the location of the customer. The following table shows net revenue by geography for the periods indicated:

	Three Months Ended				Six Months Ended
	July 2, 2017		July 3, 2016		July 2, 2017		July 3, 2016
	(In thousands)
United States (U.S.)	$	221,387	$	203,508	$	427,512	$	392,874
Americas (excluding U.S.)	5,562		7,400		11,066		11,884
EMEA	55,204		51,653		113,649		116,158
APAC	48,570		49,094		102,153		100,995
Total net revenue	$	330,723	$	311,655	$	654,380	$	621,911

Long-lived assets include purchased intangibles, goodwill and property and equipment. The Company's property and equipment are located in the following geographic locations:

	As of
	July 2, 2017		December 31, 2016
	(In thousands)
United States	$	8,806	$	9,542
Canada	2,045		2,745
EMEA	171		210
China	5,906		5,219
APAC (excluding China)	1,901		1,757
Total property and equipment, net	$	18,829	$	19,473

35

NETGEAR, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Note 12. Fair Value Measurements

The following tables summarize assets and liabilities measured at fair value on a recurring basis as of July 2, 2017:

	As of July 2, 2017
	Total		Quoted market prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
	(In thousands)
Assets:
Cash equivalents: money-market funds	$	25,007	$	25,007	$	—	$	—
Available-for-sale securities: U.S. treasuries (1)	112,874		112,874		—		—
Available-for-sale securities: certificates of deposit (1)	158		158		—		—
Trading securities: mutual funds (1)	1,815		1,815		—		—
Foreign currency forward contracts (2)	1,675		—		1,675		—
Total assets measured at fair value	$	141,529	$	139,854	$	1,675	$	—

________________________

⁽¹⁾  Included in short-term investments on the Company’s unaudited condensed consolidated balance sheets.

⁽²⁾  Included in prepaid expenses and other current assets on the Company’s unaudited condensed consolidated balance sheets.

	As of July 2, 2017
	Total		Quoted market prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
	(In thousands)
Liabilities:
Foreign currency forward contracts (3)	$	9,300	$	—	$	9,300	$	—
Total liabilities measured at fair value	$	9,300	$	—	$	9,300	$	—

_________________________

⁽³⁾  Included in other accrued liabilities on the Company’s unaudited condensed consolidated balance sheets.

The following tables summarize assets and liabilities measured at fair value on a recurring basis as of December 31, 2016:

	As of December 31, 2016
	Total		Quoted market prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
	(In thousands)
Assets:
Cash equivalents: money-market funds	$	17,027	$	17,027	$	—	$	—
Available-for-sale securities: U.S. treasuries (1)	123,838		123,838		—		—
Available-for-sale securities: certificates of deposit (1)	148		148		—		—
Trading securities: mutual funds (1)	1,528		1,528		—		—
Foreign currency forward contracts (2)	8,763		—		8,763		—
Total assets measured at fair value	$	151,304	$	142,541	$	8,763	$	—

_________________________

⁽¹⁾  Included in short-term investments on the Company’s unaudited condensed consolidated balance sheets.

⁽²⁾  Included in prepaid expenses and other current assets on the Company’s unaudited condensed consolidated balance sheets.

36

NETGEAR, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

	As of December 31, 2016
	Total		Quoted market prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
	(In thousands)
Liabilities:
Foreign currency forward contracts (3)	$	1,705	$	—	$	1,705	$	—
Total liabilities measured at fair value	$	1,705	$	—	$	1,705	$	—

_________________________

⁽³⁾  Included in other accrued liabilities on the Company’s unaudited condensed consolidated balance sheets.

The Company’s investments in cash equivalents and available-for-sale securities are classified within Level 1 of the fair value hierarchy because they are valued based on quoted market prices in active markets. The Company enters into foreign currency forward contracts with only those counterparties that have long-term credit ratings of A-/A3 or higher. The Company’s foreign currency forward contracts are classified within Level 2 of the fair value hierarchy as they are valued using pricing models that take into account the contract terms as well as currency rates and counterparty credit rates. The Company verifies the reasonableness of these pricing models using observable market data for related inputs into such models. Additionally, the Company includes an adjustment for non-performance risk in the recognized measure of fair value of derivative instruments. As of July 2, 2017 and December 31, 2016, the adjustment for non-performance risk did not have a material impact on the fair value of the Company’s foreign currency forward contracts. The carrying value of non-financial assets and liabilities measured at fair value in the financial statements on a recurring basis, including accounts receivable and accounts payable, approximate fair value due to their short maturities.

Note 13. Shipping and Handling Fees and Costs

The Company includes shipping and handling fees billed to customers in net revenue. Shipping and handling costs associated with inbound freight are included in cost of revenue and ending inventory. Shipping and handling costs associated with outbound freight are included in sales and marketing expenses and totaled $2.2 million and $4.5 million for the three and six months ended July 2, 2017, respectively, and $2.7 million and $4.8 million for the three and six months ended July 3, 2016, respectively.

Note 14. Restructuring and Other Charges

The Company accounts for its restructuring plans under the authoritative guidance for exit or disposal activities. The Company presents expenses related to restructuring and other charges as a separate line item in the unaudited condensed consolidated statements of operations. Accrued restructuring and other charges are classified within other accrued liabilities in the unaudited condensed consolidated balance sheets.

No significant restructuring and other charges were recognized during the three and six months ended July 2, 2017. Restructuring and other charges recognized in the three and six months ended July 3, 2016 was primarily related to severance, other one-time termination benefits and other associated costs. Amounts attributable to lease contract termination charges will be paid over the remaining lease term until January 2022.

37

NETGEAR, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The following table provides a summary of the activity related to accrued restructuring and other charges for the six months ended July 2, 2017:

	Accrued Restructuring and Other Charges at December 31, 2016		Additions		Cash Payments			Adjustments		Accrued Restructuring and Other Charges at July 2, 2017
	(In thousands)
Restructuring
Employee termination charges	$	6	$	—	$	—		$	—	$	6
Lease contract termination and other charges	1,402		59		(202		)	—		1,259
Total Restructuring and other charges	$	1,408	$	59	$	(202	)	$	—	$	1,265

38

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-looking Statements

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended and the Private Securities Litigation Reform Act of 1995. Such statements are based upon current expectations that involve risks and uncertainties. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. For example, the words “believes,” “anticipates,” “plans,” “expects,” “intends,” “could,” “may,” “will,” and similar expressions are intended to identify forward-looking statements. Our actual results and the timing of certain events may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such a discrepancy include, but are not limited to, those discussed in “Part II—Item 1A—Risk Factors” and “Liquidity and Capital Resources” below. All forward-looking statements in this document are based on information available to us as of the date hereof and we assume no obligation to update any such forward-looking statements. The following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and the accompanying notes contained in this quarterly report. Unless expressly stated or the context otherwise requires, the terms “we,” “our,” “us” and “NETGEAR” refer to NETGEAR, Inc. and our subsidiaries.

Business and Executive Overview

We are a global company that delivers innovative networking and Internet connected products to consumers and growing businesses. Our products are built on a variety of proven technologies such as wireless (WiFi and LTE), Ethernet and powerline, with a focus on reliability and ease-of-use. Our product line consists of devices that create and extend wired and wireless networks as well as devices that provide a special function and attach to the network, such as IP security cameras and home automation devices and services. These products are available in multiple configurations to address the changing needs of our customers in each geographic region in which our products are sold.

In the first quarter of fiscal 2017, our Chief Operating Decision Maker requested changes to the information that he regularly reviews for purposes of allocating resources and assessing performance. By consequence, we reorganized our operating segment structure, resulting in a change to our reportable segments. The former Service Provider segment was integrated into the current segments which are organized by product groups. Beginning fiscal 2017, we operate and report in three segments: Arlo, Connected Home, and Small and Medium Business ("SMB"). For additional information on the changes in the reportable segments, refer to Note 11, Segment Information, in the Notes to Unaudited Condensed Consolidated Financial Statements in Item 1 of Part I of this Quarterly Report on Form 10-Q.

We believe that this structure reflects our current operational and financial management, and provides the best structure for us to focus on growth opportunities while maintaining financial discipline. Each segment contains leadership focused on the product development efforts, both from a product marketing and engineering standpoint, to service the unique needs of their customers. The Arlo segment is focused on intelligent internet-connected products for consumers and business that provide security and safety. The Connected Home segment is focused on consumers and consists of high-performance, dependable and easy-to-use LTE and WiFi internet networking solutions. The SMB segment is focused on small and medium-sized businesses and consists of business networking, storage and security solutions that bring enterprise-class functionality to small and medium-sized businesses at an affordable price. We conduct business across three geographic regions: Americas; Europe, Middle-East and Africa (“EMEA”) and Asia Pacific (“APAC”).

The markets in which all of our segments operate are intensely competitive and subject to rapid technological change. We believe that the principal competitive factors in the consumer and small and medium-sized businesses markets for networking products include product breadth, size and scope of the sales channel, brand name, timeliness of new product introductions, product availability, performance, features, functionality and reliability, ease-of-installation, maintenance and use, security, and customer service and support. To remain competitive, we believe we must continue to aggressively invest resources in developing new products and enhancing our current products while continuing to expand our channels and maintaining customer satisfaction worldwide. Among these investments is an enhanced focus on cybersecurity relating to our products and systems, as the threat of cyber-attacks and exploitation of potential security vulnerabilities in our industry is on the rise and is increasingly a significant consumer concern.

We sell our networking products through multiple sales channels worldwide, including traditional retailers, online retailers, wholesale distributors, direct market resellers (“DMRs”), value-added resellers (“VARs”), and broadband service providers.

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Our retail channel includes traditional retail locations domestically and internationally, such as Best Buy, Costco, Fry’s Electronics, Staples, Target, Wal-Mart, Argos (U.K.), PC World (U.K.), MediaMarkt (Europe), Darty (France), JB HiFi (Australia), Elkjop (Norway) and Sunning and Guomei (China). Online retailers include Amazon.com worldwide, Newegg.com (US), JD.com and Alibaba (China), as well as NBB.com (Germany) and Coolblue.com (Netherlands). Our DMRs include CDW Corporation, Insight Corporation and PC Connection in domestic markets and Misco throughout Europe. In addition, we also sell our products through broadband service providers, such as multiple system operators (“MSOs”), xDSL, and other broadband technology operators domestically and internationally. Some of these retailers and broadband service providers purchase directly from us, while others are fulfilled through wholesale distributors around the world. A substantial portion of our net revenue to date has been derived from a limited number of wholesale distributors and retailers. We expect that these wholesale distributors and retailers will continue to contribute a significant percentage of our net revenue for the foreseeable future.

During the second quarter of fiscal 2017, we experienced a 6.1% increase in net revenue while income from operations fell 25.1% compared to the second quarter of fiscal 2016. The increase in net revenue was attributable to the performance of our Arlo segment which saw net revenue increase by 104.0%, partially offset by declines in both the Connected Home and SMB of 6.4% and 11.2%, respectively. The increase in Arlo segment net revenue was mainly driven by our Arlo smart camera product line which continues to experience strong end user demand within a high growth market. The decrease in Connected Home net revenue was primarily due to lower gross shipments of broadband modem and gateway products, partially offset by increased gross shipments of mobile and home wireless products. SMB experienced a decline in net revenue across all product categories led by switches, SMB wireless and storage compared to the prior year period. Income from operations fell $6.4 million compared to the prior year period, mainly due to contribution income declines in Connected Home and SMB, partially offset by contribution profit improvement in Arlo. The contribution income declines in Connected Home and SMB were as a result of lower gross margin attainment, due in part to higher investment in channel promotional activities as well as increased sales returns. The increase in Arlo contribution income was due to the growth in net revenue not being met with proportionate increases in operating expenditures.

On a geographic basis, net revenue increased in the Americas and EMEA, declining slightly in APAC. The increase in Americas net revenue was primarily driven by higher gross shipments of our Arlo security cameras, home wireless and mobile products, offset by declines in gross shipments of broadband modem and gateway products and powerline products. The increase in EMEA was primarily driven by increased gross shipments of Arlo security cameras, mobile products, home wireless and switches. The increase was partially offset by falls in gross shipments of our broadband modem and gateway products and powerline products. APAC net revenue decreased slightly due to a decline in gross shipments of broadband modem and gateway products and switches, offset by increased gross shipments of home wireless products, led by our Orbi home WiFi system.

Looking forward, we expect strong growth in our Arlo segment driven by increasing demand for our Arlo smart camera products as well as through new product category introductions. We expect growth in our Connected Home segment mainly driven by increasing demand for our home WiFi systems and we expect to enhance our product portfolio to further service preexisting markets. In addition, we expect a shift in consumer preference away from single point WiFi routers to whole Home WiFi Systems which may require increased marketing and promotional expenditure to achieve similar levels of market share. We also expect growth in our SMB segment driven by sales of our 10Gig, PoE, and web-managed switches and rackmount storage products. We expect net revenue from service provider customers to be approximately $55 million per quarter for the remainder of fiscal 2017.

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Results of Operations

The following table sets forth the unaudited condensed consolidated statements of operations for the three and six months ended July 2, 2017, with the comparable reporting period in the preceding year.

	Three Months Ended									Six Months Ended
	July 2, 2017				July 3, 2016					July 2, 2017				July 3, 2016
	(In thousands, except percentage data)
Net revenue	$	330,723	100.0	%	$	311,655		100.0	%	$	654,380	100.0	%	$	621,911		100.0	%
Cost of revenue	238,787		72.2	%	213,867			68.6	%	465,512		71.1	%	423,558			68.1	%
Gross profit	91,936		27.8	%	97,788			31.4	%	188,868		28.9	%	198,353			31.9	%
Operating expenses:
Research and development	23,357		7.1	%	21,804			7.0	%	46,040		7.0	%	43,941			7.1	%
Sales and marketing	36,461		11.0	%	36,089			11.6	%	74,690		11.5	%	73,366			11.8	%
General and administrative	12,950		3.9	%	13,035			4.2	%	26,144		4.0	%	25,884			4.2	%
Restructuring and other charges	22		0.0	%	1,311			0.4	%	59		0.0	%	3,989			0.6	%
Litigation reserves, net	53		0.0	%	35			0.0	%	53		0.0	%	45			0.0	%
Total operating expenses	72,843		22.0	%	72,274			23.2	%	146,986		22.5	%	147,225			23.7	%
Income from operations	19,093		5.8	%	25,514			8.2	%	41,882		6.4	%	51,128			8.2	%
Interest income	482		0.1	%	279			0.1	%	887		0.1	%	513			0.1	%
Other income (expense), net	383		0.1	%	(332		)	(0.1	)%	718		0.1	%	(698		)	(0.1	)%
Income before income taxes	19,958		6.0	%	25,461			8.2	%	43,487		6.6	%	50,943			8.2	%
Provision for income taxes	5,376		1.6	%	9,427			3.1	%	12,911		1.9	%	18,320			3.0	%
Net income	$	14,582	4.4	%	$	16,034		5.1	%	$	30,576	4.7	%	$	32,623		5.2	%

Net Revenue by Geographic Region

Our net revenue consists of gross product shipments, less allowances for estimated sales returns for stock rotation and warranty, price protection, end-user customer rebates and other channel sales incentives deemed to be a reduction of net revenue per the authoritative guidance for revenue recognition, and net changes in deferred revenue.

We conduct business across three geographic regions: Americas, EMEA and APAC. For reporting purposes revenue is attributed to each geographic region based upon the location of the customer.

	Three Months Ended								Six Months Ended
	July 2, 2017			% Change		July 3, 2016			July 2, 2017			% Change		July 3, 2016
	(In thousands, except percentage data)
Americas	$	226,949		7.6	%	$	210,908		$	438,578		8.4	%	$	404,758
Percentage of net revenue	68.6		%			67.6		%	67.0		%			65.1		%
EMEA	$	55,204		6.9	%	$	51,653		$	113,649		(2.2	)%	$	116,158
Percentage of net revenue	16.7		%			16.6		%	17.4		%			18.7		%
APAC	$	48,570		(1.1	)%	$	49,094		$	102,153		1.1	%	$	100,995
Percentage of net revenue	14.7		%			15.8		%	15.6		%			16.2		%
Total net revenue	$	330,723		6.1	%	$	311,655		$	654,380		5.2	%	$	621,911

Americas

The increase in Americas net revenue for the three and six months ended July 2, 2017 was primarily driven by higher gross shipments of our home security cameras, home wireless and mobile products, offset by declines in gross shipments of broadband modem and gateway products. Net revenue was further impacted by sales returns and channel promotion activities deemed to be a reduction of revenue increasing proportionately compared to the prior year periods. Substantially all of the increase in net revenue in the three months and six months ended July 2, 2017 was attributable to the Arlo segment which experienced year over

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year net revenue growth of 121% and 129%, respectively. We continue to experience strong end user demand for our Arlo product portfolio. In the three and six months ended July 2, 2017, Connected Home net revenue fell by 10% and 7%, respectively compared to the prior year periods, primarily as a result of a significant decline in service provider net revenue. The fall in service provider net revenue is as a result of decisions taken by management in fiscal 2015 and 2016 to reduce focus on sales to certain service provider customers.

EMEA

EMEA net revenue increased in the three months ended July 2, 2017, compared to the prior year period, primarily driven by increased gross shipments of Arlo security cameras, mobile products, home wireless products and switches. The increase was partially offset by falls in gross shipments of our broadband modem and gateway products, and powerline products. EMEA net revenue decreased for the six months ended July 2, 2017, compared to the prior year period, as a result of a decline in gross shipments of our broadband modem and gateway, powerline and home wireless products, partially offset by increased gross shipments of Arlo security cameras and switches. In the three and six months ended July 2, 2017, net revenue from service providers fell 7.1% and 47.7%, respectively, while net revenue from non-service provider customers increased 8.0% and 6.8%, as compared to the prior year periods. Further, during the six months ended July 3, 2016, EMEA net revenue was positively impacted by the reversal of a $3.3 million charge established in the period ended June 28, 2015 against net revenue relating to an anticipated credit to a service provider customer to resolve a disputed quality issue. The fall in net revenue from service provider customers was as a result of decisions taken by management in fiscal 2015 and fiscal 2016 to reduce focus on sales to certain service provider customers.

APAC

APAC net revenue decreased slightly in the three months ended July 2, 2017 and increased slightly in the six months ended July 2, 2017 compared to the prior year periods. The decrease in the three months was primarily attributable to lower gross shipments of broadband modem and gateway products and switches, substantially offset by higher gross shipments of mobile products and home wireless. The increase in the six months ended July 2, 2017 was a result of higher gross shipments of mobile products and Arlo security cameras, partially offset by the declines in gross shipments of broadband modem and gateway products, and SMB wireless products.

Cost of Revenue and Gross Margin

Cost of revenue consists primarily of the following: the cost of finished products from our third party manufacturers; overhead costs, including purchasing, product planning, inventory control, warehousing and distribution logistics; third-party software licensing fees; inbound freight; warranty costs associated with returned goods; write-downs for excess and obsolete inventory, amortization expense of certain acquired intangibles.

We outsource our manufacturing, warehousing and distribution logistics. We believe this outsourcing strategy allows us to better manage our product costs and gross margin. Our gross margin can be affected by a number of factors, including fluctuation in foreign exchange rates, sales returns, changes in average selling prices, end-user customer rebates and other channel sales incentives, and changes in our cost of goods sold due to fluctuations in prices paid for components, net of vendor rebates, warranty and overhead costs, inbound freight and duty, conversion costs, charges for excess or obsolete inventory and amortization of acquired intangibles. The following table presents costs of revenue and gross margin, for the periods indicated:

	Three Months Ended								Six Months Ended
	July 2, 2017			% Change		July 3, 2016			July 2, 2017			% Change		July 3, 2016
	(In thousands, except percentage data)
Cost of revenue	$	238,787		11.7	%	$	213,867		$	465,512		9.9	%	$	423,558
Gross margin	27.8		%			31.4		%	28.9		%			31.9		%

Cost of revenue increased for the three and six months ended July 2, 2017, compared to the prior year periods, primarily due to increased net revenue.

Gross margin decreased for the three and six months ended July 2, 2017 compared to the prior year periods. The decrease in gross margin was a result of increased channel promotion activities deemed to be contra-revenue under the authoritative guidance for revenue recognition and increased sales returns and warranty expense. Further, during the six months ended July 3, 2016, gross margin was positively impacted by the reversal of a $3.3 million charge recorded previously against net revenue.

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The charge related to an anticipated credit to a customer to resolve a disputed quality issue. In the six months ended July 3, 2016, we determined that we no longer believed there to be a quality issue after obtaining two independent party reports, and consequently the full amount of this charge was reversed.

We expect gross margin percentage for the remainder of fiscal 2017 to improve on first half fiscal 2017 performance, a period in which we increased our marketing spending to drive market share gains for both Arlo and Orbi product lines. Forecasting future gross margin percentages is difficult, and there are a number of risks related to our ability to maintain or improve our current gross margin levels. Our cost of revenues as a percentage of revenues can vary significantly based upon a number of factors such as the following: uncertainties surrounding revenue levels, including future pricing and/or potential discounts as a result of the economy or in response to the strengthening of the U.S. dollar in our international markets, and related production level variances; competition; changes in technology; changes in product mix; variability of stock-based compensation costs; royalties to third parties; fluctuations in freight, duty and repair costs; manufacturing and purchase price variances; changes in prices on commodity components; warranty costs; and the timing of sales, particularly to service providers.

Operating Expenses

Research and Development

Research and development expense consists primarily of personnel expenses, payments to suppliers for design services, safety and regulatory testing, product certification expenditures to qualify our products for sale into specific markets, prototypes and other consulting fees. Research and development expenses are recognized as they are incurred. We have invested in building our research and development organization to enhance our ability to introduce innovative and easy-to-use products. The following table presents research and development expense, for the periods indicated:

	Three Months Ended						Six Months Ended
	July 2, 2017		% Change		July 3, 2016		July 2, 2017		% Change		July 3, 2016
	(In thousands, except percentage data)
Research and development expense	$	23,357	7.1	%	$	21,804	$	46,040	4.8	%	$	43,941

Research and development expense increased for the three months ended July 2, 2017, compared to the prior year period, due to increases of $1.2 million in IT and facility allocations, $1.1 million in engineering projects and outside professional services, and $0.7 million in personnel-related expenditures, partially offset by a reduction in variable compensation of $1.5 million. Research and development expense increased for the six months ended July 2, 2017, compared to the prior year period, due to increases of $2.3 million in engineering projects and outside professional services, $1.2 million in personnel-related expenditures and $1.1 million in IT and facility allocations, partially offset by a reduction in variable compensation of $2.5 million. The increased expenditures on engineering projects and outside professional services are a result of continuous investment in strategic focus areas. Research and development headcount increased from 317 as of July 3, 2016 to 329 as of July 2, 2017. The increase in research and development headcount was attributable to the Arlo segment and shared service engineering, offset by declines to both Connected Home and SMB segments headcount.

We believe that innovation and technological leadership is critical to our future success, and we are committed to continuing a significant level of research and development to develop new technologies and products to combat competitive pressures. We continue to invest in research and development to expand our Arlo product offering, grow our cloud platform capabilities, and connected home products portfolio including services, expand our 10Gig, PoE, and web-managed switches, and develop innovative WiFi and LTE Advanced coverage solutions. For the remainder of fiscal 2017, we expect research and development expenses to grow in absolute dollars as we continue to allocate resources to areas that we expect will drive future growth and profitability. Research and development expenses will fluctuate depending on the timing and number of development activities in any given quarter and could vary significantly as a percentage of revenue, depending on actual revenues achieved in any given quarter.

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Sales and Marketing

Sales and marketing expense consists primarily of advertising, trade shows, corporate communications and other marketing expenses, product marketing expenses, outbound freight costs, amortization of certain intangibles, personnel expenses for sales and marketing staff and technical support expenses. The following table presents sales and marketing expense, for the periods indicated:

	Three Months Ended						Six Months Ended
	July 2, 2017		% Change		July 3, 2016		July 2, 2017		% Change		July 3, 2016
	(In thousands, except percentage data)
Sales and marketing expense	$	36,461	1.0	%	$	36,089	$	74,690	1.8	%	$	73,366

Sales and marketing expense increased slightly for the three months ended July 2, 2017 compared to the prior year period, due to an increase in marketing expenditures of $2.8 million, partially offset by a reduction of $1.1 million in personnel-related and variable compensation, $0.5 million in freight costs, and lower outside professional services of $0.4 million. Sales and marketing expense increased for the six months ended July 2, 2017 compared to the prior year period, primarily attributable to an increase in marketing expenditures of $6.6 million, partially offset by a reduction of $2.8 million in personnel-related and variable compensation, and lower outside professional services of $2.1 million. The increased marketing spend was incurred to support new product introductions and brand marketing campaigns.

We expect our sales and marketing expense to slightly decrease as a percentage of net revenue for the remainder of fiscal 2017 given the higher net revenue in the second half of fiscal 2017. We expect to continue to invest in brand marketing to strengthen our competitive position in fast growing product categories. Expenses may fluctuate depending on revenue levels achieved as certain expenses, such as commissions, are determined based upon the revenues achieved. Forecasting sales and marketing expenses as a percentage of revenues is highly dependent on expected revenue levels and could vary significantly depending on actual revenues achieved in any given quarter. Marketing expenses will also fluctuate depending upon the timing, extent and nature of marketing programs.

General and Administrative

General and administrative expense consists of salaries and related expenses for executives, finance and accounting, human resources, information technology, professional fees, including legal costs associated with defending claims against us, allowance for doubtful accounts and other general corporate expenses. The following table presents general and administrative expense, for the periods indicated:

	Three Months Ended						Six Months Ended
	July 2, 2017		% Change		July 3, 2016		July 2, 2017		% Change		July 3, 2016
	(In thousands, except percentage data)
General and administrative expense	$	12,950	(0.7	)%	$	13,035	$	26,144	1.0	%	$	25,884

General and administrative expense decreased slightly for the three months ended July 2, 2017, compared to the prior year periods, mainly due to decreases in variable compensation of $1.2 million, partially offset by higher legal and professional services of $0.5 million, and personnel-related expenditures of $0.5 million. General and administrative expense increased slightly for the six months ended July 2, 2017, compared to the prior year period, mainly due to increases in legal and professional services of $1.0 million, personnel-related expenditures of $0.9 million, and IT and facility allocations of $0.2 million, substantially offset by a reduction in variable compensation costs of $2.0 million. Headcount increased to 165 employees as of July 2, 2017 from 159 employees as of July 3, 2016.

We expect our general and administrative expenses to decrease slightly as a percentage of net revenue in the remainder of fiscal 2017, but they could fluctuate depending on a number of factors, including the level and timing of expenditures associated with litigation defense costs in connection with the litigation described in Note 8, Commitments and Contingencies, in the Notes to Unaudited Condensed Consolidated Financial Statements in Item 1 of Part I of this Quarterly Report on Form 10-Q. Future general and administrative expense increases or decreases in absolute dollars are difficult to predict due to the lack of visibility of certain costs, including legal costs associated with defending claims against us, as well as legal costs associated with asserting and enforcing our intellectual property portfolio and other factors.

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Restructuring and Other Charges

	Three Months Ended						Six Months Ended
	July 2, 2017		% Change		July 3, 2016		July 2, 2017		% Change		July 3, 2016
	(In thousands, except percentage data)
Restructuring and other charges	$	22	(98.3	)%	$	1,311	$	59	(98.5	)%	$	3,989

No significant restructuring and other charges were recognized during the three and six months ended July 2, 2017. Restructuring and other charges recognized in the three and six months ended July 3, 2016 were primarily related to severance, other one-time termination benefits and other associated costs.

Restructuring actions are subject to significant risks, including delays in implementing expense control programs or workforce reductions and the failure to meet operational targets due to the loss of employees, all of which would impair our ability to achieve anticipated cost reductions. If we do not achieve anticipated cost reductions, our financial results could be negatively impacted. For further discussion of restructuring and other charges, refer to Note 14, Restructuring and Other Charges, in the Notes to Unaudited Condensed Consolidated Financial Statements in Item 1 of Part I of this Quarterly Report on Form 10-Q.

Litigation Reserves, Net

	Three Months Ended						Six Months Ended
	July 2, 2017		% Change		July 3, 2016		July 2, 2017		% Change		July 3, 2016
	(In thousands, except percentage data)
Litigation reserves, net	$	53	51.4	%	$	35	$	53	17.8	%	$	45

No significant litigation reserves or benefits were recognized during the three and six months ended July 2, 2017 and July 3, 2016. For a detailed discussion of our litigation matters, refer to Note 8, Commitments and Contingencies, in the Notes to Unaudited Condensed Consolidated Financial Statements in Item 1 of Part I of this Quarterly Report on Form 10-Q.

Interest Income and Other Income (Expense), Net

Interest income represents amounts earned on our cash, cash equivalents and short-term investments. Other income (expense), net primarily represents gains and losses on transactions denominated in foreign currencies and other miscellaneous income and expenses. The following table presents interest income and other income (expense), net for the periods indicated:

	Three Months Ended							Six Months Ended
	July 2, 2017		% Change		July 3, 2016			July 2, 2017		% Change		July 3, 2016
	(In thousands, except percentage data)
Interest income	$	482	72.8	%	$	279		$	887	72.9	%	$	513
Other income (expense), net	383		**		(332		)	718		**		(698		)
Total	$	865	**		$	(53	)	$	1,605	**		$	(185	)

**Percentage change not meaningful.

Interest income increased for the three and six months ended July 2, 2017 compared to the prior year periods due to increased yields on short term investments.

Other income (expense), net increased for the three and six months ended July 2, 2017, compared to the prior year periods due primarily to higher foreign currency transaction gains, partially offset by losses recognized relating to foreign currency forward contracts. Our foreign currency hedging program effectively reduced volatility associated with hedged currency exchange rate movements during the three and six months ended July 2, 2017. For a detailed discussion of our hedging program and related foreign currency contracts, refer to Note 5, Derivative Financial Instruments, in the Notes to Unaudited Condensed Consolidated Financial Statements in Item 1 of Part I of this Quarterly Report on Form 10-Q.

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Provision for Income Taxes

	Three Months Ended								Six Months Ended
	July 2, 2017			% Change		July 3, 2016			July 2, 2017			% Change		July 3, 2016
	(In thousands, except percentage data)
Provision for income taxes	$	5,376		(43.0	)%	$	9,427		$	12,911		(29.5	)%	$	18,320
Effective tax rate	26.9		%			37.0		%	29.7		%			36.0		%

The decrease in the effective tax rate for the three and six months ended July 2, 2017, compared to the three and six months ended July 3, 2016, was mainly due to lower pre-tax earnings and differences in the treatment of excess tax benefits related to stock awards. We adopted ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting" on January 1, 2017, which requires excess tax benefits or deficiencies to be reflected in the unaudited condensed consolidated statements of operations as a component of the provision for income taxes whereas they previously were recorded in equity. Total excess tax benefits recognized in the three and six months ended July 2, 2017 was $1.0 million and $1.8 million, respectively. Additionally, for the three months ended July 2, 2017, the Company had a one-time benefit related to the geographic distribution of earnings for tax purposes of $0.4 million. We are subject to income taxes in the U.S. and numerous foreign jurisdictions. Our future foreign tax rate could be affected by changes in the composition in earnings in countries with tax rates differing from the U.S. federal rate. We are under examination in various U.S. and foreign jurisdictions.

Segment Information

Beginning fiscal 2017, we operate and report in three segments: Arlo, Connected Home, and SMB. Additional information on the changes to the reportable segments, a description of our products and services, as well as segment financial data, for each segment and a reconciliation of segment contribution income to income before income taxes can be found in Note 11, Segment Information, in the Notes to Unaudited Condensed Consolidated Financial Statements in Item 1 of Part I of this Quarterly Report on Form 10-Q.

Arlo

	Three Months Ended								Six Months Ended
	July 2, 2017			% Change		July 3, 2016*			July 2, 2017			% Change		July 3, 2016*
	(in thousands, except percentage data)
Net revenue	$	78,732		104.0	%	$	38,585		$	139,444		121.9	%	$	62,850
Percentage of total net revenue	23.8		%			12.4		%	21.3		%			10.1		%
Contribution income	$	3,172		**		$	389		$	3,493		**		$	(3,441	)
Contribution margin	4.0		%			1.0		%	2.5		%			(5.5		)%

* Prior year financial results have been recast to conform to the reportable segment structure effective on January 1, 2017.

** Percentage change not meaningful.

Arlo segment net revenue increased significantly for the three and six months ended July 2, 2017, compared to the prior year periods. The rapid expansion of the smart camera market combined with the introduction of our latest generation Arlo Pro smart camera was mainly responsible for the year over year increase. We continue to experience strong end user demand across all regions for our Arlo product line and we expect demand within the smart camera market to continue to be robust.

Contribution income increased significantly for the three and six months ended July 2, 2017 compared with contribution income (loss) in the prior year periods. The improved profitability was mainly as a result of higher net revenue. In addition, the growth in net revenue was not met with proportionate increases in operating expenditures, further assisting profitability.

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Connected Home

	Three Months Ended								Six Months Ended
	July 2, 2017			% Change		July 3, 2016*			July 2, 2017			% Change		July 3, 2016*
	(in thousands, except percentage data)
Net revenue	$	185,905		(6.4	)%	$	198,654		$	380,266		(8.3	)%	$	414,764
Percentage of total net revenue	56.2		%			63.7		%	58.1		%			66.7		%
Contribution income	$	25,124		(24.4	)%	$	33,228		$	56,836		(24.5	)%	$	75,257
Contribution margin	13.5		%			16.7		%	14.9		%			18.1		%

* Prior year financial results have been recast to conform to the reportable segment structure effective on January 1, 2017.

Connected Home segment net revenue decreased for the three and six months ended July 2, 2017, compared to the prior year periods. The decrease in Connected Home net revenue was primarily due to lower gross shipments of broadband modem and gateway products to both service provider and non-service provider customers. The decrease was partially offset by increased gross shipments of mobile products to service provider customers and home wireless products to non-service provider customers. Net revenue from service provider customers in the six months ended July 2, 2017 fell by 26% while net revenue from non-service provider customers grew 1%. Geographically, in the three months ended July 2, 2017, net revenue fell in the Americas and EMEA, partially offset by slight growth in APAC. In the six months ended July 2, 2017, net revenue decreased across all regions. Declines in service provider net revenue of $12.9 million and $36.5 million, respectively, for the three and six months ended July 2, 2017, adversely impacted geographic performance.

Contribution income decreased in the three and six months ended July 2, 2017, compared to the prior year periods, primarily due to lower net revenue and gross margin attainment. Increased expenditure on channel promotion activities deemed to be contra-revenue under the authoritative guidance for revenue recognition and increased sales returns and warranty expense adversely impacted gross margin performance. Further, contribution income in the six months ended July 3, 2016 was positively impacted by the reversal of a $3.3 million charge recorded previously against net revenue. The charge related to an anticipated credit to a customer to resolve a disputed quality issue. In the six months ended July 3, 2016, we determined that we no longer believed there to be a quality issue after obtaining two independent party reports, and consequently the full amount of this charge was reversed.

SMB

	Three Months Ended								Six Months Ended
	July 2, 2017			% Change		July 3, 2016*			July 2, 2017			% Change		July 3, 2016*
	(in thousands, except percentage data)
Net revenue	$	66,086		(11.2	)%	$	74,416		$	134,670		(6.7	)%	$	144,297
Percentage of total net revenue	20.0		%			23.9		%	20.6		%			23.2		%
Contribution income	$	16,752		(11.1	)%	$	18,846		$	35,256		3.0	%	$	34,241
Contribution margin	25.3		%			25.3		%	26.2		%			23.7		%

* Prior year financial results have been recast to conform to the reportable segment structure effective on January 1, 2017.

SMB segment net revenue decreased for the three and six months ended July 2, 2017 compared to the prior year periods. SMB experienced a decline in net revenue across all product categories led by switches, SMB wireless and storage. Increased sales returns and channel promotion activities deemed to be a reduction of net revenue were contributing factors in the decline compared to the prior year periods.

Contribution income decreased for the three months ended July 2, 2017 compared to the prior year period, primarily due to lower net revenue. Contribution income increased for the six months ended July 2, 2017 compared to the prior year period, due to higher gross margin coupled with a reduction in operating expenditures proportionate to revenue.

Liquidity and Capital Resources

Our cash and cash equivalents balance decreased from $240.5 million as of December 31, 2016 to $190.7 million as of July 2, 2017. Our short-term investments, which represent the investment of funds available for current operations, decreased

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from $125.5 million as of December 31, 2016 to $114.8 million as of July 2, 2017 due to maturities of treasuries. Operating activities during the six months ended July 2, 2017 provided cash of $3.4 million falling from $90.1 million in the six months ended July 3, 2016, as a result of unfavorable working capital activities coupled with decreased net income. Investing activities during the six months ended July 2, 2017 provided cash of $2.5 million, compared with cash used of $35.2 million in the prior year period, mainly due to decreased net spending on purchase of short-term investments. Cash used in financing activities increased by $44.8 million, primarily due to increased repurchase of common stock, coupled with less proceeds from the issuance of common stock upon exercise of stock options and our employee stock purchase program. Additionally, we adopted ASU 2016-09 in the first quarter of fiscal 2017 on a retrospective basis and reflected any adjustments of $1.4 million to both operating and financing activities for the six months ended July 3, 2016. For a detailed discussion of the impacts on our cash flows statements upon the adoption, refer to Note 2, Summary of Significant Accounting Policies, in the Notes to Unaudited Condensed Consolidated Financial Statements in Item 1 of Part I of this Quarterly Report on Form 10-Q.

Our days sales outstanding ("DSO") was 84 days as of July 2, 2017, which increased from 77 days as of December 31, 2016. The increase was attributable to the timing of gross shipments. The mix of outstanding accounts receivable not yet due for payment at period end was comparable to prior periods.

Our accounts payable decreased from $112.4 million as of December 31, 2016 to $72.9 million as of July 2, 2017. The decrease was primarily attributable to timing of payments.

Inventory increased from $247.9 million as of December 31, 2016 to $263.8 million as of July 2, 2017. In the three months ended July 2, 2017, we experienced annualized ending inventory turns of approximately 3.6, down from 4.2 turns in the three months ended December 31, 2016.

We enter into foreign currency forward-exchange contracts, which typically mature in less than eleven months, to hedge a portion of our exposure to foreign currency fluctuations of foreign currency-denominated revenue, costs of revenue, certain operating expenses, receivables, payables, and cash balances. We record, in the unaudited condensed consolidated balance sheets at each reporting period, the fair value of our forward-exchange contracts and record any fair value adjustments in our unaudited condensed consolidated statements of operations and in our unaudited condensed consolidated balance sheets. Gains and losses associated with currency rate changes on hedge contracts that are non-designated under the authoritative guidance for derivatives and hedging are recorded within other income (expense), net, offsetting foreign exchange gains and losses on our monetary assets and liabilities. Gains and losses associated with currency rate changes on hedge contracts that are cash flow hedges under the authoritative guidance for derivatives and hedging are recorded within accumulated other comprehensive income until the related revenue, costs of revenue, or expenses are recognized.

From time to time, our Board of Directors has authorized programs under which we may repurchase shares of our common stock, depending on market conditions, in the open market or through privately negotiated transactions. Under these authorizations, the timing and actual number of shares subject to repurchase are at the discretion of management and are contingent on a number of factors, such as levels of cash generation from operations, cash requirements for acquisitions and the price of our common stock. On April 25, 2017, our Board of Directors authorized the repurchase of up to 3.0 million shares of our outstanding common stock which, at the time of authorization, were incremental to the remaining shares under the Company's previous share repurchase program. During the six months ended July 2, 2017, we repurchased and retired, reported based on trade date, approximately 1.1 million shares of common stock at a cost of $56.6 million. During the six months ended July 3, 2016, we repurchased and retired, reported based on trade date, 0.6 million shares of common stock at a cost of $23.3 million. As of July 2, 2017, 3.2 million shares remained authorized for repurchase under the repurchase program approved by the Board in July 2015 and April 2017. All shares authorized under previously approved programs were fully utilized.

We repurchased, as reported based on trade date, approximately 0.1 million shares of common stock at a cost of $5.6 million under a repurchase program to help administratively facilitate the withholding and subsequent remittance of personal income and payroll taxes for individuals receiving restricted stock units ("RSUs") during the six months ended July 2, 2017. Similarly, during the six months ended July 3, 2016, we repurchased, as reported based on trade date, approximately 91,000 shares of our common stock at a cost of $3.9 million under the same program to help facilitate tax withholding for RSUs. These shares were retired upon repurchase.

Based on our current plans and market conditions, we believe that our existing cash, cash equivalents and short-term investments will be sufficient to satisfy our anticipated cash requirements for at least the next twelve months. However, we may require or desire additional funds to support our operating expenses and capital requirements or for other purposes, such as acquisitions, and may seek to raise such additional funds through public or private equity financing or from other sources. We

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cannot assure you that additional financing will be available at all or that, if available, such financing would be obtainable on terms favorable to us and would not be dilutive. Our future liquidity and cash requirements will depend on numerous factors, including the introduction of new products and potential acquisitions of related businesses or technology.

Contractual Obligations

There have been no material changes during the six months ended July 2, 2017 to the contractual obligations disclosed in Part II, Item 7, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.

We lease office space, cars and equipment under non-cancelable operating leases with various expiration dates through December 2026. The terms of certain of our facility leases provide for rental payments on a graduated scale. We recognize rent expense on a straight-line basis over the lease period and have accrued for rent expense incurred but not paid.

We enter into various inventory-related purchase agreements with suppliers. Generally, under these agreements, 50% of the orders are cancelable by giving notice 46 to 60 days prior to the expected shipment date and 25% of orders are cancelable by giving notice 31 to 45 days prior to the expected shipment date. Orders are non-cancelable within 30 days prior to the expected shipment date. As of July 2, 2017, we had approximately $152.8 million in non-cancelable purchase commitments with suppliers. We establish a loss liability for all products we do not expect to sell for which we have committed purchases from suppliers. Such losses have not been material to date. From time to time our suppliers procure unique complex components on our behalf. If these components do not meet specified technical criteria or are defective, we should not be obligated to purchase the materials. However, disputes may arise as a result and significant resources may be spent resolving such disputes.

As of July 2, 2017, we had $15.7 million of total gross unrecognized tax benefits and related interest. The timing of any payments that could result from these unrecognized tax benefits will depend upon a number of factors. The possible reduction in liabilities for uncertain tax positions in multiple jurisdictions that may impact the statement of operations in the next 12 months is approximately $1.0 million, excluding the interest, penalties and the effect of any related deferred tax assets or liabilities.

Off-Balance Sheet Arrangements

As of July 2, 2017, we did not have any off-balance-sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.

Critical Accounting Policies and Estimates

For a complete description of what we believe to be the critical accounting policies and estimates used in the preparation of our unaudited condensed consolidated financial statements, refer to our Annual Report on Form 10-K for the year ended December 31, 2016. There have been no changes to our critical accounting policies and estimates during the six months ended July 2, 2017.

Recent Accounting Pronouncements

See Note 2, Summary of Significant Accounting Policies, in Notes to Unaudited Condensed Consolidated Financial Statements in Item 1 of Part I of this Report on Form 10-Q, for a full description of recent accounting pronouncements, including the expected dates of adoption and estimated effects on financial condition and results of operations, which are hereby incorporated by reference.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

During the six months ended July 2, 2017, there were no material changes to our market risk disclosures as set forth in Part II Item 7A "Quantitative and Qualitative Disclosures About Market Risk" in our Annual Report on Form 10-K for the year ended December 31, 2016.

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Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Based on an evaluation under the supervision and with the participation of our management (including our Chief Executive Officer and Chief Financial Officer), our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), were effective as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures are effective to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and (ii) accumulated and communicated to management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially effect, our internal control over financial reporting. It should be noted that any system of controls, however well designed and operated, can provide only reasonable assurance, and not absolute assurance, that the objectives of the system are met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of these and other inherent limitations of control systems, there can be no assurance that any design will succeed in achieving its stated goals in all future circumstances.

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PART II: OTHER INFORMATION

Item 1. Legal Proceedings

The information set forth under Note 8, Commitments and Contingencies, in the Notes to Unaudited Condensed Consolidated Financial Statements in Item 1 of Part I of this Quarterly Report on Form 10-Q, is incorporated herein by reference. For an additional discussion of certain risks associated with legal proceedings, see the section entitled “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q.

Item 1A. Risk Factors

Investing in our common stock involves a high degree of risk. The risks describedbelow are not exhaustive of the risks that might affect our business. Other risks,including those we currently deem immaterial, may also impact our business. Any ofthe following risks could materially adversely affect our business operations,results of operations and financial condition and could result in a significantdecline in our stock price.Before deciding to purchase, hold or sell our common stock, you should carefully consider the risks described in this section. This section should be read in conjunction with the unaudited condensed consolidated financial statements and accompanying notes thereto, and Management's Discussion and Analysis of Financial Condition and Results of Operations included in this Quarterly Report on Form 10-Q.

We have marked with an asterisk (*) those risks described below that reflect substantive changes from the risks described under Part I, Item 1A "Risk Factors" included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 24, 2017.

*We expect our operating results to fluctuate on a quarterly and annual basis, which could cause our stock price to fluctuate or decline.

Our operating results are difficult to predict and may fluctuate substantially from quarter-to-quarter or year-to-year for a variety of reasons, many of which are beyond our control. If our actual results were to fall below our estimates or the expectations of public market analysts or investors, our quarterly and annual results would be negatively impacted and the price of our stock could decline. Other factors that could affect our quarterly and annual operating results include those listed in the risk factors section of this report and others such as:

• changes in the pricing policies of or the introduction of new products by us or our competitors;

• slow or negative growth in the networking product, personal computer, Internet infrastructure, smart home, home electronics and related technology markets, as well as decreased demand for Internet access;

• introductions of new technologies and changes in consumer preferences that result in either unanticipated or unexpectedly rapid product category shifts;

• seasonal shifts in end market demand for our products, particularly in our Connected Home and Arlo business segments;

• delays in the introduction of new products by us or market acceptance of these products;

• unanticipated decreases or delays in purchases of our products by our significant traditional and online retail customers;

• component supply constraints from our vendors;

• foreign currency exchange rate fluctuations in the jurisdictions where we transact sales and expenditures in local currency;

• shift in overall product mix sales from higher to lower margin products, or from one business segment to another, that would adversely impact our margins;

• unanticipated increase in costs, including air freight, associated with shipping and delivery of our products;

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• the inability to maintain stable operations by our suppliers and other parties with which we have commercial relationships;

• discovery of security vulnerabilities in our products, services or systems, leading to negative publicity, decreased demand or potential liability;

• unfavorable level of inventory and turns;

• changes in or consolidation of our sales channels and wholesale distributor relationships or failure to manage our sales channel inventory and warehousing requirements;

• delay or failure to fulfill orders for our products on a timely basis;

• delay or failure of our service provider customers to purchase at the volumes that they forecast;

• changes in tax rates or adverse changes in tax laws that expose us to additional income tax liabilities;

• changes in international trade policy and potential U.S. tax overhaul that adversely affect customs, tax or duty rates, including consequences of the "Brexit" process in the United Kingdom;

• operational disruptions, such as transportation delays or failure of our order processing system, particularly if they occur at the end of a fiscal quarter;

• disruptions or delays related to our financial and enterprise resource planning systems;

• our inability to accurately forecast product demand, resulting in increased inventory exposure;

• allowance for bad debts exposure with our existing customers and new customers, particularly as we expand into new international markets;

• geopolitical disruption, including sudden changes in immigration policies, leading to disruption in our workforce or delay or even stoppage of our operations in manufacturing, transportation, technical support and research and development;

• terms of our contracts with customers or suppliers that cause us to incur additional expenses or assume additional liabilities;

• an increase in price protection claims, redemptions of marketing rebates, product warranty and stock rotation returns or allowance for doubtful accounts;

• litigation involving alleged patent infringement;

• epidemic or widespread product failure, or unanticipated safety issues, in one or more of our products;

• challenges associated with integrating acquisitions that we make, or with realizing value from our strategic investments in other companies;

• failure to effectively manage our third party customer support partners, which may result in customer complaints and/or harm to the NETGEAR brand;

• our inability to monitor and ensure compliance with our anti-corruption compliance program and domestic and international anti-corruption laws and regulations, whether in relation to our employees or with our suppliers or customers;

• labor unrest at facilities managed by our third-party manufacturers;

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• unanticipated shift or decline in profit by geographical region that would adversely impact our tax rate;

• our failure to implement and maintain the appropriate internal controls over financial reporting which may result in restatements of our financial statements; and

• any changes in accounting rules.

As a result, period-to-period comparisons of our operating results may not be meaningful, and you should not rely on them as an indication of our future performance.

Our stock price may be volatile and your investment in our common stock could suffer a decline in value.

There has been significant volatility in the market price and trading volume of securities of technology and other companies, which may be unrelated to the financial performance of these companies. These broad market fluctuations may negatively affect the market price of our common stock.

Some specific factors that may have a significant effect on our common stock market price include:

• actual or anticipated fluctuations in our operating results or our competitors' operating results;

• actual or anticipated changes in the growth rate of the general networking sector, our growth rates or our competitors' growth rates;

• conditions in the financial markets in general or changes in general economic conditions, including government efforts to stabilize currencies;

• actual or anticipated changes in governmental regulation, including taxation and tariff policies;

• interest rate or currency exchange rate fluctuations;

• our ability to forecast or report accurate financial results; and

• changes in stock market analyst recommendations regarding our common stock, other comparable companies or our industry generally.

*If we fail to continue to introduce or acquire new products that achieve broad market acceptance on a timely basis, we will not be able to compete effectively and we will be unable to increase or maintain net revenue and gross margins.

We operate in a highly competitive, quickly changing environment, and our future success depends on our ability to develop or acquire, and introduce new products that achieve broad market acceptance. Our future success will depend in large part upon our ability to identify demand trends in the consumer, commercial and service provider markets, and to quickly develop or acquire, and manufacture and sell products that satisfy these demands in a cost-effective manner. In order to differentiate our products from our competitors' products, we must continue to increase our focus and capital investment in research and development, including software development. For example, we have committed a substantial amount of resources to the development, manufacture, marketing and sale of our Nighthawk home networking products, Arlo security cameras and Orbi WiFi system, and to introducing additional and improved models in these lines. If these products do not continue to maintain or achieve widespread market acceptance, or if we are unsuccessful in capitalizing on other smart home market opportunities, our future growth may be slowed and our financial results could be harmed. Also, as the mix of our business increasingly includes new products and services that require additional investment, this shift may adversely impact our margins, at least in the near-term. Successfully predicting demand trends is difficult, and it is very difficult to predict the effect that introducing a new product will have on existing product sales. We will also need to respond effectively to new product announcements by our competitors by quickly introducing competitive products.

In addition, we have acquired companies and technologies in the past and as a result, have introduced new product lines in new markets. We may not be able to successfully manage integration of the new product lines with our existing products.

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Selling new product lines in new markets will require our management to learn different strategies in order to be successful. We may be unsuccessful in launching a newly acquired product line in new markets which requires management of new suppliers, potential new customers and new business models. Our management may not have the experience of selling in these new markets and we may not be able to grow our business as planned. For example, in 2013, we acquired the AirCard product line from Sierra Wireless. Similarly, we acquired certain technology and intellectual property in connection with our acquisition of AVAAK, Inc. in 2012 that was key to the development of our Arlo security camera products. If we are unable to effectively and successfully further develop these new product lines, we may not be able to increase or maintain our sales and our gross margins may be adversely affected.

We have experienced delays and quality issues in releasing new products in the past, which resulted in lower quarterly net revenue than expected. In addition, we have experienced, and may in the future experience, product introductions that fall short of our projected rates of market adoption. Online Internet reviews of our products are increasingly becoming a significant factor in the success of our new product launches, especially in our Connected Home and Arlo business segments. If we are unable to quickly respond to negative reviews, including end user reviews posted on various prominent online retailers, our ability to sell these products will be harmed. Any future delays in product development and introduction, or product introductions that do not meet broad market acceptance, or unsuccessful launches of new product lines could result in:

• loss of or delay in revenue and loss of market share;

• negative publicity and damage to our reputation and brand;

• a decline in the average selling price of our products;

• adverse reactions in our sales channels, such as reduced shelf space, reduced online product visibility, or loss of sales channel; and

• increased levels of product returns.

Throughout the past few years, we have significantly increased the rate of our new product introductions. If we cannot sustain that pace of product introductions, either through rapid innovation or acquisition of new products or product lines, we may not be able to maintain or increase the market share of our products. In addition, if we are unable to successfully introduce or acquire new products with higher gross margins, or if we are unable to improve the margins on our previously introduced and rapidly growing product lines, our net revenue and overall gross margin would likely decline.

We rely on a limited number of traditional and online retailers, wholesale distributors and service provider customers for a substantial portion of our sales, and our net revenue could decline if they refuse to pay our requested prices or reduce their level of purchases or if there is significant consolidation in our customer base which results in fewer customers for our products.

We sell a substantial portion of our products through traditional and online retailers, including Best Buy Co., Inc., Amazon.com, Inc. and their affiliates, wholesale distributors, including Ingram Micro, Inc. and Tech Data Corporation, and service providers, such as AT&T. We expect that a significant portion of our net revenue will continue to come from sales to a small number of customers for the foreseeable future. In addition, because our accounts receivable are often concentrated with a small group of purchasers, the failure of any of them to pay on a timely basis, or at all, would reduce our cash flow. We are also exposed to increased credit risk if any one of these limited numbers of customers fails or becomes insolvent. We generally have no minimum purchase commitments or long-term contracts with any of these customers. These purchasers could decide at any time to discontinue, decrease or delay their purchases of our products. If our customers increase the size of their product orders without sufficient lead-time for us to process the order, our ability to fulfill product demands would be compromised. These customers have a variety of suppliers to choose from and therefore can make substantial demands on us, including demands on product pricing and on contractual terms, which often results in the allocation of risk to us as the supplier. Accordingly, the prices that they pay for our products are subject to negotiation and could change at any time. Our ability to maintain strong relationships with our principal customers is essential to our future performance. If any of our major customers reduce their level of purchases or refuse to pay the prices that we set for our products, our net revenue and operating results could be harmed. Our traditional retail customers have faced increased and significant competition from online retailers, and some of these traditional retail customers have increasingly become a smaller portion of our business. If key retail customers continue to reduce their level of purchases, our business could be harmed.

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Additionally, concentration and consolidation among our customer base may allow certain customers to command increased leverage in negotiating prices and other terms of sale, which could adversely affect our profitability. In addition, if, as a result of increased leverage, customer pressures require us to reduce our pricing such that our gross margins are diminished, we could decide not to sell our products to a particular customer, which could result in a decrease in our revenue. Consolidation among our customer base may also lead to reduced demand for our products, elimination of sales opportunities, replacement of our products with those of our competitors and cancellations of orders, each of which would harm our operating results. Consolidation among our service provider customers worldwide may also make it more difficult to grow our service provider business, given the fierce competition for the already limited number of service providers worldwide and the long sales cycles to close deals. If consolidation among our customer base becomes more prevalent, our operating results may be harmed.

We obtain several key components from limited or sole sources, and if these sources fail to satisfy our supply requirements or we are unable to properly manage our supply requirements with our third-party manufacturers, we may lose sales and experience increased component costs.

Any shortage or delay in the supply of key product components would harm our ability to meet scheduled product deliveries. Many of the semiconductors used in our products are specifically designed for use in our products and are obtained from sole source suppliers on a purchase order basis. In addition, some components that are used in all our products are obtained from limited sources. These components include connector jacks, plastic casings and physical layer transceivers. We also obtain switching fabric semiconductors, which are used in our Ethernet switches and Internet gateway products, and wireless local area network chipsets, which are used in all of our wireless products, from a limited number of suppliers. Semiconductor suppliers have experienced and continue to experience component shortages themselves, such as with substrates used in manufacturing chipsets, which in turn adversely impact our ability to procure semiconductors from them. Our third-party manufacturers generally purchase these components on our behalf on a purchase order basis, and we do not have any contractual commitments or guaranteed supply arrangements with our suppliers. If demand for a specific component increases, we may not be able to obtain an adequate number of that component in a timely manner. In addition, if worldwide demand for the components increases significantly, the availability of these components could be limited. Further, our suppliers may experience financial or other difficulties as a result of uncertain and weak worldwide economic conditions. Other factors which may affect our suppliers' ability or willingness to supply components to us include internal management or reorganizational issues, such as roll-out of new equipment which may delay or disrupt supply of previously forecasted components, or industry consolidation and divestitures, which may result in changed business and product priorities among certain suppliers. It could be difficult, costly and time consuming to obtain alternative sources for these components, or to change product designs to make use of alternative components. In addition, difficulties in transitioning from an existing supplier to a new supplier could create delays in component availability that would have a significant impact on our ability to fulfill orders for our products.

We provide our third-party manufacturers with a rolling forecast of demand, which they use to determine our material and component requirements. Lead times for ordering materials and components vary significantly and depend on various factors, such as the specific supplier, contract terms and demand and supply for a component at a given time. Some of our components have long lead times, such as wireless local area network chipsets, switching fabric chips, physical layer transceivers, connector jacks and metal and plastic enclosures. If our forecasts are not timely provided or are less than our actual requirements, our third-party manufacturers may be unable to manufacture products in a timely manner. If our forecasts are too high, our third-party manufacturers will be unable to use the components they have purchased on our behalf. The cost of the components used in our products tends to drop rapidly as volumes increase and the technologies mature. Therefore, if our third-party manufacturers are unable to promptly use components purchased on our behalf, our cost of producing products may be higher than our competitors due to an oversupply of higher-priced components. Moreover, if they are unable to use components ordered at our direction, we will need to reimburse them for any losses they incur.

If we are unable to obtain a sufficient supply of components, or if we experience any interruption in the supply of components, our product shipments could be reduced or delayed or our cost of obtaining these components may increase. Component shortages and delays affect our ability to meet scheduled product deliveries, damage our brand and reputation in the market, and cause us to lose sales and market share. For example, component shortages and disruptions in supply in the past have limited our ability to supply all the worldwide demand for our products, and our revenue was affected. At times we have elected to use more expensive transportation methods, such as air freight, to make up for manufacturing delays caused by component shortages, which reduces our margins. In addition, at times sole suppliers of highly specialized components have provided components that were either defective or did not meet the criteria required by our customers, resulting in delays, lost revenue opportunities and potentially substantial write-offs.

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Some of our competitors have substantially greater resources than we do, and to be competitive we may be required to lower our prices or increase our sales and marketing expenses, which could result in reduced margins or loss of market share.

We compete in a rapidly evolving and fiercely competitive market, and we expect competition to continue to be intense, including price competition. Our principal competitors in the home market for networking and smart home devices include Apple, Arris, ASUS, Belkin/Linksys, Devolo, D-Link, Eero, Google, Logitech, Luma, Nest Labs (owned by Google), Ring, Samsung, Swann, Synology, Symantec, TP-Link and Western Digital. Our principal competitors in the commercial business market include Allied Telesys, Barracuda, Buffalo, Cisco Systems, Dell, D-Link, Fortinet, Hewlett-Packard Enterprise, Huawei, QNAP Systems, Seagate Technology, SonicWall, Synology, TP-Link, Ubiquiti, WatchGuard and Western Digital. Our principal competitors in the broadband service provider market include Actiontec, Arcadyan, ARRIS, AVM, Compal Broadband, D-Link, Hitron, Huawei, Novatel Wireless (owned by TCL Corporation of China), Sagem, Scientific Atlanta (a Cisco Systems company), Sercomm, SMC Networks, TechniColor, TP-Link, Ubee, ZTE and ZyXEL. Other competitors include numerous local vendors such as Xiaomi in China, and Buffalo in Japan. In addition, these local vendors may target markets outside of their local regions and may increasingly compete with us in other regions worldwide. Our potential competitors also include other consumer electronics vendors, including LG Electronics, Microsoft, Panasonic, Sony, Toshiba and Vizio, who could integrate networking and streaming capabilities into their line of products, such as televisions, set top boxes and gaming consoles, and our channel customers who may decide to offer self-branded networking products. We also face competition from service providers who may bundle a free networking device with their broadband service offering, which would reduce our sales if we are not the supplier of choice to those service providers. In the service provider space, we are also facing significant and increased competition from original design manufacturers, or ODMs, and contract manufacturers who are selling and attempting to sell their products directly to service providers around the world.

Many of our existing and potential competitors have longer operating histories, greater name recognition and substantially greater financial, technical, sales, marketing and other resources. These competitors may, among other things, undertake more extensive marketing campaigns, adopt more aggressive pricing policies, obtain more favorable pricing from suppliers and manufacturers, and exert more influence on sales channels than we can. In addition, certain competitors may have different business models, such as integrated manufacturing capabilities, that may allow them to achieve cost savings and to compete on the basis of price. Other competitors may have fewer resources, but may be more nimble in developing new or disruptive technology or in entering new markets. We anticipate that current and potential competitors will also intensify their efforts to penetrate our target markets. For example, price competition is intense in our industry in certain geographical regions and product categories. Many of our competitors in the service provider and retail spaces price their products significantly below our product costs in order to gain market share. Average sales prices have declined in the past and may again decline in the future. These competitors may have more advanced technology, more extensive distribution channels, stronger brand names, greater access to shelf space in retail locations, bigger promotional budgets and larger customer bases than we do. In addition, many of these competitors leverage a broader product portfolio and offer lower pricing as part of a more comprehensive end-to-end solution which we may not have. These companies could devote more capital resources to develop, manufacture and market competing products than we could. Our competitors may also acquire other companies in the market and leverage combined resources to gain market share. If any of these companies are successful in competing against us, our sales could decline, our margins could be negatively impacted and we could lose market share, any of which could seriously harm our business and results of operations.

We depend on large, recurring purchases from certain significant customers, and a loss, cancellation or delay in purchases by these customers could negatively affect our revenue.

The loss of recurring orders from any of our more significant customers could cause our revenue and profitability to suffer. Our ability to attract new customers will depend on a variety of factors, including the cost-effectiveness, reliability, scalability, breadth and depth of our products. In addition, a change in the mix of our customers, or a change in the mix of direct and indirect sales, could adversely affect our revenue and gross margins.

Although our financial performance may depend on large, recurring orders from certain customers and resellers, we do not generally have binding commitments from them. For example:

• our reseller agreements generally do not require substantial minimum purchases;

• our customers can stop purchasing and our resellers can stop marketing our products at any time; and

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• our reseller agreements generally are not exclusive.

Further, our revenue may be impacted by significant one-time purchases which are not contemplated to be repeatable. While such purchases are reflected in our financial statements, we do not rely on and do not forecast for continued significant one-time purchases. As a result, lack of repeatable one-time purchases will adversely affect our revenue.

Because our expenses are based on our revenue forecasts, a substantial reduction or delay in sales of our products to, or unexpected returns from, customers and resellers, or the loss of any significant customer or reseller, could harm or otherwise have a negative impact to our operating results. Although our largest customers may vary from period to period, we anticipate that our operating results for any given period will continue to depend on large orders from a small number of customers.

We depend on a limited number of third-party manufacturers for substantially all of our manufacturing needs. If these third-party manufacturers experience any delay, disruption or quality control problems in their operations, we could lose market share and our brand may suffer.

All of our products are manufactured, assembled, tested and generally packaged by a limited number of third-party manufacturers, including original design manufacturers, or ODMs, and original equipment manufacturers, as well as contract manufacturers. In most cases, we rely on these manufacturers to procure components and, in some cases, subcontract engineering work. Some of our products are manufactured by a single manufacturer. For example, we currently rely on a single manufacturer for certain of our Arlo smart security cameras. We do not have any long-term contracts with any of our third-party manufacturers. Some of these third-party manufacturers produce products for our competitors. Due to changing economic conditions, the viability of some of these third-party manufacturers may be at risk. Our ODMs are increasingly refusing to work with us on certain projects, such as projects for manufacturing products for our service provider customers. Because our service provider customers command significant resources, including for software support, and demand extremely competitive pricing, our ODMs are starting to refuse to engage on service provider terms. The loss of the services of any of our primary third-party manufacturers could cause a significant disruption in operations and delays in product shipments. Qualifying a new manufacturer and commencing volume production is expensive and time consuming. Ensuring that a contract manufacturer is qualified to manufacture our products to our standards is time consuming. In addition, there is no assurance that a contract manufacturer can scale its production of our products at the volumes and in the quality that we require. If a contract manufacturer is unable to do these things, we may have to move production for the products to a new or existing third party manufacturer which would take significant effort and our business may be harmed. In addition, as we contemplate moving manufacturing into different jurisdictions, we will be subject to additional significant challenges in ensuring that quality, processes and costs, among other issues, are consistent with our expectations. For example, while we expect our manufacturers to be responsible for penalties assessed on us because of excessive failures of the products, there is no assurance that we will be able to collect such reimbursements from these manufacturers, which causes us to take on additional risk for potential failures of our products.

Our reliance on third-party manufacturers also exposes us to the following risks over which we have limited control:

• unexpected increases in manufacturing and repair costs;

• inability to control the quality and reliability of finished products;

• inability to control delivery schedules;

• potential liability for expenses incurred by third-party manufacturers in reliance on our forecasts that later prove to be inaccurate;

• potential lack of adequate capacity to manufacture all or a part of the products we require; and

• potential labor unrest affecting the ability of the third-party manufacturers to produce our products.

All of our products must satisfy safety and regulatory standards and some of our products must also receive government certifications. Our third party manufacturers are primarily responsible for obtaining most regulatory approvals for our products. If our third party manufacturers fail to obtain timely domestic or foreign regulatory approvals or certificates, we would be unable

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to sell our products and our sales and profitability could be reduced, our relationships with our sales channel could be harmed, and our reputation and brand would suffer.

Specifically, substantially all of our manufacturing occurs in the Asia Pacific region and any disruptions from natural disasters, health epidemics and political, social and economic instability would affect the ability of our third party manufacturers to manufacture our products. In addition, our third party manufacturers in China have continued to increase our costs of production, particularly in the past couple of years. If these costs continue to increase, it may affect our margins and ability to lower prices for our products to stay competitive. Labor unrest in China may also affect our third party manufacturers as workers may strike and cause production delays. If our third party manufacturers fail to maintain good relations with their employees or contractors, and production and manufacturing of our products is affected, then we may be subject to shortages of products and quality of products delivered may be affected. Further, if our manufacturers or warehousing facilities are disrupted or destroyed, we would have no other readily available alternatives for manufacturing our products and our business would be significantly harmed.

As we continue to work with more third party manufacturers on a contract manufacturing basis, we are also exposed to additional risks not inherent in a typical ODM arrangement. Such risks may include our inability to properly source and qualify components for the products, lack of software expertise resulting in increased software defects, and lack of resources to properly monitor the manufacturing process. In our typical ODM arrangement, our ODMs are generally responsible for sourcing the components of the products and warranting that the products will work against a product's specification, including any software specifications. In a contract manufacturing arrangement, we would take on much more, if not all, of the responsibility around these areas. If we are unable to properly manage these risks, our products may be more susceptible to defects and our business would be harmed.

*Product security vulnerabilities, data protection breaches and cyber-attacks could disrupt our products or services, and any such disruption could increase our expenses, damage our reputation, harm our business and adversely affect our stock price.

Our products and services may contain unknown security vulnerabilities. For example, the firmware, software and open source software that we or our manufacturing partners have installed on our products may be susceptible to hacking or misuse. In addition, we offer a comprehensive online cloud management service paired with our Arlo security cameras. If malicious actors compromise this cloud service, or if customer confidential information is accessed without authorization, our business will be harmed. Operating an online cloud service is a relatively new business for us and we may not have the expertise to properly manage risks related to data security and systems security. We rely on third-party providers for a number of critical aspects of our cloud services and customer support, including web hosting services, billing and payment processing, and consequently we do not maintain direct control over the security or stability of the associated systems. Our management has spent increasing amounts of time, effort and expense in this area, and in the event of the discovery of a significant product security vulnerability, we would incur additional substantial expenses and our business would be harmed. If we or our third-party providers are unable to successfully prevent breaches of security relating to our products, services or customer private information, including customer videos and customer personal identification information, or if these third-party systems failed for other reasons, it could result in litigation and potential liability for us, damage our brand and reputation, or otherwise harm our business.

If we do not effectively manage our sales channel inventory and product mix, we may incur costs associated with excess inventory, or lose sales from having too few products.

If we are unable to properly monitor, control and manage our sales channel inventory and maintain an appropriate level and mix of products with our wholesale distributors and within our sales channels, we may incur increased and unexpected costs associated with this inventory. We generally allow wholesale distributors and traditional retailers to return a limited amount of our products in exchange for other products. Under our price protection policy, if we reduce the list price of a product, we are often required to issue a credit in an amount equal to the reduction for each of the products held in inventory by our wholesale distributors and retailers. If our wholesale distributors and retailers are unable to sell their inventory in a timely manner, we might lower the price of the products, or these parties may exchange the products for newer products. Also, during the transition from an existing product to a new replacement product, we must accurately predict the demand for the existing and the new product.

We determine production levels based on our forecasts of demand for our products. Actual demand for our products depends on many factors, which makes it difficult to forecast. We have experienced differences between our actual and our forecasted

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demand in the past and expect differences to arise in the future. If we improperly forecast demand for our products we could end up with too many products and be unable to sell the excess inventory in a timely manner, if at all, or, alternatively we could end up with too few products and not be able to satisfy demand. This problem is exacerbated because we attempt to closely match inventory levels with product demand leaving limited margin for error. If these events occur, we could incur increased expenses associated with writing off excessive or obsolete inventory, lose sales, incur penalties for late delivery or have to ship products by air freight to meet immediate demand incurring incremental freight costs above the sea freight costs, a preferred method, and suffering a corresponding decline in gross margins.

We are exposed to adverse currency exchange rate fluctuations in jurisdictions where we transact in local currency, which could harm our financial results and cash flows.

Because a significant portion of our business is conducted outside the United States, we face exposure to adverse movements in foreign currency exchange rates. These exposures may change over time as business practices evolve, and they could have a material adverse impact on our results of operations, financial position and cash flows. Although a portion of our international sales are currently invoiced in United States dollars, we have implemented and continue to implement for certain countries and customers both invoicing and payment in foreign currencies. Our primary exposure to movements in foreign currency exchange rates relates to non-U.S. dollar denominated sales in Europe, Japan and Australia as well as our global operations, and non-U.S. dollar denominated operating expenses and certain assets and liabilities. In addition, weaknesses in foreign currencies for U.S. dollar denominated sales could adversely affect demand for our products. Conversely, a strengthening in foreign currencies against the U.S. dollar could increase foreign currency denominated costs. As a result we may attempt to renegotiate pricing of existing contracts or request payment to be made in U.S. dollars. We cannot be sure that our customers would agree to renegotiate along these lines. This could result in customers eventually terminating contracts with us or in our decision to terminate certain contracts, which would adversely affect our sales.

We hedge our exposure to fluctuations in foreign currency exchange rates as a response to the risk of changes in the value of foreign currency-denominated assets and liabilities. We may enter into foreign currency forward contracts or other instruments, the majority of which mature within approximately five months. Our foreign currency forward contracts reduce, but do not eliminate, the impact of currency exchange rate movements. For example, we do not execute forward contracts in all currencies in which we conduct business. In addition, we hedge to reduce the impact of volatile exchange rates on net revenue, gross profit and operating profit for limited periods of time. However, the use of these hedging activities may only offset a portion of the adverse financial effect resulting from unfavorable movements in foreign exchange rates.

*System security risks, data protection breaches and cyber-attacks could disrupt our internal operations or information technology systems, and any such disruption could reduce our expected revenue, increase our expenses, damage our reputation and adversely affect our stock price.

Maintaining the security of our computer information systems and communication systems is a critical issue for us and our customers. Malicious actors may develop and deploy viruses and other advanced persistent threats that are designed to attack our systems, including our internal network, or those of our vendors or customers. Additionally, outside parties may attempt to fraudulently induce our employees to disclose sensitive information in order to gain access to our information technology systems, our data or our customers' data. We have established a crisis management plan and business continuity program. While we regularly test the plan and the program, there can be no assurance that the plan and program can withstand an actual or serious disruption in our business, including a data protection breach or cyber-attack. While we have established infrastructure and geographic redundancy for our critical systems, our ability to utilize these redundant systems requires further testing and we cannot be assured that such systems are fully functional. For example, much of our order fulfillment process is automated and the order information is stored on our servers. A significant business interruption could result in losses or damages and harm our business. If our computer systems and servers go down at the end of a fiscal quarter, our ability to recognize revenue may be delayed until we are able to utilize back-up systems and continue to process and ship our orders. This could cause our stock price to decline significantly.

We devote considerable internal and external resources to network security, data encryption and other security measures to protect our systems and customer data, but these security measures cannot provide absolute security. Potential breaches of our security measures and the accidental loss, inadvertent disclosure or unapproved dissemination of proprietary information or sensitive or confidential data about us, our employees or our customers, including the potential loss or disclosure of such information or data as a result of hacking, fraud, social engineering or other forms of deception, could expose us, our customers or the individuals affected to a risk of loss or misuse of this information, result in litigation and potential liability for us, damage

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our brand and reputation, or otherwise harm our business. In addition, the cost and operational consequences of implementing further data protection measures could be significant.

*If we fail to overcome the challenges associated with managing our broadband service provider sales channel, our net revenue and gross profit will be negatively impacted.

We sell a significant number of products through broadband service providers worldwide. However, the service provider sales channel is challenging and exceptionally competitive. Difficulties and challenges in selling to service providers include a longer sales cycle, more stringent product testing and validation requirements, a higher level of customization demands, requirements that suppliers take on a larger share of the risk with respect to contractual business terms, competition from established suppliers, pricing pressure resulting in lower gross margins, and irregular and unpredictable ordering habits. For example, rigorous service provider certification processes may delay our sale of new products, or our products ultimately may fail these tests. In either event, we may lose some or all of the amounts we expended in trying to obtain business from the service provider, as well as lose the business opportunity altogether. In addition, even if we have a product which a service provider customer may wish to purchase, we may choose not to supply products to the potential service provider customer if the contract requirements, such as service level requirements, penalties, and liability provisions, are too onerous. Accordingly, our business may be harmed and our revenues may be reduced. We have, in exceptional limited circumstances, while still in contract negotiations, shipped products in advance of and subject to agreement on a definitive contract. We do not record revenue from these shipments until a definitive contract exists. There is risk that we do not ultimately close and sign a definitive contract. If this occurs, the timing of revenue recognition is uncertain and our business would be harmed. In addition, we often commence building custom-made products prior to execution of a contract in order to meet the customer's contemplated launch dates and requirements. Service provider products are generally custom-made for a specific customer and may not be salable to other customers or in other channels. If we have pre-built custom-made products but do not come to agreement on a definitive contract, we may be forced to scrap the custom-made products or re-work them at substantial cost and our business would be harmed.

Further, successful engagements with service provider customers requires a constant analysis of technology trends. If we are unable to anticipate technology trends and service provider customer product needs, and to allocate research and development resources to the right projects, we may not be successful in continuing to sell products to service provider customers. In addition, because our service provider customers command significant resources, including for software support, and demand extremely competitive pricing, certain ODMs have declined to develop service provider products on an ODM basis. Accordingly, as our ODMs increasingly limit development of our service provider products, our service provider business will be harmed if we cannot replace this capability with alternative ODMs or in-house development.

Orders from service providers generally tend to be large but sporadic, which causes our revenues from them to fluctuate and challenges our ability to accurately forecast demand from them. In particular, managing inventory and production of our products for our service provider customers is a challenge. Many of our service provider customers have irregular purchasing requirements. These customers may decide to cancel orders for customized products specific to that customer, and we may not be able to reconfigure and sell those products in other channels. These cancellations could lead to substantial write-offs. In addition, these customers may issue unforecasted orders for products which we may not be able to produce in a timely manner and as such, we may not be able to accept and deliver on such unforecasted orders. In certain cases, we may commit to fixed-price, long term purchase orders, with such orders priced in foreign currencies which could lose value over time in the event of adverse changes in foreign exchange rates. Even if we are selected as a supplier, typically a service provider will also designate a second source supplier, which over time will reduce the aggregate orders that we receive from that service provider. Further, as the technology underlying our products deployed by broadband service providers matures and more competitors offer alternative products with similar technology, we anticipate competing in an extremely price sensitive market and our margins may be affected. If we are unable to introduce new products with sufficiently advanced technology to attract service provider interest in a timely manner, our service provider customers may then require us to lower our prices, or they may choose to purchase products from our competitors. If this occurs, our business would be harmed and our revenues would be reduced.

If we were to lose a service provider customer for any reason, we may experience a material and immediate reduction in forecasted revenue that may cause us to be below our net revenue and operating margin expectations for a particular period of time and therefore adversely affect our stock price. For example, many of our competitors in the service provider space aggressively price their products in order to gain market share. We may not be able to match the lower prices offered by our competitors, and we may choose to forgo lower-margin business opportunities. Many of the service provider customers will seek to purchase from the lowest cost provider, notwithstanding that our products may be higher quality or that our products were previously validated for use on their proprietary network. Accordingly, we may lose customers who have lower, more

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aggressive pricing, and our revenues may be reduced. In addition, service providers may choose to prioritize the implementation of other technologies or the roll out of other services than home networking. Weakness in orders from this industry could have a material adverse effect on our business, operating results, and financial condition. We have seen slowdowns in capital expenditures by certain of our service provider customers in the past, and believe there may be potential for similar slowdowns in the future. Any slowdown in the general economy, over supply, consolidation among service providers, regulatory developments and constraint on capital expenditures could result in reduced demand from service providers and therefore adversely affect our sales to them. If we do not successfully overcome these challenges, we will not be able to profitably manage our service provider sales channel and our financial results will be harmed.

The average selling prices of our products typically decrease rapidly over the sales cycle of the product, which may negatively affect our net revenue and gross margins.

Our products typically experience price erosion, a fairly rapid reduction in the average unit selling prices over their respective sales cycles. In order to sell products that have a falling average unit selling price and maintain margins at the same time, we need to continually reduce product and manufacturing costs. To manage manufacturing costs, we must collaborate with our third-party manufacturers to engineer the most cost-effective design for our products. In addition, we must carefully manage the price paid for components used in our products. We must also successfully manage our freight and inventory costs to reduce overall product costs. We also need to continually introduce new products with higher sales prices and gross margins in order to maintain our overall gross margins. If we are unable to manage the cost of older products or successfully introduce new products with higher gross margins, our net revenue and overall gross margin would likely decline.

We depend substantially on our sales channels, and our failure to maintain and expand our sales channels would result in lower sales and reduced net revenue.

To maintain and grow our market share, net revenue and brand, we must maintain and expand our sales channels. Our sales channels consist of traditional retailers, online retailers, DMRs, VARs, and broadband service providers. Some of these entities purchase our products through our wholesale distributor customers. We generally have no minimum purchase commitments or long-term contracts with any of these third parties.

Traditional retailers have limited shelf space and promotional budgets, and competition is intense for these resources. If the networking sector does not experience sufficient growth, retailers may choose to allocate more shelf space to other consumer product sectors. A competitor with more extensive product lines and stronger brand identity may have greater bargaining power with these retailers. Any reduction in available shelf space or increased competition for such shelf space would require us to increase our marketing expenditures simply to maintain current levels of retail shelf space, which would harm our operating margin. Our traditional retail customers have faced increased and significant competition from online retailers. If we cannot effectively manage our business amongst our online customers and traditional retail customers, our business would be harmed. The recent trend in the consolidation of online retailers and DMR channels has resulted in intensified competition for preferred product placement, such as product placement on an online retailer's Internet home page. Expanding our presence in the VAR channel may be difficult and expensive. We compete with established companies that have longer operating histories and longstanding relationships with VARs that we would find highly desirable as sales channel partners. In addition, our efforts to realign or consolidate our sales channels may cause temporary disruptions in our product sales and revenue, and these changes may not result in the expected longer-term benefits.

We also sell products to broadband service providers. Competition for selling to broadband service providers is fierce and intense. Penetrating service provider accounts typically involves a long sales cycle and the challenge of displacing incumbent suppliers with established relationships and field-deployed products. If we are unable to maintain and expand our sales channels, our growth would be limited and our business would be harmed.

We must also continuously monitor and evaluate emerging sales channels. If we fail to establish a presence in an important developing sales channel, our business could be harmed.

*If we lose the services of our Chairman and Chief Executive Officer, Patrick C.S. Lo, or our other key personnel, we may not be able to execute our business strategy effectively.

Our future success depends in large part upon the continued services of our key technical, sales, marketing, finance and senior management personnel. In particular, the services of Patrick C.S. Lo, our Chairman and Chief Executive Officer, who

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has led our company since its inception, are very important to our business. We do not maintain any key person life insurance policies. Our business model requires extremely skilled and experienced senior management who are able to withstand the rigorous requirements and expectations of our business. Our success depends on senior management being able to execute at a very high level. The loss of any of our senior management or other key research, development, sales or marketing personnel, particularly if lost to competitors, could harm our ability to implement our business strategy and respond to the rapidly changing needs of our business. While we have adopted an emergency succession plan for the short term, we have not formally adopted a long term succession plan. As a result, if we suffer the loss of services of any key executive, our long term business results may be harmed. While we believe that we have mitigated some of the business execution and business continuity risk with our organization into three business segments with separate leadership teams, the loss of any key personnel would still be disruptive and harm our business, especially given that our business is leanly staffed and relies on the expertise and high performance of our key personnel. In addition, because we do not have a formal long term succession plan, we may not be able to have the proper personnel in place to effectively execute our long term business strategy if Mr. Lo or other key personnel retire, resign or are otherwise terminated.

Global economic conditions could materially adversely affect our revenue and results of operations.

Our business has been and may continue to be affected by a number of factors that are beyond our control, such as general geopolitical, economic and business conditions, conditions in the financial markets, and changes in the overall demand for networking and smart home products. A severe and/or prolonged economic downturn could adversely affect our customers' financial condition and the levels of business activity of our customers. Weakness in, and uncertainty about, global economic conditions may cause businesses to postpone spending in response to tighter credit, negative financial news and/or declines in income or asset values, which could have a material negative effect on the demand for networking products.

In the recent past, slow economic growth throughout various regions worldwide, especially in Europe, presented significant challenges to our business. In addition, current economic challenges in China, including any global economic ramifications of these challenges, may continue to put negative pressure on global economic conditions. If conditions in the global economy, including Europe, China, Australia and the United States, or other key vertical or geographic markets remain uncertain or deteriorate further, such conditions could have a material adverse impact on our business, operating results and financial condition. If we are unable to successfully anticipate changing economic and political conditions, we may be unable to effectively plan for and respond to those changes, which could materially adversely affect our business and results of operations.

In addition, the economic problems affecting the financial markets and the uncertainty in global economic conditions resulted in a number of adverse effects including a low level of liquidity in many financial markets, extreme volatility in credit, equity, currency and fixed income markets, instability in the stock market and high unemployment. For example, the challenges faced by the European Union to stabilize some of its member economies, such as Greece, Portugal, Spain, Hungary and even Italy, have had international implications affecting the stability of global financial markets and hindering economies worldwide. Many member nations in the European Union have been addressing the issues with controversial austerity measures. In addition, the potential consequences of the "Brexit" process in the United Kingdom have led to significant uncertainty in the region. Should the European Union monetary policy measures be insufficient to restore confidence and stability to the financial markets, or should the United Kingdom's "Brexit" decision lead to additional economic or political instability, the recovery of the global economy, including the U.S. and European Union economies where we have a significant presence, could be hindered or reversed, which could have a material adverse effect on us. There could also be a number of other follow-on effects from these economic developments and negative economic trends on our business, including the inability of customers to obtain credit to finance purchases of our products; customer insolvencies; decreased customer confidence to make purchasing decisions; decreased customer demand; and decreased customer ability to pay their trade obligations.

Our sales and operations in international markets expose us to operational, financial and regulatory risks.

International sales comprise a significant amount of our overall net revenue. International sales were approximately 33% of overall net revenue in the second quarter of 2017 and approximately 36% of overall net revenue in fiscal 2016. We continue to be committed to growing our international sales, and while we have committed resources to expanding our international operations and sales channels, these efforts may not be successful. International operations are subject to a number of other risks, including:

• exchange rate fluctuations;

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• political and economic instability, international terrorism and anti-American sentiment, particularly in emerging markets;

• potential for violations of anti-corruption laws and regulations, such as those related to bribery and fraud;

• preference for locally branded products, and laws and business practices favoring local competition;

• potential consequences of, and uncertainty related to, the "Brexit" process in the United Kingdom, which could lead to additional expense and complexity in doing business there;

• increased difficulty in managing inventory;

• delayed revenue recognition;

• less effective protection of intellectual property;

• stringent consumer protection and product compliance regulations, including but not limited to the Restriction of Hazardous Substances directive, the Waste Electrical and Electronic Equipment directive and the European Ecodesign directive, or EuP, that are costly to comply with and may vary from country to country;

• difficulties and costs of staffing and managing foreign operations;

• business difficulties, including potential bankruptcy or liquidation, of any of our worldwide third party logistics providers; and

• changes in local tax and customs duty laws or changes in the enforcement, application or interpretation of such laws.

While we believe we generally have good relations with our employees, employees in certain jurisdictions have rights which give them certain collective rights. If management must expend significant resources and effort to address and comply with these rights, our business may be harmed. We are also required to comply with local environmental legislation and our customers rely on this compliance in order to sell our products. If our customers do not agree with our interpretations and requirements of new legislation, they may cease to order our products and our revenue would be harmed.

*Changes in tax rates, adverse changes in tax laws or exposure to additional income tax liabilities could affect our future profitability.

Factors that could materially affect our future effective tax rates include but are not limited to:

• changes in the regulatory environment;

• changes in accounting and tax standards or practices;

• changes in the composition of operating income by tax jurisdiction; and

• our operating results before taxes.

We are subject to income taxes in the United States and numerous foreign jurisdictions. Our effective tax rate has fluctuated in the past and may fluctuate in the future. Future effective tax rates could be affected by changes in the composition of earnings in countries with differing tax rates, changes in deferred tax assets and liabilities, or changes in tax laws. Foreign jurisdictions have increased the volume of tax audits of multinational corporations. Further, many countries, have either changed or are considering changes to their tax laws. These changes are largely punitive to U.S. multinational corporations. Additionally, the Trump Administration along with the U.S. Congress recently announced proposed changes to U.S. tax laws. These proposals are in the preliminary stage and there is no detail as to how such changes might be implemented. Changes in tax laws could affect the distribution of our earnings, result in double taxation and adversely affect our results.

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We have been audited by the Italian Tax Authority (ITA) for the 2004 through 2012 tax years. The ITA examination included an audit of income, gross receipts and value-added taxes. Currently, we are in litigation with the ITA for the 2004 through 2012 years. If we are unsuccessful in defending our tax positions, our profitability will be reduced.

The United Kingdom HMRC (Her Majesty’s Revenue and Customs) began an inquiry regarding the application of UK Diverted Profits Tax (DPT), a law which took effect as of April 1, 2015. In assessing the whether they believe the Company is subject to the DPT legislation, UK HMRC has expanded its review to include overall transfer pricing for 2014 through 2016. If we are unsuccessful in defending our positions, our profitability will be reduced.

We are also subject to examination by the Internal Revenue Service, or IRS, and other tax authorities, including state revenue agencies and other foreign governments. The IRS commenced an audit of the tax year ended December 31, 2014. While we regularly assess the likelihood of favorable or unfavorable outcomes resulting from examinations by the IRS and other tax authorities to determine the adequacy of our provision for income taxes, there can be no assurance that the actual outcome resulting from these examinations will not materially adversely affect our financial condition and operating results. Additionally, the IRS and several foreign tax authorities have increasingly focused attention on intercompany transfer pricing with respect to sales of products and services and the use of intangibles. Tax authorities could disagree with our intercompany charges, cross-jurisdictional transfer pricing or other matters and assess additional taxes. If we do not prevail in any such disagreements, our profitability may be affected.

We must comply with indirect tax laws in multiple jurisdictions, as well as complex customs duty regimes worldwide. Audits of our compliance with these rules may result in additional liabilities for taxes, duties, interest and penalties related to our international operations which would reduce our profitability.

Our operations are routinely subject to audit by tax authorities in various countries. Many countries have indirect tax systems where the sale and purchase of goods and services are subject to tax based on the transaction value. These taxes are commonly referred to as value-added tax (VAT) or goods and services tax (GST). In addition, the distribution of our products subjects us to numerous complex customs regulations, which frequently change over time. Failure to comply with these systems and regulations can result in the assessment of additional taxes, duties, interest and penalties. While we believe we are in compliance with local laws, there is no assurance that tax and customs authorities agree with our reporting positions and upon audit may assess us additional taxes, duties, interest and penalties. If this occurs and we cannot successfully defend our position, our profitability will be reduced.

If our products contain defects or errors, we could incur significant unexpected expenses, experience product returns and lost sales, experience product recalls, suffer damage to our brand and reputation, and be subject to product liability or other claims.

Our products are complex and may contain defects, errors or failures, particularly when first introduced or when new versions are released. The industry standards upon which many of our products are based are also complex, experience change over time and may be interpreted in different manners. Some errors and defects may be discovered only after a product has been installed and used by the end-user.

In addition, epidemic failure clauses are found in certain of our customer contracts, especially contracts with service providers. If invoked, these clauses may entitle the customer to return for replacement or obtain credits for products and inventory, as well as assess liquidated damage penalties and terminate an existing contract and cancel future or then current purchase orders. In such instances, we may also be obligated to cover significant costs incurred by the customer associated with the consequences of such epidemic failure, including freight and transportation required for product replacement and out-of-pocket costs for truck rolls to end user sites to collect the defective products. Costs or payments we make in connection with an epidemic failure may materially adversely affect our results of operations and financial condition. If our products contain defects or errors, or are found to be noncompliant with industry standards, we could experience decreased sales and increased product returns, loss of customers and market share, and increased service, warranty and insurance costs. In addition, defects in, or misuse of, certain of our products could cause safety concerns, including the risk of property damage or personal injury. If any of these events occurred, our reputation and brand could be damaged, and we could face product liability or other claims regarding our products, resulting in unexpected expenses and adversely impacting our operating results. For instance, if a third party were able to successfully overcome the security measures in our products, such a person or entity could misappropriate customer data, third party data stored by our customers and other information, including intellectual property. In addition, the operations of our end-

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user customers may be interrupted. If that happens, affected end-users or others may file actions against us alleging product liability, tort, or breach of warranty claims.

We have been and will be investing increased additional in-house resources on software research and development, which could disrupt our ongoing business and present distinct risks from our historically hardware-centric business.

We plan to continue to evolve our historically hardware-centric business model towards a model that includes more sophisticated software offerings. As such, we will further evolve the focus of our organization towards the delivery of more integrated hardware and software solutions for our customers. While we have invested in software development in the past, we will be expending additional resources in this area in the future. Such endeavors may involve significant risks and uncertainties, including distraction of management from current operations, insufficient revenue to offset liabilities assumed and expenses associated with the strategy, inadequate return on capital, and unidentified issues not discovered in our due diligence. Software development is inherently risky for a company such as ours with a historically hardware-centric business model, and accordingly, our efforts in software development may not be successful. Any increased investment in software research and development may materially adversely affect our financial condition and operating results.

We may spend a proportionately greater amount on software research and development in the future. If we cannot proportionately decrease our cost structure in response to competitive price pressures, our gross margin and, therefore, our profitability could be adversely affected. In addition, if our software solutions, pricing and other factors are not sufficiently competitive, or if there is an adverse reaction to our product decisions, we may lose market share in certain areas, which could adversely affect our revenue and prospects.

Software research and development is complex. We must make long-term investments, develop or obtain appropriate intellectual property and commit significant resources before knowing whether our predictions will accurately reflect customer demand for our products and services. We must accurately forecast mixes of software solutions and configurations that meet customer requirements, and we may not succeed at doing so within a given product's life cycle or at all. Any delay in the development, production or marketing of a new software solution could result in us not being among the first to market, which could further harm our competitive position. In addition, our regular testing and quality control efforts may not be effective in controlling or detecting all quality issues and defects. We may be unable to determine the cause, find an appropriate solution or offer a temporary fix to address defects. Finding solutions to quality issues or defects can be expensive and may result in additional warranty, replacement and other costs, adversely affecting our profits. If new or existing customers have difficulty with our software solutions or are dissatisfied with our services, our operating margins could be adversely affected, and we could face possible claims if we fail to meet our customers' expectations. In addition, quality issues can impair our relationships with new or existing customers and adversely affect our brand and reputation, which could adversely affect our operating results.

As part of growing our business, we have made and expect to continue to make acquisitions. If we fail to successfully select, execute or integrate our acquisitions, then our business and operating results could be harmed and our stock price could decline.

From time to time, we will undertake acquisitions to add new product lines and technologies, gain new sales channels or enter into new sales territories. For example, on November 30, 2016 we acquired Placemeter, Inc., a leader in computer vision analytics, to enhance our Arlo product and service offerings. Additionally in April 2013, we closed the acquisition of the AirCard business of Sierra Wireless, Inc., which was our largest acquisition, both in terms of consideration and headcount. Acquisitions involve numerous risks and challenges, including but not limited to the following:

• integrating the companies, assets, systems, products, sales channels and personnel that we acquire;

• higher than anticipated acquisition and integration costs and expenses;

• reliance on third parties to provide transition services for a period of time after closing to ensure an orderly transition of the business;

• growing or maintaining revenues to justify the purchase price and the increased expenses associated with acquisitions;

• entering into territories or markets with which we have limited or no prior experience;

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• establishing or maintaining business relationships with customers, vendors and suppliers who may be new to us;

• overcoming the employee, customer, vendor and supplier turnover that may occur as a result of the acquisition;

• disruption of, and demands on, our ongoing business as a result of integration activities including diversion of management's time and attention from running the day to day operations of our business;

• inability to implement uniform standards, disclosure controls and procedures, internal controls over financial reporting and other procedures and policies in a timely manner;

• inability to realize the anticipated benefits of or successfully integrate with our existing business the businesses, products, technologies or personnel that we acquire; and

• potential post-closing disputes.

As part of undertaking an acquisition, we may also significantly revise our capital structure or operational budget, such as issuing common stock that would dilute the ownership percentage of our stockholders, assuming liabilities or debt, utilizing a substantial portion of our cash resources to pay for the acquisition or significantly increasing operating expenses. Our acquisitions have resulted and may in the future result in charges being taken in an individual quarter as well as future periods, which results in variability in our quarterly earnings. In addition, our effective tax rate in any particular quarter may also be impacted by acquisitions. Following the closing of an acquisition, we may also have disputes with the seller regarding contractual requirements and covenants. Any such disputes may be time consuming and distract management from other aspects of our business. In addition, if we increase the pace or size of acquisitions, we will have to expend significant management time and effort into the transactions and the integrations and we may not have the proper human resources bandwidth to ensure successful integrations and accordingly, our business could be harmed.

As part of the terms of acquisition, we may commit to pay additional contingent consideration if certain revenue or other performance milestones are met. We are required to evaluate the fair value of such commitments at each reporting date and adjust the amount recorded if there are changes to the fair value.

We cannot ensure that we will be successful in selecting, executing and integrating acquisitions. Failure to manage and successfully integrate acquisitions could materially harm our business and operating results. In addition, if stock market analysts or our stockholders do not support or believe in the value of the acquisitions that we choose to undertake, our stock price may decline.

*We are currently involved in numerous litigation matters and may in the future become involved in additional litigation, including litigation regarding intellectual property rights, which could be costly and subject us to significant liability.

The networking industry is characterized by the existence of a large number of patents and frequent claims and related litigation regarding infringement of patents, trade secrets and other intellectual property rights. In particular, leading companies in the data communications markets, some of which are our competitors, have extensive patent portfolios with respect to networking technology. From time to time, third parties, including these leading companies, have asserted and may continue to assert exclusive patent, copyright, trademark and other intellectual property rights against us demanding license or royalty payments or seeking payment for damages, injunctive relief and other available legal remedies through litigation. These also include third-party non-practicing entities who claim to own patents or other intellectual property that cover industry standards that our products comply with. If we are unable to resolve these matters or obtain licenses on acceptable or commercially reasonable terms, we could be sued or we may be forced to initiate litigation to protect our rights. The cost of any necessary licenses could significantly harm our business, operating results and financial condition. We may also choose to join defensive patent aggregation services in order to prevent or settle litigation against such non-practicing entities and avoid the associated significant costs and uncertainties of litigation. These patent aggregation services may obtain, or have previously obtained, licenses for the alleged patent infringement claims against us and other patent assets that could be used offensively against us. The costs of such defensive patent aggregation services, while potentially lower than the costs of litigation, may be significant as well. At any time, any of these non-practicing entities, or any other third-party could initiate litigation against us, or we may be forced to initiate litigation against them, which could divert management attention, be costly to defend or prosecute, prevent us from using or selling the challenged technology, require us to design around the challenged technology and cause the price of our stock to decline. In addition, third parties, some of whom are potential competitors, have initiated and may continue to

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initiate litigation against our manufacturers, suppliers, members of our sales channels or our service provider customers or even end user customers, alleging infringement of their proprietary rights with respect to existing or future products. In the event successful claims of infringement are brought by third parties, and we are unable to obtain licenses or independently develop alternative technology on a timely basis, we may be subject to indemnification obligations, be unable to offer competitive products, or be subject to increased expenses. For example, as described above in Note 8, Commitments and Contingencies, in the Notes to Unaudited Condensed Consolidated Financial Statements in Item 1 of Part I of this Quarterly Report on Form 10-Q ("Note 8"), on June 30, 2017, in our U.S. International Trade Commission (“ITC”) proceedings with Tessera, the ITC Administrative Law Judge released an initial determination finding a violation of section 337 of the Tariff Act of 1930, as amended, with respect to one patent, and such a finding, if upheld through an appeal process or not otherwise resolved, e.g.,via settlement, ahead of a final determination by the ITC on October 30, 2017, could result in the Company (along with the other respondents to the matter) being enjoined from importing Broadcom-based products into the U.S. beginning as early as October 31, 2017. Finally, consumer class-action lawsuits related to the marketing and performance of our home networking products have been asserted and may in the future be asserted against us. For additional information regarding certain of the lawsuits in which we are involved, see the information set forth under Note 8. If we do not resolve these claims on a favorable basis, our business, operating results and financial condition could be significantly harmed.

We are subject to, and must remain in compliance with, numerous laws and governmental regulations concerning the manufacturing, use, distribution and sale of our products, as well as any such future laws and regulations. Some of our customers also require that we comply with their own unique requirements relating to these matters. Any failure to comply with such laws, regulations and requirements, and any associated unanticipated costs, may adversely affect our business, financial condition and results of operations.

We manufacture and sell products which contain electronic components, and such components may contain materials that are subject to government regulation in both the locations that we manufacture and assemble our products, as well as the locations where we sell our products. For example, certain regulations limit the use of lead in electronic components. To our knowledge, we maintain compliance with all applicable current government regulations concerning the materials utilized in our products, for all the locations in which we operate. Since we operate on a global basis, this is a complex process which requires continual monitoring of regulations and an ongoing compliance process to ensure that we and our suppliers are in compliance with all existing regulations. There are areas where new regulations have been enacted which could increase our cost of the components that we utilize or require us to expend additional resources to ensure compliance. For example, the SEC's “conflict minerals” rules apply to our business, and we are expending significant resources to ensure compliance. The implementation of these requirements by government regulators and our partners and/or customers could adversely affect the sourcing, availability, and pricing of minerals used in the manufacture of certain components used in our products. In addition, the supply-chain due diligence investigation required by the conflict minerals rules will require expenditures of resources and management attention regardless of the results of the investigation. If there is an unanticipated new regulation which significantly impacts our use of various components or requires more expensive components, that regulation would have a material adverse impact on our business, financial condition and results of operations.

One area which has a large number of regulations is the environmental compliance. Management of environmental pollution and climate change has produced significant legislative and regulatory efforts on a global basis, and we believe this will continue both in scope and the number of countries participating. These changes could directly increase the cost of energy which may have an impact on the way we manufacture products or utilize energy to produce our products. In addition, any new regulations or laws in the environmental area might increase the cost of raw materials we use in our products. Environmental regulations require us to reduce product energy usage, monitor and exclude an expanding list of restricted substances and to participate in required recover and recycling of our products. While future changes in regulations are certain, we are currently unable to predict how any such changes will impact us and if such impacts will be material to our business. If there is a new law or regulation that significantly increases our costs of manufacturing or causes us to significantly alter the way that we manufacture our products, this would have a material adverse effect on our business, financial condition and results of operations.

Our selling and distribution practices are also regulated in large part by U.S. federal and state as well as foreign antitrust and competition laws and regulations. In general, the objective of these laws is to promote and maintain free competition by prohibiting certain forms of conduct that tend to restrict production, raise prices, or otherwise control the market for goods or services to the detriment of consumers of those goods and services. Potentially prohibited activities under these laws may include unilateral conduct, or conduct undertaken as the result of an agreement with one or more of our suppliers, competitors, or customers. The potential for liability under these laws can be difficult to predict as it often depends on a finding that the challenged conduct resulted in harm to competition, such as higher prices, restricted supply, or a reduction in the quality or variety of

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products available to consumers. We utilize a number of different distribution channels to deliver our products to the end consumer, and regularly enter agreements with resellers of our products at various levels in the distribution chain that could be subject to scrutiny under these laws in the event of private litigation or an investigation by a governmental competition authority. In addition, many of our products are sold to consumers via the Internet. Many of the competition-related laws that govern these Internet sales were adopted prior to the advent of the Internet, and, as a result, do not contemplate or address the unique issues raised by online sales. New interpretations of existing laws and regulations, whether by courts or by the state, federal or foreign governmental authorities charged with the enforcement of those laws and regulations, may also impact our business in ways we are currently unable to predict. Any failure on our part or on the part of our employees, agents, distributors or other business partners to comply with the laws and regulations governing competition can result in negative publicity and diversion of management time and effort and may subject us to significant litigation liabilities and other penalties.

In addition to government regulations, many of our customers require us to comply with their own requirements regarding manufacturing, health and safety matters, corporate social responsibility, employee treatment, anti-corruption, use of materials and environmental concerns. Some customers may require us to periodically report on compliance with their unique requirements, and some customers reserve the right to audit our business for compliance. We are increasingly subject to requests for compliance with these customer requirements. For example, there has been significant focus from our customers as well as the press regarding corporate social responsibility policies. Recently, a number of jurisdictions have adopted public disclosure requirements on related topics, including labor practices and policies within companies' supply chains. We regularly audit our manufacturers; however, any deficiencies in compliance by our manufacturers may harm our business and our brand. In addition, we may not have the resources to maintain compliance with these customer requirements and failure to comply may result in decreased sales to these customers, which may have a material adverse effect on our business, financial condition and results of operations.

If our goodwill or intangible assets become impaired we may be required to record a significant charge to earnings.

Under generally accepted accounting principles, we review our intangible assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Goodwill is required to be tested for impairment at least annually. Factors that may be considered when determining if the carrying value of our goodwill or intangible assets may not be recoverable include a significant decline in our expected future cash flows or a sustained, significant decline in our stock price and market capitalization.

As a result of our acquisitions, we have significant goodwill and intangible assets recorded on our balance sheets. In addition, significant negative industry or economic trends, such as those that have occurred as a result of the recent economic downturn, including reduced estimates of future cash flows or disruptions to our business could indicate that goodwill or intangible assets might be impaired. If, in any period our stock price decreases to the point where our market capitalization is less than our book value, this too could indicate a potential impairment and we may be required to record an impairment charge in that period. Our valuation methodology for assessing impairment requires management to make judgments and assumptions based on projections of future operating performance. The estimates used to calculate the fair value of a reporting unit change from year to year based on operating results and market conditions. Changes in these estimates and assumptions could materially affect the determination of fair value and goodwill impairment for each reporting unit. We operate in highly competitive environments and projections of future operating results and cash flows may vary significantly from actual results. As a result, we may incur substantial impairment charges to earnings in our financial statements should an impairment of our goodwill or intangible assets be determined resulting in an adverse impact on our results of operations.

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We are required to evaluate our internal controls under Section 404 of the Sarbanes-Oxley Act of 2002 and any adverse results from such evaluation, including restatements of our issued financial statements, could impact investor confidence in the reliability of our internal controls over financial reporting.

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we are required to furnish a report by our management on our internal control over financial reporting. Such report must contain among other matters, an assessment of the effectiveness of our internal control over financial reporting as of the end of our fiscal year, including a statement as to whether or not our internal control over financial reporting is effective. This assessment must include disclosure of any material weaknesses in our internal control over financial reporting identified by management. From time to time, we conduct internal investigations as a result of whistleblower complaints. In some instances, the whistleblower complaint may implicate potential areas of weakness in our internal controls. Although all known material weaknesses have been remediated, we cannot be certain that the measures we have taken ensure that restatements will not occur in the future. Execution of restatements create a significant strain on our internal resources and could cause delays in our filing of quarterly or annual financial results, increase our costs and cause management distraction. Restatements may also significantly affect our stock price in an adverse manner.

Continued performance of the system and process documentation and evaluation needed to comply with Section 404 is both costly and challenging. During this process, if our management identifies one or more material weaknesses in our internal control over financial reporting, we will be unable to assert such internal control is effective. If we are unable to assert that our internal control over financial reporting is effective as of the end of a fiscal year or if our independent registered public accounting firm is unable to express an opinion on the effectiveness of our internal control over financial reporting, we could lose investor confidence in the accuracy and completeness of our financial reports, which may have an adverse effect on our stock price.

If disruptions in our transportation network occur or our shipping costs substantially increase, we may be unable to sell or timely deliver our products, and our operating expenses could increase.

We are highly dependent upon the transportation systems we use to ship our products, including surface and air freight. Our attempts to closely match our inventory levels to our product demand intensify the need for our transportation systems to function effectively and without delay. On a quarterly basis, our shipping volume also tends to steadily increase as the quarter progresses, which means that any disruption in our transportation network in the latter half of a quarter will likely have a more material effect on our business than at the beginning of a quarter.

The transportation network is subject to disruption or congestion from a variety of causes, including labor disputes or port strikes, acts of war or terrorism, natural disasters and congestion resulting from higher shipping volumes. Labor disputes among freight carriers and at ports of entry are common, particularly in Europe, and we expect labor unrest and its effects on shipping our products to be a continuing challenge for us. A port worker strike, work slow-down or other transportation disruption in Long Beach, California, where we have a significant distribution center, could significantly disrupt our business. For example, a series of work stoppages and slow-downs arising from labor disputes at the Long Beach port and other West Coast ports, particularly in the first quarter of 2015, negatively impacted our ability to timely deliver certain product shipments to the United States and resulted in additional transportation expense. Our international freight is regularly subjected to inspection by governmental entities. If our delivery times increase unexpectedly for these or any other reasons, our ability to deliver products on time would be materially adversely affected and result in delayed or lost revenue as well as customer imposed penalties. In addition, if increases in fuel prices occur, our transportation costs would likely increase. Moreover, the cost of shipping our products by air freight is greater than other methods. From time to time in the past, we have shipped products using extensive air freight to meet unexpected spikes in demand, shifts in demand between product categories, to bring new product introductions to market quickly and to timely ship products previously ordered. If we rely more heavily upon air freight to deliver our products, our overall shipping costs will increase. A prolonged transportation disruption or a significant increase in the cost of freight could severely disrupt our business and harm our operating results.

We are exposed to the credit risk of some of our customers and to credit exposures in weakened markets, which could result in material losses.

A substantial portion of our sales are on an open credit basis, with typical payment terms of 30 to 60 days in the United States and, because of local customs or conditions, longer in some markets outside the United States. We monitor individual customer financial viability in granting such open credit arrangements, seek to limit such open credit to amounts we believe the customers can pay, and maintain reserves we believe are adequate to cover exposure for doubtful accounts.

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In the past, there have been bankruptcies amongst our customer base, and certain of our customers’ businesses face financial challenges that put them at risk of future bankruptcies. For example, our customer RadioShack Corp. filed for Chapter 11 bankruptcy protection in 2015. Although losses resulting from customer bankruptcies have not been material to date, any future bankruptcies could harm our business and have a material adverse effect on our operating results and financial condition. To the degree that turmoil in the credit markets makes it more difficult for some customers to obtain financing, our customers' ability to pay could be adversely impacted, which in turn could have a material adverse impact on our business, operating results, and financial condition.

Expansion of our operations and infrastructure may strain our operations and increase our operating expenses.

We have expanded our operations and are pursuing market opportunities both domestically and internationally in order to grow our sales. This expansion has required enhancements to our existing management information systems, and operational and financial controls. In addition, if we continue to grow, our expenditures would likely be significantly higher than our historical costs. We may not be able to install adequate controls in an efficient and timely manner as our business grows, and our current systems may not be adequate to support our future operations. The difficulties associated with installing and implementing new systems, procedures and controls may place a significant burden on our management, operational and financial resources. In addition, if we grow internationally, we will have to expand and enhance our communications infrastructure. If we fail to continue to improve our management information systems, procedures and financial controls or encounter unexpected difficulties during expansion and reorganization, our business could be harmed.

For example, we have invested, and will continue to invest, significant capital and human resources in the design and enhancement of our financial and enterprise resource planning systems, which may be disruptive to our underlying business. We depend on these systems in order to timely and accurately process and report key components of our results of operations, financial position and cash flows. If the systems fail to operate appropriately or we experience any disruptions or delays in enhancing their functionality to meet current business requirements, our ability to fulfill customer orders, bill and track our customers, fulfill contractual obligations, accurately report our financials and otherwise run our business could be adversely affected. Even if we do not encounter these adverse effects, the enhancement of systems may be much more costly than we anticipated. If we are unable to continue to enhance our information technology systems as planned, our financial position, results of operations and cash flows could be negatively impacted.

We invest in companies for both strategic and financial reasons, but may not realize a return on our investments.

We have made, and continue to seek to make, investments in companies around the world to further our strategic objectives and support our key business initiatives. These investments may include equity or debt instruments of public or private companies, and may be non-marketable at the time of our initial investment. We do not restrict the types of companies in which we seek to invest. These companies may range from early-stage companies that are often still defining their strategic direction to more mature companies with established revenue streams and business models. If any company in which we invest fails, we could lose all or part of our investment in that company. If we determine that an other-than-temporary decline in the fair value exists for an equity or debt investment in a public or private company in which we have invested, we will have to write down the investment to its fair value and recognize the related write-down as an investment loss. The performance of any of these investments could result in significant impairment charges and gains (losses) on other equity investments. We must also analyze accounting and legal issues when making these investments. If we do not structure these investments properly, we may be subject to certain adverse accounting issues, such as potential consolidation of financial results.

Furthermore, if the strategic objectives of an investment have been achieved, or if the investment or business diverges from our strategic objectives, we may seek to dispose of the investment. Our non-marketable equity investments in private companies are not liquid, and we may not be able to dispose of these investments on favorable terms or at all. The occurrence of any of these events could harm our results. Gains or losses from equity securities could vary from expectations depending on gains or losses realized on the sale or exchange of securities and impairment charges related to debt instruments as well as equity and other investments.

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We rely upon third parties for technology that is critical to our products, and if we are unable to continue to use this technology and future technology, our ability to develop, sell, maintain and support technologically innovative products would be limited.

We rely on third parties to obtain non-exclusive patented hardware and software license rights in technologies that are incorporated into and necessary for the operation and functionality of most of our products. In these cases, because the intellectual property we license is available from third parties, barriers to entry into certain markets may be lower for potential or existing competitors than if we owned exclusive rights to the technology that we license and use. Moreover, if a competitor or potential competitor enters into an exclusive arrangement with any of our key third-party technology providers, or if any of these providers unilaterally decide not to do business with us for any reason, our ability to develop and sell products containing that technology would be severely limited. If we are shipping products that contain third-party technology that we subsequently lose the right to license, then we will not be able to continue to offer or support those products. In addition, these licenses often require royalty payments or other consideration to the third party licensor. Our success will depend, in part, on our continued ability to access these technologies, and we do not know whether these third-party technologies will continue to be licensed to us on commercially acceptable terms, if at all. If we are unable to license the necessary technology, we may be forced to acquire or develop alternative technology of lower quality or performance standards, which would limit and delay our ability to offer new or competitive products and increase our costs of production. As a result, our margins, market share, and operating results could be significantly harmed.

We also utilize third-party software development companies to develop, customize, maintain and support software that is incorporated into our products. If these companies fail to timely deliver or continuously maintain and support the software, as we require of them, we may experience delays in releasing new products or difficulties with supporting existing products and customers. In addition, if these third-party licensors fail or experience instability, then we may be unable to continue to sell products that incorporate the licensed technologies in addition to being unable to continue to maintain and support these products. We do require escrow arrangements with respect to certain third-party software which entitle us to certain limited rights to the source code, in the event of certain failures by the third party, in order to maintain and support such software. However, there is no guarantee that we would be able to understand and use the source code, as we may not have the expertise to do so. We are increasingly exposed to these risks as we continue to develop and market more products containing third-party software, such as our TV connectivity, security and network attached storage products.

If we are unable to secure and protect our intellectual property rights, our ability to compete could be harmed.

We rely upon third parties for a substantial portion of the intellectual property that we use in our products. At the same time, we rely on a combination of copyright, trademark, patent and trade secret laws, nondisclosure agreements with employees, consultants and suppliers and other contractual provisions to establish, maintain and protect our intellectual property rights. Despite efforts to protect our intellectual property, unauthorized third parties may attempt to design around, copy aspects of our product design or obtain and use technology or other intellectual property associated with our products. For example, one of our primary intellectual property assets is the NETGEAR name, trademark and logo. We may be unable to stop third parties from adopting similar names, trademarks and logos, particularly in those international markets where our intellectual property rights may be less protected. Furthermore, our competitors may independently develop similar technology or design around our intellectual property. Our inability to secure and protect our intellectual property rights could significantly harm our brand and business, operating results and financial condition.

Political events, war, terrorism, public health issues, natural disasters, sudden changes in trade and immigration policies, and other circumstances could materially adversely affect us.

Our corporate headquarters are located in Northern California and one of our warehouses is located in Southern California, both of which are regions known for seismic activity. Substantially all of our critical enterprise-wide information technology systems, including our main servers, are currently housed in colocation facilities in Mesa, Arizona. While our critical information technology systems are located at colocation facilities in a different geographic region in the United States, our headquarters and warehouses remain susceptible to seismic activity so long as they are located in California. In addition, substantially all of our manufacturing occurs in two geographically concentrated areas in mainland China, where disruptions from natural disasters, health epidemics and political, social and economic instability may affect the region. If our manufacturers or warehousing facilities are disrupted or destroyed, we would be unable to distribute our products on a timely basis, which could harm our business.

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In addition, war, terrorism, geopolitical uncertainties, public health issues, sudden changes in trade and immigration policies, and other business interruptions have caused and could cause damage or disruption to international commerce and the global economy, and thus could have a strong negative effect on us, our suppliers, logistics providers, manufacturing vendors and customers. Our business operations are subject to interruption by natural disasters, fire, power shortages, terrorist attacks and other hostile acts, labor disputes, public health issues, and other events beyond our control. For example, labor disputes at manufacturing facilities in China have led to workers going on strike, and labor unrest could materially affect our third-party manufacturers' abilities to manufacture our products.

Such events could decrease demand for our products, make it difficult or impossible for us to make and deliver products to our customers or to receive components from our suppliers, and create delays and inefficiencies in our supply chain. Should major public health issues, including pandemics, arise, we could be negatively affected by more stringent employee travel restrictions, additional limitations in freight services, governmental actions limiting the movement of products between regions, delays in production ramps of new products, and disruptions in the operations of our manufacturing vendors and component suppliers.

Governmental regulations of imports or exports affecting Internet security could affect our net revenue.

Any additional governmental regulation of imports or exports or failure to obtain required export approval of our encryption technologies could adversely affect our international and domestic sales. The United States and various foreign governments have imposed controls, export license requirements, and restrictions on the import or export of some technologies, particularly encryption technology. In addition, from time to time, governmental agencies have proposed additional regulation of encryption technology, such as requiring the escrow and governmental recovery of private encryption keys. In response to terrorist activity, governments could enact additional regulation or restriction on the use, import, or export of encryption technology. This additional regulation of encryption technology could delay or prevent the acceptance and use of encryption products and public networks for secure communications, resulting in decreased demand for our products and services. In addition, some foreign competitors are subject to less stringent controls on exporting their encryption technologies. As a result, they may be able to compete more effectively than we can in the United States and the international Internet security market.

We are exposed to credit risk and fluctuations in the market values of our investment portfolio.

Although we have not recognized any material losses on our cash equivalents and short-term investments, future declines in their market values could have a material adverse effect on our financial condition and operating results. Given the global nature of our business, we have investments with both domestic and international financial institutions. Accordingly, we face exposure to fluctuations in interest rates, which may limit our investment income. If these financial institutions default on their obligations or their credit ratings are negatively impacted by liquidity issues, credit deterioration or losses, financial results, or other factors, the value of our cash equivalents and short-term investments could decline and result in a material impairment, which could have a material adverse effect on our financial condition and operating results.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a) None.

(b) None.

(c)Repurchase of Equity Securities by the Company

Period	Total Number of Shares Purchased (2)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
April 3, 2017 - April 30, 2017	715,913	$	49.14	662,163	3,461,112
May 1, 2017 - May 28, 2017	274,150	$	46.24	266,806	3,194,306
May 29, 2017 - July 2, 2017	19,788	$	43.14	—	3,194,306
Total	1,009,851	$	48.24	928,969

_________________________

⁽¹⁾  From time to time, our Board of Directors has authorized programs under which we may repurchase shares of our common stock, depending on market conditions, in the open market or through privately negotiated transactions. Under the authorizations, the timing and actual number of shares subject to repurchase are at the discretion of management and are contingent on a number of factors, such as levels of cash generation from operations, cash requirements for acquisitions and the price of our common stock. On April 25, 2017, our Board of Directors authorized the repurchase of up to 3.0 million shares of our outstanding common stock which, at the time of authorization, were incremental to the remaining shares under our previous share repurchase program. During the three months ended July 2, 2017, we repurchased and retired, reported based on trade date, approximately 0.9 million shares of common stock at a cost of $45.0 million under this authorization.

⁽²⁾  During the three months ended July 2, 2017, we repurchased, as reported based on trade date, approximately 81,000 shares of common stock at a cost of 3.7 million to help administratively facilitate the withholding and subsequent remittance of personal income and payroll taxes for individuals receiving RSUs.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

See the Exhibit Index following the signature page to this Quarterly Report on Form 10-Q for a list of exhibits filed or furnished with this report, which Exhibit Index is incorporated herein by reference.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

NETGEAR, INC.

Registrant

/s/ CHRISTINE M. GORJANC

Christine M. Gorjanc

Chief Financial Officer

(Principal Financial and Accounting Officer)

Date: August 4, 2017

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Exhibit Index

		Incorporated by Reference
Exhibit Number	Exhibit Description	Form	Date	Number	Filed Herewith
3.1	Amended and Restated Certificate of Incorporation of the registrant				X
3.2	Amended and Restated Bylaws of the registrant				X
4.1	Form of registrant's common stock certificate	S-1/A	7/14/2003	4.1
31.1	Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer				X
31.2	Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer				X
32.1#	Section 1350 Certification of Principal Executive Officer				X
32.2#	Section 1350 Certification of Principal Financial Officer				X
101.INS	XBRL Instance Document				X
101.SCH	XBRL Taxonomy Extension Schema Document				X
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document				X
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document				X
101.LAB	XBRL Taxonomy Extension Label Linkbase Document				X
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document				X
#	This certification is deemed to accompany this Form 10-Q and will not be filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) or otherwise subject to the liabilities of that section. This certification will not be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.

75

EX-3.1

AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
NETGEAR, INC.
a Delaware corporation

NETGEAR, Inc. (the “Corporation”), a corporation organized and existing under the General Corporation Law of the State of Delaware (the “General Corporation Law”) hereby certifies as follows:

1.That the Corporation was originally incorporated on January 8, 1996 pursuant to the General Corporation Law.

2.Pursuant to Sections 141 and 242 of the General Corporation Law, the amendments and restatement herein set forth have been duly approved by the Board of Directors and stockholders of NETGEAR, Inc.

3.Pursuant to Section 245 of the General Corporation Law, this Amended and Restated Certificate of Incorporation restates and integrates and further amends the provisions of the Amended and Restated Certificate of Incorporation of this Corporation.

4.The text of the Amended and Restated Certificate of Incorporation is hereby amended and restated in its entirety as follows:

“ARTICLE I

The name of this corporation is NETGEAR, Inc. (the “Corporation”).

ARTICLE II

The purpose of this Corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of the State of Delaware as the same exists or may hereafter be amended.

ARTICLE III

The address of the Corporation’s registered office in the State of Delaware is 15 East North Street, in the City of Dover, County of Kent. The name of the registered agent at such address is Incorporating Services, Ltd.

ARTICLE IV

The Corporation is authorized to issue two classes of stock, to be designated, respectively, “Common Stock” and “Preferred Stock.” The total number of shares which the Corporation shall have authority to issue is two hundred and five million (205,000,000) shares, consisting of two hundred million (200,000,000) shares of Common Stock, par value $0.001 per share, and five million (5,000,000) shares of Preferred Stock, par value $0.001 per share.

The Board of Directors of the Corporation (the “Board”) is authorized, subject to any limitations prescribed by law, to provide for the issuance of shares of Preferred Stock in series, and to establish from time to time the number of shares to be included in each such series, and to fix the designation, powers, preferences, and rights of the shares of each such series and any qualifications, limitations or restrictions thereof.

Each outstanding share of Common Stock shall entitle the holder thereof to one vote on each matter properly submitted to the stockholders of the Corporation for their vote; provided, however, that, except as otherwise required by law, holders of Common Stock shall not be entitled to vote on any amendment to this Certificate of Incorporation (this “Certificate”) (including any certificate of designation of Preferred Stock relating to any series of Preferred Stock) that relates solely to the terms of one or more outstanding series of Preferred Stock if the holders of such affected series are entitled, either separately or together as a class with the holders of one or more other such series, to vote thereon by law or pursuant to this Certificate (including any certificate of designation of Preferred Stock relating to any series of Preferred Stock).

1

ARTICLE V

A.The business and affairs of the Corporation shall be managed by or under the direction of the Board. In addition to the powers and authority expressly conferred upon them by statute or by this Certificate or the Bylaws of the Corporation, the directors are hereby empowered to exercise all such powers and do all such acts and things as may be exercised or done by the Corporation.

B.Any action required or permitted to be taken by the stockholders of the Corporation must be effected at a duly called annual or special meeting of stockholders of the Corporation and may not be effected by any consent in writing by such stockholders.

C.Special meetings of stockholders of the Corporation shall be called at any time for any purpose as is a proper matter for stockholder action under the General Corporation Law, by (1) the Board acting pursuant to a resolution duly adopted by a majority of the Board, (2) the Chairman of the Board, (3) the Lead Independent Director, (4) the Chief Executive Officer or the President or (5) the Secretary of the Corporation upon the written request of stockholder(s) Owning (as defined below) at least 25% (in the aggregate) of the then voting power of all shares of the Corporation entitled to vote on the matters to be brought before the proposed special meeting. Only such business shall be considered at a special meeting of stockholders as shall have been stated in the notice for such meeting. In the case of a special meeting of stockholders called pursuant to the foregoing clause (5), the requesting holder(s) must (i) continue to Own (for the holding period set forth in the Bylaws of the Corporation from time to time) shares representing at least 25% (in the aggregate) of the then voting power of all shares of the Corporation entitled to vote on the matters to be brought before the proposed special meeting, (ii) provide information in writing regarding such stockholder(s), their stock ownership and the matters that they request to bring before the proposed special meeting and (iii) comply with procedures and other terms and conditions relating to special meetings as set forth in the Bylaws of the Corporation from time to time. For purposes of this Article V, a holder shall be deemed to “Own” only those shares for which it possesses both (x) full voting and investment rights and (y) a full economic interest (i.e., shares for which the holder has not only the opportunity to profit, but is also exposed to the risk of loss), which terms may be further defined in the Bylaws of the Corporation from time to time.

D.Advance notice of stockholder nominations for the election of directors and of business to be brought by stockholders before any meeting of the stockholders of the Corporation shall be given in the manner provided in the Bylaws of the Corporation.

E.No stockholder will be permitted to cumulate votes at any election of directors.

ARTICLE VI

To the fullest extent permitted by the General Corporation Law as the same exists or as may hereafter be amended, a director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for a breach of fiduciary duty as a director. If the General Corporation Law is amended to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the General Corporation Law as so amended.

The Corporation may indemnify to the fullest extent permitted by law any person made or threatened to be made a party to an action or proceeding, whether criminal, civil, administrative or investigative, by reason of the fact that he, she, his or her testator or intestate is or was a director, officer, employee or agent of the Corporation or any predecessor of the Corporation or serves or served at any other enterprise as a director, officer, employee or agent at the request of the Corporation or any predecessor to the Corporation.

Neither any amendment nor repeal of this Article VI, nor the adoption of any provision of this Corporation’s Certificate of Incorporation inconsistent with this Article VI, shall eliminate or reduce the effect of this Article VI, in respect of any matter occurring, or any action or proceeding accruing or arising or that, but for this Article VI, would accrue or arise, prior to such amendment, repeal or adoption of an inconsistent provision.

ARTICLE VII

The Corporation is to have perpetual existence.

2

ARTICLE VIII

Elections of directors need not be by written ballot unless the Bylaws of the Corporation shall so provide.

ARTICLE IX

A.The provisions of this paragraph shall be subject to the rights of the holders of any series of Preferred Stock to elect additional directors under specified circumstances. The number of directors which constitute the Board of Directors of the Corporation shall be as designated or provided for in the Bylaws of the Corporation. Each director, including a director elected to fill a vacancy, shall hold office until the expiration of the term for which elected and until such director's successor is elected and qualified or until such director's earlier death, resignation or removal.

B.Subject to the rights of the holders of any series of Preferred Stock then outstanding and unless the Board otherwise determines, newly created directorships resulting from any increase in the authorized number of directors or any vacancies in the Board resulting from death, resignation, retirement, disqualification, removal from office or other cause shall, unless otherwise provided by law or by resolution of the Board, be filled only by a majority vote of the directors then in office, whether or not less than a quorum, and directors so chosen shall hold office until such director's successor is elected and qualified. No reduction in the authorized number of directors shall have the effect of removing any director before such director’s term of office expires.

C.    Subject to the rights of the holders of any series of Preferred Stock then outstanding, unless otherwise restricted by statute, by this Certificate or the Bylaws of the Corporation, any director, or all of the directors, may be removed from the Board, with or without cause, but only by the affirmative vote of the holders of at least a majority of the voting power of all of the then outstanding shares of capital stock of the Corporation then entitled to vote at the election of directors, voting together as a single class.

ARTICLE X

The Board is expressly empowered to adopt, amend or repeal any of the Bylaws of the Corporation. Any adoption, amendment or repeal of the Bylaws of the Corporation by the Board shall require the approval of a majority of the Board. The stockholders shall also have power to adopt, amend or repeal the Bylaws of the Corporation; provided, however, that, except as otherwise required by law or by this Certificate with respect to any vote of the holders of any class or series of stock of the Corporation, the affirmative vote of the holders of at least a majority of the votes cast at a meeting of the stockholders by the holders of stock entitled to vote at such meeting, voting together as a single class, shall be required to adopt, amend or repeal all or any portion of Article II, Section 3.2, Section 3.3, Section 3.4, Section 3.14, Article VI or Article IX of the Bylaws of the Corporation.

ARTICLE XI

Meetings of stockholders may be held within or without the State of Delaware, as the Bylaws may provide. The books of the Corporation may be kept (subject to any provision contained in the statutes) outside of the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the Bylaws of the Corporation.

ARTICLE XII

The Corporation reserves the right to amend or repeal any provision contained in this Certificate in the manner prescribed by the laws of the State of Delaware and all rights conferred upon stockholders are granted subject to this reservation; provided, however, that, notwithstanding any other provision of this Certificate, or any provision of law that might otherwise permit a lesser vote or no vote, but in addition to any vote of the holders of any class or series of the stock of this Corporation required by law or by this Certificate, the affirmative vote of the holders of at least a majority of the voting power of the then outstanding shares of voting stock entitled to vote generally in the election of directors, voting together as a single class, shall be required to amend or repeal this Article XII, Article V, Article VI, Article VIII, Article IX or Article X.”

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IN WITNESS WHEREOF, NETGEAR, Inc. has caused this Amended and Restated Certificate of Incorporation to be executed by its Chief Executive Officer this 1^st day of June, 2017.

NETGEAR, INC.

/s/ Patrick Lo

Patrick Lo

Chief Executive Officer

4

EX-3.2

AMENDED AND RESTATED

BYLAWS

OF

NETGEAR, INC.

(as last amended June 1, 2017)

TABLE OF CONTENTS

		Page
ARTICLE I	CORPORATE OFFICES	1
1.1	REGISTERED OFFICE	1
1.2	OTHER OFFICES	1
ARTICLE II	MEETINGS OF STOCKHOLDERS	1
2.1	PLACE OF MEETINGS	1
2.2	ANNUAL MEETING	1
2.3	SPECIAL MEETING	1
2.4	NOTICE OF STOCKHOLDERS’ MEETINGS; EXCEPTION TO REQUIREMENTS OF NOTICE	3
2.5	MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE	4
2.6	QUORUM	4
2.7	ADJOURNED MEETING; NOTICE	4
2.8	VOTING	5
2.9	WAIVER OF NOTICE	5
2.10	NO STOCKHOLDER ACTION BY WRITTEN CONSENT	5
2.11	RECORD DATE FOR STOCKHOLDER NOTICE	5
2.12	PROXIES	6
2.13	LIST OF STOCKHOLDERS ENTITLED TO VOTE; STOCK LEDGER	6
2.14	NOMINATIONS OUTSIDE OF PROXY ACCESS AND OTHER PROPOSALS BY STOCKHOLDERS AT ANNUAL MEETING	6
2.15	PROXY ACCESS FOR DIRECTOR NOMINATIONS	7
2.16	ORGANIZATION	14
2.17	NOTICE BY ELECTRONIC TRANSMISSION	14
ARTICLE III	DIRECTORS	15
3.1	POWERS	15
3.2	NUMBER OF DIRECTORS	15
3.3	ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS	15
3.4	RESIGNATION AND VACANCIES	16
3.5	PLACE OF MEETINGS; MEETINGS BY TELEPHONE	16
3.6	FIRST MEETINGS	16
3.7	REGULAR MEETINGS	16
3.8	SPECIAL MEETINGS; NOTICE	16
3.9	QUORUM	17
3.10	WAIVER OF NOTICE	17
3.11	ADJOURNED MEETING; NOTICE	17
3.12	BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING	17
3.13	FEES AND COMPENSATION OF DIRECTORS	18
3.14	REMOVAL OF DIRECTORS	18
ARTICLE IV	COMMITTEES	18
4.1	COMMITTEES OF DIRECTORS	18
4.2	COMMITTEE MINUTES	18
4.3	MEETINGS AND ACTION OF COMMITTEES	18

	TABEL OF CONTENTS
	(continued)
		Page
ARTICLE V	OFFICERS	19
5.1	OFFICERS	19
5.2	ELECTION OF OFFICERS	19
5.3	SUBORDINATE OFFICERS	19
5.4	REMOVAL AND RESIGNATION OF OFFICERS	19
5.5	VACANCIES IN OFFICES	19
5.6	CHAIRMAN OF THE BOARD	19
5.7	CHIEF EXECUTIVE OFFICER	20
5.8	PRESIDENT	20
5.9	VICE PRESIDENT	20
5.10	SECRETARY	20
5.11	CHIEF FINANCIAL OFFICER	20
5.12	ASSISTANT SECRETARY	21
5.13	ASSISTANT TREASURER	21
5.14	AUTHORITY AND DUTIES OF OFFICERS	21
ARTICLE VI	INDEMNITY	21
6.1	RIGHT TO INDEMNIFICATION IN ACTIONS, SUITS OR PROCEEDINGS OTHER THAN THOSE BY OR IN THE RIGHTS OF THE CORPORATION	21
6.2	RIGHT TO INDEMNIFICATION IN ACTIONS, SUITS OR PROCEEDINGS BY OR IN THE RIGHT OF THE CORPORATION	22
6.3	AUTHORIZATION OF INDEMNIFICATION	22
6.4	GOOD FAITH DEFINED	22
6.5	INDEMNIFICATION BY A COURT	23
6.6	EXPENSES PAYABLE IN ADVANCE	23
6.7	NONEXCLUSIVITY OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES	23
6.8	INSURANCE	23
6.9	CERTAIN DEFINITIONS	23
6.10	SURVIVAL OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES	24
6.11	LIMITATION ON INDEMNIFICATION	24
6.12	INDEMNIFICATION OF EMPLOYEES AND AGENTS	24
ARTICLE VII	RECORDS AND REPORTS	24
7.1	MAINTENANCE AND INSPECTION OF RECORDS	24
7.2	INSPECTION BY DIRECTORS	25
7.3	REPRESENTATION OF SHARES OF OTHER CORPORATIONS	25
ARTICLE VIII	GENERAL MATTERS	25
8.1	CHECKS	25
8.2	EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS	25
8.3	STOCK CERTIFICATES; PARTLY PAID SHARES	25
8.4	SPECIAL DESIGNATION ON CERTIFICATES	26
8.5	LOST CERTIFICATES	26
8.6	CONSTRUCTION; DEFINITIONS	26

	TABEL OF CONTENTS
	(continued)
		Page
8.7	DIVIDENDS	26
8.8	FISCAL YEAR	26
8.9	SEAL	27
8.10	TRANSFER OF STOCK	27
8.11	REGISTERED STOCKHOLDERS	27
ARTICLE IX	AMENDMENTS	27

AMENDED AND RESTATED

BYLAWS

OF

NETGEAR, INC.

ARTICLE I

CORPORATE OFFICES

1.1    REGISTERED OFFICE

The address of the Corporation’s registered office in the State of Delaware is 15 East North Street, in the City of Dover, County of Kent. The name of the registered agent at such address is Incorporating Services, Ltd.

1.2    OTHER OFFICES

The Board of Directors of the corporation (the “Board”) may at any time establish other offices at any place or places where the corporation is qualified to do business.

ARTICLE II

MEETINGS OF STOCKHOLDERS

2.1    PLACE OF MEETINGS

Meetings of stockholders shall be held at any place, within or outside the State of Delaware, as designated by the Board. In the absence of any such designation, stockholders’ meetings shall be held at the registered office of the corporation.

2.2    ANNUAL MEETING

The annual meeting of stockholders shall be held each year on a date and at a time designated by the Board. At the annual meeting, directors shall be elected and any other proper business may be transacted.

2.3 SPECIAL MEETING

(a)    Subject to the rights of the holders of any series of Preferred Stock then outstanding, special meetings of the stockholders shall be called at any time for any purpose as is a proper matter for stockholder action under Delaware law, by (i) the Board acting pursuant to a resolution duly adopted by a majority of the Board, (ii) the Chairman of the Board, (iii) the Lead Independent Director, (iv) the Chief Executive Officer or the President or (v) the Secretary of the Corporation upon the written request of stockholder(s) Owning (as defined below) at least 25% (in the aggregate) of the then voting power of all shares of the Corporation entitled to vote on the matters to be brought before the proposed special meeting (the “Requisite Percent,” and such a special meeting, a “Stockholder Requested Special Meeting”); provided that a request pursuant to Section 2.3(a)(v) shall be invalid if (A) it relates to an item of business that is the same or substantially similar to any item of business that stockholders voted on at a meeting of stockholders that occurred within 120 days preceding the date of such request or (B) the special-meeting request is received within the period commencing 90 days prior to the anniversary of the date of the most recent

annual meeting of stockholders and ending on the date of the next annual meeting of stockholders. Special meetings of the stockholders shall be held at such time and place within or without the State of Delaware as may be designated from time to time by the Board; provided that any Stockholder Requested Special Meeting shall be held within 120 days after the Secretary of the Corporation receives notice that such meeting has been called for. Only such business shall be conducted at a special meeting of stockholders as shall have been stated in the notice for such meeting.

For purposes of this Section 2.3, a holder shall be deemed to “Own” only those shares for which it possesses both (x) full voting and investment rights and (y) a full economic interest (i.e., shares for which the holder has not only the opportunity to profit, but is also exposed to the risk of loss); provided that the number of shares calculated in accordance with the foregoing clauses (x) and (y) shall not include any shares (A) sold by such person or any of its affiliates in any transaction that has not been settled or closed, (B) borrowed by such holder or any of its affiliates for any purposes or purchased by such holder or any of its affiliates pursuant to an agreement to resell or (C) subject to any option, warrant, forward contract, swap, contract of sale, other derivative or similar agreement entered into by such holder or any of its affiliates, whether any such instrument or agreement is to be settled with shares or with cash based on the notional amount or value of shares of the Corporation entitled to vote at the Stockholder Requested Special Meeting, in any such case which instrument or agreement has, or is intended to have, the purpose or effect of (1) reducing in any manner, to any extent or at any time in the future, such holder’s or its affiliates’ full right to vote or direct the voting of any such shares and/or (2) hedging, offsetting or altering to any degree the gain or loss arising from the full economic ownership of such shares by such holder or affiliate. A holder shall “own” shares held in the name of a nominee or other intermediary so long as the holder retains the right to instruct how the shares are voted with respect to the election of directors and possesses the full economic interest in the shares. A holder’s ownership of shares shall be deemed to continue during any period in which the person has delegated any voting power by means of a proxy, power of attorney or other instrument or arrangement that is revocable at any time by the holder. The determination of the extent to which a person “Owns” shares for these purposes shall be made in good faith by the Board, which determination shall be conclusive and binding on the Corporation and its stockholders.

(b)    In order for the Secretary to call a Stockholder Requested Special Meeting, one or more written requests for a special stockholder meeting (individually or collectively, a “Special Meeting Request”) signed and dated by the stockholder(s) of record that Own the Requisite Percent, or by persons who are acting on behalf of those who Own the Requisite Percent, must be delivered by the requesting stockholder(s) to the Secretary at the principal executive offices of the Corporation, must set forth therein the purpose or purposes of the proposed Stockholder Requested Special Meeting and must be accompanied by:

(i)    the relevant information required by Section 2.14 of these Bylaws, as applied to a special meeting rather than an annual meeting, and without regard to the timing of the stockholder notice described therein; and

(ii)    as to each stockholder signing such request, or if such stockholder is a nominee or custodian, as to each beneficial owner on whose behalf such request is signed, (i) an affidavit signed by such person stating the number of shares of the Corporation that it Owns as of the date such request was signed and agreeing to continue to Own at least (A) such number of shares or (B) a number of shares equal to the Requisite Percent through the date of the Stockholder Requested Special Meeting and to update and supplement such affidavit, if necessary, so that the information provided in such affidavit regarding the number of shares that such person Owns shall be true and correct as of the record date for the Stockholder Requested Special Meeting and as of the date that is five business days prior to the meeting or any adjournment or postponement thereof, with such update and supplement to be delivered to the Secretary at the principal executive offices of the Corporation not later than five business days after the record date for the meeting in the case of the update and supplement required to be made as of the record date, and not later than three business days prior to the date for the meeting or any adjournment or postponement thereof in the case of the update and supplement required to be made as of five business days prior to the meeting or any adjournment or postponement thereof; provided that in the event of any decrease in the number of shares of the Corporation Owned by such person at any time before the Stockholder Requested Special Meeting, such person’s

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Special Meeting Request shall be deemed revoked with respect to the shares comprising such reduction and shall not be counted towards the calculation of the Requisite Percent.

One or more written requests for a special meeting delivered to the Secretary shall constitute a valid Special Meeting Request only if each such written request satisfies the requirements set forth above in this clause (b) and has been dated and delivered to the Secretary within 60 days of the earliest dated of such requests. If the record holder is not the signatory to the Special Meeting Request, such Special Meeting Request will not be valid unless documentary evidence from the record holder of such signatory’s authority to execute the Special Meeting Request on behalf of the record holder is supplied to the Secretary at the time of delivery of such Special Meeting Request (or within 10 business days thereafter). The determination of the validity of a Special Meeting Request shall be made in good faith by the Board of Directors, whose determination shall be conclusive and binding on the Corporation and the stockholders.

(c)    If none of the stockholder(s) who submitted the Special Meeting Request(s) (or their qualified representatives) appears at the Stockholder Requested Special Meeting to present the matter or matters to be brought before the special meeting as specified in the Special Meeting Request(s), the Corporation need not present the matter or matters for a vote at the meeting, notwithstanding that proxies in respect of such vote may have been received by the Corporation.

(d)    The stockholder seeking to call the special meeting may revoke a Special Meeting Request by written revocation delivered to, or mailed and received by, the Secretary at any time prior to the special meeting, and any stockholder signing a Special Meeting Request may revoke such request as to the shares that such person Owns (or as to the shares that are Owned by the person on whose behalf the stockholder is acting, as applicable), and their Special Meeting Request shall thereupon be deemed revoked; provided that if as a result of such revocation(s) there are no longer any valid unrevoked Special Meeting Request(s) from stockholders who Own at least a Requisite Percent with respect to the proposed special meeting, then there shall be no requirement for the Secretary to call, or for the Corporation to hold, a special meeting regardless of whether notice of such special meeting has been sent and/or proxies solicited for such special meeting. Further, in the event that the stockholder requesting the Stockholder Requested Special Meeting withdraws such Special Meeting Request, there shall be no requirement for the Secretary to call, or for the Corporation to hold, such special meeting.

2.4    NOTICE OF STOCKHOLDERS’ MEETINGS; EXCEPTION TO REQUIREMENTS OF NOTICE

All notices of meetings with stockholders shall be in writing and shall be sent or otherwise given in accordance with Section 2.5 of these Bylaws not less than ten (10) nor more than sixty (60) calendar days before the date of the meeting to each stockholder entitled to vote at such meeting. The notice shall specify the place, date and hour of the meeting, the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such meeting (as authorized by the Board in its sole discretion pursuant to Section 211(a)(2) of the General Corporation Law of Delaware), and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Subject to the requirements of Section 2.3 with respect to a Stockholder Requested Special Meeting, any previously scheduled meeting of stockholders may be postponed, and, unless the Certificate of Incorporation of the corporation, as the same may be amended and/or restated from time to time (as so amended and restated, the “Certificate”) provides otherwise, any special meeting of the stockholders (other than a Stockholder Requested Special Meeting, subject to the requirements and limitations of Section 2.3) may be cancelled by resolution duly adopted by a majority of the Board members then in office upon public notice given prior to the date previously scheduled for such meeting of stockholders.

Whenever notice is required to be given, under the General Corporation Law of Delaware, the Certificate or these Bylaws, to any person with whom communication is unlawful, the giving of such notice to such person shall not be required and there shall be no duty to apply to any governmental authority or agency for a license or permit to give such notice to such person. Any action or meeting which shall be taken or held without notice to any such person with whom communication is unlawful shall have the same force and effect as if such notice had been duly given. In the event that the action taken by the corporation is such as to require the filing of a certificate with the

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Secretary of State of Delaware, the certificate shall state, if such is the fact and if notice is required, that notice was given to all persons entitled to receive notice except such persons with whom communication is unlawful.

Whenever notice is required to be given, under any provision of the General Corporation Law of Delaware, the Certificate or these Bylaws, to any stockholder, and such stockholder has received (a) notice of two (2) consecutive annual meetings, or (b) at least two (2) payments (if sent by first-class mail) of dividends or interest on securities during a twelve (12) month period, having been mailed such notice addressed to such person at such person’s address as shown on the records of the corporation and have been returned undeliverable, the giving of such notice to such person shall not be required. Any actions or meeting which shall be taken or held without notice to such person shall have the same force and effect as if such notice had been duly given. If any such person shall deliver to the corporation a written notice setting forth such person’s then current address, the requirement that notice be given to such person shall be reinstated. In the event that the action taken by the corporation is such as to require the filing of a certificate with the Secretary of State of Delaware, the certificate need not state that notice was not given to persons to whom notice was not required to be given pursuant to Section 230(b) of the General Corporation Law of Delaware.

The exception in subsection (a) of the above paragraph to the requirement that notice be given shall not be applicable to any notice returned as undeliverable if the notice was given by electronic transmission.

2.5    MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE

Written notice of any meeting of stockholders, if mailed, is given when deposited in the United States mail, postage prepaid, directed to the stockholder at his, her or its address as it appears on the records of the corporation and otherwise is given when delivered. An affidavit of the Secretary or an Assistant Secretary, the transfer agent or other agent of the corporation that the notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein.

2.6    QUORUM

The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business, except as otherwise provided by statute or the Certificate. If, however, such quorum is not present or represented at any meeting of the stockholders, then a majority of the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present or represented. At such adjourned meeting at which a quorum is present or represented, any business may be transacted that might have been transacted at the meeting as originally noticed. The stockholders present at a duly called meeting at which quorum is present may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum.

2.7    ADJOURNED MEETING; NOTICE

When a meeting is adjourned to another time or place, unless these Bylaws otherwise require, notice need not be given of the adjourned meeting if the time and place thereof, and the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such adjourned meeting (as authorized by the Board in its sole discretion pursuant to Section 211(a)(2) of the General Corporation Law of Delaware),are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the corporation may transact any business that might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. The Chairman of the meeting shall have the power to adjourn any meeting of stockholders for any reason and the stockholders shall have the power to adjourn any meeting of stockholders in accordance with Section 2.6 of these Bylaws.

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2.8    VOTING

The stockholders entitled to vote at any meeting of stockholders shall be determined in accordance with the provisions of Section 2.11 of these Bylaws, subject to the provisions of Sections 217 and 218 of the General Corporation Law of Delaware (relating to voting rights of fiduciaries, pledgors and joint owners of stock and to voting trusts and other voting agreements).

Except as otherwise provided in the provisions of Section 213 of the General Corporation Law of Delaware (relating to the fixing of a date for determination of stockholders of record), or as may be otherwise provided in the Certificate, each stockholder shall be entitled to one (1) vote for each share of capital stock held by such stockholder.

In all matters, other than the election of directors and except as otherwise required by law, the affirmative vote of the majority of shares present or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders. Directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors.

2.9    WAIVER OF NOTICE

Whenever notice is required to be given under any provision of the General Corporation Law of Delaware, the Certificate or these Bylaws, a written waiver thereof, signed by the person entitled to notice, or a waiver by electronic transmission by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders need be specified in any written waiver of notice, or any waiver by electronic transmission, unless so required by the Certificate or these Bylaws.

2.10     NO STOCKHOLDER ACTION BY WRITTEN CONSENT

Any action required or permitted to be taken by the stockholders of the corporation must be effected at a duly called annual or special meeting of such holders and may not be effected by any consent in writing by such holders.

2.11     RECORD DATE FOR STOCKHOLDER NOTICE

In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board may fix, in advance, a record date, which such date shall not precede the date upon which the resolution fixing the record date is adopted by the Board and which such date shall not be more than sixty (60) nor less than ten (10) calendar days before the date of such meeting, nor more than sixty (60) days prior to any other action.

If the Board does not so fix a record date:

(a)    The record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held.

(b)    The record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereto.

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A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board may fix a new record date for the adjourned meeting.

2.12     PROXIES

Each stockholder entitled to vote at a meeting of stockholders may authorize another person or persons to act for him, her or it by a written proxy, signed by the stockholder and filed with the Secretary of the corporation, but no such proxy shall be voted or acted upon after three (3) years from its date, unless the proxy provides for a longer period. A stockholder may authorize another person or persons to act for him, her or it as proxy in the manner(s) provided under Section 212(c) of the General Corporate Law of Delaware or as otherwise provided under Delaware law. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Section 212(e) of the General Corporation Law of Delaware.

2.13     LIST OF STOCKHOLDERS ENTITLED TO VOTE; STOCK LEDGER

The officer who has charge of the stock ledger of a corporation shall prepare and make, at least ten (10) calendar days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Nothing contained in this Section shall require the corporation to include electronic mail addresses or other electronic contact information on such list. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting: (a) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of the meeting, or (b) for a period of at least ten (10) calendar days prior to the meeting during ordinary business hours at the principal place of business of the corporation.

In the event that the corporation determines to make the list available on an electronic network, the corporation may take reasonable steps to ensure that such information is available only to the stockholders of the corporation. The list shall be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present.

2.14     NOMINATIONS OUTSIDE OF PROXY ACCESS AND OTHER PROPOSALS BY STOCKHOLDERS AT ANNUAL MEETING

(a)    Only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be: (A) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board, (B) otherwise properly brought before the meeting by or at the direction of the Board, or (C) otherwise properly brought before the meeting by a stockholder (i) who is a stockholder of record on the date of the giving of notice provided for in this Section 2.14(a) and on the record date for the determination of stockholders entitled to vote at such annual meeting and (ii) who complies with the notice procedures set forth in this Section 2.14(a). For business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the corporation. To be timely, a stockholder’s notice must be delivered to or mailed and received at the principal executive offices of the corporation not less than 120 calendar days in advance of the date that is the one year anniversary of the previous year’s annual meeting of stockholders; provided, however, that in the event that no annual meeting was held in the previous year or the date of the annual meeting has been changed by more than thirty (30) days from the date contemplated at the time of the previous year’s proxy statement, notice by the stockholder to be timely must be so received not later than the close of business on the tenth (10^th) day following the day notice of the date of the meeting was mailed or such public disclosure was made, whichever occurs first. A stockholder’s notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting: (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and address, as they appear on the corporation’s books, of the stockholder proposing such business, (iii) the class and number of shares of the corporation which are beneficially owned by the stockholder, (iv) any material interest of the stockholder in such business and (v) any other

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information that is required to be provided by the stockholder pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), in such stockholder’s capacity as a proponent to a stockholder proposal. Notwithstanding the foregoing, in order to include information with respect to a stockholder proposal in the proxy statement and form of proxy for a stockholder’s meeting, stockholders must provide notice as required by the regulations promulgated under the Exchange Act. Notwithstanding anything in these Bylaws to the contrary, no business shall be conducted at any annual meeting except in accordance with the procedures set forth in this paragraph (a). The chairman of the annual meeting shall, if the facts warrant, determine and declare at the meeting that business was not properly brought before the meeting and in accordance with the provisions of this paragraph (a), and, if he should so determine, he shall so declare at the meeting that any such business not properly brought before the meeting shall not be transacted.

(b)    Only persons who are nominated in accordance with the procedures set forth in this paragraph (b) or Section 2.15 shall be eligible for election as directors, except as otherwise provided in the Certificate of Incorporation with respect to the right of holders of preferred stock of the corporation. Nominations of persons for election to the Board of the corporation may be made at a meeting of stockholders by or at the direction of the Board or by any stockholder of the corporation entitled to vote in the election of directors at the meeting who complies with the notice procedures set forth in this paragraph (b) or Section 2.15. Such nominations, other than those made by or at the direction of the Board, shall be made pursuant to timely notice in writing to the Secretary of the corporation in accordance with the provisions of paragraph (a) of this Section 2.14 or Section 2.15. Such stockholder’s notice, other than with respect to nominations by stockholders pursuant to Section 2.15, shall set forth (i) as to each person, if any, whom the stockholder proposes to nominate for election or re-election as a director: (A) the name, age, business address and residence address of such person, (B) the principal occupation or employment of such person, (C) the class and number of shares of the corporation which are beneficially owned by such person, (D) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nominations are to be made by the stockholder, and (E) any other information relating to such person that is required to be disclosed in solicitations of proxies for elections of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Exchange Act (including without limitation such person’s written consent to being named in the proxy statement, if any, as a nominee and to serving as a director if elected); and (ii) as to such stockholder giving notice, the information required to be provided pursuant to paragraph (a) of this Section 2.14. At the request of the Board, any person nominated by a stockholder for election as a director pursuant to this Section 2.14 shall furnish to the Secretary of the corporation that information required to be set forth in the stockholder’s notice of nomination, which pertains to the nominee. No person shall be eligible for election as a director of the corporation unless nominated in accordance with the procedures set forth in this paragraph (b) or Section 2.15. The chairman of the meeting shall, if the facts warrants, determine and declare at the meeting that a nomination was not made in accordance with the procedures prescribed by these Bylaws, and if he should so determine, he shall so declare at the meeting, and the defective nomination shall be disregarded.

(c)    Notwithstanding the foregoing provisions of this Section 2.14, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to matters set forth in this Section 2.14. Nothing in this Section 2.14 shall be deemed to affect any rights of stockholders to request inclusion of proposals in the corporation’s proxy statement pursuant to Rule 14a-8 under the Exchange Act.

2.15     PROXY ACCESS FOR DIRECTOR NOMINATIONS

(a)    Whenever the Board solicits proxies with respect to the election of directors at an annual meeting of stockholders, subject to the provisions of this Section 2.15, the corporation shall include in its proxy statement for such annual meeting, in addition to any persons nominated for election by the Board or any committee thereof, the name, together with the Required Information (as defined below), of any person nominated for election (the “Stockholder Nominee”) to the Board by a stockholder or group of no more than 50 stockholders that satisfies the requirements of this Section 2.15 (the “Eligible Stockholder”) and that expressly elects at the time of providing the notice required by this Section 2.15 (the “Notice of Proxy Access Nomination”) to have such nominee included in the corporation’s proxy materials pursuant to this Section 2.15. For purposes of this Section 2.15, the “Required

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Information” that the corporation will include in its proxy statement is (i) the information provided to the Secretary of the corporation concerning the Stockholder Nominee and the Eligible Stockholder that is required to be disclosed in the corporation’s proxy statement pursuant to Section 14 of the Exchange Act, and the rules and regulations promulgated thereunder, and (ii) if the Eligible Stockholder so elects, a Supporting Statement (as defined below).  The Required Information must be provided with the Notice of Proxy Access Nomination.

(b)    The maximum number of Stockholder Nominees nominated by all Eligible Stockholders that will be included in the corporation’s proxy materials with respect to an annual meeting of stockholders shall not exceed the greater of (i) two or (ii) 20% of the number of directors in office as of the last day on which a Notice of Proxy Access Nomination may be delivered pursuant to and in accordance with this Section 2.15 (the “Final Proxy Access Nomination Date”) or, if such amount is not a whole number, the closest whole number below 20%.  In the event that one or more vacancies for any reason occurs on the Board after the Final Proxy Access Nomination Date but before the date of the annual meeting and the Board resolves to reduce the size of the Board in connection therewith, the maximum number of Stockholder Nominees included in the corporation’s proxy materials shall be calculated based on the number of directors in office as so reduced.  For purposes of determining when the maximum number of Stockholder Nominees provided for in this Section 2.15 has been reached, each of the following persons shall be counted as one of the Stockholder Nominees:

(i)    any individual nominated by an Eligible Stockholder for inclusion in the corporation’s proxy materials pursuant to this Section 2.15 whose nomination is subsequently withdrawn,

(ii)    any individual nominated by an Eligible Stockholder for inclusion in the corporation’s proxy materials pursuant to this Section 2.15 whom the Board decides to nominate for election to the Board, and

(iii)    any director in office as of the Final Proxy Access Nomination Date who was included in the corporation’s proxy materials as a Stockholder Nominee for either of the two preceding annual meetings of Stockholders (including any individual counted as a Stockholder Nominee pursuant to the immediately preceding clause (ii)) and whom the Board decides to nominate for re-election to the Board.

Any Eligible Stockholder submitting more than one Stockholder Nominee for inclusion in the corporation’s proxy materials pursuant to this Section 2.15 shall rank such Stockholder Nominees based on the order in which the Eligible Stockholder desires such Stockholder Nominees to be selected for inclusion in the corporation’s proxy materials.  In the event that the number of Stockholder Nominees submitted by Eligible Stockholders pursuant to this Section 2.15 exceeds the maximum number of Stockholder Nominees provided for in this Section 2.15, the highest ranking Stockholder Nominee who meets the requirements of this Section 2.15 from each Eligible Stockholder will be selected for inclusion in the corporation’s proxy materials until the maximum number is reached, going in order of the amount (largest to smallest) of shares of common stock of the corporation each Eligible Stockholder disclosed as owned in its Notice of Proxy Access Nomination.  If the maximum number is not reached after the highest ranking Stockholder Nominee who meets the requirements of this Section 2.15 from each Eligible Stockholder has been selected, then the next highest ranking Stockholder Nominee who meets the requirements of this Section 2.15 from each Eligible Stockholder will be selected for inclusion in the corporation’s proxy materials, and this process will continue as many times as necessary, following the same order each time, until the maximum number is reached.

(c)    In order to make a nomination pursuant to this Section 2.15, an Eligible Stockholder must have owned (as defined below) at least 3% of the corporation’s outstanding common stock (the “Required Shares”) continuously for at least three years (the “Minimum Holding Period”) as of both the date the Notice of Proxy Access Nomination is delivered to the Secretary of the corporation in accordance with this Section 2.15 and the record date for determining the stockholders entitled to receive notice of the annual meeting, and must continue to own the Required Shares through the date of the annual meeting.  For purposes of this Section 2.15, an Eligible Stockholder shall be deemed to “own” only those outstanding shares of common stock of the corporation as to which the stockholder possesses both:

(i)    the full voting and investment rights pertaining to the shares, and

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(ii)    the full economic interest in (including the opportunity for profit from and risk of loss on) such shares, provided that the number of shares calculated in accordance with the immediately preceding clauses (i) and (ii) shall not include any shares:

(1)    sold by such stockholder or any of its affiliates in any transaction that has not been settled or closed,

(2)    borrowed by such stockholder or any of its affiliates for any purposes or purchased by such stockholder or any of its affiliates pursuant to an agreement to resell, or

(3)    subject to any option, warrant, forward contract, swap, contract of sale, other derivative or similar instrument or agreement entered into by such stockholder or any of its affiliates, whether any such instrument or agreement is to be settled with shares or with cash based on the notional amount or value of shares of outstanding common stock of the corporation, if, in any such case, such instrument or agreement has, or is intended to have, the purpose or effect of:

a)    reducing in any manner, to any extent or at any time in the future, such stockholder’s or its affiliates’ full right to vote or direct the voting of any such shares, and/or

b)    hedging, offsetting or altering to any degree any gain or loss realized or realizable from maintaining the full economic ownership of such shares by such stockholder or affiliate.

A stockholder shall “own” shares held in the name of a nominee or other intermediary so long as the stockholder retains the right to instruct how the shares are voted with respect to the election of directors and possesses the full economic interest in the shares.  A person’s ownership of shares shall be deemed to continue during any period in which (i) the stockholder has loaned such shares, provided that the person has the power to recall such loaned shared on 5 business days’ notice or (ii) the stockholder has delegated any voting power by means of a proxy, power of attorney or other instrument or arrangement which is revocable at any time by the stockholder.  The terms “owned,” “owning” and other variations of the word “own” shall have correlative meanings.  Whether outstanding shares of the common stock of the corporation are “owned” for these purposes shall be determined by the Board or any committee thereof.  For purposes of this Section 2.15, the term “affiliate” or “affiliates” shall have the meaning ascribed thereto under the rules and regulations under the Exchange Act.

(d)    The following requirements apply to a group of stockholders acting pursuant to this Section 2.15:

(i)    Whenever the Eligible Stockholder consists of a group of stockholders:

(1)    a group of funds under common management and control shall be treated as one stockholder,

(2)    each provision in this Section 2.15 that requires the Eligible Stockholder to provide any written statements, representations, undertakings, agreements or other instruments or to meet any other conditions shall be deemed to require each stockholder that is a member of such group to provide such statements, representations, undertakings, agreements or other instruments and to meet such other conditions (except that the members of such group may aggregate their shareholdings in order to meet the 3% ownership requirement of the “Required Shares” definition),

(3)    a breach of any obligation, agreement or representation under this Section 2.15 by any member of such group shall be deemed a breach by the Eligible Stockholder, and

(4)    the Notice of Proxy Access Nomination must designate one member of the group for purposes of receiving communications, notices and inquiries from the corporation and otherwise authorize such member to act on behalf of all members of the group with respect to all matters relating to the nomination under this Section 2.15 (including withdrawal of the nomination).

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(ii)    Whenever the Eligible Stockholder consists of a group of stockholders aggregating their shareholdings in order to meet the 3% ownership requirement of the “Required Shares” definition in Section 2.15(c) hereof:

(1)    such ownership shall be determined by aggregating the lowest number of shares continuously owned by each such stockholder during the Minimum Holding Period, and

(2)    the Notice of Proxy Access Nomination must indicate, for each such stockholder, such lowest number of shares continuously owned by such stockholder during the Minimum Holding Period.

(iii)    Any group of funds whose shares are aggregated for purposes of constituting an Eligible Stockholder must, within 5 business days after the date of the Notice of Proxy Access Nomination, provide documentation reasonably satisfactory to the corporation that demonstrates that the funds are under common management and investment control. No person may be a member of more than one group of stockholders constituting an Eligible Stockholder with respect to any annual meeting.  For the avoidance of doubt, a stockholder may withdraw from a group of stockholders constituting an Eligible Stockholder at any time prior to the annual meeting and if, as a result of such withdrawal, the Eligible Stockholder no longer owns the Required Shares, the nomination shall be disregarded as provided in Section 2.15(j)(ix).

(e)    Nominations by stockholders pursuant to this Section 2.15, must be made pursuant to timely notice to the Secretary of the corporation in accordance with this Section 2.15.  To be timely, a Notice of Proxy Access Nomination must be received by the Secretary not less than 120 days and not more than 150 days prior to the first anniversary of the date that the corporation files its definitive proxy statement to stockholders for the preceding year’s annual meeting with the Securities and Exchange Commission.  If, however, the date of the annual meeting is more than 30 days before or 60 days after the first anniversary date of the preceding year’s annual meeting, the Notice of Proxy Access Nomination shall be timely only if received not less than 90 days and not more than 120 days prior to the annual meeting, or if later, within 10 days after the first public announcement of the date of the annual meeting.  In no event shall the adjournment of an annual meeting, or the public announcement of such an adjournment, commence a new time period (or extend any time period) for the giving of a Notice of Proxy Access Nomination pursuant to this Section 2.15.

(f)    To be in proper form for purposes of this Section 2.15, the Notice of Proxy Access Nomination must include or be accompanied by the following:

(i)    the information and representations that would be required to be set forth in a stockholder’s notice of a nomination pursuant to Section 2.14 (including the written consent of each Stockholder Nominee to be named in the proxy statement as a nominee and to serve as a director if elected),

(ii)    one or more written statements from the record holder of the Required Shares (and from each intermediary through which the Required Shares are or have been held during the Minimum Holding Period) verifying that, as of a date within seven calendar days prior to the date the Notice of Proxy Access Nomination is delivered to or mailed and received by the Secretary of the corporation, the Eligible Stockholder owns, and has owned continuously for the Minimum Holding Period, the Required Shares, and the Eligible Stockholder’s agreement to provide one or more written statements from the record holder and such intermediaries verifying the Eligible Stockholder’s continuous ownership of the Required Shares through the record date for determining the stockholders entitled to receive notice of the annual meeting, which statements must be provided within five business days after the record date,

(iii)    a copy of the Schedule 14N that has been filed with the Securities and Exchange Commission as required by Rule 14a-18 under the Exchange Act,

(iv)    a representation that the Eligible Stockholder:

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(1)    will continue to hold the Required Shares through the date of the annual meeting,

(2)    acquired the Required Shares in the ordinary course of business and not with the intent to change or influence control at the corporation, and does not presently have such intent,

(3)    has not nominated and will not nominate for election to the Board at the annual meeting any person other than the Stockholder Nominee(s) it is nominating pursuant to this Section 2.15,

(4)    has not engaged and will not engage in, and has not and will not be a “participant” in another person’s, “solicitation” within the meaning of Rule 14a-1(l) under the Exchange Act in support of the election of any individual as a director at the annual meeting other than its Stockholder Nominee(s) or a nominee of the Board,

(5)    has not distributed and will not distribute to any stockholder of the corporation any form of proxy for the annual meeting other than the form distributed by the corporation,

(6)    has complied and will comply with all laws and regulations applicable to solicitations and the use, if any, of soliciting material in connection with the annual meeting,

(7)    will file with the Securities and Exchange Commission any solicitation or other communication with the corporation’s stockholders relating to the meeting at which the Stockholder Nominee will be nominated, regardless of whether any such filing is required under Regulation 14A of the Exchange Act or whether any exemption from filing is available for such solicitation or other communication under Regulation 14A of the Exchange Act, and

(8)    has provided and will provide facts, statements and other information in all communications with the corporation and its stockholders that are or will be true and correct in all material respects and do not and will not omit to state a material fact necessary in order to make such information, in light of the circumstances under which it was or will be made or provided, not misleading,

(v)    an undertaking that the Eligible Stockholder agrees to:

(1)    assume all liability stemming from any legal or regulatory violation arising out of communications with the stockholders of the corporation by the Eligible Stockholder, its affiliates and associates or their respective agents and representatives, either before or after providing a Notice of Proxy Access Nomination pursuant to this Section 2.15, or out of the facts, statements or other information that the Eligible Stockholder or its Stockholder Nominee(s) provided to the corporation in connection with the inclusion of such Stockholder Nominee(s) in the corporation’s proxy materials, and

(2)    indemnify and hold harmless the corporation and each of its directors, officers and employees individually against any liability, loss or damages in connection with any threatened or pending action, suit or proceeding, whether legal, administrative or investigative, against the corporation or any of its directors, officers or employees arising out of any nomination submitted by the Eligible Stockholder pursuant to this Section 2.15, and

(vi)    a written representation and agreement from each Stockholder Nominee that such Stockholder Nominee:

(1)    is not and will not become a party to any agreement, arrangement or understanding with, and has not given any commitment or assurance to, any person or entity as to how such Stockholder Nominee, if elected as a director of the corporation, will act or vote on any issue or question that has not been disclosed to the corporation,

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(2)    is not and will not become a party to any agreement, arrangement or understanding with any person or entity other than the corporation with respect to any direct or indirect compensation, reimbursement or indemnification in connection with service or action as a Stockholder Nominee that has not been disclosed to the corporation,

(3)    has read and will comply with the corporation’s code of ethics, corporate governance guidelines, stock ownership guidelines, securities trading policy, information security policy and any other policies or guidelines of the corporation applicable to directors, and

(4)    will make such other acknowledgments, enter into such agreements and provide such information as the Board requires of all directors, including promptly submitting all completed and signed questionnaires required of the corporation’s directors.

(g)    In addition to the information required pursuant to Section 2.15(f) or any other provision of these Bylaws, the corporation also may require each Stockholder Nominee to furnish any other information:

(i)    that may reasonably be requested by the corporation to determine whether the Stockholder Nominee would be independent under the rules and listing standards of the principal United States securities exchanges upon which the common stock of the corporation is listed or traded, any applicable rules of the Securities and Exchange Commission or any publicly disclosed standards used by the Board in determining and disclosing the independence of the corporation’s directors (collectively, the “Independence Standards”),

(ii)    that could be material to a reasonable stockholder’s understanding of the independence, or lack thereof, of such Stockholder Nominee, or

(iii)    that may reasonably be required to determine the eligibility of such Stockholder Nominee to serve as a director of the corporation.

(h)    The Eligible Stockholder may, at its option, provide to the Secretary of the corporation, at the time the Notice of Proxy Access Nomination is provided, a written statement, not to exceed 500 words, in support of the Stockholder Nominee(s)’ candidacy (a “Supporting Statement”).  Only one Supporting Statement may be submitted by an Eligible Stockholder (including any group of stockholders together constituting an Eligible Stockholder) in support of its Stockholder Nominee(s).  Notwithstanding anything to the contrary contained in this Section 2.15, the corporation may omit from its proxy materials any information or Supporting Statement (or portion thereof) that it believes would violate any applicable law or regulation.

(i)    In the event that any information or communications provided by an Eligible Stockholder or a Stockholder Nominee to the corporation or its stockholders ceases to be true and correct in all material respects or omits a material fact necessary to make such information, in light of the circumstances under which it was made or provided, not misleading, such Eligible Stockholder or Stockholder Nominee, as the case may be, shall promptly notify the Secretary of the corporation of any defect in such previously provided information and of the information that is required to correct any such defect.  In addition, any person providing any information pursuant to this Section 2.15 shall further update and supplement such information, if necessary, so that all such information shall be true and correct as of the record date for determining the stockholders entitled to receive notice of the annual meeting and as of the date that is 10 business days prior to such annual meeting or any adjournment or postponement thereof, and such update and supplement (or a written certification that no such updates or supplements are necessary and that the information previously provided remains true and correct as of the applicable date) shall be delivered to or be mailed and received by the Secretary at the principal executive offices of the corporation not later than five business days after the record date for determining the stockholders entitled to receive notice of such annual meeting (in the case of the update and supplement required to be made as of the record date), and not later than seven business days prior to the date of the annual meeting or any adjournment or postponement thereof (in the case of the update and supplement required to be made as of 10 business days prior to the meeting).

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(j)    Notwithstanding anything to the contrary contained in this Section 2.15, the corporation shall not be required to include, pursuant to this Section 2.15, a Stockholder Nominee in its proxy materials:

(i)    for any meeting of stockholders for which the Secretary of the corporation receives notice that the Eligible Stockholder or any other stockholder intends to nominate one or more persons for election to the Board pursuant to the advance notice requirements for stockholder nominees set forth Section 2.14,

(ii)    if such Stockholder Nominee would not be an independent director under the Independence Standards, as determined by the Board or any committee thereof,

(iii)    if such Stockholder Nominee’s election as a member of the Board would cause the corporation to be in violation of these Bylaws, the Articles of Incorporation, the rules and listing standards of the principal United States securities exchanges upon which the common stock of the corporation is listed or traded, or any applicable state or federal law, rule or regulation,

(iv)    if such Stockholder Nominee is or has been, within the past three years, an officer or director of a competitor, as defined in Section 8 of the Clayton Antitrust Act of 1914,

(v)    who is a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses) or has been convicted in such a criminal proceeding within the past 10 years,

(vi)    if such Stockholder Nominee is subject to any order of the type specified in Rule 506(d) of Regulation D promulgated under the Securities Act of 1933, as amended,

(vii)    if such Stockholder Nominee or the Eligible Stockholder who nominated such Stockholder Nominee provides any facts, statements or other information to the corporation or its stockholders required or requested pursuant to this Section 2.15 that is not true and correct in all material respects or that omits a material fact necessary to make such information, in light of the circumstances in which it is made or provided, not misleading,

(viii)    if such Stockholder Nominee or the Eligible Stockholder who nominated such Stockholder Nominee otherwise contravenes any of the agreements or representations made by such Stockholder Nominee or Eligible Stockholder or fails to comply with its obligations pursuant to this Section 2.15, or

(ix)    If either:

(1)    a Stockholder Nominee and/or the applicable Eligible Stockholder breaches any of its or their obligations, agreements or representations under this Section 2.15, or

(2)    the Stockholder Nominee otherwise becomes ineligible for inclusion in the corporation’s proxy materials pursuant to this Section 2.15 or dies, becomes disabled or is otherwise disqualified from being nominated for election or serving as a director of the corporation,

in each case under this Section 2.15(j)(ix) as determined by the Board, any committee thereof or the chairman of the annual meeting, then:

a)    the corporation may omit or, to the extent feasible, remove the information concerning such Stockholder Nominee and the related Supporting Statement from its proxy materials and/or otherwise communicate to its stockholders that such Stockholder Nominee will not be eligible for election at the annual meeting,

b)    the corporation shall not be required to include in its proxy materials for that annual meeting any successor or replacement nominee proposed by the applicable Eligible Stockholder or any other Eligible Stockholder, and the Board or the chairman of the annual meeting shall declare such nomination

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to be invalid, such nomination shall be disregarded notwithstanding that proxies in respect of such vote may have been received by the corporation and the named proxies will not vote any proxies received from stockholders with respect to such Stockholder Nominee.

In addition, if the Eligible Stockholder (or a representative thereof) does not appear at the annual meeting to present any nomination pursuant to this Section 2.15, such nomination shall be disregarded as provided in the immediately preceding clause (3).

(k)    Any Stockholder Nominee who is included in the corporation’s proxy materials for a particular annual meeting of stockholders but withdraws from or becomes ineligible or unavailable for election at the annual meeting, will be ineligible to be a Stockholder Nominee pursuant to this Section 2.15 for the next two annual meetings of stockholders.

(l)    This Section 2.15 provides the exclusive method for a stockholder to include nominees for election to the Board in the corporation’s proxy materials.

2.16 ORGANIZATION

Meetings of stockholders shall be presided over by (a) the Chairman of the Board or, in the absence thereof, (b) such person as the Chairman of the Board shall appoint or, in the absence thereof or in the event that the Chairman of the Board shall fail to make such appointment, (c) such person as the Chairman of the executive committee of the corporation shall appoint or, in the absence thereof or in the event that the Chairman of the executive committee of the corporation shall fail to make such appointment, any officer of the corporation elected by the Board. In the absence of the Secretary of the corporation, the secretary of the meeting shall be such person as the Chairman of the meeting appoints.

The Board shall, in advance of any meeting of stockholders, appoint one (1) or more inspector(s), who may include individual(s) who serve the corporation in other capacities, including without limitation as officers, employees or agents, to act at the meeting of stockholders and make a written report thereof. The Board may designate one (1) or more persons as alternate inspector(s) to replace any inspector, who fails to act. If no inspector or alternate has been appointed or is able to act at a meeting of stockholders, the Chairman of the meeting shall appoint one (1) or more inspector(s) to act at the meeting. Each inspector, before discharging his or her duties, shall take and sign an oath to faithfully execute the duties of inspector with strict impartiality and according to the best of his or her ability. The inspector(s) or alternate(s) shall have the duties prescribed pursuant to Section 231 of the General Corporate Laws of Delaware or other applicable law.

The Board shall be entitled to make such rules or regulations for the conduct of meetings of stockholders as it shall deem necessary, appropriate or convenient. Subject to such rules and regulations, if any, the Chairman of the meeting shall have the right and authority to prescribe such rules, regulations and procedures and to do all acts as, in the judgment of such Chairman, are necessary, appropriate or convenient for the proper conduct of the meeting, including without limitation establishing an agenda of business of the meeting, rules or regulations to maintain order, restrictions on entry to the meeting after the time fixed for commencement thereof and the fixing of the date and time of the opening and closing of the polls for each matter upon which the stockholders will vote at a meeting (and shall announce such at the meeting).

2.17     NOTICE BY ELECTRONIC TRANSMISSION

Without limiting the manner by which notice otherwise may be given effectively to stockholders, any notice to stockholders given by the corporation under any provision of the General Corporation Law of Delaware, the Certificate or these Bylaws shall be effective if given by a form of electronic transmission consented to by the stockholder to whom the notice is given. Any such consent shall be revocable by the stockholder by written notice to the corporation. Any such consent shall be deemed revoked if (a) the corporation is unable to deliver by electronic transmission two (2) consecutive notices given by the corporation in accordance with such consent, and (b) such inability becomes known to the Secretary or an Assistant Secretary of the corporation, the transfer agent or

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other person responsible for the giving of notice; provided, however, the inadvertent failure to treat such inability as a revocation shall not invalidate any meeting or other action.

Notice given pursuant to the above paragraph shall be deemed given (a) if by facsimile telecommunication, when directed to a number at which the stockholder has consented to receive notice, (b) if by electronic mail, when directed to an electronic mail address at which the stockholder has consented to receive notice, (c) if by a posting on an electronic network together with a separate notice to the stockholder of such specific posting, upon the later of (i) such posting, and (ii) the giving of such separate notice, and (d) if by any other form of electronic transmission, when directed to the stockholder. An affidavit of the Secretary or Assistant Secretary, the transfer agent or other agent of the corporation that the notice has been given by a form of electronic transmission shall in the absence of fraud, be prima facie evidence of the facts stated therein.

For purposes of these Bylaws, “electronic transmission” means any form of communication, not directly involving the physical transmission of paper, that creates a record that may be retained, retrieved and reviewed by a recipient thereof, and that may be directly reproduced in paper form by such a recipient through an automated process. This Section 2.17 shall not apply to Section 164 (failure to pay for stock; remedies), Section 296 (adjudication of claims; appeal), Section 311 (revocation of voluntary dissolution), Section 312 (renewal, revival, extension and restoration of certificate of incorporation) or Section 324 (attachment of shares of stock) of the General Corporation Law of Delaware.

ARTICLE III

DIRECTORS

3.1    POWERS

The business and affairs of the corporation shall be managed by or under the direction of the Board. In addition to the power and authorities these Bylaws expressly confer upon them, the Board may exercise all such powers of the corporation and do all such lawful acts and things as are not required by statute, the Certificate or these Bylaws to be exercised or done by the stockholders.

3.2    NUMBER OF DIRECTORS

Subject to the rights of the holders of any Preferred Stock of the corporation to elect additional directors under specified circumstances, the authorized number of directors of the corporation shall be fixed from time to time exclusively by the Board pursuant to a resolution duly adopted by a majority of the Board members then in office.

No reduction of the authorized number of directors shall have the effect of removing any director before such director’s term of office expires.

3.3    ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS

Except as provided in the Certificate or Section 3.4 of these Bylaws, each director, including a director elected to fill a vacancy, shall hold office until the expiration of the term for which elected and until such director’s successor is elected and qualified or until such director’s earlier death, resignation or removal.

Directors need not be stockholders unless so required by the Certificate or these Bylaws, wherein other qualifications for directors may be prescribed.

Elections of directors at all meetings of the stockholders at which directors are to be elected shall be by ballot and, subject to the rights of the holders of any Preferred Stock of the corporation to elect additional directors under specified circumstances, a plurality of the votes cast thereat shall elect directors. The ballot shall state the name of the stockholder or proxy voting or such other information as may be required under the procedure established by the Chairman of the meeting. If authorized by the Board, such requirement of a ballot shall be

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satisfied by a ballot submitted by electronic transmission provided that any such electronic transmission must either set forth or be submitted with information from which it can be determined that the electronic submission was authorized.

3.4    RESIGNATION AND VACANCIES

Any director may resign at any time upon written notice or by electronic transmission to the corporation.

Subject to the rights of the holders of any series of Preferred Stock of the corporation then outstanding and unless the Board otherwise determines, newly created directorships resulting from any increase in the authorized number of directors, or any vacancies on the Board resulting from the death, resignation, retirement, disqualification, removal from office or other cause shall, unless otherwise provided by law or resolution of the Board, be filled only by a majority vote of the directors then in office, whether or not less than a quorum, and directors so chosen shall hold office until such director’s successor is elected and qualified.

3.5    PLACE OF MEETINGS; MEETINGS BY TELEPHONE

The Board may hold meetings, both regular and special, either within or outside the State of Delaware.

Unless otherwise restricted by the Certificate or these Bylaws, members of the Board, or any committee designated by the Board, may participate in a meeting of the Board, or any committee, by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting.

3.6    FIRST MEETINGS

The first meeting of each newly elected Board shall be held immediately after, and at the same location as, the annual meeting of stockholders, unless the Board shall fix another time and place and give notice thereof (or obtain waivers of notice thereof) in the manner required herein for special meetings of directors, and no notice of such meeting shall be necessary to the newly elected directors in order legally to constitute the meeting, except as provided in this Section 3.6 and provided that a quorum shall be present.

3.7    REGULAR MEETINGS

Regular meetings of the Board may be held without notice at such time and at such place as shall from time to time be determined by the Board.

3.8    SPECIAL MEETINGS; NOTICE

Special meetings of the Board for any purpose(s) may be called at any time by the Chairman of the Board, the Lead Independent Director, the Chief Executive Officer, the President or a majority of the members of the Board then in office. The person(s) authorized to call special meetings of the Board may fix the place and time of the meetings.

The Secretary shall give notice of any special meeting to each director personally or by telephone, or sent by facsimile or other electronic transmission, first-class mail, overnight mail, courier service or telegram, postage or charges prepaid, addressed to each director at that director’s address as it is shown on the records of the corporation. If the notice is mailed, it shall be deposited in the United States mail at least four (4) calendar days before the time of the holding of the meeting. If the notice is delivered by telegram, overnight mail or courier, it shall be deemed adequately delivered when the telegram is delivered to the telegraph company or the notice is delivered to the overnight mail or courier service company at least forty-eight (48) hours before such meeting. If by facsimile or other electronic transmission, such notice shall be deemed adequately delivered when the notice is transmitted at least twelve (12) hours before such meeting (subject to the final sentence of this paragraph). If by telephone or hand delivery the notice shall be given at least twelve (12) hours prior to the time set for the meeting (subject to the final

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sentence of this paragraph). Any oral notice given personally or by telephone may be communicated either to the director or to a person at the office of the director who the person giving the notice has reason to believe will promptly communicate it to the director. The notice need not specify the purpose or the place of the meeting, if the meeting is to be held at the principal executive office of the corporation. Notwithstanding any provision of these Bylaws to the contrary, for any meeting of the Board relating in whole or part to a Succession Event (as such term is defined in the corporation’s then-current Plan for Emergency CEO Succession, a “Succession Event”) or a potential Succession Event, notice of such meeting shall be deemed adequately delivered when transmitted by facsimile or other electronic transmission, or given by telephone or hand delivery, in each case, at least one (1) hour before such meeting.

3.9 QUORUM

At all meetings of the Board, a majority of the Whole Board (as defined below) shall constitute a quorum for all purposes and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board, except as may be otherwise specifically provided for under this Section 3.9 or by statute or by the Certificate. The directors present at a duly organized meeting may continue to transact business until adjournment notwithstanding the withdrawal of enough directors to leave less than quorum. Notwithstanding any provision of these Bylaws to the contrary, for any meeting of the Board relating in whole or part to a Succession Event or a potential Succession Event, a number of directors equal to the Reduced Quorum (as defined below) shall constitute a quorum for all purposes at such meeting and the act of a majority of the directors present at such meeting at which there is a quorum shall be the act of the Board. The term “Whole Board” shall mean the total number of authorized directors of the corporation whether or not there exist any vacancies in previously authorized directorships. The term “Reduced Quorum” shall mean the greater of (a) three directors, or (b) the fewest number of directors that comprises at least one-third (1/3rd) of the Whole Board; provided, however, that, in no event shall the Reduced Quorum be greater than a majority of the Whole Board.

3.10     WAIVER OF NOTICE

Whenever notice is required to be given under any provisions of the General Corporation Law of Delaware of the Certificate or these Bylaws, a written waiver thereof, signed by the person entitled to notice, or a waiver by electronic transmission by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the directors, or members of a committee of directors, need be specified in any written waiver of notice or any waiver by electronic transmission unless so required by the Certificate or these Bylaws.

3.11 ADJOURNED MEETING; NOTICE

If a quorum is not present at any meeting of the Board, then amajority of the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present.

3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING

Unless otherwise restricted by the Certificate or these Bylaws, any action required or permitted to be taken at any meeting of the Board, or of any committee thereof, may be taken without a meeting if all members of the Board or committee, as the case may be, consent thereto in writing or by electronic transmission and the writing(s) or electronic transmission(s) are filed with the minutes of proceedings of the Board or committee. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.

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3.13     FEES AND COMPENSATION OF DIRECTORS

Unless otherwise restricted by the Certificate or these Bylaws, the Board shall have the authority to fix the compensation of directors.

3.14     REMOVAL OF DIRECTORS

Subject to the rights of the holders of any series of Preferred Stock of the corporation then outstanding, unless otherwise restricted by statute, the Certificate or these Bylaws, any director, or all of the directors, may be removed from the Board, with or without cause, but only by the affirmative vote of the holders of at least a majority of the voting power of all the then outstanding shares of capital stock of the corporation then entitled to vote at the election of directors, voting together as a single class.

For purposes of the foregoing paragraph, "cause" shall mean (i) continued willful failure to perform the obligations of a director, (ii) gross negligence by the director, (iii) engaging in transactions that defraud the corporation, (iv) fraud or intentional misrepresentation, including falsifying use of funds and intentional misstatements made in financial statements, books, records or reports to stockholders or governmental agencies, (v) material violation of any agreement between the director and the corporation, (vi) knowingly causing the corporation to commit violations of applicable law (including by failure to act), (vii) acts of moral turpitude or (viii) conviction of a felony.

No reduction of the authorized number of directors shall have the effect of removing any director prior to the expiration of such director’s term of office.

ARTICLE IV

COMMITTEES

4.1    COMMITTEES OF DIRECTORS

The Board may from time to time, by resolution passed by a majority of the Whole Board, designate one (1) or more committees of the Board, with such lawfully delegable powers and duties as it thereby confers, with each committee to consist of one (1) or more of the directors of the corporation. The Board may designate one (1) or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member(s) thereof present at any meeting and not disqualified from voting, whether or not such member(s) constitute a quorum, may unanimously appoint another member of the Board to act at the meeting in the place of any such absent or disqualified member.

4.2    COMMITTEE MINUTES

Each committee shall keep regular minutes of its meetings and report the same to the Board when required.

4.3    MEETINGS AND ACTION OF COMMITTEES

Meetings and actions of committees shall be governed by, and held and taken in accordance with, the provisions of Article III of these Bylaws, Section 3.5 (place of meetings and meetings by telephone), Section 3.7 (regular meetings), Section 3.8 (special meetings and notice), Section 3.9 (quorum), Section 3.10 (waiver of notice), Section 3.11 (adjournment and notice of adjournment), and Section 3.12 (action without a meeting), with such changes in the context of those Bylaws as are necessary to substitute the committee and its members for the Board and its members; provided, however, that the time of regular and special meetings of committees may also be called by resolution of the Board. The Board may adopt rules for the government of any committee not inconsistent with the provisions of these Bylaws.

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ARTICLE V

OFFICERS

5.1    OFFICERS

The officers of the corporation shall be a President and a Secretary. The corporation may also have, at the discretion of the Board, a Chairman of the Board, a Vice Chairman of the Board, a Chief Executive Officer, a Chief Financial Officer, a Treasurer, one or more Vice Presidents, Assistant Vice Presidents, Assistant Secretaries, and Assistant Treasurers, and any such other officers as may be appointed in accordance with the provisions of Section 5.3 of these Bylaws. Any number of offices may be held by the same person.

5.2    ELECTION OF OFFICERS

The officers of the corporation, except such officers as may be appointed in accordance with the provisions of Section 5.3 of these Bylaws, shall be chosen by the Board, which shall consider such subject at its first meeting after every annual meeting of stockholders, subject to the rights, if any, of an officer under any contract of employment. Each officer shall hold office until his or her successor is elected and qualified or until his or her earlier resignation or removal. A failure to elect officers shall not dissolve or otherwise affect the corporation.

5.3    SUBORDINATE OFFICERS

The Board may appoint, or empower the Chief Executive Officer or, in the absence of a Chief Executive Officer, the President, to appoint, such other officers as the business of the corporation may require, each of whom shall hold office for such period, have such authority, and perform such duties as are provided in these Bylaws or as the Board may from time to time determine.

5.4    REMOVAL AND RESIGNATION OF OFFICERS

Subject to the rights, if any, of an officer under contract of employment, any officer may be removed, either with or without cause, by an affirmative vote of the majority of the Board at any regular or special meeting of the Board.

Any officer may resign at any time by giving written notice to the corporation. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice. Unless otherwise specified in such notice, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party.

5.5    VACANCIES IN OFFICES

Any vacancy occurring in any office of the corporation shall be filled by the Board.

5.6    CHAIRMAN OF THE BOARD

The Chairman of the Board, if such an officer be elected, shall, if present, preside at meetings of the Board and exercise and perform such other powers and duties as may from time to time be assigned to him or her by the Board or as may be prescribed by these Bylaws. If there is no Chief Executive Officer or President, then the Chairman of the Board shall also be the Chief Executive Officer of the corporation and as such shall also have the powers and duties prescribed in Section 5.7 of these Bylaws.

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5.7    CHIEF EXECUTIVE OFFICER

Subject to such supervisory powers, if any, as the Board may give to the Chairman of the Board, the Chief Executive Officer, if any, shall, subject to the control of the Board, have general supervision, direction, and control of the business and affairs of the corporation and shall report directly to the Board. All other officers, officials, employees and agents shall report directly or indirectly to the Chief Executive Officer. The Chief Executive Officer shall see that all orders and resolutions of the Board are carried into effect. The Chief Executive Officer shall serve as chairperson of and preside at all meetings of the stockholders. In the absence of a Chairman of the Board, the Chief Executive Officer shall preside at all meetings of the Board.

5.8    PRESIDENT

In the absence or disability of the Chief Executive Officer, the President shall perform all the duties of the Chief Executive Officer. When acting as the Chief Executive Officer, the President shall have all the powers of, and be subject to all the restrictions upon, the Chief Executive Officer. The President shall have such other powers and perform such other duties as from time to time may be prescribed for him or her by the Board, these Bylaws, the Chief Executive Officer or the Chairman of the Board.

5.9    VICE PRESIDENT

In the absence or disability of the President, the Vice President(s), if any, in order of their rank as fixed by the Board or, if not ranked, a Vice President designated by the Board, shall perform all the duties of the President and, when so acting, shall have all the powers of, and be subject to all the restrictions upon, the President. The Vice President(s) shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the Board, these Bylaws, the Chairman of the Board, the Chief Executive Officer or, in the absence of a Chief Executive Officer, the President.

5.10 SECRETARY

The Secretary shall keep or cause to be kept, at the principal executive office of the corporation or such other place as the Board may direct, a book of minutes of all meetings and actions of directors, committees of directors, and stockholders. The minutes shall show the time and place of each meeting, whether regular or special (and, if special, how authorized and the notice given), the names of those present at directors’ meetings or committee meetings, the number of shares present or represented at stockholders’ meetings, and the proceedings thereof.

The Secretary shall keep, or cause to be kept, at the principal executive office of the corporation or at the office of the corporation’s transfer agent or registrar, as determined by resolution of the Board, a share register, or a duplicate share register, showing the names of all stockholders and their addresses, the number and classes of shares held by each, the number and date of certificates evidencing such shares, and the number and date of cancellation of every certificate surrendered for cancellation. Such share register shall be the “stock ledger” for purposes of Section 2.13 of these Bylaws.

The Secretary shall give, or cause to be given, notice of all meetings of the stockholders and of the Board, or committee of the Board, required to be given by law or by these Bylaws. He or she shall keep the seal of the corporation, if one be adopted, in safe custody and shall have such other powers and perform such other duties as may be prescribed by the Board or by these Bylaws.

5.11 CHIEF FINANCIAL OFFICER

The Chief Financial Officer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital and retained earnings.

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The Chief Financial Officer shall deposit all money and other valuables in the name and to the credit of the corporation with such depositaries as may be designated by the Board or Chief Executive Officer. The Chief Financial Officer shall disburse the funds of the corporation as may be ordered by the Board, shall render to the Board and Chief Executive Officer, or in the absence of a Chief Executive Officer the President, whenever they request, an account of all of his or her transactions as Chief Financial Officer and of the financial condition of the corporation, and shall have such other powers and perform such other duties as may be prescribed by the Board or these Bylaws. In lieu of any contrary resolution duly adopted by the Board, the Chief Financial Officer shall be the Treasurer of the corporation.

5.12     ASSISTANT SECRETARY

The Assistant Secretary(ies), if any, in the order determined by the Board (or if there be no such determination, then in the order of their election) shall, in the absence of the Secretary or in the event of his or her inability or refusal to act, perform the duties and exercise the powers of the Secretary and shall perform such other duties and have such other powers as the Board may from time to time prescribe.

5.13 ASSISTANT TREASURER

The Assistant Treasurer(s), if any, in the order determined by the Board (or if there be no such determination, then in the order of their election), shall, in the absence of the Chief Financial Officer or in the event of his or her inability or refusal to act, perform the duties and exercise the powers of the Chief Financial Officer and shall perform such other duties and have such other powers as the Board may from time to time prescribe.

5.14     AUTHORITY AND DUTIES OF OFFICERS

In addition to the foregoing authority and duties, all officers of the corporation shall respectively have such authority and perform such duties in the management of the business of the corporation as may be designated from time to time by the Board.

ARTICLE VI

INDEMNITY

6.1    RIGHT TO INDEMNIFICATION IN ACTIONS, SUITS OR PROCEEDINGS OTHER THAN THOSE BY OR IN THE RIGHTS OF THE CORPORATION

Subject to Section 6.3 of this Article VI, the corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that such person is or was a director or officer of the corporation, or is or was a director or officer of the corporation serving at the request of the corporation as a director or officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe such person’s conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which such person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that such person’s conduct was unlawful.

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6.2    RIGHT TO INDEMNIFICATION IN ACTIONS, SUITS OR PROCEEDINGS BY OR IN THE RIGHT OF THE CORPORATION

Subject to Section 6.3 of this Article VI, the corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that such person is or was a director or officer of the corporation, or is or was a director or officer of the corporation serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation; except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper.

6.3    AUTHORIZATION OF INDEMNIFICATION

Any indemnification under this Article VI (unless ordered by a court) shall be made by the corporation only as authorized in the specific case upon a determination that indemnification of the director or officer is proper in the circumstances because such person has met the applicable standard of conduct set forth in Section 6.1 or Section 6.2 of this Article VI, as the case may be. Such determination shall be made, with respect to a person who is a director or officer at the time of such determination, (a) by a majority vote of the directors who are not parties to such action, suit or proceeding, even though less than a quorum, or (b) by a committee of such directors designated by a majority vote of such directors, even though less than a quorum, or (c) if there are no such directors, or if such directors so direct, by independent legal counsel in a written opinion or (d) by the stockholders (but only if a majority of the directors who are not parties to such action, suit or proceeding, if they constitute a quorum of the board of directors, presents the issue of entitlement to indemnification to the stockholders for their determination). Any person or persons having the authority to act on the matter on behalf of the corporation shall make such determination, with respect to former directors and officers. To the extent, however, that a present or former director or officer of the corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding described above, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection therewith, without the necessity of authorization in the specific case.

6.4    GOOD FAITH DEFINED

For purposes of any determination under Section 6.3 of this Article VI, a person shall be deemed to have acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation, or, with respect to any criminal action or proceeding, to have had no reasonable cause to believe such person’s conduct was unlawful, if such person’s action is based on the records or books of account of the corporation or another enterprise, or on information supplied to such person by the officers of the corporation or another enterprise in the course of their duties, or on the advice of legal counsel for the corporation or another enterprise or on information or records given or reports made to the corporation or another enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the corporation or another enterprise. The term “another enterprise” as used in this Section 6.4 shall mean any other corporation or any partnership, joint venture, trust, employee benefit plan or other enterprise of which such person is or was serving at the request of the corporation as a director, officer, employee or agent. The provisions of this Section 6.4 shall not be deemed to be exclusive or to limit in any way the circumstances in which a person may be deemed to have met the applicable standard of conduct set forth in Section 6.1 or 6.2 of this Article VI, as the case may be.

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6.5    INDEMNIFICATION BY A COURT

Notwithstanding any contrary determination in the specific case under Section 6.3 of this Article VI, and not withstanding the absence of any determination thereunder, any director or officer may apply to the Court of Chancery in the State of Delaware (but in no event later than forty-five (45) days after written receipt of the written request by said director or officer) for indemnification to the extent otherwise permissible under Sections 6.1 and 6.2 of this Article VI. The basis of such indemnification by a court shall be a determination by such court that indemnification of the director or officer is proper in the circumstances because such person has met the applicable standards of conduct set forth in Section 6.1 or 6.2 of this Article VI, as the case may be. Neither a contrary determination in the specific case under Section 6.3 of this Article VI nor the absence of any determination thereunder shall be a defense to such application or create a presumption that the director or officer seeking indemnification has not met any applicable standard of conduct. Notice of any application for indemnification pursuant to this Section 6.5 shall be given to the corporation promptly upon the filing of such application. If successful, in whole or in part, the director or officer seeking indemnification shall also be entitled to be paid the expense of prosecuting such application.

6.6    EXPENSES PAYABLE IN ADVANCE

Expenses incurred by a director or officer in defending any civil, criminal, administrative or investigative action, suit or proceeding shall be paid by the corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that such person is not entitled to be indemnified by the corporation as authorized in this Article VI.

6.7    NONEXCLUSIVITY OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES

The indemnification and advancement of expenses provided by or granted pursuant to this Article VI shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under the Certificate, any Bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in such person’s official capacity and as to action in another capacity while holding such office, it being the policy of the corporation that indemnification of the persons specified in Sections 6.1 and 6.2 of this Article VI shall be made to the fullest extent permitted by law. The provisions of this Article VI shall not be deemed to preclude the indemnification of any person who is not specified in Section 6.1 or 6.2 of this Article VI but whom the corporation has the power or obligation to indemnify under the provisions of the General Corporation Law of the State of Delaware, or otherwise.

6.8    INSURANCE

The corporation may purchase and maintain insurance on behalf of any person who is or was a director or officer of the corporation, or is or was a director or officer of the corporation serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person’s status as such, whether or not the corporation would have the power or the obligation to indemnify such person against such liability under the provisions of this Article VI.

6.9    CERTAIN DEFINITIONS

For purposes of this Article VI, references to “the corporation” shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors or officers, so that any person who is or was a director or officer of such constituent corporation, or is or was a director or officer of such constituent corporation serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other

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enterprise, shall stand in the same position under the provisions of this Article VI with respect to the resulting or surviving corporation as such person would have with respect to such constituent corporation if its separate existence had continued. For purposes of this Article VI, references to “fines” shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to “serving at the request of the corporation” shall include any service as a director, officer, employee or agent of the corporation which imposes duties on, or involves services by, such director or officer with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner such person reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner “not opposed to the best interests of the corporation” as referred to in this Article VI.

6.10     SURVIVAL OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES

The indemnification and advancement of expenses provided by, or granted pursuant to, this Article VI shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director or officer and shall inure to the benefit of the heirs, executors and administrators of such a person.

6.11     LIMITATION ON INDEMNIFICATION

Notwithstanding anything contained in this Article VI to the contrary, except for proceedings to enforce rights to indemnification (which shall be governed by Section 6.5 hereof), the corporation shall not be obligated to indemnify any director or officer in connection with a proceeding (or part thereof) initiated by such person unless such proceeding (or part thereof) was authorized or consented to by the board of directors of the corporation.

6.12 INDEMNIFICATION OF EMPLOYEES AND AGENTS

The corporation may, to the extent authorized from time to time by the board of directors, provide rights to indemnification and to the advancement of expenses to employees and agents of the corporation similar to those conferred in this Article VI to directors and officers of the corporation.

ARTICLE VII

RECORDS AND REPORTS

7.1    MAINTENANCE AND INSPECTION OF RECORDS

The corporation shall, either at its principal executive office or at such place or places as designated by the Board, keep a record of its stockholders listing their names and addresses and the number and class of shares held by each stockholder, a copy of these Bylaws, as may be amended to date, minute books, accounting books and other records.

Any such records maintained by the corporation may be kept on, or by means of, or be in the form of, any information storage device or method, provided that the records so kept can be converted into clearly legible paper form within a reasonable time. The corporation shall so convert any records so kept upon the request of any person entitled to inspect such records pursuant to the provisions of the General Corporation Law of Delaware. When records are kept in such manner, a clearly legible paper form produced from or by means of the information storage device or method shall be admissible in evidence, and accepted for all other purposes, to the same extent as an original paper form accurately portrays the record.

Any stockholder of record, in person or by attorney or other agent, shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose the corporation’s stock ledger, a list of its stockholders, and its other books and records and to make copies or extracts therefrom. A proper purpose shall mean a purpose reasonably related to such person’s interest as a stockholder. In every instance where an attorney or other agent is the person who seeks the right to inspection, the demand under oath shall be accompanied by a power of attorney or such other writing that authorizes the attorney or other agent to

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so act on behalf of the stockholder. The demand under oath shall be directed to the corporation at its registered office in Delaware or at its principal place of business.

7.2    INSPECTION BY DIRECTORS

Any director shall have the right to examine the corporation’s stock ledger, a list of its stockholders, and its other books and records for a purpose reasonably related to his or her position as a director. The Court of Chancery is hereby vested with the exclusive jurisdiction to determine whether a director is entitled to the inspection sought. The Court may summarily order the corporation to permit the director to inspect any and all books and records, the stock ledger, and the stock list and to make copies or extracts therefrom. The Court may, in its discretion, prescribe any limitations or conditions with reference to the inspection, or award such other and further relief as the Court may deem just and proper.

7.3    REPRESENTATION OF SHARES OF OTHER CORPORATIONS

Unless otherwise directed by the Board, the Chief Executive Officer, the President, or any other person authorized by the President, is authorized to vote, represent, and exercise on behalf of the corporation all rights incident to any and all shares of any other corporation(s) standing in the name of the corporation. The authority granted herein may be exercised either by such person directly or by any other person authorized to do so by proxy or power of attorney duly executed by such person having the authority.

ARTICLE VIII

GENERAL MATTERS

8.1    CHECKS

From time to time, the Board shall determine by resolution which person or persons may sign or endorse all checks, drafts, other orders for payment of money, notes or other evidences of indebtedness that are issued in the name of or payable to the corporation, and only the persons so authorized shall sign or endorse those instruments.

8.2    EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS

The Board, except as otherwise provided in these Bylaws, may authorize any officer or officers, or agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation. Such authority may be general or confined to specific instances. Unless so authorized or ratified by the Board or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount.

8.3    STOCK CERTIFICATES; PARTLY PAID SHARES

The shares of a corporation shall be represented by certificates, provided that the Board may provide by resolution that some or all of any or all classes or series of its stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the corporation. Notwithstanding the adoption of such a resolution by the Board, every holder of stock represented by certificates and upon request every holder of uncertificated shares shall be entitled to have a certificate signed by, or in the name of the corporation by the Chairman of the Board or Chief Executive Officer, or the President or Vice-President, and by the Chief Financial Officer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the corporation representing the number of shares registered in certificate form. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate has ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue.

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The corporation may issue the whole or any part of its shares as partly paid and subject to call for the remainder of the consideration to be paid therefor. Upon the face or back of each stock certificate issued to represent any such partly paid shares, upon the books and records of the corporation in the case of uncertificated partly paid shares, the total amount of the consideration to be paid therefor and the amount paid thereon shall be stated. Upon the declaration of any dividend on fully paid shares, the corporation shall declare a dividend upon partly paid shares of the same class, but only upon the basis of the percentage of the consideration actually paid thereon.

8.4    SPECIAL DESIGNATION ON CERTIFICATES

If the corporation is authorized to issue more than one (1) class of stock or more than one (1) series of any class, then the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate that the corporation shall issue to represent such class or series of stock; provided, however, that, except as otherwise provided in Section 202 of the General Corporation Law of Delaware, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate that the corporation shall issue to represent such class or series of stock a statement that the corporation will furnish without charge to each stockholder who so requests the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights.

8.5    LOST CERTIFICATES

Except as provided in this Section 8.5, no new certificates for shares shall be issued to replace a previously issued certificate unless the latter is surrendered to the corporation and cancelled at the same time. The corporation may issue a new certificate of stock or uncertificated shares in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the corporation may require, or may require any transfer agent, if any, for the shares to require, the owner of the lost, stolen or destroyed certificate, or his, her or its legal representative, to give the corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate or uncertificated shares.

8.6    CONSTRUCTION; DEFINITIONS

Unless the context requires otherwise, the general provisions, rules of construction and definitions in the Delaware General Corporation Law shall govern the construction of these Bylaws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, and the term “person” includes both a corporation and a natural person.

8.7    DIVIDENDS

The directors of the corporation, subject to any restrictions contained in the Certificate, may declare and pay dividends upon the shares of its capital stock pursuant to the General Corporation Law of Delaware. Dividends may be paid in cash, in property or in shares of the corporation’s capital stock.

The directors of the corporation may set apart out of any of the funds of the corporation available for dividends a reserve or reserves for any proper purpose and may abolish any such reserve. Such purposes shall include but not be limited to equalizing dividends, repairing or maintaining any property of the corporation, and meeting contingencies.

8.8    FISCAL YEAR

The fiscal year of the corporation shall be fixed by resolution of the Board and may be changed by resolution of the Board.

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8.9    SEAL

This corporation may have a corporate seal, which may be adopted or altered at the pleasure of the Board, and may use the same by causing it or a facsimile thereof, to be impressed or affixed or in any other manner reproduced.

8.10    TRANSFER OF STOCK

Upon surrender to the corporation or the transfer agent of the corporation, if any, of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer (as determined by legal counsel to the corporation), it shall be the duty of the corporation, as the corporation may so instruct its transfer agent, if any, to issue a new certificate to the person entitled thereto, cancel the old certificate, and record the transaction in its books.

8.11    REGISTERED STOCKHOLDERS

The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends and to vote as such owner, shall be entitled to hold liable for calls and assessments the person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of another person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware.

ARTICLE IX

AMENDMENTS

The Bylaws of the corporation may be adopted, amended or repealed by the stockholders entitled to vote; provided, however, that the corporation may, in its Certificate, confer the power to adopt, amend or repeal bylaws upon the Board. The fact that such power has been so conferred upon the Board shall not divest the stockholders of the power, nor limit their power to adopt, amend or repeal bylaws. Notwithstanding the foregoing, except as otherwise required by law or by the Certificate with respect to any vote of the holders of any class or series of stock of the corporation, the amendment or repeal of all or any portion of Article II, Section 3.2 (number of directors), Section 3.3 (election, qualification and term of office of directors), Section 3.4 (resignation and vacancies), Section 3.14 (removal of directors), Article VI or this Article IX by the stockholders of the corporation shall require the affirmative vote of the holders of at least a majority of the votes cast at a meeting of the stockholders by the holders of stock entitled to vote at such meeting, voting together as a single class.

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EX-31.1

EXHIBIT 31.1

CHIEF EXECUTIVE OFFICER CERTIFICATION

I, Patrick C.S. Lo, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of NETGEAR, Inc. (the “Registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4. The Registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5. The Registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

Date: August 4, 2017

/s/ PATRICK C.S. LO

Patrick C.S. Lo

Chairman and

Chief Executive Officer

NETGEAR, Inc.

EX-31.2

EXHIBIT 31.2

CHIEF FINANCIAL OFFICER CERTIFICATION

I, Christine M. Gorjanc, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of NETGEAR, Inc. (the “Registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4. The Registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5. The Registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

Date: August 4, 2017

/s/ CHRISTINE M. GORJANC

Christine M. Gorjanc

Chief Financial Officer

NETGEAR, Inc.

EX-32.1

EXHIBIT 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEYACT OF 2002

In connection with the Quarterly Report of NETGEAR, Inc. (the “Company”) on Form 10-Q for the period ended July 2, 2017, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Patrick C.S. Lo, Chairman and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 4, 2017

By:	/s/ PATRICK C.S. LO
	Patrick C.S. Lo
	Chairman and
	Chief Executive Officer
	NETGEAR, Inc.

This certification accompanies the Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of this Form 10-Q), irrespective of any general incorporation language contained in such filing.

EX-32.2

EXHIBIT 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEYACT OF 2002

In connection with the Quarterly Report of NETGEAR, Inc. (the “Company”) on Form 10-Q for the period ended July 2, 2017, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Christine M. Gorjanc, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 4, 2017

By:	/s/ CHRISTINE M. GORJANC
	Christine M. Gorjanc
	Chief Financial Officer
	NETGEAR, Inc.

This certification accompanies the Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of this Form 10-Q), irrespective of any general incorporation language contained in such filing.

XML

Document And Entity Information - shares	6 Months Ended
	Jul. 02, 2017	Jul. 28, 2017
Document And Entity Information [Abstract]
Entity Registrant Name	NETGEAR, INC
Entity Central Index Key	0001122904
Current Fiscal Year End Date	--12-31
Entity Filer Category	Large Accelerated Filer
Document Type	10-Q
Document Period End Date	Jul. 02, 2017
Document Fiscal Year Focus	2017
Document Fiscal Period Focus	Q2
Amendment Flag	false
Entity Common Stock, Shares Outstanding		31,604,537

XML

Unaudited Condensed Consolidated Balance Sheets - USD ($) $ in Thousands	Jul. 02, 2017	Dec. 31, 2016
ASSETS
Cash and cash equivalents	$ 190,676	$ 240,468
Short-term investments	114,847	125,514
Accounts receivable, net	304,588	313,839
Inventories	263,773	247,862
Prepaid expenses and other current assets	27,705	35,102
Total current assets	901,589	962,785
Property and equipment, net	18,829	19,473
Intangibles, net	30,215	37,899
Goodwill	85,463	85,463
Other non-current assets	79,493	78,836
Total assets	1,115,589	1,184,456
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable	72,886	112,436
Accrued employee compensation	24,017	33,096
Other accrued liabilities	173,714	170,674
Deferred revenue	36,533	35,301
Income taxes payable	0	5,146
Total current liabilities	307,150	356,653
Non-current income taxes payable	15,721	15,119
Other non-current liabilities	16,796	15,865
Total liabilities	339,667	387,637
Commitments and contingencies (Note 8)
Stockholders’ equity:
Common stock	32	33
Additional paid-in capital	584,097	566,307
Accumulated other comprehensive income (loss)	(4,810)	1,938
Retained earnings	196,603	228,541
Total stockholders’ equity	775,922	796,819
Total liabilities and stockholders’ equity	$ 1,115,589	$ 1,184,456

XML

Unaudited Condensed Consolidated Statements Of Operations - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jul. 02, 2017	Jul. 03, 2016	Jul. 02, 2017	Jul. 03, 2016
Net revenue	$ 330,723	$ 311,655	$ 654,380	$ 621,911
Cost of revenue	238,787	213,867	465,512	423,558
Gross profit	91,936	97,788	188,868	198,353
Operating expenses:
Research and development	23,357	21,804	46,040	43,941
Sales and marketing	36,461	36,089	74,690	73,366
General and administrative	12,950	13,035	26,144	25,884
Restructuring and other charges	22	1,311	59	3,989
Litigation reserves, net	53	35	53	45
Total operating expenses	72,843	72,274	146,986	147,225
Income from operations	19,093	25,514	41,882	51,128
Interest income	482	279	887	513
Other income (expense), net	383	(332)	718	(698)
Income before income taxes	19,958	25,461	43,487	50,943
Provision for income taxes	5,376	9,427	12,911	18,320
Net income	$ 14,582	$ 16,034	$ 30,576	$ 32,623
Net income per share:
Basic (in dollars per share)	$ 0.45	$ 0.49	$ 0.94	$ 1.00
Diluted (in dollars per share)	$ 0.44	$ 0.48	$ 0.91	$ 0.98
Weighted average shares used to compute net income per share:
Basic	32,352	32,639	32,650	32,578
Diluted	33,116	33,493	33,656	33,390

XML

Unaudited Condensed Consolidated Statement of Comprehensive Income - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jul. 02, 2017	Jul. 03, 2016	Jul. 02, 2017	Jul. 03, 2016
Net income	$ 14,582	$ 16,034	$ 30,576	$ 32,623
Other comprehensive income (loss), before tax:
Unrealized gains (losses) on derivative instruments	(6,003)	511	(7,700)	(36)
Unrealized gains (losses) on available-for-sale securities	(27)	46	(82)	147
Other comprehensive income (loss), before tax	(6,030)	557	(7,782)	111
Tax benefit related to derivative instruments	809	0	1,005	0
Tax benefit (provision) related to available-for-sale securities	9	(17)	29	(55)
Other comprehensive income (loss), net of tax	(5,212)	540	(6,748)	56
Comprehensive income	$ 9,370	$ 16,574	$ 23,828	$ 32,679

XML

Unaudited Condensed Consolidated Statements Of Cash Flows - USD ($) $ in Thousands	6 Months Ended
	Jul. 02, 2017	Jul. 03, 2016
Cash flows from operating activities:
Net income	$ 30,576	$ 32,623
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	14,224	16,887
Purchase premium amortization/discount accretion on investments, net	100	56
Non-cash stock-based compensation	10,829	9,430
Income tax impact associated with stock option exercises	0	768
Deferred income taxes	1,788	3,857
Changes in assets and liabilities:
Accounts receivable	9,252	60,092
Inventories	(15,911)	5,277
Prepaid expenses and other assets	5,519	3,066
Accounts payable	(39,283)	(9,866)
Accrued employee compensation	(9,079)	3,349
Other accrued liabilities	(1,322)	(34,091)
Deferred revenue	1,232	136
Income taxes payable	(4,544)	(1,482)
Net cash provided by operating activities	3,381	90,102
Cash flows from investing activities:
Purchases of short-term investments	(56,876)	(80,254)
Proceeds from maturities of short-term investments	67,648	50,147
Purchase of property and equipment	(6,162)	(5,060)
Payments to cost method investments	(1,400)	0
Payments made in connection with business acquisition, net of cash acquired	(737)	0
Net cash provided by (used in) investing activities	2,473	(35,167)
Cash flows from financing activities:
Repurchases of common stock	(56,631)	(23,252)
Restricted stock unit tax withholdings	(5,649)	(3,915)
Proceeds from exercise of stock options	3,972	14,653
Proceeds from issuance of common stock under employee stock purchase plan	2,662	1,645
Net cash used in financing activities	(55,646)	(10,869)
Net increase (decrease) in cash and cash equivalents	(49,792)	44,066
Cash and cash equivalents, at beginning of period	240,468	181,945
Cash and cash equivalents, at end of period	$ 190,676	$ 226,011

XML

The Company and Basis of Presentation

6 Months Ended

Jul. 02, 2017

Organization, Consolidation and Presentation of Financial Statements [Abstract]

The Company And Basis of Presentation

The Company and Basis of Presentation

NETGEAR, Inc. (“NETGEAR” or the “Company”) was incorporated in Delaware in January 1996. The Company is a global company that delivers innovative networking and Internet connected products to consumers and growing businesses. The Company's products are built on a variety of proven technologies such as wireless (WiFi and LTE), Ethernet and powerline, with a focus on reliability and ease-of-use. The product line consists of devices that create and extend wired and wireless networks as well as devices that provide a special function and attach to the network, such as IP security cameras and home automation devices and services. These products are available in multiple configurations to address the changing needs of the customers in each geographic region in which the Company's products are sold.

The accompanying unaudited condensed consolidated financial statements include the accounts of NETGEAR, Inc. and its wholly owned subsidiaries. They have been prepared in accordance with established guidelines for interim financial reporting and with the instructions of Form 10-Q and Article 10 of Regulation S-X. All significant intercompany balances and transactions have been eliminated in consolidation. The balance sheet dated December 31, 2016 has been derived from audited financial statements at such date. Accordingly, these unaudited condensed consolidated financial statements do not include all of the information and footnotes typically found in the audited consolidated financial statements and footnotes thereto included in the Annual Report on Form 10-K. In the opinion of management, the unaudited condensed consolidated financial statements reflect all adjustments considered necessary (consisting only of normal recurring adjustments) to fairly state the Company’s financial position, results of operations, comprehensive income and cash flows for the periods indicated. These unaudited condensed consolidated financial statements should be read in conjunction with the notes to the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016.

The Company’s fiscal year begins on January 1 of the year stated and ends on December 31 of the same year. The Company reports its interim results on a fiscal quarter basis rather than on a calendar quarter basis. Under the fiscal quarter basis, each of the first three fiscal quarters ends on the Sunday closest to the calendar quarter end, with the fourth quarter ending on December 31.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect (i) the reported amounts of assets and liabilities, (ii) the disclosure of contingent assets and liabilities at the date of the financial statements, and (iii) the reported amounts of net revenue and expenses during the reported period. Actual results could differ materially from those estimates and operating results for the six months ended July 2, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017 or any future period.

Reclassification

In the first quarter of fiscal 2017, the Company reorganized its operating segment structure resulting in a change to its reportable segments. This change primarily impacted Goodwill in Note 4, Balance Sheet Components and Note 11, Segment Information. The prior-year segment financial information has been reclassified to conform to the current-year presentation. None of the changes impact previously reported consolidated net revenue, income from operations, net income per share, total assets, or stockholders’ equity. Refer to Note 11, Segment Information, for a further discussion of the segment reorganization. Additionally, in the first quarter of fiscal 2017, upon adoption of ASU 2016-09, the Company elected to apply the presentation requirements for cash flows related to excess tax benefits retrospectively to all periods presented. Refer to recently adopted accounting pronouncement under Note 2, Summary of Significant Accounting Policies, for a further discussion of the impact from the adoption of ASU 2016-09.

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Summary of Significant Accounting Policies

6 Months Ended

Jul. 02, 2017

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

The Company’s significant accounting policies are disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. The Company’s significant accounting policies have not materially changed during the six months ended July 2, 2017.

Recent accounting pronouncements

Accounting Pronouncement Recently Adopted

In March 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-09, "Improvements to Employee Share-Based Payment Accounting" (Topic 718), which simplifies the accounting for share-based payment transactions. The new guidance requires excess tax benefits and tax deficiencies to be recorded in the income statement when stock awards vest or are settled. In addition, cash flows related to excess tax benefits will no longer be separately classified as an inflow from financing activities with a corresponding outflow from operating activities but will be classified along with other income tax cash flows as an operating activity. The standard also allows the entity to repurchase more of an employee’s vesting shares for tax withholding purposes without triggering liability accounting, clarifies that all cash payments made to tax authorities on an employee’s behalf for withheld shares should be presented as a financing activity on the cash flows statement, and provides an accounting policy election to account for forfeitures as they occur. The new guidance became effective for the Company in the first quarter of fiscal 2017.

Upon adoption on January 1, 2017, the Company prospectively recorded all excess tax benefits and tax deficiencies arising from stock awards vesting or settlement as income tax expense or benefit rather than in equity. For the three and six months ended July 2, 2017, the impact of the adoption was the recognition of $1.0 million and $1.8 million, respectively, excess tax benefits as a component of the provision for income taxes. The Company elected to account for forfeitures as they occur, rather than estimating expected forfeitures, which resulted in net cumulative-effect adjustment of $0.2 million decrease to retained earnings as of January 1, 2017. The Company elected to apply the presentation requirements for cash flows related to excess tax benefits retrospectively to all periods presented, which resulted in an increase to both net cash provided by operating activities and net cash used in financing activities of $1.4 million for the six months ended July 3, 2016, respectively, on the unaudited condensed consolidated statements of cash flows. The presentation requirement for cash flows related to employee taxes paid for withheld shares had no impact to any of the periods presented on the consolidated statements of cash flows since the Company has historically been presented such cash flows as a financing activity.

Accounting Pronouncements Not Yet Effective

In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers" (Topic 606), which was further updated in March, April, May and December 2016. The guidance in this update supersedes the revenue recognition requirements in Topic 605, "Revenue Recognition". Under the new guidance, an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance also specifies the accounting for some costs to obtain or fulfill a contract with a customer. An entity should apply the amendments in the update either retrospectively to each prior reporting period presented (full retrospective method) or retrospectively with the cumulative effect of initially applying this update recognized at the date of initial application (modified retrospective method). On July 9, 2015, the FASB concluded to delay the effective date of the new revenue standard by one year. ASU 2014-09 is effective for the Company beginning in the first quarter of fiscal 2018 and early adoption is permitted.

The Company anticipates adopting the new standard effective January 1, 2018. Although the Company is still in the process of evaluating the impact of the new standard on its financial statements, at this stage of the process, it does not believe the adoption of ASU 2014-09 will have a significant impact on the amount or timing of its revenues. The Company has identified major revenue streams, performed an analysis of a sample of contracts to evaluate the impact of the standard, and begun the drafting of its accounting policies and evaluating the new disclosure requirements. To date, the Company believes it will be impacted by the requirement of the new standard to estimate for yet to be committed sales incentives at the time revenue is recognized. Under Topic 605, these incentives are recognized as a reduction of revenue at the later of when the related revenue is recognized or when the program is offered to the channel partner. Applying Topic 606, where customary business practice of providing such incentives is determined, there is a timing difference and will require the Company upon adoption to record an estimate of yet to be committed future sales incentives with respect to revenue already recognized. The actual impact upon adoption will be based on open contracts existing at December 31, 2017 and is subject to the finalization of its transition method. In addition, the Company has determined that the presentation of certain reserve balances currently shown net within accounts receivable will be presented as refund liabilities within current liabilities upon adoption. The Company expects to complete the assessment process, including selecting a transition method for adoption, by the end of the third quarter of fiscal 2017, and to complete the implementation process, including adding procedures and evaluating necessary disclosures, prior to the first quarter of fiscal 2018.

In January 2016, the FASB issued ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities" (Subtopic 825-10), which addresses certain aspects of recognition, measurement, presentation and disclosure of financial instruments. This guidance also clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets.ASU 2016-01 is effective for the Company in the first quarter of fiscal 2018 and early adoption is permitted. The Company does not plan to early adopt the guidance and is currently evaluating the impact the update will have on its financial position, results of operations and cash flows and related disclosures.

In February 2016, FASB issued ASU 2016-02, "Leases" (Topic 842), which requires lessees to recognize on the balance sheets a right-of-use asset, representing its right to use the underlying asset for the lease term, and a corresponding lease liability for all leases with terms greater than twelve months. The liability will be equal to the present value of lease payments while the right-of-use asset will be based on the liability, subject to adjustment, such as for initial direct costs. In addition, ASU 2016-02 expands the disclosure requirements for lessees. Upon adoption, the Company will be required to record a lease asset and lease liability related to its operating leases. ASU 2016-02 will be applied using a modified retrospective transition method and is effective for the Company in the first quarter fiscal 2019, with early adoption permitted. The Company does not plan to early adopt the guidance and is currently evaluating the impact the update will have on its financial position, results of operations and cash flows and related disclosures.

In June 2016, the FASB issued ASU 2016-13, "Measurement of Credit Losses on Financial Instruments" (Topic 326), which replaces the incurred-loss impairment methodology and requires immediate recognition of estimated credit losses expected to occur for most financial assets, including trade receivables. Credit losses on available-for-sale debt securities with unrealized losses will be recognized as allowances for credit losses limited to the amount by which fair value is below amortized cost. ASU 2016-13 is effective for the Company beginning in the first quarter of 2020 and early adoption is permitted. The Company continues to assess the potential impact of the new guidance, but does not expect it to have material impacts on its financial position, results of operations or cash flows.

In October 2016, the FASB issued ASU 2016-16, "Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory" (Topic 740), which requires the recognition of the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. This removes the exception to postpone recognition until the asset has been sold to an outside party. ASU 2016-16 is effective for the Company in the first quarter of fiscal 2018 and early adoption is permitted. The Company is currently evaluating what impact, if any, the adoption of this guidance will have on its financial position, results of operations and cash flows.

In January 2017, the FASB issued ASU 2017-01, "Business Combinations: Clarifying the Definition of a Business" (Topic 805), which changes the definition of a business to assist entities with evaluating when a set of transferred assets and activities is a business. The guidance requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets; if so, the set of transferred assets and activities is not a business. ASU 2017-01 is effective for the Company in the first quarter of fiscal 2018 and early adoption is permitted. The guidance should be applied prospectively to any transactions occurring on or after the adoption date. The Company does not expect it to have material impacts on its financial position, results of operations or cash flows.

In January 2017, the FASB issued ASU 2017-04, "Intangibles-Goodwill and Other: Simplifying the Test for Goodwill Impairment" (Topic 350), which simplifies the subsequent measurement of goodwill by removing Step 2 of goodwill impairment test that requires the determination of the fair value of individual assets and liabilities of a reporting unit. The new guidance requires goodwill impairment to be measured as the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 will be applied prospectively and is effective for the Company in the first quarter of fiscal 2020, with early adoption permitted. The Company does not expect it to have material impacts on its financial position, results of operations or cash flows.

In May 2017, the FASB issued ASU 2017-09, "Compensation—Stock Compensation: Scope of Modification Accounting" (Topic 718), which clarifies when changes to the terms or conditions of a share-based payment award must by accounted for as modifications. Under the new guidance, an entity will not apply modification accounting if the award's fair value, vesting conditions and classification are the same immediately before and after the change. ASU 2017-09 is effective for the Company in the first quarter of fiscal 2018 and early adoption is permitted. The guidance should be applied prospectively to award modified on or after the adoption date. The Company does not expect it to have material impacts on its financial position, results of operations or cash flows.

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Business Acquisitions

6 Months Ended

Jul. 02, 2017

Business Combinations [Abstract]

Business Acquisitions

Business Acquisition

Placemeter, Inc.

On November 30, 2016, the Company acquired Placemeter, Inc. ("Placemeter"), an industry leader in computer vision analytics, for total purchase consideration of $9.6 million. The Company believes that Placemeter’s engineering talent will add value to NETGEAR’s Arlo smart security team, and that their proprietary computer vision algorithms will help to build video analytics solutions for the Arlo platform.

The Company paid $8.8 million of the aggregate purchase price in the fourth quarter of 2016 and paid the remaining $0.8 million in the first quarter of fiscal 2017. The acquisition qualified as a business combination and was accounted for using the acquisition method of accounting. The results of Placemeter have been included in the unaudited condensed consolidated financial statements since the date of acquisition. Proforma results of operations for the acquisition are not presented as the financial impact to the Company's consolidated results of operations is not material.

The allocation of the purchase price was as follows (in thousands):

Cash and cash equivalents	$	8
Accounts receivable, net	11
Prepaid expenses and other current assets	130
Property and equipment, net	83
Intangibles, net	6,000
Goodwill	3,742
Accounts payable	(40		)
Other accrued liabilities	(74		)
Deferred tax liabilities, net	(308		)
Total purchase price	$	9,552

The $3.7 million of goodwill recorded on the acquisition of Placemeter is not deductible for U.S. federal or U.S. state income tax purposes. The goodwill recognized, which was assigned to the Company's former retail segment upon acquisition and was allocated to the Arlo segment under its current reporting structure, is primarily attributable to expected synergies resulting from the acquisition.

In connection with the acquisition, the Company recorded $0.3 million of deferred tax liabilities net of deferred tax assets. The deferred tax liabilities were recorded for the book basis of intangible assets for which the Company has no tax basis. The deferred tax liabilities are reduced by the tax benefit of the net operating losses as of the date of the acquisition after consideration of limitations on the use under U.S. Internal Revenue Code section 382.

The Company designated $5.5 million of the acquired intangibles as software technology and a further $0.2 million of the acquired intangibles as database. The valuations were arrived at using the replacement cost method, with consideration having been given to the estimated time, investment and resources required to recreate the acquired intangibles. A discount rate of 15.0% was used in the valuation of each intangible. The acquired intangibles are being amortized over an estimated useful life of four years.

The Company designated $0.3 million of the acquired intangibles as non-compete agreements. The value was calculated based on the present value of the future estimated cash flows derived from projections of future operations attributable to the non-compete agreements and discounted at 20.0%. The acquired agreements are being amortized over an estimated useful life of three years.

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Balance Sheet Components

6 Months Ended

Jul. 02, 2017

Balance Sheet Related Disclosures [Abstract]

Balance Sheet Components

Balance Sheet Components

Available-for-sale short-term investments

	As of
	July 2, 2017									December 31, 2016
	Cost		Unrealized Gain		Unrealized Loss			Estimated Fair Value		Cost		Unrealized Gain		Unrealized Loss			Estimated Fair Value
	(In thousands)
U.S. treasuries	$	112,987	$	—	$	(113	)	$	112,874	$	123,869	$	9	$	(40	)	$	123,838
Certificates of deposit	158		—		—			158		148		—		—			148
Total	$	113,145	$	—	$	(113	)	$	113,032	$	124,017	$	9	$	(40	)	$	123,986

The Company’s short-term investments are primarily comprised of marketable securities that are classified as available-for-sale and consist of government securities with an original maturity or remaining maturity at the time of purchase of greater than three months and no more than twelve months. Accordingly, none of the available-for-sale securities have unrealized losses greater than twelve months.

Accounts receivable, net

	As of
	July 2, 2017			December 31, 2016
	(In thousands)
Gross accounts receivable	$	323,291		$	333,080
Allowance for doubtful accounts	(1,256		)	(1,255		)
Allowance for sales returns	(15,029		)	(13,506		)
Allowance for price protection	(2,418		)	(4,480		)
Total allowances	(18,703		)	(19,241		)
Total accounts receivable, net	$	304,588		$	313,839

Inventories

	As of
	July 2, 2017		December 31, 2016
	(In thousands)
Raw materials	$	3,691	$	4,596
Work in process	5		—
Finished goods	260,077		243,266
Total inventories	$	263,773	$	247,862

The Company records provisions for excess and obsolete inventory based on assumptions about future demand and market conditions. While management believes the estimates and assumptions underlying its current forecasts are reasonable, there is risk that additional charges may be necessary if current forecasts are greater than actual demand.

Property and equipment, net

	As of
	July 2, 2017			December 31, 2016
	(In thousands)
Computer equipment	$	10,174		$	10,557
Furniture, fixtures and leasehold improvements	21,324			20,827
Software	28,789			28,663
Machinery and equipment	57,073			63,446
Total property and equipment, gross	117,360			123,493
Accumulated depreciation and amortization	(98,531		)	(104,020		)
Total property and equipment, net	$	18,829		$	19,473

Depreciation and amortization expense pertaining to property and equipment was $3.1 million and $6.5 million for the three and six months ended July 2, 2017, respectively, and $4.2 million and $8.1 million for the three and six months ended July 3, 2016, respectively.

Intangibles, net

	As of July 2, 2017
	Gross		Accumulated Amortization			Net
	(In thousands)
Technology	$	66,599	$	(60,920	)	$	5,679
Customer contracts and relationships	56,500		(33,918		)	22,582
Other	11,045		(9,091		)	1,954
Total intangibles, net	$	134,144	$	(103,929	)	$	30,215

	As of December 31, 2016
	Gross		Accumulated Amortization			Net
	(In thousands)
Technology	$	66,599	$	(57,381	)	$	9,218
Customer contracts and relationships	56,500		(30,375		)	26,125
Other	11,045		(8,489		)	2,556
Total intangibles, net	$	134,144	$	(96,245	)	$	37,899

Amortization of intangibles was $3.2 million and $7.7 million for the three and six months ended July 2, 2017, respectively, and $4.3 million and $8.5 million for the three and six months ended July 3, 2016, respectively.

Estimated amortization expense related to intangibles for each of the next five years and thereafter is as follows:

	As of July 2, 2017
	(In thousands)
2017 (remaining six months)	$	5,227
2018	9,396
2019	7,544
2020	6,622
2021	1,413
Thereafter	13
Total estimated amortization expense	$	30,215

Goodwill

As discussed in Note 11, Segment Information, during the first quarter of fiscal 2017, the Company's Chief Operating Decision Maker requested changes in the information that he regularly reviews for purposes of allocating resources and assessing performance. With these changes, the Company revised its reportable segments. Beginning fiscal 2017, the Company operates and reports in three segments: Arlo, Connected Home, and Small and Medium Business ("SMB"). Goodwill was reallocated to the reportable segments using a relative fair value approach. As a result, the Company completed assessments of any potential goodwill impairment for all reportable segments immediately prior to and after the reallocation and determined that no impairment existed.

The carrying amount of goodwill under these segments during the six months ended July 2, 2017 are as follows:

	Arlo		Connected Home		SMB		Total
	(In thousands)
Goodwill as of January 1, 2017	$	21,149	$	28,035	$	36,279	$	85,463
Goodwill as of July 2, 2017	$	21,149	$	28,035	$	36,279	$	85,463

Other non-current assets

	As of
	July 2, 2017		December 31, 2016
	(In thousands)
Non-current deferred income taxes	$	70,168	$	70,859
Other	9,325		7,977
Total other non-current assets	$	79,493	$	78,836

Other accrued liabilities

	As of
	July 2, 2017		December 31, 2016
	(In thousands)
Sales and marketing	$	72,026	$	74,330
Warranty obligation	60,451		58,520
Freight	5,510		8,980
Other	35,727		28,844
Total other accrued liabilities	$	173,714	$	170,674

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Derivative Financial Instruments

6 Months Ended

Jul. 02, 2017

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments

Derivative Financial Instruments

The Company’s subsidiaries have had, and will continue to have material future cash flows, including revenue and expenses, which are denominated in currencies other than the Company’s functional currency. The Company and all its subsidiaries designate the U.S. dollar as the functional currency. Changes in exchange rates between the Company’s functional currency and other currencies in which the Company transacts business will cause fluctuations in cash flow expectations and cash flow realized or settled. Accordingly, the Company uses derivatives to mitigate its business exposure to foreign exchange risk. The Company enters into foreign currency forward contracts in Australian dollars, British pounds, Euros, Canadian dollars, and Japanese yen to manage the exposures to foreign exchange risk related to expected future cash flows on certain forecasted revenue, costs of revenue, operating expenses and existing assets and liabilities. The Company does not enter into derivatives transactions for trading or speculative purposes.

The Company’s foreign currency forward contracts do not contain any credit-risk-related contingent features. The Company is exposed to credit losses in the event of nonperformance by the counter-parties of its forward contracts. The Company enters into derivative contracts with high-quality financial institutions. In addition, the derivative contracts typically mature in less than eleven months and the Company continuously evaluates the credit standing of its counter-party financial institutions. The counter-parties to these arrangements are large, highly rated financial institutions and the Company does not consider non-performance a material risk.

The Company may choose not to hedge certain foreign exchange exposures for a variety of reasons, including, but not limited to, materiality, accounting considerations and the prohibitive economic cost of hedging particular exposures. There can be no assurance the hedges will offset more than a portion of the financial impact resulting from movements in foreign exchange rates. The Company’s accounting policies for these instruments are based on whether the instruments are designated as hedge or non-hedge instruments in accordance with the authoritative guidance for derivatives and hedging. The Company records all derivatives on the balance sheet at fair value. The effective portions of cash flow hedges are recorded in other comprehensive income ("OCI") until the hedged item is recognized in earnings. Derivatives that are not designated as hedging instruments and the ineffective portions of its designated hedges are adjusted to fair value through earnings in other income (expense), net in the unaudited condensed consolidated statement of operations.

The fair values of the Company’s derivative instruments and the line items on the unaudited condensed consolidated balance sheets to which they were recorded as of July 2, 2017 and December 31, 2016 are summarized as follows:

Derivative Assets	Balance Sheet Location	Fair Value at July 2, 2017		Balance Sheet Location	Fair Value at December 31, 2016
		(In thousands)			(In thousands)
Derivative assets not designated as hedging instruments	Prepaid expenses and other current assets	$	438	Prepaid expenses and other current assets	$	5,873
Derivative assets designated as hedging instruments	Prepaid expenses and other current assets	1,237		Prepaid expenses and other current assets	2,890
Total		$	1,675		$	8,763

Derivative Liabilities	Balance Sheet Location	Fair Value at July 2, 2017		Balance Sheet Location	Fair Value at December 31, 2016
		(In thousands)			(In thousands)
Derivative liabilities not designated as hedging instruments	Other accrued liabilities	$	2,935	Other accrued liabilities	$	1,002
Derivative liabilities designated as hedging instruments	Other accrued liabilities	6,365		Other accrued liabilities	703
Total		$	9,300		$	1,705

For details of the Company’s fair value measurements, see Note 12, Fair Value Measurements.

Offsetting Derivative Assets and Liabilities

The Company has entered into master netting arrangements which allow net settlements under certain conditions. Although netting is permitted, it is currently the Company's policy and practice to record all derivative assets and liabilities on a gross basis in the unaudited condensed consolidated balance sheets.

The following tables set forth the offsetting of derivative assets as of July 2, 2017 and December 31, 2016:

As of July 2, 2017							Gross Amounts Not Offset in the Condensed Consolidated Balance Sheets
	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Condensed Consolidated Balance Sheets		Net Amounts Of Assets Presented in the Condensed Consolidated Balance Sheets		Financial Instruments			Cash Collateral Pledged		Net Amount
	(In thousands)
Bank of America	$	1,180	$	—	$	1,180	$	(1,180	)	$	—	$	—
Wells Fargo	495		—		495		(495		)	—		—
Total	$	1,675	$	—	$	1,675	$	(1,675	)	$	—	$	—

As of December 31, 2016							Gross Amounts Not Offset in the Condensed Consolidated Balance Sheets
	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Condensed Consolidated Balance Sheets		Net Amounts Of Assets Presented in the Condensed Consolidated Balance Sheets		Financial Instruments			Cash Collateral Pledged		Net Amount
	(In thousands)
J.P. Morgan Chase	$	1,492	$	—	$	1,492	$	(442	)	$	—	$	1,050
Wells Fargo	7,271		—		7,271		(1,263		)	—		6,008
Total	$	8,763	$	—	$	8,763	$	(1,705	)	$	—	$	7,058

The following tables set forth the offsetting of derivative liabilities as of July 2, 2017 and December 31, 2016:

As of July 2, 2017							Gross Amounts Not Offset in the Condensed Consolidated Balance Sheets
	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Condensed Consolidated Balance Sheets		Net Amounts Of Liabilities Presented in the Condensed Consolidated Balance Sheets		Financial Instruments			Cash Collateral Pledged		Net Amount
	(In thousands)
Bank of America	$	6,587	$	—	$	6,587	$	(1,180	)	$	—	$	5,407
Wells Fargo	2,713		—		2,713		(495		)	—		2,218
Total	$	9,300	$	—	$	9,300	$	(1,675	)	$	—	$	7,625

As of December 31, 2016							Gross Amounts Not Offset in the Condensed Consolidated Balance Sheets
	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Condensed Consolidated Balance Sheets		Net Amounts Of Liabilities Presented in the Condensed Consolidated Balance Sheets		Financial Instruments			Cash Collateral Pledged		Net Amount
	(In thousands)
J.P. Morgan Chase	$	442	$	—	$	442	$	(442	)	$	—	$	—
Wells Fargo	1,263		—		1,263		(1,263		)	—		—
Total	$	1,705	$	—	$	1,705	$	(1,705	)	$	—	$	—

Cash flow hedges

To help manage the exposure of operating margins to fluctuations in foreign currency exchange rates, the Company hedges a portion of its anticipated foreign currency revenue, costs of revenue and certain operating expenses. These hedges are designated at the inception of the hedge relationship as cash flow hedges under the authoritative guidance for derivatives and hedging. Effectiveness is tested at least quarterly both prospectively and retrospectively using regression analysis to ensure that the hedge relationship has been effective and is likely to remain effective in the future. The Company typically hedges portions of its anticipated foreign currency exposure for five to eleven months. The Company enters into about ten forward contracts per quarter with an average size of approximately $8.0 million USD equivalent related to its cash flow hedging program.

The Company expects to reclassify to earnings all of the amounts recorded in OCI associated with its cash flow hedges over the next twelve months. OCI associated with cash flow hedges of foreign currency revenue is recognized as a component of net revenue in the same period as the related revenue is recognized. OCI associated with cash flow hedges of foreign currency costs of revenue and operating expenses are recognized as a component of cost of revenue and operating expense in the same period as the related costs of revenue and operating expenses are recognized.

Derivative instruments designated as cash flow hedges must be de-designated as hedges when it is probable the forecasted hedged transaction will not occur within the designated hedge period or if not recognized within 60 days following the end of the hedge period. Deferred gains and losses in OCI with such derivative instruments are reclassified immediately into earnings through other income (expense), net. Any subsequent changes in fair value of such derivative instruments also are reflected in current earnings unless they are re-designated as hedges of other transactions. The Company did not recognize any material net gains or losses related to the loss of hedge designation as there were no discontinued cash flow hedges during the six months ended July 2, 2017 and July 3, 2016.

The pre-tax effects of the Company’s derivative instruments on OCI and the unaudited condensed consolidated statement of operations for the three and six months ended July 2, 2017 and July 3, 2016 are summarized as follows:

Derivatives Designated as Hedging Instruments	Three Months Ended July 2, 2017
	Gains (Losses) Recognized in OCI - Effective Portion			Location of Gain (Loss) Reclassified from OCI into Income - Effective Portion	Gains (Losses) Reclassified from OCI into Income - Effective Portion (1)			Location of Gains (Losses) Recognized in Income and Excluded from Effectiveness Testing	Amount of Gains (Losses) Recognized in Income and Excluded from Effectiveness Testing
	(In thousands)
Cash flow hedges:
Foreign currency forward contracts	$	(6,935	)	Net revenue	$	(1,008	)	Other income (expense), net	$	381
Foreign currency forward contracts	—			Cost of revenue	(1		)	Other income (expense), net	—
Foreign currency forward contracts	—			Operating expenses	77			Other income (expense), net	—
Total	$	(6,935	)		$	(932	)		$	381

_________________________

⁽¹⁾ Refer to Note 9, Stockholders' Equity, which summarizes the accumulated other comprehensive income activity related to derivatives.

Derivatives Designated as Hedging Instruments	Six Months Ended July 2, 2017
	Gains (Losses) Recognized in OCI - Effective Portion			Location of Gain (Loss) Reclassified from OCI into Income - Effective Portion	Gains (Losses) Reclassified from OCI into Income - Effective Portion (1)			Location of Gains (Losses) Recognized in Income and Excluded from Effectiveness Testing	Amount of Gains (Losses) Recognized in Income and Excluded from Effectiveness Testing
	(In thousands)
Cash flow hedges:
Foreign currency forward contracts	$	(7,052	)	Net revenue	$	1,027		Other income (expense), net	$	668
Foreign currency forward contracts	—			Cost of revenue	(14		)	Other income (expense), net	—
Foreign currency forward contracts	—			Operating expenses	(365		)	Other income (expense), net	—
Total	$	(7,052	)		$	648			$	668

_________________________

⁽¹⁾ Refer to Note 9, Stockholders' Equity, which summarizes the accumulated other comprehensive income activity related to derivatives.

Derivatives Designated as Hedging Instruments	Three Months Ended July 3, 2016
	Gains (Losses) Recognized in OCI - Effective Portion		Location of Gain (Loss) Reclassified from OCI into Income - Effective Portion	Gains (Losses) Reclassified from OCI into Income - Effective Portion (1)			Location of Gains (Losses) Recognized in Income and Excluded from Effectiveness Testing	Amount of Gains (Losses) Recognized in Income and Excluded from Effectiveness Testing
	(In thousands)
Cash flow hedges:
Foreign currency forward contracts	$	88	Net revenue	$	(407	)	Other income (expense), net	$	18
Foreign currency forward contracts	—		Cost of revenue	(2		)	Other income (expense), net	—
Foreign currency forward contracts	—		Operating expenses	(14		)	Other income (expense), net	—
Total	$	88		$	(423	)		$	18

_________________________

⁽¹⁾ Refer to Note 9, Stockholders' Equity, which summarizes the accumulated other comprehensive income activity related to derivatives.

Derivatives Designated as Hedging Instruments	Six Months Ended July 3, 2016
	Gains (Losses) Recognized in OCI - Effective Portion			Location of Gain (Loss) Reclassified from OCI into Income - Effective Portion	Gains (Losses) Reclassified from OCI into Income - Effective Portion (1)			Location of Gains (Losses) Recognized in Income and Excluded from Effectiveness Testing	Amount of Gains (Losses) Recognized in Income and Excluded from Effectiveness Testing
	(In thousands)
Cash flow hedges:
Foreign currency forward contracts	$	(699	)	Net revenue	$	(719	)	Other income (expense), net	$	53
Foreign currency forward contracts	—			Cost of revenue	—			Other income (expense), net	—
Foreign currency forward contracts	—			Operating expenses	56			Other income (expense), net	—
Total	$	(699	)		$	(663	)		$	53

_________________________

⁽¹⁾ Refer to Note 9, Stockholders' Equity, which summarizes the accumulated other comprehensive income activity related to derivatives.

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 four non-designated derivatives per quarter. The average size of its non-designated hedges is approximately $2.0 million USD equivalent and these hedges range from one to three months in duration.

The effects of the Company’s non-designated hedge included in other income (expense), net in the unaudited condensed consolidated statements of operations for the six months ended July 2, 2017 and July 3, 2016 are as follows:

Derivatives Not Designated as Hedging Instruments	Location of Gains (Losses) Recognized in Income on Derivative	Three Months Ended					Six Months Ended
		July 2, 2017			July 3, 2016		July 2, 2017			July 3, 2016
		(In thousands)
Foreign currency forward contracts	Other income (expense), net	$	(2,893	)	$	1,185	$	(4,246	)	$	(759	)

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Net Income Per Share

6 Months Ended

Jul. 02, 2017

Earnings Per Share [Abstract]

Net Income Per Share

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 common shares issuable upon exercise of stock options, vesting of restricted stock awards, and issuances of shares under the Employee Stock Purchase Plan (the "ESPP"), which are reflected in diluted net income per share by application of the treasury stock method.

Net income per share for the three and six months ended July 2, 2017 and July 3, 2016 are as follows:

	Three Months Ended				Six Months Ended
	July 2, 2017		July 3, 2016		July 2, 2017		July 3, 2016
	(In thousands, except per share data)
Numerator:
Net income	$	14,582	$	16,034	$	30,576	$	32,623
Denominator:
Weighted average common shares - basic	32,352		32,639		32,650		32,578
Potentially dilutive common share equivalent	764		854		1,006		812
Weighted average common shares - dilutive	$	33,116	$	33,493	$	33,656	$	33,390
Basic net income per share	$	0.45	$	0.49	$	0.94	$	1.00
Diluted net income per share	$	0.44	$	0.48	$	0.91	$	0.98
Anti-dilutive employee stock-based awards, excluded	782		431		271		310

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Income Taxes

6 Months Ended

Jul. 02, 2017

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The income tax provision for the three and six months ended July 2, 2017, was $5.4 million, or an effective tax rate of 26.9%, and $12.9 million, or an effective tax rate of 29.7%, respectively. The income tax provision for the three and six months ended July 3, 2016, was $9.4 million, or an effective tax rate of 37.0%, and $18.3 million, or an effective tax rate of 36.0%, respectively. The effective tax rate for the three and six months ended July 2, 2017 compared to the three and six months ended July 3, 2016, decreased mainly due to lower pre-tax earnings and differences in the accounting treatment of excess tax benefits related to stock awards. The Company adopted ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting" on January 1, 2017, which requires excess tax benefits or deficiencies to be reflected in the unaudited condensed consolidated statements of operations as a component of the provision for income taxes whereas they previously were recorded in equity. Total excess tax benefits recognized in the three and six months ended July 2, 2017 was $1.0 million and $1.8 million, respectively. Additionally, for the three months ended July 2, 2017, the Company had a one-time benefit related to the geographic distribution of earnings for tax purposes of $0.4 million. The Company is subject to income taxes in the U.S. and numerous foreign jurisdictions. The future foreign tax rate could be affected by changes in the composition in earnings in countries with tax rates differing from the U.S. federal rate. The Company is under examination in various U.S. and foreign jurisdictions.

The Company files income tax returns in the U.S. federal jurisdiction as well as various state, local, and foreign jurisdictions. Due to the uncertain nature of ongoing tax audits, the Company has recorded its liability for uncertain tax positions as part of its long-term liability as payments cannot be anticipated over the next twelve months. The existing tax positions of the Company continue to generate an increase in the liability for uncertain tax positions. The liability for uncertain tax positions may be reduced for liabilities that are settled with taxing authorities or on which the statute of limitations could expire without assessment from tax authorities. The possible reduction in liabilities for uncertain tax positions resulting from the expiration of statutes of limitation in multiple jurisdictions in the next twelve months is approximately $1.0 million, excluding the interest, penalties and the effect of any related deferred tax assets or liabilities.

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Commitments And Contingencies Commitments and contingencies

6 Months Ended

Jul. 02, 2017

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies Disclosure [Text Block]

Commitments and Contingencies

Leases

The Company leases office space, cars and equipment under operating leases, some of which are non-cancelable, with various expiration dates through December 2026. The terms of some of the Company’s office leases provide for rental payments on a graduated scale. The Company recognizes rent expense on a straight-line basis over the lease period, and has accrued for rent expense incurred but not paid.

Purchase Obligations

The Company has entered into various inventory-related purchase agreements with suppliers. Generally, under these agreements, 50% of orders are cancelable by giving notice 46 to 60 days prior to the expected shipment date and 25% of orders are cancelable by giving notice 31 to 45 days prior to the expected shipment date. Orders are non-cancelable within 30 days prior to the expected shipment date. As of July 2, 2017, the Company had approximately $152.8 million in non-cancelable purchase commitments with suppliers. The Company establishes a loss liability for all products it does not expect to sell for which it has committed purchases from suppliers. Such losses have not been material to date. From time to time the Company’s suppliers procure unique complex components on the Company's behalf. If these components do not meet specified technical criteria or are defective, the Company should not be obligated to purchase the materials. However, disputes may arise as a result and significant resources may be spent resolving such disputes.

Warranty Obligation

Changes in the Company’s warranty obligation, which is included in other accrued liabilities in the unaudited condensed consolidated balance sheets, are as follows:

	Three Months Ended						Six Months Ended
	July 2, 2017			July 3, 2016			July 2, 2017			July 3, 2016
	(In thousands)
Balance as of beginning of the period	$	56,336		$	49,908		$	58,520		$	56,706
Provision for warranty obligation made during the period	34,515			18,593			61,268			34,808
Settlements made during the period	(30,400		)	(18,108		)	(59,337		)	(41,121		)
Balance at end of period	$	60,451		$	50,393		$	60,451		$	50,393

Guarantees and Indemnifications

The Company, as permitted under Delaware law and in accordance with its Bylaws, indemnifies its officers and directors for certain events or occurrences, subject to certain limits, while the officer or director is or was serving at the Company’s request in such capacity. The term of the indemnification period is for the officer’s or director’s lifetime. The maximum amount of potential future indemnification is unlimited; however, the Company has a Director and Officer Insurance Policy that enables it to recover a portion of any future amounts paid. As a result of its insurance policy coverage, the Company believes the fair value of each indemnification agreement is minimal. Accordingly, the Company has no liabilities recorded for these agreements as of July 2, 2017.

In its sales agreements, the Company typically agrees to indemnify its direct customers, distributors and resellers for any expenses or liability resulting from claimed infringements by the Company's products of patents, trademarks or copyrights of third parties, subject to customary carve outs. The terms of these indemnification agreements are generally perpetual any time after execution date of the respective agreement. The maximum amount of potential future infringement indemnification is generally unlimited. The Company believes the estimated fair value of these agreements is minimal. Accordingly, the Company has no liabilities recorded for these agreements as of July 2, 2017.

Employment Agreements

The Company has signed various employment agreements with key executives pursuant to which, if their employment is terminated without cause, such employees are entitled to receive their base salary (and commission or bonus, as applicable) for 52 weeks (for the Chief Executive Officer), 39 weeks (for the Senior Vice President of Worldwide Operations and Support) and up to 26 weeks (for other key executives). Such employees will also continue to have equity awards vest for up to a one-year period following such termination without cause. If a termination without cause or resignation for good reason occurs within one year of a change in control, such employees are entitled to full acceleration (for the Chief Executive Officer) and up to two years acceleration (for other key executives) of any unvested portion of his or her equity awards. The Company has no liabilities recorded for these agreements as of July 2, 2017.

Litigation and Other Legal Matters

The Company is involved in disputes, litigation, and other legal actions, including, but not limited to, the matters described below. In all cases, at each reporting period, the Company evaluates whether or not a potential loss amount or a potential range of loss is probable and reasonably estimable under the provisions of the authoritative guidance that addresses accounting for contingencies. In such cases, the Company accrues for the amount, or if a range, the Company accrues the low end of the range, only if there is not a better estimate than any other amount within the range, as a component of legal expense within litigation reserves, net. The Company monitors developments in these legal matters that could affect the estimate the Company had previously accrued. In relation to such matters, the Company currently believes that there are no existing claims or proceedings that are likely to have a material adverse effect on its financial position within the next twelve months, or the outcome of these matters is currently not determinable. There are many uncertainties associated with any litigation, and these actions or other third-party claims against the Company may cause the Company to incur costly litigation and/or substantial settlement charges. In addition, the resolution of any intellectual property litigation may require the Company to make royalty payments, which could have an adverse effect in future periods. If any of those events were to occur, the Company's business, financial condition, results of operations, and cash flows could be adversely affected. The actual liability in any such matters may be materially different from the Company's estimates, which could result in the need to adjust the liability and record additional expenses.

Ericsson v. NETGEAR, Inc.

On September 14, 2010, Ericsson Inc. and Telefonaktiebolaget LM Ericsson (collectively “Ericsson”) filed a patent infringement lawsuit against the Company and defendants D-Link Corporation, D-Link Systems, Inc., Acer, Inc., Acer America Corporation, and Gateway, Inc. in the U.S. District Court, Eastern District of Texas alleging that the defendants infringe certain Ericsson patents. The Company has been accused of infringing eight U.S. patents: 5,790,516 (the “‘516 Patent”); 6,330,435 (the “‘435 Patent”); 6,424,625 (the “‘625 Patent”); 6,519,223 (the “‘223 Patent”); 6,772,215 (the “‘215 Patent”); 5,987,019 (the “‘019 Patent”); 6,466,568 (the “‘568 Patent”); and 5,771,468 (the “'468 Patent"). Ericsson generally alleged that the Company and the other defendants have infringed and continue to infringe the Ericsson patents through the defendants' IEEE 802.11-compliant products. In addition, Ericsson alleged that the Company infringed the claimed methods and apparatuses of the '468 Patent through the Company's PCMCIA routers. The Company filed its answer to the Ericsson complaint on December 17, 2010 where it asserted the affirmative defenses of non-infringement and invalidity of the asserted patents. On June 8, 2011, Ericsson filed an amended complaint that added Dell, Toshiba and Belkin as defendants. At the status conference held on June 9, 2011, the Court set a Markman (claim construction) hearing for June 28, 2012 and trial for June 3, 2013. On June 21, 2012, Ericsson dismissed the '468 Patent (“Multi-purpose base station”) with prejudice and gave the Company a covenant not to sue as to products in the marketplace now or in the past. On June 22, 2012, Intel filed its Complaint in Intervention, meaning that Intel became an official defendant in the Ericsson case. During the exchange of the expert reports, Ericsson dropped the '516 Patent (the OFDM “pulse shaping” patent). In addition, Ericsson dropped the '223 Patent (packet discard patent) against all the defendants' products, except for those products that use Intel chips. Thus, Ericsson has now dropped the '468 Patent (wireless base station), the '516 Patent (OFDM pulse shaping), and the '223 Patent (packet discard patent) for all non-Intel products.

A jury trial in the Ericsson case occurred in the Eastern District of Texas from June 3 through June 13, 2013. After hearing the evidence, the jury found no infringement of the '435 and '223 Patents, and the jury found infringement of claim 1 of the '625 Patent, claims 1 and 5 of the '568 Patent, and claims 1 and 2 of the '215 Patent. The jury also found that there was no willful infringement by any defendant. Additionally, the jury found no invalidity of the asserted claims of the '435 and '625 Patents. The jury assessed the following damages against the defendants: D-Link: $435,000; NETGEAR: $3,555,000; Acer/Gateway: $1,170,000; Dell: $1,920,000; Toshiba: $2,445,000; Belkin: $600,000. The damages awards equated to 15 cents per unit for each accused 802.11 device sold by each defendant (5 cents per patent).

On December 16, 2013, the Company and defendants submitted their appeal brief to the Federal Circuit. Ericsson filed its response brief on February 20, 2014, and the defendants filed their reply brief before on March 24, 2014. The oral arguments before the Federal Circuit took place on June 5, 2014.

On December 4, 2014, the Federal Circuit issued its opinion and order in the Company’s Ericsson appeal. The Federal Circuit vacated the entirety of the $3.6 million jury verdict against the Company and the ongoing 15 cents per unit royalty verdict, and also vacated the entirety of the verdict against the other defendants and their ongoing royalties, finding that the District Court hadn’t properly instructed the jury on royalty rates and Ericsson’s licensing promises. The Federal Circuit held that the lower court had failed to adequately instruct the jury about Ericsson’s actual commitments to license the infringed patents on reasonable and nondiscriminatory (“RAND”) terms. Further, the Federal Circuit stated that the lower court had neglected to inform the jury that a royalty for a patented technology must be removed from the value of the entire standard, and that a RAND royalty rate should be based on the invention’s value, rather than any added value from standardization. The jury’s damages awards were therefore completely vacated, and the case was remanded for further proceedings.

While the Federal Circuit found the district court had inadequate jury instructions, it held that there was enough evidence for the jury to find infringement of two claims of U.S. Patent Number 6,466,568 and two claims of U.S. Patent Number 6,772,215, but reversed the lower court’s decision not to grant a noninfringement judgment as a matter of law regarding the third patent, U.S. Patent Number 6,424,625, finding that no reasonable jury could find that the ‘625 Patent was infringed by the defendants.

In September 2013, Broadcom filed petitions in the USPTO at the Patent Trial and Appeal Board (PTAB) seeking inter partes review (“IPR”) of Ericsson’s three patents that the jury found were infringed by the Company and other defendants. On March 6, 2015, the PTAB invalidated all the claims of these three patents that were asserted against the Company and other defendants at trial -- claim 1 of the '625 Patent, claims 1 and 5 of the '568 Patent, and claims 1 and 2 of the '215 Patent -- ruling these claims were anticipated or obvious in light of prior art. The PTAB also rejected two motions to amend by Ericsson, which sought to substitute certain proposed claims in the '625 and '568 patents, should they be found unpatentable by the PTAB. This PTAB decision comes on top of the Federal Circuit decision (a) vacating the jury verdict after finding that the district court had not properly instructed the jury on royalty rates and Ericsson’s licensing promises, and (b) ruling that no reasonable jury could have found the ‘625 Patent infringed. Ericsson appealed the PTAB decision to the Federal Circuit and also requested that the PTAB reconsider its decision, but the PTAB denied Ericsson’s request for reconsideration. Accordingly, the Company reversed the accruals related to this case in the first fiscal quarter of 2015. On September 16, 2016, the Federal Circuit upheld the invalidity of certain claims of the '625 Patent, the '568 Patent, and '215 Patent, as previously determined by the PTAB. The Federal Circuit only issued one precedential written opinion, on the 215 Patent; the PTAB invalidity rulings on the '625 and '568 Patents were upheld without a written decision. Ericsson petitioned the Federal Circuit for an en banc rehearing of the Federal Circuit's appeal decision, and the Federal Circuit agreed to the en banc rehearing. Arguments before the en banc panel of the Federal Circuit took place in May 2017, and the Federal Circuit has not yet released its en banc opinion. The present status of the case continues to be that the Company does not infringe on any valid Ericsson patent.

Agenzia Entrate Provincial Revenue Office 1 of Milan v. NETGEAR International, Inc.

In November 2012, the Italian tax police began a comprehensive tax audit of NETGEAR International, Inc.’s Italian Branch. The scope of the audit initially was from 2004 through 2011 and was subsequently expanded to include 2012. The tax audit encompassed Corporate Income Tax (IRES), Regional Business Tax (IRAP) and Value-Added Tax (VAT). In December 2013, December 2014, August 2015, and December 2015 an assessment was issued by Inland Revenue Agency, Provincial Head Office No. 1 of Milan-Auditing Department (Milan Tax Office) for the 2004 tax year, the 2005 through 2007 tax years, the 2008 through 2010 tax years, and the 2011 through 2012 tax years, respectively.

In May 2014, the Company filed with the Provincial Tax Court of Milan an appeal brief, including a Request for Hearing in Open Court and Request for Suspension of the Tax Assessment for the 2004 year. The hearing was held and decision was issued on December 19, 2014. The Tax Court decided in favor of the Company and nullified the assessment by the Inland Revenue Agency for 2004. The Inland Revenue Agency appealed the decision of the Tax Court on June 12, 2015. The Company filed its counter appeal with respect to the 2004 year during September 2015. On February 26, 2016 the Regional Tax Court conducted the appeals hearing for the 2004 year, ruling in favor of the Company. On June 13, 2016, the Inland Revenue Agency appealed the decision to the Supreme Court. The Company filed a counter appeal on July 23, 2016 and is awaiting scheduling of the hearing.

In June 2015, the Company filed with the Provincial Tax Court of Milan an appeal brief including a Request for Hearing in Open Court and Request for Suspension of the Tax Assessment for the 2005 through 2006 tax years. The hearing for suspension was held and the Request for Suspension of payment was granted. The hearing for the validity of the tax assessment for 2005 and 2006 was held in December 2015 with the Provincial Tax Court issuing its decision in favor of the Company. The Inland Revenue Agency filed its appeal with the Regional Tax Court. The Company filed its counter brief on September 30, 2016 and the hearing was held on March 22, 2017. A decision favorable to the Company was issued by the Court on July 5, 2017. The Italian Tax Authority has until November 10, 2017 to appeal the decision.

The hearing for the validity of the tax assessment for 2007 was held on March 10, 2016 with the Provincial Tax Court who issued its decision in favor of the Company on April 7, 2016. The Inland Revenue Agency has filed its appeal to the Regional Tax Court and the Company has submitted its counter brief. The hearing has not yet been scheduled.

With respect to 2008 through 2010, the Company filed its briefs with the Tax Court in October 2015 and the hearing for the validity of the tax assessments was held on April 21, 2016 and a decision favorable to the Company was issued on May 12, 2016. The Inland Revenue Agency has filed its appeal to the Regional Tax Court. The Company filed its counter brief on February 5, 2017.

With respect to 2011 through 2012, the Company has filed its appeal brief on February 26, 2016 with the Provincial Tax Court to contest this assessment. The hearing for suspension was held and the Request for Suspension of payment was granted. On October 13, 2016, the Company filed its brief with the Provincial Tax Court. The hearing was held on October 24, 2016 and a decision favorable to the Company was issued by the Court. The Inland Revenue Agency appealed the decision on April 24, 2017. The Company filed its counter brief on June 16, 2017.

With regard to all tax years, it is too early to reasonably estimate any financial impact to the Company resulting from this litigation matter.

Via Vadis v. NETGEAR, Inc.

On August 22, 2014, the Company was sued by Via Vadis, LLC and AC Technologies, S.A. (“Via Vadis”), in the Western District of Texas. The complaint alleges that the Company’s ReadyNAS and Stora products “with built-in BitTorrent software" allegedly infringe three related patents of Via Vadis (U.S. Patent Nos. 7,904,680, RE40, 521, and 8,656,125). Via Vadis filed similar complaints against Belkin, Buffalo, Blizzard, D-Link, and Amazon.

By referring to “built-in BitTorrent software,” the Company believes that the complaint is referring to the BitTorrent Sync application, which was released by BitTorrent Inc. in spring of 2014. At a high-level, the application allows file synchronization across multiple devices by storing the underlying files on multiple local devices, rather than on a centralized server. The Company’s ReadyNAS products do not include BitTorrent software when sold. The BitTorrent application is provided as one of a multitude of potential download options, but the software itself is not included on the Company’s devices when shipped. Therefore, the only viable allegation at this point is an indirect infringement allegation.

On November 10, 2014, the Company answered the complaint denying that it infringes the patents in suit and also asserting the affirmative defenses that the patents in suit are invalid and barred by the equitable doctrines of laches, waiver, and/or estoppel.

On February 6, 2015, the Company filed its motion to transfer venue from the Western District of Texas to the Northern District of California with the Court; on February 13, 2015, Via Vadis filed its opposition to the Company’s motion to transfer; and on February 20, 2015, the Company filed its reply brief on its motion to transfer. In early April 2015, the Company received the plaintiff’s infringement contentions, and on June 12, 2015, the defendants served invalidity contentions. On July 30, 2015 the Court granted the Company’s motion to transfer venue to the Northern District of California. In addition, the Company learned that Amazon and Blizzard filed petitions for the inter partes reviews (“IPRs”) for the patents in suit. On October 30, 2015, the Company and Via Vadis filed a joint stipulation requesting that the Court vacate all deadlines and enter a stay of all proceedings in the case pending the Patent Trial and Appeal Board’s final non-appealable decision on the IPRs initiated by Amazon and Blizzard. On November 2, 2015 the Court granted the requested stay. On March 8, 2016, the Patent Trial and Appeal Board issued written decisions instituting the IPRs jointly filed by Amazon and Blizzard. In early March of 2017, The Patent Trial and Appeal Board (PTAB) issued various decisions regarding Amazon’s and Blizzard’s IPRs of the patents in suit. One of the IPRs of the '125 patent resulted in a finding by the PTAB that Amazon and Blizzard had had failed to show invalidity. The second IPR on the '125 patent, however, resulted in cancelation of all claims asserted in Via Vadis’s suit against the Company. Reissue '521 did not have any claims found invalid by the PTAB, and some dependent claims of the '680 patent survived the IPRs, and some claims of the '680 patent were canceled. The Northern District of California case against the Company remains stayed.

It is too early to reasonably estimate any financial impact to the Company resulting from this litigation matter.

Chrimar Systems, Inc. v NETGEAR, Inc.

On July 1, 2015, the Company was sued by a non-practicing entity named Chrimar Systems, Inc., doing business as CMS Technologies and Chrimar Holding Company, LLC (collectively, “CMS”), in the Eastern District of Texas for allegedly infringing four patents-U.S. Patent Nos. 8,155,012 (the “'012 Patent”), entitled “System and method for adapting a piece of terminal equipment”; 8,942,107 (the “'107 Patent”), entitled “Piece of ethernet terminal equipment”; 8,902,760 (the “'760 Patent”), entitled “Network system and optional tethers”; and 9,019,838 (the “'838 Patent”), entitled “Central piece of network equipment” (collectively “patents-in-suit”). 

The patents-in-suit relate to using or embedding an electrical DC current or signal into an existing Ethernet communication link in order to transmit additional data about the devices on the communication link, and the specifications for the patents are identical. It appears that CMS has approximately 40 active cases in the Eastern District of Texas, as well as some cases in the Northern District of California on the patents-in-suit and the parent patent to the patents-in-suit.

The Company answered the complaint on September 15, 2015. On November 24, 2015, CMS served its infringement contentions on the Company, and CMS is generally attempting to assert that the patents in suit cover the Power over Ethernet standard (802.3af and 802.3at) used by certain of the Company's products.

On December 3, 2015, the Company filed with the Court a motion to transfer venue to the District Court for the Northern District of California and their memorandum of law in support thereof. On December 23, 2015, CMS filed its response to the Company’s motion to transfer, and, on January 8, 2016, the Company filed its reply brief in support of its motion to transfer venue. On January 15, 2016, the Court granted the Company’s motion to transfer venue to the District Court for the Northern District of California. The initial case management conference in the Northern District of California occurred on May 13, 2016, and on August 19, 2016, the parties exchanged preliminary claim constructions and extrinsic evidence. On August 26, 2016, the Company and three defendants in other Northern District of California CMS cases (Juniper Networks, Inc., Ruckus Wireless, Inc., and Fortinet, Inc.) submitted motions to stay their cases. The defendants in part argued that stays were appropriate pending the resolution of the currently-pending IPRs of the patents-in-suit before the Patent Trial and Appeal Board (PTAB), including four IPR Petitions filed by Juniper. On September 9, 2016, CMS submitted its opposition to the motions to stay the cases. On September 26, 2016, the Court ordered the cases stayed in their entirety, until the PTAB reaches institution decisions with respect to Juniper’s four pending IPR petitions. Juniper’s four IPR petitions were instituted by the PTAB in January 2017, and the Company subsequently moved to join the IPR petitions as an “understudy” to Juniper, only assuming a more active role in the petitions in the event Juniper settles with CMS. For all four patents in suit against the Company, the PTAB ordered that (a) the Petitioners’ (the Company, Ruckus, and Brocade) Motion for Joinder to the Juniper IPRs is granted; (b) the Petitioners IPRs are instituted on the same grounds as in the Juniper ‘IPRs and Petitioners are joined with the Juniper IPRs; and (c) all further filings by Petitioners in the joined proceedings will be in the Juniper IPRs. The Company is now proceeding on the Juniper IPR schedule. The Northern District of California CMS cases remain stayed in their entirety by the Court.

It is too early to reasonably estimate any financial impact to the Company resulting from this litigation matter.

Tessera v. NETGEAR, Inc.

On May 23, 2016, Tessera Technologies, Inc., Tessera, Inc., and Invensas Corp. (collectively, “Tessera”) filed a complaint requesting that the U.S. International Trade Commission (“Commission”) commence an investigation pursuant to Section 337 by reason of alleged infringement of certain patent claims by the Company and other respondents. On June 20, 2016, the Commission issued the related Notice of Investigation, and the Investigation was instituted on June 24, 2016.

The Tessera complaint alleges that the following respondents unlawfully import into the U.S., sell for importation, and/or sell within the U.S. after importation certain semiconductor devices, semiconductor device packages, and products containing the same that infringe one or more claims of U.S. Patent Nos. 6,856,007 (the ‘007 patent), 6,849,946 (the ‘946 patent), and 6,133,136 (the ‘136 patent) (collectively, the “asserted patents”): Broadcom Limited of Singapore; Broadcom Corp. of Irvine, California; Avago Technologies Limited of Singapore; Avago Technologies U.S. Inc. of San Jose, California; Arista Networks, Inc. of Santa Clara, California; ARRIS International plc of Suwanee, Georgia; ARRIS Group, Inc. of Suwanee, Georgia; ARRIS Technology, Inc. of Horsham, Pennsylvania; ARRIS Enterprises LLC of Suwanee, Georgia; ARRIS Solutions, Inc. of Suwanee, Georgia; Pace Ltd. (formerly Pace plc) of England; Pace Americas, LLC of Boca Raton, Florida; Pace USA, LLC of Boca Raton, Florida; ASUSTeK Computer Inc. of Taiwan; ASUS Computer International of Fremont, California; Comcast Cable Communications, LLC of Philadelphia, Pennsylvania; Comcast Cable Communications Management, LLC of Philadelphia, Pennsylvania; Comcast Business Communications, LLC of Philadelphia, Pennsylvania; HTC Corp. of Taiwan; HTC America, Inc. of Bellevue, Washington; Technicolor S.A. of France; Technicolor USA, Inc. of Indianapolis, Indiana; Technicolor Connected Home USA LLC of Indianapolis, Indiana; and the Company.

According to the complaint, the asserted patents generally relate to semiconductor packaging technology. In particular, the ‘007 patent relates to a compact and economical semiconductor chip assembly that includes a packaged semiconductor chip, a chip carrier with a metallic thermal conductor, and a circuit panel with a thermal conductor mounting. The ‘946 patent relates to a semiconductor layout configuration and method that results in a more efficient planarization process for a semiconductor chip. Lastly, the ‘136 patent relates to a structure for metal interconnects used in semiconductor packaging.

In the complaint, Tessera states that the respondents import and sell products that infringe the asserted patents. In particular, the complaint refers to multiple categories of accused semiconductor products associated with Broadcom and asserts that the remaining respondents import and sell products that contain these infringing Broadcom semiconductor products. Tessera requested that the Commission issue a permanent limited exclusion order and a permanent cease and desist order directed at the respondents and related entities.

Concurrently with the filing of the instant ITC complaint, Tessera also filed a complaint against Broadcom Corp. in the U.S. District Court for the District of Delaware alleging infringement of the asserted patents. The Company has not been sued in Delaware or any other jurisdiction other than the ITC.

The Company stipulated to certain facts regarding its importation and inventory of Broadcom-based products in return for various relief from discovery, such as reduced depositions and discovery responses in the ITC case. As per the ITC schedule, the parties exchanged direct exhibits and witness statements on February 20, 2017; rebuttal exhibits and witness statements on March 3, 2017; pre-trial briefs on March 9, 2017; and Motions in limine on March 13, 2017. The 5-day evidentiary hearing before the ITC Administrative Law Judge (“ALJ”) commenced on March 27, 2017 and ended on March 31, 2017. The ITC rules provide for possible closing arguments before the ALJ after post-hearing briefing, which were submitted on April 19, 2017. Reply post-trial briefs were submitted on May 1, 2017.

On June 30, 2017 the ALJ released the Initial Determination based on the 5-day evidentiary hearing and related briefing. For the ‘946 patent, the ALJ found the four (4) claims infringed and valid, and that there is a domestic industry. For the ‘136 patent, the ALJ found the nine (9) claims were infringed and valid, but no domestic industry. For the ‘007 patent, the ALJ found (1) one claim infringed by the Company and Technicolor, claims 13 and 16 not infringed, all three asserted claims invalid, including the one claim found to be infringed, and no domestic industry.

In summary, the ALJ found a violation of section 337 of the Tariff Act due to infringement by the Company and other respondents of the ‘946 patent, but not as to the ‘136 patent or ‘007 patent. There is no violation with respect to the ‘136 patent even though it was found to be infringed and valid by the ALJ because Tessera could not show a domestic industry.

At this point, there is one patent remaining in the ITC action (the ‘946 patent), but this one patent could prevent the Company (and all the other respondents) from importing Broadcom-based products into the United States. There is no immediate legal effect from the ALJ’s Initial Determination, and the respondents will appeal the adverse portions of the Initial Determination ahead of the Commission’s Final Determination on October 30, 2017. If the Final Determination is not favorable to the respondents or the matter is not otherwise resolved, e.g.,via settlement, then any exclusion order (injunction) on the Company (and all the other respondents) importing Broadcom-based products into the U.S. would go into effect the next day (October 31, 2017) (subject to postponement by up to two months until December 31, 2017 during the presidential review period upon posting of a bond by the Company). Such exclusion order on the Company’s (and all the other respondents’) importation of Broadcom-based products into the United States would potentially last until the ‘946 patent expires on August 31, 2018.

It is too early to reasonably estimate any financial impact to the Company resulting from this litigation matter.

e.Digital v. NETGEAR, Inc.

On September 12, 2016, e.Digital Corporation ("e.Digital") filed a lawsuit against the Company in the Northern District of California accusing the Company of infringing U.S. Patent Nos. 8,311,522 (“the ’522 patent”); 8,311,524 (“the ’524 patent”); 9,002,331 (“the ’331 patent”); and 9,178,983 (“the ’983 patent”) (collectively, the “patents-in-suit”), which purportedly cover systems and methods for the remote detection, classification, and communication of sensor data. In the complaint, e.Digital broadly accuses the Company’s Arlo wireless camera systems, including the Arlo Wire-Free, Arlo Q, and Arlo Q Plus cameras (collectively, the “Accused Products”). The allegations are generally directed at the “remote monitoring and communication” functionality of the Accused Products. Specifically, the complaint alleges that the Accused Products infringe the patents-in-suit by utilizing sensors-such as cameras and microphones-to collect data and perform various operations-such as send alerts, trigger video recording, or take a snapshot-in response to a classification of the collected sensor data.

Beginning with a lawsuit against Dropcam in July, 2014, e.Digital has litigated the patents-in-suit, and related portfolio, against a handful of other companies with products similar to the Arlo wireless camera systems. The previous litigation includes the lawsuit against Dropcam along with suits against ArcSoft, Inc., ShenZhen Gospell Smarthome Electronic Co., Ltd., iBaby Labs, Inc., iSmart Alarm, Inc., MivaTek International, Inc., MyFox, Inc., and Nest. Concurrent with the filing of the instant complaint against the Company, e.Digital also filed similar suits against Netatmo LLC and Y-Cam Solutions, LLC. The Company submitted its answer to the e.Digital complaint in early November 2016, denying the infringement allegations and asserting several defenses.

In February of 2017, the Court consolidated some, but not all, of the e.Digital cases for purposes of claim construction. In particular, the Court ordered that the iSmart case, for which claim construction is already fully briefed, move forward as scheduled, while the later Company, Netatmo, and Utility Associates cases be informally consolidated for claim construction purposes. As such, claim construction briefing is set to begin in August 2017, and a claim construction hearing is set for October 2017. The Court has not yet set a trial date. The Company served invalidity contentions on March 6, 2017.

Without admitting any wrongdoing or violation of law and to avoid the distraction and expense of continued litigation and the uncertainty of a jury verdict on the merits, on June 27, 2017, the Company and e.Digital settled the lawsuit for a one-time payment from the Company to e.Digital in return for a license to the Company to the e.Digital patents and applications that are currently owned by e.Digital. The lawsuit against the Company was dismissed with prejudice on July 5, 2017, and the case was closed by the Court.

This litigation matter did not have a material financial impact on the Company.

Script Security Solutions v. NETGEAR, Inc.

On December 12, 2016, Script Security Solutions L.L.C. (“Script”) sued the Company in U.S. District Court, Eastern District of Texas for alleged patent infringement of U.S. Patent Nos. 6,542,078 and 6,828,909. Script is a non-practicing entity and has filed over twenty other lawsuits alleging infringement of the same patents. A first wave of cases was filed in March 2015 against 11 defendants. All but one of those cases has settled or been terminated. A second wave of cases was filed in June 2015 against six defendants. Only two of those cases remain active. The third and most recent wave of cases was filed on December 12, 2016, against the Company and six other defendants.

The asserted patents are related. The ‘909 patent is a continuation-in-part of the ’078 patent. The asserted patents are titled “Portable Motion Detector and Alarm System and Method” and allegedly claim priority to May 30, 1996. The asserted patents generally are directed to a portable security alarm system that detects movement of objects relative to a variety of predetermined positions.

The complaint is directed to the Company’s Arlo Home Security Systems and VueZone wireless home video system and alleges that the Company directly infringes at least claim 1 of the ’078 patent and claim 1 of the ’909 patent.

The answer was originally due on January 12, 2017, but the Company received an extension until February 21, 2017 to answer the complaint.  On that date, the Company answered the complaint by submitting a motion to dismiss the complaint because of Script’s failure to properly and sufficiently state a claim for relief. On March 3, 2017, Script filed its consolidated response to the various Defendants’ (including the Company’s) Motions to Dismiss for Failure to State a Claim. The Company’s reply brief was submitted on March 10, 2017. The Company also recently received Script’s infringement contentions.

Without admitting any wrongdoing or violation of law and to avoid the distraction and expense of continued litigation and the uncertainty of a jury verdict on the merits, on July 18, 2017, the Company and Script Security came to verbal agreement in principle to settle the lawsuit for a one-time payment from the Company to Script Security in return for a license to the Company to the Script Security patents and applications that are currently owned by Script Security. The parties are drafting the written settlement agreement, and the Company anticipates that the case will ultimately settle and be dismissed with prejudice.

The proposed settlement will not have a material financial impact on the Company.

Realtime Data v. NETGEAR, Inc.

On February 27, 2017, the Company was sued in the Eastern District of Texas by Realtime Data LLC (“Realtime”), which claims to do business as “Ixo.” The complaint includes four (4) asserted patents:

•     US 9,054,728, Data compression systems and methods;

•     US 7,415,530, System and methods for accelerated data storage and retrieval;

•     US 9,116,908, System and methods for accelerated data storage and retrieval; and

•     US 8,717,204, Methods for encoding and decoding data

The accused products specifically include the Company’s “ReadyDATA RD5200, RDD516, ReadyRECOVER” products. Generally, the complaint alleges that the asserted patents are directed to various compression / decompression algorithms and systems and is directed at the Company’s ReadyDATA, ReadyNAS, and ReadyRECOVER products.

Realtime has filed several patent suits over the last few years and the asserted patents have gone through various rounds of litigation and IPRs. In this particular tranche of Realtime lawsuits, Realtime also sued Array Networks, Barracuda Networks, Carbonite, Circadence, Comm Vault, Exinda and Snacor.

The Company received an extension until May 8, 2017 to answer the complaint and answered the complaint on that date. It is too early to reasonably estimate any financial impact to the Company resulting from this litigation matter.

Hybrid Audio v. NETGEAR, Inc.

On March 8, 2017, Hybrid Audio, LLC (“Hybrid Audio”) filed a patent infringement suit against the Company in the District of Massachusetts. Hybrid Audio alleges that the Company infringes United States Patent No. RE40,281 (the ’281 Patent), titled “Signal Processing Utilizing a Tree-Structured Array,” via the sale of EVA2000, EVA9100, and EVA9150 digital media players and other Company products because of their capability of playing MP3 encoded content.

The ’281 Patent was originally filed on February 25, 1997, and it issued as U.S. Patent No. 6,252,909 on June 26, 2001. A reissue application was filed on November 23, 2004, which issued on April 29, 2008. The ’281 Patent claims priority to September 21, 1992 via a chain of divisional and continuation-in-part applications. It includes 121 claims, which can be grouped into four categories: Claims directed towards (1) a communication system, (2) a signal processing method or system, (3) an information storage medium, and (4) a method of regenerating or reconstructing a signal. In short, the ’281 Patent covers a method of compressing and decompressing signal information using a tree-structured array of sub-band filter banks.

The ’281 Patent expired on September 21, 2012, and thus, the statute of limitations period for damages calculations is limited to March 8, 2011 to September 21, 2012.

The Company has not yet answered the complaint, and after requesting an extension to answer, the Company’s answer is now due on May 22, 2017. The Company received an additional extension to answer the complaint. Before answering, however, without admitting any wrongdoing or violation of law and to avoid the distraction and expense of continued litigation and the uncertainty of a jury verdict on the merits, on June 27, 2017, the Company and Hybrid settled the lawsuit for a one-time payment from the Company to Hybrid in return for a license to the Company to the Hybrid patent in suit and all related patents and patent applications. The lawsuit against the Company was dismissed with prejudice on June 30, 2017, and the case was closed by the Court.

This litigation matter did not have a material financial impact on the Company.

Magnacross v. NETGEAR, Inc.

On April 12, 2017, Magnacross LLC (“Magnacross”) sued the Company in U.S. District Court, Eastern District of Texas for alleged patent infringement of exemplary claim 12 of US Patent 6,917,304, and appears to contend that compliance with 802.11 standards necessarily results in infringement, specifically mentioning 802.11b/g and 802.11n-compliant radios in the Company’s products. Magnacross sued five other companies on April 12, 2017, seven others in December 2016, and 17 others in May 2016 on the same patent. The complaint identifies the AC1750, AC1450, AC1200, and AC750 WiFi routers as exemplary accused products and also references the Company’s Arlo cameras.

The Company received an extension until June 7, 2017 to answer the complaint, and the Company answered the complaint on that date by requesting a transfer out of the Eastern District of Texas, as the Company’s legal position is that venue is improper in the Eastern District of Texas.

It is too early to reasonably estimate any financial impact to the Company resulting from this litigation matter.

Williams v. NETGEAR, Inc.

On April 14, 2017, Plaintiff Stewart Williams filed a putative class action against the Company in the United States District Court for the Northern District of California. Plaintiff is represented by Schubert Jonckheer & Kolbe LLP.

Plaintiff Stewart Williams alleges violations of California and Nevada state consumer protection laws based on NETGEAR’s sale and marketing of its CM700 cable modem (the “Modem”). Specifically, Plaintiff alleges that the Modem contains a defect that causes severe network latency, impairing network connectivity and preventing consumers from utilizing the maximum advertised network bandwidth. According to Plaintiff, NETGEAR had exclusive knowledge of this alleged defect and actively concealed the defect from consumers with false marketing and labeling.

Based on these allegations, Plaintiff seeks to bring his lawsuit as a class action representing a nationwide class of consumers. Plaintiff states causes of action under California’s (1) Song-Beverly Consumer Warranty Act; (2) Consumer Legal Remedies Act, (3) False Advertising Law, and (4) Unfair Competition Law. In addition, Plaintiff seeks to represent a subclass of Nevada consumers and brings a claim under Nevada’s Deceptive Trade Practices Act.

On June 15, 2017, Plaintiffs filed an amended complaint, adding two new named plaintiffs, both residents of California, and also adding the Company’s C6300 cable gateway as a product at issue. The parties agreed to extend the Company’s time to answer the complaint to August 11, 2017.

It is too early to reasonably estimate any financial impact to the Company resulting from this litigation matter.

Vivato v. NETGEAR, Inc.

On April 19, 2017, the Company was sued by XR Communications (d/b/a) Vivato (“Vivato”) in the United States District Court, Central District of California.

Based on its complaint, Vivato purports to be a research and development and product company in the Wi-Fi area, but it appears that Vivato is not currently a manufacturer of commercial products. The three (3) patents that Vivato asserts against the Company are U.S. Patent Nos. 7,062,296, 7,729,728, and 6,611,231. The ’296 and ’728 patents are entitled “Forced Beam Switching in Wireless Communication Systems Having Smart Antennas.” The ’231 patent is entitled “Wireless Packet Switched Communication Systems and Networks Using Adaptively Steered Antenna Arrays.” Vivato also has recently asserted the same patents in the Central District of California against D-Link, Ruckus, and Aruba, among others.

According to the complaint, the accused products include WiFi access points and routers supporting MU-MIMO, including without limitation access points and routers utilizing the IEEE 802.11ac-2013 standard. The accused technology is standards-based, and more specifically, based on the transmit beamforming technology in the 802.11ac Wi-Fi standard.

The Company answered an amended complaint on July 7, 2017. In its answer, the Company objected to venue and recited that objection as a specific affirmative defense, so as to expressly reserve the same. The Company also raised several other affirmative defenses in its answer.

It is too early to reasonably estimate any financial impact to the Company resulting from this litigation matter.

Hera Wireless v. NETGEAR, Inc.

On July 14, 2017, the Company was sued by Sisvel (via Hera Wireless) in the District of Delaware on three related patents allegedly covering the 802.11n standard. Similar complaints were filed against Amazon, ARRIS, Belkin, Buffalo, and Roku. The Company has not yet answered the complaint.

It is too early to reasonably estimate any financial impact to the Company resulting from this litigation matter.

IP Indemnification Claims

In its sales agreements, the Company typically agrees to indemnify its direct customers, distributors and resellers (the “Indemnified Parties”) for any expenses or liability resulting from claimed infringements by the Company's products of patents, trademarks or copyrights of third parties that are asserted against the Indemnified Parties, subject to customary carve outs. The terms of these indemnification agreements are generally perpetual after execution of the agreement. The maximum amount of potential future indemnification is generally unlimited. From time to time, the Company receives requests for indemnity and may choose to assume the defense of such litigation asserted against the Indemnified Parties.

Environmental Regulation

The Company is required to comply and is currently in compliance with the European Union ("EU") and other Directives on the Restrictions of the use of Certain Hazardous Substances in Electrical and Electronic Equipment (“RoHS”), Waste Electrical and Electronic Equipment ("WEEE") requirements, Energy Using Product (“EuP”) requirements, the REACH Regulation, Packaging Directive and the Battery Directive.

The Company is subject to various federal, state, local, and foreign environmental laws and regulations, including those governing the use, discharge, and disposal of hazardous substances in the ordinary course of our manufacturing process. The Company believes that its current manufacturing and other operations comply in all material respects with applicable environmental laws and regulations; however, it is possible that future environmental legislation may be enacted or current environmental legislation may be interpreted to create an environmental liability with respect to its facilities, operations, or products. See further discussion of the business risks associated with environmental legislation under the risk titled, "We are subject to, and must remain in compliance with, numerous laws and governmental regulations concerning the manufacturing, use, distribution and sale of our products, as well as any such future laws and regulations. Some of our customers also require that we comply with their own unique requirements relating to these matters. Any failure to comply with such laws, regulations and requirements, and any associated unanticipated costs, may adversely affect our business, financial condition and results of operations." within Item 1A Risk Factors of this Form 10-Q.

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Stockholders' Equity

6 Months Ended

Jul. 02, 2017

Stockholders' Equity Note [Abstract]

Stockholders' Equity

Stockholders' Equity

Stock Repurchases

From time to time, the Company’s Board of Directors has authorized programs under which the Company may repurchase shares of its common stock, depending on market conditions, in the open market or through privately negotiated transactions. Under the authorizations, the timing and actual number of shares subject to repurchase are at the discretion of management and are contingent on a number of factors, such as levels of cash generation from operations, cash requirements for acquisitions and the price of the Company’s common stock. On April 25, 2017, the Company's Board of Directors authorized the repurchase of up to 3.0 million shares of the Company’s outstanding common stock which, at the time of authorization, were incremental to the remaining shares under the Company's previous share repurchase program. As of July 2, 2017, 3.2 million shares remained authorized for repurchase under the repurchase programs approved by the Board in July 2015 and April 2017. All shares authorized under previously approved programs were fully utilized. The Company repurchased, as reported based on trade date, 1.1 million shares of common stock at a cost of $56.6 million during the six months ended July 2, 2017. The Company repurchased, reported based on trade date, 0.6 million shares of common stock at a cost of $23.3 million under the repurchase authorization during the six months ended July 3, 2016.

The Company repurchased, as reported based on trade date, approximately 0.1 million shares of common stock at a cost of $5.6 million to help administratively facilitate the withholding and subsequent remittance of personal income and payroll taxes for individuals receiving RSUs during the six months ended July 2, 2017. Similarly, during the six months ended July 3, 2016, the Company repurchased, as reported based on trade date, approximately 91,000 shares of common stock at a cost of $3.9 million to help facilitate tax withholding for RSUs.

These shares were retired upon repurchase. The purchase price for the shares of the Company’s stock repurchased is reflected as a reduction to stockholders’ equity. The Company’s policy related to repurchases of its common stock is to charge the excess of cost over par value to retained earnings. All repurchases were made in compliance with Rule 10b-18 under the Securities Exchange Act of 1934, as amended.

Accumulated Other Comprehensive Income

The following table sets forth the changes in accumulated other comprehensive income ("AOCI") by component for the six months ended July 2, 2017 and July 3, 2016:

	Unrealized gains (losses) on available-for-sale securities			Unrealized gains (losses) on derivatives			Estimated tax benefit (provision)			Total
	(In thousands)
Balance as of December 31, 2016	$	(31	)	$	2,230		$	(261	)	$	1,938
Other comprehensive loss before reclassifications	(82		)	(7,052		)	807			(6,327		)
Less: Amount reclassified from accumulated other comprehensive income	—			648			(227		)	421
Net current period other comprehensive income (loss)	(82		)	(7,700		)	1,034			(6,748		)
Balance as of July 2, 2017	$	(113	)	$	(5,470	)	$	773		$	(4,810	)

	Unrealized gains (losses) on available-for-sale securities			Unrealized gains (losses) on derivatives			Estimated tax benefit (provision)			Total
	(In thousands)
Balance as of December 31, 2015	$	(64	)	$	43		$	24		$	3
Other comprehensive income (loss) before reclassifications	147			(699		)	177			(375		)
Less: Amount reclassified from accumulated other comprehensive income	—			(663		)	232			(431		)
Net current period other comprehensive income (loss)	147			(36		)	(55		)	56
Balance as of July 3, 2016	$	83		$	7		$	(31	)	$	59

The following tables provide details about significant amounts reclassified out of each component of AOCI for the three and six months ended July 2, 2017 and July 3, 2016:

Details about Accumulated Other Comprehensive Income Components	Three Months Ended July 2, 2017				Six Months Ended July 2, 2017
	Amount Reclassified from AOCI			Affected Line Item in the Statements of Operations	Amount Reclassified from AOCI			Affected Line Item in the Statement of Operations
	(In thousands)				(In thousands)
Gains (losses) on cash flow hedge:
Foreign currency forward contracts	$	(1,008	)	Net revenue	$	1,027		Net revenue
Foreign currency forward contracts	$	(1	)	Cost of revenue	$	(14	)	Cost of revenue
Foreign currency forward contracts	77			Operating expenses	(365		)	Operating expenses
	$	(932	)	Total before tax	$	648		Total before tax
	326			Tax impact	(227		)	Tax impact
	$	(606	)	Total, net of tax	$	421		Total, net of tax

Details about Accumulated Other Comprehensive Income Components	Three Months Ended July 3, 2016				Six Months Ended July 3, 2016
	Amount Reclassified from AOCI			Affected Line Item in the Statements of Operations	Amount Reclassified from AOCI			Affected Line Item in the Statement of Operations
	(In thousands)				(In thousands)
Gains (losses) on cash flow hedge:
Foreign currency forward contracts	$	(407	)	Net revenue	$	(719	)	Net revenue
Foreign currency forward contracts	(2		)	Cost of revenue	—			Cost of revenue
Foreign currency forward contracts	(14		)	Operating expenses	56			Operating expenses
	(423		)	Total before tax	(663		)	Total before tax
	148			Tax impact	232			Tax impact
	$	(275	)	Total, net of tax	$	(431	)	Total, net of tax

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Employee Benefit Plans

6 Months Ended

Jul. 02, 2017

Employee Benefits and Share-based Compensation [Abstract]

Employee Benefit Plans

Employee Benefit Plans

The Company grants options and RSUs under the 2016 Incentive Plan (the "2016 Plan"), under which awards may be granted to all employees. Award vesting periods for this plan are generally four years. As of July 2, 2017, approximately 2.0 million shares were reserved for future grants under the 2016 Plan.

Additionally, the Company sponsors the ESPP, pursuant to which eligible employees may contribute up to 10% of base compensation, subject to certain income limits, to purchase shares of the Company’s common stock. The terms of the plan include a look-back feature that enables employees to purchase stock semi-annually at a price equal to 85% of the lesser of the fair market value at the beginning of the offering period or the purchase date. As of July 2, 2017, approximately 0.9 million shares were available for issuance under the ESPP.

Option Activity

Stock option activity during the six months ended July 2, 2017 was as follows:

	Number of shares		Weighted Average Exercise Price Per Share
	(In thousands)		(In dollars)
Outstanding as of December 31, 2016	1,884		$	31.14
Granted	328		42.70
Exercised	(142	)	27.84
Cancelled	—		—
Expired	(1	)	30.66
Outstanding as of July 2, 2017	2,069		$	33.20

RSU Activity

RSU activity during the six months ended July 2, 2017 was as follows:

	Number of shares		Weighted Average Grant Date Fair Value Per Share
	(In thousands)		(In dollars)
Outstanding as of December 31, 2016	996		$	36.22
Granted	544		49.59
Vested	(361	)	34.99
Cancelled	(28	)	44.61
Outstanding as of July 2, 2017	1,151		$	42.72

Valuation and Expense Information

The fair value of each option award and share granted under the ESPP commencing February 16, 2016 is estimated on the date of grant using a Black-Scholes-Merton option valuation model that uses the assumptions noted in the following table. The estimated expected term of options granted is derived from historical data on employee exercise and post-vesting employment termination behavior. The risk free interest rate for options and ESPP shares is based on the implied yield currently available on U.S. Treasury securities with a remaining term commensurate with the estimated expected term. Expected volatility for options and ESPP shares is based on historical volatility over the most recent period commensurate with the estimated expected term. Upon the adoption of ASU 2016-09, the Company elected to account for forfeitures as they occur, rather than estimating expected forfeitures. Refer to recently adopted accounting pronouncement under Note 2, Summary of Significant Accounting Policies, for a further discussion of the impact from the adoption of ASU 2016-09.

The table below sets forth the weighted average assumptions used to estimate the fair value of option grants and purchase rights granted under the ESPP during the three and six months ended July 2, 2017 and July 3, 2016.

	Three Months Ended					Six Months Ended
	Stock Options			ESPP		Stock Options				ESPP
	July 2, 2017		July 3, 2016	July 2, 2017	July 3, 2016	July 2, 2017		July 3, 2016		July 2, 2017		July 3, 2016
Expected life (in years)	4.4		NA	NA	NA	4.4		4.4		0.5		0.5
Risk-free interest rate	1.65	%	NA	NA	NA	1.65	%	1.28	%	0.66	%	0.42	%
Expected volatility	31.6	%	NA	NA	NA	31.6	%	35.4	%	27.6	%	44.7	%
Dividend yield	—		NA	NA	NA	—		—		—		—

The following table sets forth the stock-based compensation expense resulting from stock options, RSUs and the ESPP included in the Company’s unaudited condensed consolidated statements of operations:

	Three Months Ended				Six Months Ended
	July 2, 2017		July 3, 2016		July 2, 2017		July 3, 2016
	(In thousands)
Cost of revenue	$	542	$	451	$	978	$	890
Research and development	1,373		1,118		2,692		1,984
Sales and marketing	1,438		1,338		2,685		2,535
General and administrative	2,348		2,112		4,474		4,021
Total stock-based compensation	$	5,701	$	5,019	$	10,829	$	9,430

As of July 2, 2017, $9.0 million of unrecognized compensation cost related to stock options, adjusted for estimated forfeitures, is expected to be recognized over a weighted-average period of 2.8 years. $44.3 million of unrecognized compensation cost related to unvested RSUs is expected to be recognized over a weighted-average period of 2.8 years.

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Segment Information

6 Months Ended

Jul. 02, 2017

Segment Reporting [Abstract]

Segment Information

Segment Information

Operating segments are components of an enterprise about which separate financial information is available and is regularly evaluated by management, namely the Chief Operating Decision Maker (“CODM”) of an organization, in order to determine operating and resource allocation decisions. By this definition, the Company has identified its CEO as the CODM.

In the first quarter of fiscal 2017, the Company's CODM requested changes to the information that he regularly reviews for purposes of allocating resources and assessing performance. The Company reorganized its operating segment structure, resulting in a change to its reportable segments. The former Service Provider segment was integrated into the current segments which are organized by product groups. Beginning fiscal 2017, the Company operates and reports in three segments: Arlo, Connected Home, and Small and Medium Business ("SMB"):

•Arlo: Focused on intelligent internet-connected products for consumers and business that provide security and safety;

• Connected Home: Focused on consumers and consists of high-performance, dependable and easy-to-use LTE and WiFi internet networking solutions; and

• SMB: Focused on small and medium-sized businesses and consists of business networking, storage and security solutions that bring enterprise-class functionality to small and medium-sized businesses at an affordable price.

The Company believes that this structure reflects its current operational and financial management, and provides the best structure for the Company to focus on growth opportunities while maintaining financial discipline. Each segment contains leadership focused on the product development efforts, both from a product marketing and engineering standpoint, to service the unique needs of their customers.

The results of the reportable segments are derived directly from the Company’s management reporting system. The results are based on the Company’s method of internal reporting and are not necessarily in conformity with accounting principles generally accepted in the United States. Management measures the performance of each segment based on several metrics, including contribution income. Segment contribution income includes all product line segment revenues less the related cost of revenue, research and development and sales and marketing expenses. Contribution income is used, in part, to evaluate the performance of, and allocate resources to, each of the segments. The CODM does not evaluate operating segments using discrete asset information. Certain operating expenses are not allocated to segments because they are separately managed at the corporate level. These unallocated indirect costs include corporate expenses, such as corporate research and development, corporate marketing expense and general and administrative expense, amortization of intangibles, stock-based compensation expense, restructuring and other charges, litigation reserves, net, interest income and other income (expense), net.

Financial information for each reportable segment and a reconciliation of segment contribution income to income before income taxes is as follows:

	Three Months Ended						Six Months Ended
	July 2, 2017			July 3, 2016*			July 2, 2017			July 3, 2016*
	(In thousands, except percentage data)
Net revenue:
Arlo	$	78,732		$	38,585		$	139,444		$	62,850
Connected Home	185,905			198,654			380,266			414,764
SMB	66,086			74,416			134,670			144,297
Total net revenue	$	330,723		$	311,655		$	654,380		$	621,911
Contribution income:
Arlo	$	3,172		$	389		$	3,493		$	(3,441	)
Arlo contribution margin	4.0		%	1.0		%	2.5		%	(5.5		)%
Connected Home	$	25,124		$	33,228		$	56,836		$	75,257
Connected Home contribution margin	13.5		%	16.7		%	14.9		%	18.1		%
SMB	$	16,752		$	18,846		$	35,256		$	34,241
SMB contribution margin	25.3		%	25.3		%	26.2		%	23.7		%
Total segment contribution income	$	45,048		$	52,463		$	95,585		$	106,057
Corporate and unallocated costs	(17,033		)	(16,418		)	(35,234		)	(33,134		)
Amortization of intangibles (1)	(3,146		)	(4,166		)	(7,528		)	(8,331		)
Stock-based compensation expense	(5,701		)	(5,019		)	(10,829		)	(9,430		)
Restructuring and other charges	(22		)	(1,311		)	(59		)	(3,989		)
Litigation reserves, net	(53		)	(35		)	(53		)	(45		)
Interest income	482			279			887			513
Other income (expense), net	383			(332		)	718			(698		)
Income before income taxes	$	19,958		$	25,461		$	43,487		$	50,943

_________________________

⁽¹⁾  Amount excludes amortization expense related to patents within purchased intangibles in cost of revenue.

* Prior year financial information for each reportable segment has been recast to conform to the current reportable segment structure effective on January 1, 2017.

The following table shows net revenue from service provider customers within each of the reportable segments for the periods indicated:

	Three Months Ended				Six Months Ended
	July 2, 2017		July 3, 2016		July 2, 2017		July 3, 2016
	(In thousands)
Arlo	$	7,972	$	5,236	$	9,949	$	11,217
Connected Home	48,485		61,356		101,678		138,208
SMB	588		746		1,378		2,194
Total service provider net revenue	$	57,045	$	67,338	$	113,005	$	151,619

The Company conducts business across three geographic regions: Americas, Europe, Middle-East and Africa (“EMEA”) and Asia Pacific ("APAC"). Net revenue by geography comprises gross revenue less such items as end-user customer rebates and other channel sales incentives deemed to be a reduction of net revenue per the authoritative guidance for revenue recognition, sales returns and price protection. For reporting purposes revenue is attributed to each geographic region based on the location of the customer. The following table shows net revenue by geography for the periods indicated:

	Three Months Ended				Six Months Ended
	July 2, 2017		July 3, 2016		July 2, 2017		July 3, 2016
	(In thousands)
United States (U.S.)	$	221,387	$	203,508	$	427,512	$	392,874
Americas (excluding U.S.)	5,562		7,400		11,066		11,884
EMEA	55,204		51,653		113,649		116,158
APAC	48,570		49,094		102,153		100,995
Total net revenue	$	330,723	$	311,655	$	654,380	$	621,911

Long-lived assets include purchased intangibles, goodwill and property and equipment. The Company's property and equipment are located in the following geographic locations:

	As of
	July 2, 2017		December 31, 2016
	(In thousands)
United States	$	8,806	$	9,542
Canada	2,045		2,745
EMEA	171		210
China	5,906		5,219
APAC (excluding China)	1,901		1,757
Total property and equipment, net	$	18,829	$	19,473

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Fair Value Measurements

6 Months Ended

Jul. 02, 2017

Fair Value Disclosures [Abstract]

Fair Value Of Financial Instruments

Fair Value Measurements

The following tables summarize assets and liabilities measured at fair value on a recurring basis as of July 2, 2017:

	As of July 2, 2017
	Total		Quoted market prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
	(In thousands)
Assets:
Cash equivalents: money-market funds	$	25,007	$	25,007	$	—	$	—
Available-for-sale securities: U.S. treasuries (1)	112,874		112,874		—		—
Available-for-sale securities: certificates of deposit (1)	158		158		—		—
Trading securities: mutual funds (1)	1,815		1,815		—		—
Foreign currency forward contracts (2)	1,675		—		1,675		—
Total assets measured at fair value	$	141,529	$	139,854	$	1,675	$	—

________________________

⁽¹⁾  Included in short-term investments on the Company’s unaudited condensed consolidated balance sheets.

⁽²⁾  Included in prepaid expenses and other current assets on the Company’s unaudited condensed consolidated balance sheets.

	As of July 2, 2017
	Total		Quoted market prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
	(In thousands)
Liabilities:
Foreign currency forward contracts (3)	$	9,300	$	—	$	9,300	$	—
Total liabilities measured at fair value	$	9,300	$	—	$	9,300	$	—

_________________________

⁽³⁾  Included in other accrued liabilities on the Company’s unaudited condensed consolidated balance sheets.

The following tables summarize assets and liabilities measured at fair value on a recurring basis as of December 31, 2016:

	As of December 31, 2016
	Total		Quoted market prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
	(In thousands)
Assets:
Cash equivalents: money-market funds	$	17,027	$	17,027	$	—	$	—
Available-for-sale securities: U.S. treasuries (1)	123,838		123,838		—		—
Available-for-sale securities: certificates of deposit (1)	148		148		—		—
Trading securities: mutual funds (1)	1,528		1,528		—		—
Foreign currency forward contracts (2)	8,763		—		8,763		—
Total assets measured at fair value	$	151,304	$	142,541	$	8,763	$	—

_________________________

⁽¹⁾  Included in short-term investments on the Company’s unaudited condensed consolidated balance sheets.

⁽²⁾  Included in prepaid expenses and other current assets on the Company’s unaudited condensed consolidated balance sheets.

	As of December 31, 2016
	Total		Quoted market prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
	(In thousands)
Liabilities:
Foreign currency forward contracts (3)	$	1,705	$	—	$	1,705	$	—
Total liabilities measured at fair value	$	1,705	$	—	$	1,705	$	—

_________________________

⁽³⁾  Included in other accrued liabilities on the Company’s unaudited condensed consolidated balance sheets.

The Company’s investments in cash equivalents and available-for-sale securities are classified within Level 1 of the fair value hierarchy because they are valued based on quoted market prices in active markets. The Company enters into foreign currency forward contracts with only those counterparties that have long-term credit ratings of A-/A3 or higher. The Company’s foreign currency forward contracts are classified within Level 2 of the fair value hierarchy as they are valued using pricing models that take into account the contract terms as well as currency rates and counterparty credit rates. The Company verifies the reasonableness of these pricing models using observable market data for related inputs into such models. Additionally, the Company includes an adjustment for non-performance risk in the recognized measure of fair value of derivative instruments. As of July 2, 2017 and December 31, 2016, the adjustment for non-performance risk did not have a material impact on the fair value of the Company’s foreign currency forward contracts. The carrying value of non-financial assets and liabilities measured at fair value in the financial statements on a recurring basis, including accounts receivable and accounts payable, approximate fair value due to their short maturities.

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Shipping and Handling Fees and Costs Shipping and Handling Fees and Costs

6 Months Ended

Jul. 02, 2017

Shipping And Handling Fees And Costs [Abstract]

Shipping and Handling Fees and Costs [Text Block]

Shipping and Handling Fees and Costs

The Company includes shipping and handling fees billed to customers in net revenue. Shipping and handling costs associated with inbound freight are included in cost of revenue and ending inventory. Shipping and handling costs associated with outbound freight are included in sales and marketing expenses and totaled $2.2 million and $4.5 million for the three and six months ended July 2, 2017, respectively, and $2.7 million and $4.8 million for the three and six months ended July 3, 2016, respectively.

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Restructuring and Other Charges Restructuring and Other Charges

6 Months Ended

Jul. 02, 2017

Restructuring and Related Activities [Abstract]

Restructuring and Related Activities Disclosure [Text Block]

Restructuring and Other Charges

The Company accounts for its restructuring plans under the authoritative guidance for exit or disposal activities. The Company presents expenses related to restructuring and other charges as a separate line item in the unaudited condensed consolidated statements of operations. Accrued restructuring and other charges are classified within other accrued liabilities in the unaudited condensed consolidated balance sheets.

No significant restructuring and other charges were recognized during the three and six months ended July 2, 2017. Restructuring and other charges recognized in the three and six months ended July 3, 2016 was primarily related to severance, other one-time termination benefits and other associated costs. Amounts attributable to lease contract termination charges will be paid over the remaining lease term until January 2022.

The following table provides a summary of the activity related to accrued restructuring and other charges for the six months ended July 2, 2017:

	Accrued Restructuring and Other Charges at December 31, 2016		Additions		Cash Payments			Adjustments		Accrued Restructuring and Other Charges at July 2, 2017
	(In thousands)
Restructuring
Employee termination charges	$	6	$	—	$	—		$	—	$	6
Lease contract termination and other charges	1,402		59		(202		)	—		1,259
Total Restructuring and other charges	$	1,408	$	59	$	(202	)	$	—	$	1,265

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The Company And Basis of Presentation (Policies)

6 Months Ended

Jul. 02, 2017

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Reclassification [Policy Text Block]

Reclassification

In the first quarter of fiscal 2017, the Company reorganized its operating segment structure resulting in a change to its reportable segments. This change primarily impacted Goodwill in Note 4, Balance Sheet Components and Note 11, Segment Information. The prior-year segment financial information has been reclassified to conform to the current-year presentation. None of the changes impact previously reported consolidated net revenue, income from operations, net income per share, total assets, or stockholders’ equity. Refer to Note 11, Segment Information, for a further discussion of the segment reorganization. Additionally, in the first quarter of fiscal 2017, upon adoption of ASU 2016-09, the Company elected to apply the presentation requirements for cash flows related to excess tax benefits retrospectively to all periods presented. Refer to recently adopted accounting pronouncement under Note 2, Summary of Significant Accounting Policies, for a further discussion of the impact from the adoption of ASU 2016-09.

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Business Acquisitions (Tables)

6 Months Ended

Jul. 02, 2017

Placemeter [Member]

Business Acquisition [Line Items]

Schedule of Business Acquisitions, by Acquisition

The allocation of the purchase price was as follows (in thousands):

Cash and cash equivalents	$	8
Accounts receivable, net	11
Prepaid expenses and other current assets	130
Property and equipment, net	83
Intangibles, net	6,000
Goodwill	3,742
Accounts payable	(40		)
Other accrued liabilities	(74		)
Deferred tax liabilities, net	(308		)
Total purchase price	$	9,552

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Balance Sheet Components (Tables)

6 Months Ended

Jul. 02, 2017

Balance Sheet Related Disclosures [Abstract]

Schedule Of Available-For-Sale Short-Term

Available-for-sale short-term investments

	As of
	July 2, 2017									December 31, 2016
	Cost		Unrealized Gain		Unrealized Loss			Estimated Fair Value		Cost		Unrealized Gain		Unrealized Loss			Estimated Fair Value
	(In thousands)
U.S. treasuries	$	112,987	$	—	$	(113	)	$	112,874	$	123,869	$	9	$	(40	)	$	123,838
Certificates of deposit	158		—		—			158		148		—		—			148
Total	$	113,145	$	—	$	(113	)	$	113,032	$	124,017	$	9	$	(40	)	$	123,986

Schedule Of Accounts Receivable And Related Allowances

Accounts receivable, net

	As of
	July 2, 2017			December 31, 2016
	(In thousands)
Gross accounts receivable	$	323,291		$	333,080
Allowance for doubtful accounts	(1,256		)	(1,255		)
Allowance for sales returns	(15,029		)	(13,506		)
Allowance for price protection	(2,418		)	(4,480		)
Total allowances	(18,703		)	(19,241		)
Total accounts receivable, net	$	304,588		$	313,839

Schedule Of Inventories

Inventories

	As of
	July 2, 2017		December 31, 2016
	(In thousands)
Raw materials	$	3,691	$	4,596
Work in process	5		—
Finished goods	260,077		243,266
Total inventories	$	263,773	$	247,862

Schedule Of Property And Equipment, Net

Property and equipment, net

	As of
	July 2, 2017			December 31, 2016
	(In thousands)
Computer equipment	$	10,174		$	10,557
Furniture, fixtures and leasehold improvements	21,324			20,827
Software	28,789			28,663
Machinery and equipment	57,073			63,446
Total property and equipment, gross	117,360			123,493
Accumulated depreciation and amortization	(98,531		)	(104,020		)
Total property and equipment, net	$	18,829		$	19,473

Schedule Of Purchased Intangibles, Net

Intangibles, net

	As of July 2, 2017
	Gross		Accumulated Amortization			Net
	(In thousands)
Technology	$	66,599	$	(60,920	)	$	5,679
Customer contracts and relationships	56,500		(33,918		)	22,582
Other	11,045		(9,091		)	1,954
Total intangibles, net	$	134,144	$	(103,929	)	$	30,215

	As of December 31, 2016
	Gross		Accumulated Amortization			Net
	(In thousands)
Technology	$	66,599	$	(57,381	)	$	9,218
Customer contracts and relationships	56,500		(30,375		)	26,125
Other	11,045		(8,489		)	2,556
Total intangibles, net	$	134,144	$	(96,245	)	$	37,899

Schedule Of Estimated Amortization Expense Related To Intangibles

Estimated amortization expense related to intangibles for each of the next five years and thereafter is as follows:

	As of July 2, 2017
	(In thousands)
2017 (remaining six months)	$	5,227
2018	9,396
2019	7,544
2020	6,622
2021	1,413
Thereafter	13
Total estimated amortization expense	$	30,215

Schedule of Goodwill [Table Text Block]

The carrying amount of goodwill under these segments during the six months ended July 2, 2017 are as follows:

	Arlo		Connected Home		SMB		Total
	(In thousands)
Goodwill as of January 1, 2017	$	21,149	$	28,035	$	36,279	$	85,463
Goodwill as of July 2, 2017	$	21,149	$	28,035	$	36,279	$	85,463

Schedule of Other Assets, Noncurrent

Other non-current assets

	As of
	July 2, 2017		December 31, 2016
	(In thousands)
Non-current deferred income taxes	$	70,168	$	70,859
Other	9,325		7,977
Total other non-current assets	$	79,493	$	78,836

Schedule Of Other Accrued Liabilities

Other accrued liabilities

	As of
	July 2, 2017		December 31, 2016
	(In thousands)
Sales and marketing	$	72,026	$	74,330
Warranty obligation	60,451		58,520
Freight	5,510		8,980
Other	35,727		28,844
Total other accrued liabilities	$	173,714	$	170,674

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Derivative Financial Instruments (Tables)

6 Months Ended

Jul. 02, 2017

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Schedule Of Fair Values Of The Company's Derivative Instruments And The Line Items On The Consolidated Balance Sheets

The fair values of the Company’s derivative instruments and the line items on the unaudited condensed consolidated balance sheets to which they were recorded as of July 2, 2017 and December 31, 2016 are summarized as follows:

Derivative Assets	Balance Sheet Location	Fair Value at July 2, 2017		Balance Sheet Location	Fair Value at December 31, 2016
		(In thousands)			(In thousands)
Derivative assets not designated as hedging instruments	Prepaid expenses and other current assets	$	438	Prepaid expenses and other current assets	$	5,873
Derivative assets designated as hedging instruments	Prepaid expenses and other current assets	1,237		Prepaid expenses and other current assets	2,890
Total		$	1,675		$	8,763

Derivative Liabilities	Balance Sheet Location	Fair Value at July 2, 2017		Balance Sheet Location	Fair Value at December 31, 2016
		(In thousands)			(In thousands)
Derivative liabilities not designated as hedging instruments	Other accrued liabilities	$	2,935	Other accrued liabilities	$	1,002
Derivative liabilities designated as hedging instruments	Other accrued liabilities	6,365		Other accrued liabilities	703
Total		$	9,300		$	1,705

Schedule of Offsetting of Derivative Assets

The following tables set forth the offsetting of derivative assets as of July 2, 2017 and December 31, 2016:

As of July 2, 2017							Gross Amounts Not Offset in the Condensed Consolidated Balance Sheets
	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Condensed Consolidated Balance Sheets		Net Amounts Of Assets Presented in the Condensed Consolidated Balance Sheets		Financial Instruments			Cash Collateral Pledged		Net Amount
	(In thousands)
Bank of America	$	1,180	$	—	$	1,180	$	(1,180	)	$	—	$	—
Wells Fargo	495		—		495		(495		)	—		—
Total	$	1,675	$	—	$	1,675	$	(1,675	)	$	—	$	—

As of December 31, 2016							Gross Amounts Not Offset in the Condensed Consolidated Balance Sheets
	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Condensed Consolidated Balance Sheets		Net Amounts Of Assets Presented in the Condensed Consolidated Balance Sheets		Financial Instruments			Cash Collateral Pledged		Net Amount
	(In thousands)
J.P. Morgan Chase	$	1,492	$	—	$	1,492	$	(442	)	$	—	$	1,050
Wells Fargo	7,271		—		7,271		(1,263		)	—		6,008
Total	$	8,763	$	—	$	8,763	$	(1,705	)	$	—	$	7,058

Schedule of Offsetting of Derivative Liabilities

The following tables set forth the offsetting of derivative liabilities as of July 2, 2017 and December 31, 2016:

As of July 2, 2017							Gross Amounts Not Offset in the Condensed Consolidated Balance Sheets
	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Condensed Consolidated Balance Sheets		Net Amounts Of Liabilities Presented in the Condensed Consolidated Balance Sheets		Financial Instruments			Cash Collateral Pledged		Net Amount
	(In thousands)
Bank of America	$	6,587	$	—	$	6,587	$	(1,180	)	$	—	$	5,407
Wells Fargo	2,713		—		2,713		(495		)	—		2,218
Total	$	9,300	$	—	$	9,300	$	(1,675	)	$	—	$	7,625

As of December 31, 2016							Gross Amounts Not Offset in the Condensed Consolidated Balance Sheets
	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Condensed Consolidated Balance Sheets		Net Amounts Of Liabilities Presented in the Condensed Consolidated Balance Sheets		Financial Instruments			Cash Collateral Pledged		Net Amount
	(In thousands)
J.P. Morgan Chase	$	442	$	—	$	442	$	(442	)	$	—	$	—
Wells Fargo	1,263		—		1,263		(1,263		)	—		—
Total	$	1,705	$	—	$	1,705	$	(1,705	)	$	—	$	—

Schedule Of Company's Derivative Instruments On Other Comprehensive Income And The Consolidated Statement Of Operations

The pre-tax effects of the Company’s derivative instruments on OCI and the unaudited condensed consolidated statement of operations for the three and six months ended July 2, 2017 and July 3, 2016 are summarized as follows:

Derivatives Designated as Hedging Instruments	Three Months Ended July 2, 2017
	Gains (Losses) Recognized in OCI - Effective Portion			Location of Gain (Loss) Reclassified from OCI into Income - Effective Portion	Gains (Losses) Reclassified from OCI into Income - Effective Portion (1)			Location of Gains (Losses) Recognized in Income and Excluded from Effectiveness Testing	Amount of Gains (Losses) Recognized in Income and Excluded from Effectiveness Testing
	(In thousands)
Cash flow hedges:
Foreign currency forward contracts	$	(6,935	)	Net revenue	$	(1,008	)	Other income (expense), net	$	381
Foreign currency forward contracts	—			Cost of revenue	(1		)	Other income (expense), net	—
Foreign currency forward contracts	—			Operating expenses	77			Other income (expense), net	—
Total	$	(6,935	)		$	(932	)		$	381

_________________________

⁽¹⁾ Refer to Note 9, Stockholders' Equity, which summarizes the accumulated other comprehensive income activity related to derivatives.

Derivatives Designated as Hedging Instruments	Six Months Ended July 2, 2017
	Gains (Losses) Recognized in OCI - Effective Portion			Location of Gain (Loss) Reclassified from OCI into Income - Effective Portion	Gains (Losses) Reclassified from OCI into Income - Effective Portion (1)			Location of Gains (Losses) Recognized in Income and Excluded from Effectiveness Testing	Amount of Gains (Losses) Recognized in Income and Excluded from Effectiveness Testing
	(In thousands)
Cash flow hedges:
Foreign currency forward contracts	$	(7,052	)	Net revenue	$	1,027		Other income (expense), net	$	668
Foreign currency forward contracts	—			Cost of revenue	(14		)	Other income (expense), net	—
Foreign currency forward contracts	—			Operating expenses	(365		)	Other income (expense), net	—
Total	$	(7,052	)		$	648			$	668

_________________________

⁽¹⁾ Refer to Note 9, Stockholders' Equity, which summarizes the accumulated other comprehensive income activity related to derivatives.

Derivatives Designated as Hedging Instruments	Three Months Ended July 3, 2016
	Gains (Losses) Recognized in OCI - Effective Portion		Location of Gain (Loss) Reclassified from OCI into Income - Effective Portion	Gains (Losses) Reclassified from OCI into Income - Effective Portion (1)			Location of Gains (Losses) Recognized in Income and Excluded from Effectiveness Testing	Amount of Gains (Losses) Recognized in Income and Excluded from Effectiveness Testing
	(In thousands)
Cash flow hedges:
Foreign currency forward contracts	$	88	Net revenue	$	(407	)	Other income (expense), net	$	18
Foreign currency forward contracts	—		Cost of revenue	(2		)	Other income (expense), net	—
Foreign currency forward contracts	—		Operating expenses	(14		)	Other income (expense), net	—
Total	$	88		$	(423	)		$	18

_________________________

⁽¹⁾ Refer to Note 9, Stockholders' Equity, which summarizes the accumulated other comprehensive income activity related to derivatives.

Derivatives Designated as Hedging Instruments	Six Months Ended July 3, 2016
	Gains (Losses) Recognized in OCI - Effective Portion			Location of Gain (Loss) Reclassified from OCI into Income - Effective Portion	Gains (Losses) Reclassified from OCI into Income - Effective Portion (1)			Location of Gains (Losses) Recognized in Income and Excluded from Effectiveness Testing	Amount of Gains (Losses) Recognized in Income and Excluded from Effectiveness Testing
	(In thousands)
Cash flow hedges:
Foreign currency forward contracts	$	(699	)	Net revenue	$	(719	)	Other income (expense), net	$	53
Foreign currency forward contracts	—			Cost of revenue	—			Other income (expense), net	—
Foreign currency forward contracts	—			Operating expenses	56			Other income (expense), net	—
Total	$	(699	)		$	(663	)		$	53

_________________________

⁽¹⁾ Refer to Note 9, Stockholders' Equity, which summarizes the accumulated other comprehensive income activity related to derivatives.

Schedule Of Derivatives Not Designated As Hedging Instruments

The effects of the Company’s non-designated hedge included in other income (expense), net in the unaudited condensed consolidated statements of operations for the six months ended July 2, 2017 and July 3, 2016 are as follows:

Derivatives Not Designated as Hedging Instruments	Location of Gains (Losses) Recognized in Income on Derivative	Three Months Ended					Six Months Ended
		July 2, 2017			July 3, 2016		July 2, 2017			July 3, 2016
		(In thousands)
Foreign currency forward contracts	Other income (expense), net	$	(2,893	)	$	1,185	$	(4,246	)	$	(759	)

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Net Income Per Share (Tables)

6 Months Ended

Jul. 02, 2017

Earnings Per Share [Abstract]

Schedule Of Net Income Per Share

Net income per share for the three and six months ended July 2, 2017 and July 3, 2016 are as follows:

	Three Months Ended				Six Months Ended
	July 2, 2017		July 3, 2016		July 2, 2017		July 3, 2016
	(In thousands, except per share data)
Numerator:
Net income	$	14,582	$	16,034	$	30,576	$	32,623
Denominator:
Weighted average common shares - basic	32,352		32,639		32,650		32,578
Potentially dilutive common share equivalent	764		854		1,006		812
Weighted average common shares - dilutive	$	33,116	$	33,493	$	33,656	$	33,390
Basic net income per share	$	0.45	$	0.49	$	0.94	$	1.00
Diluted net income per share	$	0.44	$	0.48	$	0.91	$	0.98
Anti-dilutive employee stock-based awards, excluded	782		431		271		310

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Commitments And Contingencies Product Warranties (Tables)

6 Months Ended

Jul. 02, 2017

Product Warranties Disclosures [Abstract]

Schedule of Product Warranty Liability [Table Text Block]

Warranty Obligation

Changes in the Company’s warranty obligation, which is included in other accrued liabilities in the unaudited condensed consolidated balance sheets, are as follows:

	Three Months Ended						Six Months Ended
	July 2, 2017			July 3, 2016			July 2, 2017			July 3, 2016
	(In thousands)
Balance as of beginning of the period	$	56,336		$	49,908		$	58,520		$	56,706
Provision for warranty obligation made during the period	34,515			18,593			61,268			34,808
Settlements made during the period	(30,400		)	(18,108		)	(59,337		)	(41,121		)
Balance at end of period	$	60,451		$	50,393		$	60,451		$	50,393

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Stockholders' Equity (Tables)

6 Months Ended

Jul. 02, 2017

Stockholders' Equity Note [Abstract]

Schedule Of Accumulated Other Comprehensive Income

The following table sets forth the changes in accumulated other comprehensive income ("AOCI") by component for the six months ended July 2, 2017 and July 3, 2016:

	Unrealized gains (losses) on available-for-sale securities			Unrealized gains (losses) on derivatives			Estimated tax benefit (provision)			Total
	(In thousands)
Balance as of December 31, 2016	$	(31	)	$	2,230		$	(261	)	$	1,938
Other comprehensive loss before reclassifications	(82		)	(7,052		)	807			(6,327		)
Less: Amount reclassified from accumulated other comprehensive income	—			648			(227		)	421
Net current period other comprehensive income (loss)	(82		)	(7,700		)	1,034			(6,748		)
Balance as of July 2, 2017	$	(113	)	$	(5,470	)	$	773		$	(4,810	)

	Unrealized gains (losses) on available-for-sale securities			Unrealized gains (losses) on derivatives			Estimated tax benefit (provision)			Total
	(In thousands)
Balance as of December 31, 2015	$	(64	)	$	43		$	24		$	3
Other comprehensive income (loss) before reclassifications	147			(699		)	177			(375		)
Less: Amount reclassified from accumulated other comprehensive income	—			(663		)	232			(431		)
Net current period other comprehensive income (loss)	147			(36		)	(55		)	56
Balance as of July 3, 2016	$	83		$	7		$	(31	)	$	59

Schedule of Reclassification out of Accumulated Other Comprehensive Income

The following tables provide details about significant amounts reclassified out of each component of AOCI for the three and six months ended July 2, 2017 and July 3, 2016:

Details about Accumulated Other Comprehensive Income Components	Three Months Ended July 2, 2017				Six Months Ended July 2, 2017
	Amount Reclassified from AOCI			Affected Line Item in the Statements of Operations	Amount Reclassified from AOCI			Affected Line Item in the Statement of Operations
	(In thousands)				(In thousands)
Gains (losses) on cash flow hedge:
Foreign currency forward contracts	$	(1,008	)	Net revenue	$	1,027		Net revenue
Foreign currency forward contracts	$	(1	)	Cost of revenue	$	(14	)	Cost of revenue
Foreign currency forward contracts	77			Operating expenses	(365		)	Operating expenses
	$	(932	)	Total before tax	$	648		Total before tax
	326			Tax impact	(227		)	Tax impact
	$	(606	)	Total, net of tax	$	421		Total, net of tax

Details about Accumulated Other Comprehensive Income Components	Three Months Ended July 3, 2016				Six Months Ended July 3, 2016
	Amount Reclassified from AOCI			Affected Line Item in the Statements of Operations	Amount Reclassified from AOCI			Affected Line Item in the Statement of Operations
	(In thousands)				(In thousands)
Gains (losses) on cash flow hedge:
Foreign currency forward contracts	$	(407	)	Net revenue	$	(719	)	Net revenue
Foreign currency forward contracts	(2		)	Cost of revenue	—			Cost of revenue
Foreign currency forward contracts	(14		)	Operating expenses	56			Operating expenses
	(423		)	Total before tax	(663		)	Total before tax
	148			Tax impact	232			Tax impact
	$	(275	)	Total, net of tax	$	(431	)	Total, net of tax

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Employee Benefit Plans (Tables)

6 Months Ended

Jul. 02, 2017

Employee Benefits and Share-based Compensation [Abstract]

Schedule Of Stock Option Activity

Option Activity

Stock option activity during the six months ended July 2, 2017 was as follows:

	Number of shares		Weighted Average Exercise Price Per Share
	(In thousands)		(In dollars)
Outstanding as of December 31, 2016	1,884		$	31.14
Granted	328		42.70
Exercised	(142	)	27.84
Cancelled	—		—
Expired	(1	)	30.66
Outstanding as of July 2, 2017	2,069		$	33.20

Schedule Of RSU Activity

RSU Activity

RSU activity during the six months ended July 2, 2017 was as follows:

	Number of shares		Weighted Average Grant Date Fair Value Per Share
	(In thousands)		(In dollars)
Outstanding as of December 31, 2016	996		$	36.22
Granted	544		49.59
Vested	(361	)	34.99
Cancelled	(28	)	44.61
Outstanding as of July 2, 2017	1,151		$	42.72

Schedule Of Valuation And Expense Information

The table below sets forth the weighted average assumptions used to estimate the fair value of option grants and purchase rights granted under the ESPP during the three and six months ended July 2, 2017 and July 3, 2016.

	Three Months Ended					Six Months Ended
	Stock Options			ESPP		Stock Options				ESPP
	July 2, 2017		July 3, 2016	July 2, 2017	July 3, 2016	July 2, 2017		July 3, 2016		July 2, 2017		July 3, 2016
Expected life (in years)	4.4		NA	NA	NA	4.4		4.4		0.5		0.5
Risk-free interest rate	1.65	%	NA	NA	NA	1.65	%	1.28	%	0.66	%	0.42	%
Expected volatility	31.6	%	NA	NA	NA	31.6	%	35.4	%	27.6	%	44.7	%
Dividend yield	—		NA	NA	NA	—		—		—		—

Schedule Of Total Stock-Based Compensation Expense Resulting From Stock Options, Restricted Stock Awards, And The Employee Stock Purchase Plan

The following table sets forth the stock-based compensation expense resulting from stock options, RSUs and the ESPP included in the Company’s unaudited condensed consolidated statements of operations:

	Three Months Ended				Six Months Ended
	July 2, 2017		July 3, 2016		July 2, 2017		July 3, 2016
	(In thousands)
Cost of revenue	$	542	$	451	$	978	$	890
Research and development	1,373		1,118		2,692		1,984
Sales and marketing	1,438		1,338		2,685		2,535
General and administrative	2,348		2,112		4,474		4,021
Total stock-based compensation	$	5,701	$	5,019	$	10,829	$	9,430

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Segment Information (Tables)

6 Months Ended

Jul. 02, 2017

Segment Reporting [Abstract]

Schedule Of Reportable Segment And Reconciliation Of Segment Contribution Income To Income Before Income Taxes

Financial information for each reportable segment and a reconciliation of segment contribution income to income before income taxes is as follows:

	Three Months Ended						Six Months Ended
	July 2, 2017			July 3, 2016*			July 2, 2017			July 3, 2016*
	(In thousands, except percentage data)
Net revenue:
Arlo	$	78,732		$	38,585		$	139,444		$	62,850
Connected Home	185,905			198,654			380,266			414,764
SMB	66,086			74,416			134,670			144,297
Total net revenue	$	330,723		$	311,655		$	654,380		$	621,911
Contribution income:
Arlo	$	3,172		$	389		$	3,493		$	(3,441	)
Arlo contribution margin	4.0		%	1.0		%	2.5		%	(5.5		)%
Connected Home	$	25,124		$	33,228		$	56,836		$	75,257
Connected Home contribution margin	13.5		%	16.7		%	14.9		%	18.1		%
SMB	$	16,752		$	18,846		$	35,256		$	34,241
SMB contribution margin	25.3		%	25.3		%	26.2		%	23.7		%
Total segment contribution income	$	45,048		$	52,463		$	95,585		$	106,057
Corporate and unallocated costs	(17,033		)	(16,418		)	(35,234		)	(33,134		)
Amortization of intangibles (1)	(3,146		)	(4,166		)	(7,528		)	(8,331		)
Stock-based compensation expense	(5,701		)	(5,019		)	(10,829		)	(9,430		)
Restructuring and other charges	(22		)	(1,311		)	(59		)	(3,989		)
Litigation reserves, net	(53		)	(35		)	(53		)	(45		)
Interest income	482			279			887			513
Other income (expense), net	383			(332		)	718			(698		)
Income before income taxes	$	19,958		$	25,461		$	43,487		$	50,943

_________________________

⁽¹⁾  Amount excludes amortization expense related to patents within purchased intangibles in cost of revenue.

* Prior year financial information for each reportable segment has been recast to conform to the current reportable segment structure effective on January 1, 2017.

Schedule of Service Provider Customers Revenue by Reportable Segments [Table Text Block]

The following table shows net revenue from service provider customers within each of the reportable segments for the periods indicated:

	Three Months Ended				Six Months Ended
	July 2, 2017		July 3, 2016		July 2, 2017		July 3, 2016
	(In thousands)
Arlo	$	7,972	$	5,236	$	9,949	$	11,217
Connected Home	48,485		61,356		101,678		138,208
SMB	588		746		1,378		2,194
Total service provider net revenue	$	57,045	$	67,338	$	113,005	$	151,619

Schedule Of Net Revenue By Geography

The following table shows net revenue by geography for the periods indicated:

	Three Months Ended				Six Months Ended
	July 2, 2017		July 3, 2016		July 2, 2017		July 3, 2016
	(In thousands)
United States (U.S.)	$	221,387	$	203,508	$	427,512	$	392,874
Americas (excluding U.S.)	5,562		7,400		11,066		11,884
EMEA	55,204		51,653		113,649		116,158
APAC	48,570		49,094		102,153		100,995
Total net revenue	$	330,723	$	311,655	$	654,380	$	621,911

Schedule Of Long-Lived Asset By Geographic Areas

The Company's property and equipment are located in the following geographic locations:

	As of
	July 2, 2017		December 31, 2016
	(In thousands)
United States	$	8,806	$	9,542
Canada	2,045		2,745
EMEA	171		210
China	5,906		5,219
APAC (excluding China)	1,901		1,757
Total property and equipment, net	$	18,829	$	19,473

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Fair Value Measurements (Tables)

6 Months Ended

Jul. 02, 2017

Fair Value Disclosures [Abstract]

Fair Value, Assets Measured On Recurring Basis

	As of July 2, 2017
	Total		Quoted market prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
	(In thousands)
Assets:
Cash equivalents: money-market funds	$	25,007	$	25,007	$	—	$	—
Available-for-sale securities: U.S. treasuries (1)	112,874		112,874		—		—
Available-for-sale securities: certificates of deposit (1)	158		158		—		—
Trading securities: mutual funds (1)	1,815		1,815		—		—
Foreign currency forward contracts (2)	1,675		—		1,675		—
Total assets measured at fair value	$	141,529	$	139,854	$	1,675	$	—

________________________

⁽¹⁾  Included in short-term investments on the Company’s unaudited condensed consolidated balance sheets.

⁽²⁾  Included in prepaid expenses and other current assets on the Company’s unaudited condensed consolidated balance sheets.

	As of December 31, 2016
	Total		Quoted market prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
	(In thousands)
Assets:
Cash equivalents: money-market funds	$	17,027	$	17,027	$	—	$	—
Available-for-sale securities: U.S. treasuries (1)	123,838		123,838		—		—
Available-for-sale securities: certificates of deposit (1)	148		148		—		—
Trading securities: mutual funds (1)	1,528		1,528		—		—
Foreign currency forward contracts (2)	8,763		—		8,763		—
Total assets measured at fair value	$	151,304	$	142,541	$	8,763	$	—

_________________________

⁽¹⁾  Included in short-term investments on the Company’s unaudited condensed consolidated balance sheets.

⁽²⁾  Included in prepaid expenses and other current assets on the Company’s unaudited condensed consolidated balance sheets.

Fair Value, Liabilities Measured On Recurring Basis

	As of December 31, 2016
	Total		Quoted market prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
	(In thousands)
Liabilities:
Foreign currency forward contracts (3)	$	1,705	$	—	$	1,705	$	—
Total liabilities measured at fair value	$	1,705	$	—	$	1,705	$	—

_________________________

⁽³⁾  Included in other accrued liabilities on the Company’s unaudited condensed consolidated balance sheets.

	As of July 2, 2017
	Total		Quoted market prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
	(In thousands)
Liabilities:
Foreign currency forward contracts (3)	$	9,300	$	—	$	9,300	$	—
Total liabilities measured at fair value	$	9,300	$	—	$	9,300	$	—

_________________________

⁽³⁾  Included in other accrued liabilities on the Company’s unaudited condensed consolidated balance sheets.

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Restructuring and Other Charges (Tables)

6 Months Ended

Jul. 02, 2017

Restructuring and Related Activities [Abstract]

Restructuring and other charges [Table Text Block]

The following table provides a summary of the activity related to accrued restructuring and other charges for the six months ended July 2, 2017:

	Accrued Restructuring and Other Charges at December 31, 2016		Additions		Cash Payments			Adjustments		Accrued Restructuring and Other Charges at July 2, 2017
	(In thousands)
Restructuring
Employee termination charges	$	6	$	—	$	—		$	—	$	6
Lease contract termination and other charges	1,402		59		(202		)	—		1,259
Total Restructuring and other charges	$	1,408	$	59	$	(202	)	$	—	$	1,265

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Summary of Significant Accounting Policies New Accounting Pronouncements and Changes in Accounting Principals (Details) - USD ($) $ in Millions	3 Months Ended	6 Months Ended
	Jul. 02, 2017	Jul. 02, 2017	Jul. 03, 2016	Jan. 01, 2017
Retained Earnings [Member]
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Cumulative-effect adjustment of new accounting principle in period of adoption				$ (0.2)
Adjustments for New Accounting Pronouncement [Member]
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Other income tax expense (benefit)	$ (1.0)	$ (1.8)
Excess tax benefit from stock-based compensation, Operating Activities			$ 1.4
Excess tax benefit from stock-based compensation, Financing Activities			$ 1.4

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Business Acquisitions (Narrative) (Details) - Placemeter [Member] - USD ($) $ in Thousands		3 Months Ended
	Nov. 30, 2016	Mar. 31, 2017	Dec. 31, 2016
Business Acquisition [Line Items]
Total purchase price	$ 9,600
Purchase price, cash paid		$ 800	$ 8,800
Intangible assets, net	6,000
Technology [Member]
Business Acquisition [Line Items]
Intangible assets, net	$ 5,500
Discount rate used to calculate present value of future cash flows ( in percentage)	15.00%
Acquired intangible assets, estimated useful life ( in years)	4 years
Dadabase [Member]
Business Acquisition [Line Items]
Intangible assets, net	$ 200
Discount rate used to calculate present value of future cash flows ( in percentage)	15.00%
Acquired intangible assets, estimated useful life ( in years)	4 years
Noncompete Agreements [Member]
Business Acquisition [Line Items]
Intangible assets, net	$ 300
Discount rate used to calculate present value of future cash flows ( in percentage)	20.00%
Acquired intangible assets, estimated useful life ( in years)	3 years
Domestic Tax Authority [Member]
Business Acquisition [Line Items]
Business Acquisition, Goodwill, Expected Tax Deductible Amount	$ 0
State and Local Jurisdiction [Member]
Business Acquisition [Line Items]
Business Acquisition, Goodwill, Expected Tax Deductible Amount	$ 0

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Business Acquisitions (Schedule Of Allocation Of Purchase Price) (Details) - USD ($) $ in Thousands	Jul. 02, 2017	Jan. 01, 2017	Dec. 31, 2016	Nov. 30, 2016
Business Acquisition [Line Items]
Goodwill	$ 85,463	$ 85,463	$ 85,463
Placemeter [Member]
Business Acquisition [Line Items]
Cash and cash equivalents				$ 8
Accounts receivable, net				11
Prepaid expenses and other current assets				130
Property and equipment, net				83
Intangible assets, net				6,000
Goodwill				3,742
Accounts payable				(40)
Other accrued liabilities				(74)
Deferred tax liabilities, net				(308)
Total purchase price				$ 9,552

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Balance Sheet Components (Schedule Of Available-For-Sale Short-Term) (Details) - USD ($) $ in Thousands	Jul. 02, 2017	Dec. 31, 2016
Available-for-sale Securities, Amortized Cost Basis [Abstract]
Cost	$ 113,145	$ 124,017
Unrealized Gain	0	9
Unrealized Loss	(113)	(40)
Estimated Fair Value	113,032	123,986
U.S. Treasuries [Member]
Available-for-sale Securities, Amortized Cost Basis [Abstract]
Cost	112,987	123,869
Unrealized Gain	0	9
Unrealized Loss	(113)	(40)
Estimated Fair Value	112,874	123,838
Certificates Of Deposits [Member]
Available-for-sale Securities, Amortized Cost Basis [Abstract]
Cost	158	148
Unrealized Gain	0	0
Unrealized Loss	0	0
Estimated Fair Value	$ 158	$ 148

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Balance Sheet Components (Schedule Of Accounts Receivable And Related Allowances) (Details) - USD ($) $ in Thousands	Jul. 02, 2017	Dec. 31, 2016
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross accounts receivable	$ 323,291	$ 333,080
Total allowances	(18,703)	(19,241)
Accounts receivable, net	304,588	313,839
Allowance for Doubtful Accounts, Current [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total allowances	(1,256)	(1,255)
Allowance for Sales Returns [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total allowances	(15,029)	(13,506)
Allowance For Price Protection [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total allowances	$ (2,418)	$ (4,480)

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Balance Sheet Components (Schedule Of Inventories) (Details) - USD ($) $ in Thousands	Jul. 02, 2017	Dec. 31, 2016
Balance Sheet Related Disclosures [Abstract]
Raw materials	$ 3,691	$ 4,596
Work in process	5	0
Finished Goods	260,077	243,266
Total	$ 263,773	$ 247,862

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Balance Sheet Components (Schedule Of Property And Equipment, Net) (Details) - USD ($) $ in Thousands	Jul. 02, 2017	Dec. 31, 2016
Total property and equipment, gross	$ 117,360	$ 123,493
Accumulated depreciation and amortization	(98,531)	(104,020)
Total property and equipment, net	18,829	19,473
Computer Equipment [Member]
Total property and equipment, gross	10,174	10,557
Furniture, Fixtures And Leasehold Improvements [Member]
Total property and equipment, gross	21,324	20,827
Software [Member]
Total property and equipment, gross	28,789	28,663
Machinery And Equipment [Member]
Total property and equipment, gross	$ 57,073	$ 63,446

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Balance Sheet Components Balance Sheet Components - Property and Equipment, Other Information (Details) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jul. 02, 2017	Jul. 03, 2016	Jul. 02, 2017	Jul. 03, 2016
Property, Plant and Equipment [Line Items]
Depreciation	$ 3.1	$ 4.2	$ 6.5	$ 8.1

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Balance Sheet Components (Schedule Of Intangibles, Net) (Details) - USD ($) $ in Thousands	Jul. 02, 2017	Dec. 31, 2016
Intangible Assets [Line Items]
Gross	$ 134,144	$ 134,144
Accumulated Amortization	(103,929)	(96,245)
Finite-Lived Intangible Assets, Net	30,215	37,899
Technology [Member]
Intangible Assets [Line Items]
Gross	66,599	66,599
Accumulated Amortization	(60,920)	(57,381)
Finite-Lived Intangible Assets, Net	5,679	9,218
Customer Contracts And Relationships [Member]
Intangible Assets [Line Items]
Gross	56,500	56,500
Accumulated Amortization	(33,918)	(30,375)
Finite-Lived Intangible Assets, Net	22,582	26,125
Other [Member]
Intangible Assets [Line Items]
Gross	11,045	11,045
Accumulated Amortization	(9,091)	(8,489)
Finite-Lived Intangible Assets, Net	$ 1,954	$ 2,556

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Balance Sheet Components (Schedule Of Estimated Amortization Expense Related To Intangibles) (Details) - USD ($) $ in Thousands	Jul. 02, 2017	Dec. 31, 2016
Balance Sheet Related Disclosures [Abstract]
2017 (remaining six months)	$ 5,227
2018	9,396
2019	7,544
2020	6,622
2021	1,413
Thereafter	13
Total expected amortization expense	$ 30,215	$ 37,899

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Balance Sheet Components Balance Sheet Components- Intangibles, Other Information (Details) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jul. 02, 2017	Jul. 03, 2016	Jul. 02, 2017	Jul. 03, 2016
Goodwill and Intangible Assets Disclosure [Abstract]
Amortization of Intangible Assets	$ 3.2	$ 4.3	$ 7.7	$ 8.5

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Balance Sheet Components Balance Sheet Components (Schedule of Goodwill) (Details) - USD ($) $ in Thousands	Jul. 02, 2017	Jan. 01, 2017
Goodwill [Roll Forward]
Goodwill (Period Start)	$ 85,463	$ 85,463
Goodwill (Period End)	85,463	85,463
Arlo [Member]
Goodwill [Roll Forward]
Goodwill (Period Start)	21,149
Goodwill (Period End)	21,149	21,149
Connected Home [Member]
Goodwill [Roll Forward]
Goodwill (Period Start)	28,035
Goodwill (Period End)	28,035	28,035
SMB [Member]
Goodwill [Roll Forward]
Goodwill (Period Start)	36,279
Goodwill (Period End)	$ 36,279	$ 36,279

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Balance Sheet Components (Schedule of Other Non-Current Assets (Details) - USD ($) $ in Thousands	Jul. 02, 2017	Dec. 31, 2016
Balance Sheet Related Disclosures [Abstract]
Non-current deferred income taxes	$ 70,168	$ 70,859
Other	9,325	7,977
Total other non-current assets	$ 79,493	$ 78,836

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Balance Sheet Components (Schedule Of Other Accrued Liabilities) (Details) - USD ($) $ in Thousands	Jul. 02, 2017	Dec. 31, 2016
Balance Sheet Related Disclosures [Abstract]
Sales and marketing	$ 72,026	$ 74,330
Warranty obligation	60,451	58,520
Freight	5,510	8,980
Other	35,727	28,844
Total other accrued liabilities	$ 173,714	$ 170,674

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Derivative Financial Instruments (Narrative) (Details) $ in Millions	6 Months Ended
	Jul. 02, 2017 USD ($) derivative_instrument derivative_instruments
Foreign Currency Forward Contracts [Member] | Maximum [Member]
Derivative [Line Items]
Derivative, Term of Contract ( in months)	11 months
Foreign Currency Forward Contracts [Member] | Cash Flow Hedges [Member]
Derivative [Line Items]
Approximate number of derivatives per quarter (in derivatives) | derivative_instrument	10
Derivative, Notional Amount	$ 8.0
Estimated term of reclassification from OCI to Income	12 months
Maximum number of days after hedge period allowed before de-designation	60 days
Derivatives Designated As Hedging Instruments [Member] | Cash Flow Hedges [Member] | Minimum [Member]
Derivative [Line Items]
Derivative, Term of Contract ( in months)	5 months
Derivatives Designated As Hedging Instruments [Member] | Cash Flow Hedges [Member] | Maximum [Member]
Derivative [Line Items]
Derivative, Term of Contract ( in months)	11 months
Derivatives Not Designated As Hedging Instruments [Member] | Foreign Currency Forward Contracts [Member]
Derivative [Line Items]
Approximate number of derivatives per quarter (in derivatives) | derivative_instruments	4
Derivative, Notional Amount	$ 2.0
Derivatives Not Designated As Hedging Instruments [Member] | Foreign Currency Forward Contracts [Member] | Minimum [Member]
Derivative [Line Items]
Derivative, Term of Contract ( in months)	1 month
Derivatives Not Designated As Hedging Instruments [Member] | Foreign Currency Forward Contracts [Member] | Maximum [Member]
Derivative [Line Items]
Derivative, Term of Contract ( in months)	3 months

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Derivative Financial Instruments (Schedule Of Fair Values Of The Company's Derivative Instruments And The Line Items On The Consolidated Balance Sheets) (Details) - USD ($) $ in Thousands	Jul. 02, 2017	Dec. 31, 2016
Derivatives, Fair Value [Line Items]
Gross Amounts of Recognized Assets	$ 1,675	$ 8,763
Gross Amounts of Recognized Liabilities	9,300	1,705
Prepaid Expenses And Other Current Assets [Member] | Derivatives Not Designated As Hedging Instruments [Member]
Derivatives, Fair Value [Line Items]
Gross Amounts of Recognized Assets	438	5,873
Prepaid Expenses And Other Current Assets [Member] | Derivatives Designated As Hedging Instruments [Member]
Derivatives, Fair Value [Line Items]
Gross Amounts of Recognized Assets	1,237	2,890
Other Accrued Liabilities [Member] | Derivatives Not Designated As Hedging Instruments [Member]
Derivatives, Fair Value [Line Items]
Gross Amounts of Recognized Liabilities	2,935	1,002
Other Accrued Liabilities [Member] | Derivatives Designated As Hedging Instruments [Member]
Derivatives, Fair Value [Line Items]
Gross Amounts of Recognized Liabilities	$ 6,365	$ 703

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Derivative Financial Instruments Scheduel of Offsetting of Derivative Assets (Details) - USD ($) $ in Thousands	Jul. 02, 2017	Dec. 31, 2016
Offsetting of Derivative Assets [Line Items]
Gross Amounts of Recognized Assets	$ 1,675	$ 8,763
Gross Amounts Offset in the balance sheet	0	0
Net Amounts of Assets Presented in the Balance Sheet	1,675	8,763
Financial Instruments	(1,675)	(1,705)
Cash Collateral Pledged	0	0
Net Amounts	0	7,058
Bank of America [Member]
Offsetting of Derivative Assets [Line Items]
Gross Amounts of Recognized Assets	1,180
Gross Amounts Offset in the balance sheet	0
Net Amounts of Assets Presented in the Balance Sheet	1,180
Financial Instruments	(1,180)
Cash Collateral Pledged	0
Net Amounts	0
J.P. Morgan Chase [Member]
Offsetting of Derivative Assets [Line Items]
Gross Amounts of Recognized Assets		1,492
Gross Amounts Offset in the balance sheet		0
Net Amounts of Assets Presented in the Balance Sheet		1,492
Financial Instruments		(442)
Cash Collateral Pledged		0
Net Amounts		1,050
Wells Fargo Bank [Member]
Offsetting of Derivative Assets [Line Items]
Gross Amounts of Recognized Assets	495	7,271
Gross Amounts Offset in the balance sheet	0	0
Net Amounts of Assets Presented in the Balance Sheet	495	7,271
Financial Instruments	(495)	(1,263)
Cash Collateral Pledged	0	0
Net Amounts	$ 0	$ 6,008

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Derivative Financial Instruments Schedule of Offsetting of Derivative Liabilities (Details) - USD ($) $ in Thousands	Jul. 02, 2017	Dec. 31, 2016
Offsetting of Derivative Liabilities [Line Items]
Gross Amounts of Recognized Liabilities	$ 9,300	$ 1,705
Gross Amounts Offset in the Balance Sheet	0	0
Net Amounts of Liabilities Presented in the Balance Sheet	9,300	1,705
Financial Instruments	(1,675)	(1,705)
Cash Collateral Pledged	0	0
Net Amount	7,625	0
Bank of America [Member]
Offsetting of Derivative Liabilities [Line Items]
Gross Amounts of Recognized Liabilities	6,587
Gross Amounts Offset in the Balance Sheet	0
Net Amounts of Liabilities Presented in the Balance Sheet	6,587
Financial Instruments	(1,180)
Cash Collateral Pledged	0
Net Amount	5,407
J.P. Morgan Chase [Member]
Offsetting of Derivative Liabilities [Line Items]
Gross Amounts of Recognized Liabilities		442
Gross Amounts Offset in the Balance Sheet		0
Net Amounts of Liabilities Presented in the Balance Sheet		442
Financial Instruments		(442)
Cash Collateral Pledged		0
Net Amount		0
Wells Fargo Bank [Member]
Offsetting of Derivative Liabilities [Line Items]
Gross Amounts of Recognized Liabilities	2,713	1,263
Gross Amounts Offset in the Balance Sheet	0	0
Net Amounts of Liabilities Presented in the Balance Sheet	2,713	1,263
Financial Instruments	(495)	(1,263)
Cash Collateral Pledged	0	0
Net Amount	$ 2,218	$ 0

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Derivative Financial Instruments (Schedule Of Company's Derivative Instruments On Other Comprehensive Income And The Consolidated Statement Of Operations) (Details) - Derivatives Designated As Hedging Instruments [Member] - Foreign Currency Forward Contracts [Member] - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jul. 02, 2017	Jul. 03, 2016	Jul. 02, 2017	Jul. 03, 2016
Derivative Instruments, Gain (Loss) [Line Items]
Gain or (Loss) Recognized in OCI-Effective Portion	$ (6,935)	$ 88	$ (7,052)	$ (699)
Derivative Instruments, Gain (Loss) Reclassified from AOCI into Income, Effective Portion	(932)	(423)	648	(663)
Amount of Gain or (Loss) Recognized in Income and Excluded from Effectiveness Testing	381	18	668	53
Net Revenue [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Derivative Instruments, Gain (Loss) Reclassified from AOCI into Income, Effective Portion	(1,008)	(407)	1,027	(719)
Cost Of Revenue [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Derivative Instruments, Gain (Loss) Reclassified from AOCI into Income, Effective Portion	(1)	(2)	(14)	0
Operating Expenses [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Derivative Instruments, Gain (Loss) Reclassified from AOCI into Income, Effective Portion	77	(14)	(365)	56
Other Income (expense), Net [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Amount of Gain or (Loss) Recognized in Income and Excluded from Effectiveness Testing	$ 381	$ 18	$ 668	$ 53

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Derivative Financial Instruments (Schedule Of Derivatives Not Designated As Hedging Instruments) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jul. 02, 2017	Jul. 03, 2016	Jul. 02, 2017	Jul. 03, 2016
Other Income (expense), Net [Member] | Foreign Currency Forward Contracts [Member] | Derivatives Not Designated As Hedging Instruments [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Amount of Gains or (Losses) Recognized in Income on Derivative	$ (2,893)	$ 1,185	$ (4,246)	$ (759)

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Net Income Per Share (Schedule Of Net Income Per Share) (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jul. 02, 2017	Jul. 03, 2016	Jul. 02, 2017	Jul. 03, 2016
Earnings Per Share [Abstract]
Net income	$ 14,582	$ 16,034	$ 30,576	$ 32,623
Weighted average shares outstanding: Basic (in shares)	32,352	32,639	32,650	32,578
Potentially dilutive common share equivalent (in shares)	764	854	1,006	812
Weighted average common shares outstanding: dilutive (in shares)	33,116	33,493	33,656	33,390
Basic net income per share (in dollars per share)	$ 0.45	$ 0.49	$ 0.94	$ 1.00
Diluted net income per share (in dollars per share)	$ 0.44	$ 0.48	$ 0.91	$ 0.98
Anti-dilutive employee stock-based awards, excluded (in shares)	782	431	271	310

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Income Taxes (Narrative) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jul. 02, 2017	Jul. 03, 2016	Jul. 02, 2017	Jul. 03, 2016
Income Tax Disclosure [Abstract]
Effective tax rate	26.90%	37.00%	29.70%	36.00%
Provision for income taxes	$ 5,376	$ 9,427	$ 12,911	$ 18,320
Possible reduction in liabilities for uncertain tax positions	1,000		1,000
Adjustments for New Accounting Pronouncement [Member]
Income tax expense (benefit) [Line Items]
Other income tax expense (benefit)	(1,000)		$ (1,800)
Geographic Distribution, Foreign [Member]
Income tax expense (benefit) [Line Items]
Other income tax expense (benefit)	$ (400)

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Commitments And Contingencies commitment and contingency (Details)	3 Months Ended	6 Months Ended
	Jun. 30, 2013 USD ($) $ / products	Jul. 02, 2017 USD ($) claims patents companies patent case claim	Dec. 04, 2014 USD ($) $ / products	Sep. 14, 2010 patents
Loss Contingencies [Line Items]
Continued vesting period after termination without cause (in years)		1 year
Liabilities for executive's employment agreements		$ 0
Number of existing cases and proceedings that the Company currently believes are liking to have a material adverse effect on its financial position | claims		0
The future length the Company currently considered regarding existing cases and proceedings that are likely to have a material adverse effect on it (in months)		12 months
Liability for Director and Officer Indemnification Agreements		$ 0
Liability For Customers, Distributors, and Resellers Indemnification Agreements		$ 0
Reasonable and nondiscriminatory (RAND) royalty rate | $ / products	0.15
Estimated future RAND royalty rate 2018 through 2020 | $ / products	0.05
Ericsson v. NETGEAR [Member]
Loss Contingencies [Line Items]
Number of Patents Company Is Accused Of Infringing | patents				8
Foregone colleting verdict amount (in USD)			$ 3,600,000
Foregone reasonable and nondiscriminatory (RAND) royalty rate | $ / products			0.15
Chrismar Systems vs. NETGEAR [Member]
Loss Contingencies [Line Items]
Number of Patents Company Is Accused Of Infringing | patent		4
Number of active cases the suing company has | case		40
Realtime Data vs. NETGEAR [Member]
Loss Contingencies [Line Items]
Number of Patents Company Is Accused Of Infringing | patents		4
Magnacross vs NETGEAR [Member]
Loss Contingencies [Line Items]
Number of claims on U.S. patent 6917304 | claim		12
Vivato vs. NETGEAR [Member]
Loss Contingencies [Line Items]
Number of Patents Company Is Accused Of Infringing | patents		3
Hera Wireless vs. NETGEAR [Member]
Loss Contingencies [Line Items]
Number of Patents Company Is Accused Of Infringing | patents		3
D-Link [Member] | Ericsson v. NETGEAR [Member]
Loss Contingencies [Line Items]
Loss Contingency, Damages Awarded, Value	$ 435,000
NETGEAR [Member] | Ericsson v. NETGEAR [Member]
Loss Contingencies [Line Items]
Loss Contingency, Damages Awarded, Value	3,555,000
Acer Gateway [Member] | Ericsson v. NETGEAR [Member]
Loss Contingencies [Line Items]
Loss Contingency, Damages Awarded, Value	1,170,000
Dell [Member] | Ericsson v. NETGEAR [Member]
Loss Contingencies [Line Items]
Loss Contingency, Damages Awarded, Value	1,920,000
Toshiba [Member] | Ericsson v. NETGEAR [Member]
Loss Contingencies [Line Items]
Loss Contingency, Damages Awarded, Value	2,445,000
Belkin [Member] | Ericsson v. NETGEAR [Member]
Loss Contingencies [Line Items]
Loss Contingency, Damages Awarded, Value	$ 600,000
April 12, 2017 [Member] | Magnacross vs NETGEAR [Member]
Loss Contingencies [Line Items]
Number of active cases the suing company has | companies		5
December 2016 [Member] | Magnacross vs NETGEAR [Member]
Loss Contingencies [Line Items]
Number of active cases the suing company has | companies		7
May 2016 [Member] | Magnacross vs NETGEAR [Member]
Loss Contingencies [Line Items]
Number of active cases the suing company has | companies		17
Chief Executive Officer [Member]
Loss Contingencies [Line Items]
Number of weeks for which salary is payable upon termination of employment without cause (in days)		365 days
Number of years after change of control to trigger full accelerated vest of unvested portion of stock options (in years)		1 year
Senior Vice President Of Worldwide Operations And Support [Member]
Loss Contingencies [Line Items]
Number of weeks for which salary is payable upon termination of employment without cause (in days)		273 days
Other Key Executives [Member]
Loss Contingencies [Line Items]
Number of weeks for which salary is payable upon termination of employment without cause (in days)		182 days
Maximum number of years covered by accelerated vest for other key executives if term without cause is within one year of change in control (in years)		2 years

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Commitments And Contingencies (Narrative) (Details) $ in Millions	6 Months Ended
	Jul. 02, 2017 USD ($)
Purchase Obligation [Line Items]
Lease Expiration Date	Dec. 31, 2026
Purchase Commitment, Remaining Minimum Amount Committed	$ 152.8
Number of days for non-cancellation of purchase obligations prior to expected shipment date	30 days
46 To 60 Days [Member]
Purchase Obligation [Line Items]
Percentage of cancelable orders.	50.00%
31 To 45 Days [Member]
Purchase Obligation [Line Items]
Percentage of cancelable orders.	25.00%
Minimum [Member] | 46 To 60 Days [Member]
Purchase Obligation [Line Items]
Required Notice Period Prior To The Expected Shipment Date	46 days
Minimum [Member] | 31 To 45 Days [Member]
Purchase Obligation [Line Items]
Required Notice Period Prior To The Expected Shipment Date	31 days
Maximum [Member] | 46 To 60 Days [Member]
Purchase Obligation [Line Items]
Required Notice Period Prior To The Expected Shipment Date	60 days
Maximum [Member] | 31 To 45 Days [Member]
Purchase Obligation [Line Items]
Required Notice Period Prior To The Expected Shipment Date	45 days
ITALY | Earliest Tax Year [Member]
Income Tax Examination [Line Items]
Income Tax Examination, Year under Examination	2004
ITALY | Latest Tax Year [Member]
Income Tax Examination [Line Items]
Income Tax Examination, Year under Examination	2012

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Commitments And Contingencies Schedule of Product Warranty Liability (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jul. 02, 2017	Jul. 03, 2016	Jul. 02, 2017	Jul. 03, 2016
Movement in Standard Product Warranty Accrual [Roll Forward]
Balance as of beginning of the period	$ 56,336	$ 49,908	$ 58,520	$ 56,706
Provision for warranty liability made during the period	34,515	18,593	61,268	34,808
Settlements made during the period	(30,400)	(18,108)	(59,337)	(41,121)
Balance at end of period	$ 60,451	$ 50,393	$ 60,451	$ 50,393

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Stockholders' Equity (Narrative) (Details) - USD ($) $ in Thousands	6 Months Ended
	Jul. 02, 2017	Jul. 03, 2016	Apr. 25, 2017
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock Repurchased and Retired During Period, Shares	1,100,000	600,000
Stock repurchased and retired during the period, value	$ 56,600	$ 23,300
Remaining Number of Shares Authorized to be Repurchased	3,200,000
Shares Repurchased And Retired Related to Net of Issuances Shares, Shares	119,000	91,000
Restricted stock unit tax withholdings	$ 5,649	$ 3,915
Number of shares authorized to be repurchased			3,000,000

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Stockholders' Equity (Schedule Of Changes in Accumulated Other Comprehensive Income by Component) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jul. 02, 2017	Jul. 03, 2016	Jul. 02, 2017	Jul. 03, 2016
Accumulated Other Comprehensive Income (Loss), Before Tax [Roll Forward]
Other comprehensive income (loss), before tax	$ (6,030)	$ 557	$ (7,782)	$ 111
Accumulated Other Comprehensive Income (Loss), Tax [Roll Forward]
AOCI Tax (Beginning)			(261)	24
Other comprehensive income (loss) before reclassification, Tax			807	177
Amount reclassified from AOCI, Tax			(227)	232
Other comprehensive income (loss), Tax			1,034	(55)
AOCI Tax (Ending)	773	(31)	773	(31)
AOCI Attributable to Parent, Net of Tax [Roll Forward]
AOCI, Net of Tax (Beginning)			1,938	3
Other comprehensive loss before reclassifications			(6,327)	(375)
Amount reclassified from accumulated other comprehensive income			421	(431)
Net current period other comprehensive income (loss)			(6,748)	56
AOCI, Net of Tax (Ending)	(4,810)	59	(4,810)	59
Unrealized gains (losses) on available for sale securities [Member]
Accumulated Other Comprehensive Income (Loss), Before Tax [Roll Forward]
AOCI before Tax (Beginning)			(31)	(64)
Other comprehensive income (loss), before reclassification, before Tax			(82)	147
Amount reclassified from AOCI, before Tax			0	0
Other comprehensive income (loss), before tax			(82)	147
AOCI before Tax (Ending)	(113)	83	(113)	83
Unrealized gains (losses) on derivatives [Member]
Accumulated Other Comprehensive Income (Loss), Before Tax [Roll Forward]
AOCI before Tax (Beginning)			2,230	43
Other comprehensive income (loss), before reclassification, before Tax			(7,052)	(699)
Amount reclassified from AOCI, before Tax			648	(663)
Other comprehensive income (loss), before tax			(7,700)	(36)
AOCI before Tax (Ending)	$ (5,470)	$ 7	$ (5,470)	$ 7

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Stockholders' Equity (Schedule of Reclassifications Out Of Accumulated Other Comprehensive Income) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jul. 02, 2017	Jul. 03, 2016	Jul. 02, 2017	Jul. 03, 2016
Reclassification Out of Accumulated Other Comprehensive Income [Line Items]
Amount reclassified from accumulated other comprehensive income			$ 421	$ (431)
Derivatives Designated As Hedging Instruments [Member] | Foreign Currency Forward Contracts [Member]
Reclassification Out of Accumulated Other Comprehensive Income [Line Items]
Derivative Instruments, Gain (Loss) Reclassified from AOCI into Income, Effective Portion	$ (932)	$ (423)	648	(663)
Reclassification from AOCI on Derivatives, Tax	326	148	(227)	232
Amount reclassified from accumulated other comprehensive income	(606)	(275)	421	(431)
Derivatives Designated As Hedging Instruments [Member] | Foreign Currency Forward Contracts [Member] | Net Revenue [Member]
Reclassification Out of Accumulated Other Comprehensive Income [Line Items]
Derivative Instruments, Gain (Loss) Reclassified from AOCI into Income, Effective Portion	(1,008)	(407)	1,027	(719)
Derivatives Designated As Hedging Instruments [Member] | Foreign Currency Forward Contracts [Member] | Cost Of Revenue [Member]
Reclassification Out of Accumulated Other Comprehensive Income [Line Items]
Derivative Instruments, Gain (Loss) Reclassified from AOCI into Income, Effective Portion	(1)	(2)	(14)	0
Derivatives Designated As Hedging Instruments [Member] | Foreign Currency Forward Contracts [Member] | Operating Expenses [Member]
Reclassification Out of Accumulated Other Comprehensive Income [Line Items]
Derivative Instruments, Gain (Loss) Reclassified from AOCI into Income, Effective Portion	$ 77	$ (14)	$ (365)	$ 56

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Employee Benefit Plans (Narrative) (Details) shares in Millions, $ in Millions	6 Months Ended
	Jul. 02, 2017 USD ($) shares
Stock Options [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total unrecognized compensation | $	$ 9.0
Weighted-average period of recognition of stock based compensation (in days)	2 years 9 months 30 days
Restricted Stock Units (RSUs) [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total unrecognized compensation | $	$ 44.3
Weighted-average period of recognition of stock based compensation (in days)	2 years 9 months 22 days
ESPP [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares reserved for future grant (in shares) | shares	0.9
Maximum Percentage of compensation contributed by employees (in percentage)	10.00%
2016 Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options granted, vesting term (in years)	4 years
Number of shares reserved for future grant (in shares) | shares	2.0

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Employee Benefit Plans (Schedule Of Stock Option Activity) (Details) - Stock Options [Member] shares in Thousands	6 Months Ended
	Jul. 02, 2017 $ / shares shares
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding [Roll Forward]
Number of Shares, Beginning Balance | shares	1,884
Number of Shares, Granted | shares	328
Number of Shares, Exercised | shares	(142)
Number of shares, Cancelled | shares	0
Number of shares, Expired | shares	(1)
Number of Shares, Ending Balance | shares	2,069
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price [Roll Forward]
Beginning Balance (in dollars per share) | $ / shares	$ 31.14
Granted (in dollars per share) | $ / shares	42.70
Exercised (in dollars per share) | $ / shares	27.84
Cancelled (in dollars per share) | $ / shares	0.00
Expired (in dollars per share) | $ / shares	30.66
Ending Balance (in dollars per share) | $ / shares	$ 33.20

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Employee Benefit Plans (Schedule Of RSU Activity) (Details) - Restricted Stock Units (RSUs) [Member] shares in Thousands	6 Months Ended
	Jul. 02, 2017 $ / shares shares
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested [Roll Forward]
Number of Shares, Beginning Balance | shares	996
Number of Shares, Granted | shares	544
Number of Shares, Vested | shares	(361)
Number of Shares, Cancelled | shares	(28)
Number of Shares, Ending Balance | shares	1,151
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Weighted Average Grant Date Fair Value [Roll Forward]
Beginning Balance (in dollars per share) | $ / shares	$ 36.22
Granted (in dollars per share) | $ / shares	49.59
Vested (in dollars per share) | $ / shares	34.99
Cancelled (in dollars per share) | $ / shares	44.61
Ending Balance (in dollars per share) | $ / shares	$ 42.72

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Employee Benefit Plans (Schedule Of Valuation And Expense Information) (Details)	3 Months Ended		6 Months Ended
	Jul. 02, 2017	Jul. 03, 2016	Jul. 02, 2017	Jul. 03, 2016
Stock Options [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected Term	4 years 4 months 24 days		4 years 4 months 24 days	4 years 4 months 24 days
Risk Free Interest Rate	1.65%		1.65%	1.28%
Expected Volatility Rate	31.60%		31.60%	35.40%
Dividend yield (in percentage)	0.00%		0.00%	0.00%
ESPP [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected Term			6 months	6 months
Risk Free Interest Rate			0.66%	0.42%
Expected Volatility Rate			27.60%	44.70%
Dividend yield (in percentage)			0.00%	0.00%

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Employee Benefit Plans (Schedule Of Total Stock-Based Compensation Expense Resulting From Stock Options, Restricted Stock Awards, And The Employee Stock Purchase Plan) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jul. 02, 2017	Jul. 03, 2016	Jul. 02, 2017	Jul. 03, 2016
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense	$ 5,701	$ 5,019	$ 10,829	$ 9,430
Cost Of Revenue [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense	542	451	978	890
Research And Development [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense	1,373	1,118	2,692	1,984
Sales And Marketing [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense	1,438	1,338	2,685	2,535
General And Administrative [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense	$ 2,348	$ 2,112	$ 4,474	$ 4,021

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Segment Information (Narrative) (Details)	6 Months Ended
	Jul. 02, 2017 business_unit
Number of reportable segments (in segments)	3

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Segment Information (Schedule Of Reportable Segment And Reconciliation Of Segment Contribution Income To Income Before Income Taxes) (Details) - USD ($) $ in Thousands		3 Months Ended			6 Months Ended
		Jul. 02, 2017	Jul. 03, 2016		Jul. 02, 2017	Jul. 03, 2016
Segment Reporting Information [Line Items]
Total net revenues		$ 330,723	$ 311,655		$ 654,380	$ 621,911
Total segment contribution income		45,048	52,463		95,585	106,057
Corporate and unallocated costs		(17,033)	(16,418)		(35,234)	(33,134)
Amortization of intangible assets	[1]	(3,146)	(4,166)		(7,528)	(8,331)
Stock-based compensation expense		(5,701)	(5,019)		(10,829)	(9,430)
Restructuring and other charges		(22)	(1,311)		(59)	(3,989)
Litigation reserves, net		(53)	(35)		(53)	(45)
Interest income		482	279		887	513
Other income (expense), net		383	(332)		718	(698)
Income before income taxes		19,958	25,461		43,487	50,943
Arlo [Member]
Segment Reporting Information [Line Items]
Total net revenues		78,732	38,585	[2]	139,444	62,850	[2]
Total segment contribution income		$ 3,172	$ 389	[2]	$ 3,493	$ (3,441)	[2]
Segment contribution margin (in percentage)		4.00%	1.00%	[2]	2.50%	(5.50%)	[2]
Connected Home [Member]
Segment Reporting Information [Line Items]
Total net revenues		$ 185,905	$ 198,654	[2]	$ 380,266	$ 414,764	[2]
Total segment contribution income		$ 25,124	$ 33,228	[2]	$ 56,836	$ 75,257	[2]
Segment contribution margin (in percentage)		13.50%	16.70%	[2]	14.90%	18.10%	[2]
SMB [Member]
Segment Reporting Information [Line Items]
Total net revenues		$ 66,086	$ 74,416	[2]	$ 134,670	$ 144,297	[2]
Total segment contribution income		$ 16,752	$ 18,846	[2]	$ 35,256	$ 34,241	[2]
Segment contribution margin (in percentage)		25.30%	25.30%	[2]	26.20%	23.70%	[2]

[1] Amount excludes amortization expense related to patents within purchased intangibles in cost of revenue.

[2] Prior year financial information for each reportable segment has been recast to conform to the current reportable segment structure effective on January 1, 2017.

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Segment Information Segment Information (Schedule of Net Revenue By Channel) (Details) - USD ($) $ in Thousands	3 Months Ended			6 Months Ended
	Jul. 02, 2017	Jul. 03, 2016		Jul. 02, 2017	Jul. 03, 2016
Revenue, Major Customer [Line Items]
Net revenue	$ 330,723	$ 311,655		$ 654,380	$ 621,911
Arlo [Member]
Revenue, Major Customer [Line Items]
Net revenue	78,732	38,585	[1]	139,444	62,850	[1]
Connected Home [Member]
Revenue, Major Customer [Line Items]
Net revenue	185,905	198,654	[1]	380,266	414,764	[1]
SMB [Member]
Revenue, Major Customer [Line Items]
Net revenue	66,086	74,416	[1]	134,670	144,297	[1]
Service Provider [Member]
Revenue, Major Customer [Line Items]
Net revenue	57,045	67,338		113,005	151,619
Service Provider [Member] | Arlo [Member]
Revenue, Major Customer [Line Items]
Net revenue	7,972	5,236		9,949	11,217
Service Provider [Member] | Connected Home [Member]
Revenue, Major Customer [Line Items]
Net revenue	48,485	61,356		101,678	138,208
Service Provider [Member] | SMB [Member]
Revenue, Major Customer [Line Items]
Net revenue	$ 588	$ 746		$ 1,378	$ 2,194

[1] Prior year financial information for each reportable segment has been recast to conform to the current reportable segment structure effective on January 1, 2017.

XML

Segment Information (Schedule Of Net Revenue By Geographic Areas) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jul. 02, 2017	Jul. 03, 2016	Jul. 02, 2017	Jul. 03, 2016
Segment Reporting Information [Line Items]
Total net revenues	$ 330,723	$ 311,655	$ 654,380	$ 621,911
United States [Member]
Segment Reporting Information [Line Items]
Total net revenues	221,387	203,508	427,512	392,874
Americas Excluding United States [Member]
Segment Reporting Information [Line Items]
Total net revenues	5,562	7,400	11,066	11,884
EMEA [Member]
Segment Reporting Information [Line Items]
Total net revenues	55,204	51,653	113,649	116,158
APAC [Member]
Segment Reporting Information [Line Items]
Total net revenues	$ 48,570	$ 49,094	$ 102,153	$ 100,995

XML

Segment Information (Schedule Of Long-Lived Asset By Geographic Areas) (Details) - USD ($) $ in Thousands	Jul. 02, 2017	Dec. 31, 2016
Revenues from External Customers and Long-Lived Assets [Line Items]
Long-lived assets	$ 18,829	$ 19,473
United States [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Long-lived assets	8,806	9,542
Canada [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Long-lived assets	2,045	2,745
EMEA [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Long-lived assets	171	210
China [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Long-lived assets	5,906	5,219
APAC Excluding China [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Long-lived assets	$ 1,901	$ 1,757

XML

Fair Value Measurements (Summary Of Valuation Of Company's Financial Instruments By Various Levels) (Details) - USD ($) $ in Thousands		Jul. 02, 2017	Dec. 31, 2016
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair value		$ 141,529	$ 151,304
Liabilities, Fair value		9,300	1,705
Quoted Market Prices In Active Markets (Level 1) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair value		139,854	142,541
Liabilities, Fair value		0	0
Significant Other Observable Inputs (Level 2) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair value		1,675	8,763
Liabilities, Fair value		9,300	1,705
Significant Unobservable Inputs (Level 3) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair value		0	0
Liabilities, Fair value		0	0
Foreign Currency Forward Contracts [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair value	[1]	1,675	8,763
Liabilities, Fair value	[2]	9,300	1,705
Foreign Currency Forward Contracts [Member] | Quoted Market Prices In Active Markets (Level 1) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair value	[1]	0	0
Liabilities, Fair value	[2]	0	0
Foreign Currency Forward Contracts [Member] | Significant Other Observable Inputs (Level 2) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair value	[1]	1,675	8,763
Liabilities, Fair value	[2]	9,300	1,705
Foreign Currency Forward Contracts [Member] | Significant Unobservable Inputs (Level 3) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair value	[1]	0	0
Liabilities, Fair value	[2]	0	0
Money Market Funds [Member] | Cash Equivalents [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair value		25,007	17,027
Money Market Funds [Member] | Cash Equivalents [Member] | Quoted Market Prices In Active Markets (Level 1) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair value		25,007	17,027
Money Market Funds [Member] | Cash Equivalents [Member] | Significant Other Observable Inputs (Level 2) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair value		0	0
Money Market Funds [Member] | Cash Equivalents [Member] | Significant Unobservable Inputs (Level 3) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair value		0	0
U.S. Treasuries [Member] | Available-For-Sale Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair value	[3]	112,874	123,838
U.S. Treasuries [Member] | Available-For-Sale Securities [Member] | Quoted Market Prices In Active Markets (Level 1) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair value	[3]	112,874	123,838
U.S. Treasuries [Member] | Available-For-Sale Securities [Member] | Significant Other Observable Inputs (Level 2) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair value	[3]	0	0
U.S. Treasuries [Member] | Available-For-Sale Securities [Member] | Significant Unobservable Inputs (Level 3) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair value	[3]	0	0
Certificates Of Deposits [Member] | Available-For-Sale Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair value	[3]	158	148
Certificates Of Deposits [Member] | Available-For-Sale Securities [Member] | Quoted Market Prices In Active Markets (Level 1) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair value	[3]	158	148
Certificates Of Deposits [Member] | Available-For-Sale Securities [Member] | Significant Other Observable Inputs (Level 2) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair value	[3]	0	0
Certificates Of Deposits [Member] | Available-For-Sale Securities [Member] | Significant Unobservable Inputs (Level 3) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair value	[3]	0	0
Mutual Funds [Member] | Trading Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair value	[3]	1,815	1,528
Mutual Funds [Member] | Trading Securities [Member] | Quoted Market Prices In Active Markets (Level 1) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair value	[3]	1,815	1,528
Mutual Funds [Member] | Trading Securities [Member] | Significant Other Observable Inputs (Level 2) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair value	[3]	0	0
Mutual Funds [Member] | Trading Securities [Member] | Significant Unobservable Inputs (Level 3) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair value	[3]	$ 0	$ 0

[1] Included in prepaid expenses and other current assets on the Company’s unaudited condensed consolidated balance sheets.

[2] Included in other accrued liabilities on the Company’s unaudited condensed consolidated balance sheets.

[3] Included in short-term investments on the Company’s unaudited condensed consolidated balance sheets.

XML

Shipping and Handling Fees and Costs (Narrative) (Details) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jul. 02, 2017	Jul. 03, 2016	Jul. 02, 2017	Jul. 03, 2016
Shipping And Handling Fees And Costs [Abstract]
Shipping, Handling and Transportation Costs	$ 2.2	$ 2.7	$ 4.5	$ 4.8

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Restructuring and Other Charges (Narrative) (Details)	6 Months Ended
	Jul. 02, 2017
Facility Closing [Member]
Restructuring Cost and Reserve [Line Items]
Restructuring and Related Activities, Completion Date	Jan. 31, 2022

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Restructuring and Other Charges Schedule of Restructuring and Other Charges (Details) $ in Thousands	6 Months Ended
	Jul. 02, 2017 USD ($)
Restructuring Cost and Reserve [Line Items]
Restructuring Beginning Balance	$ 1,408
Additions to restructuring	59
Payments for Restructuring	(202)
Restructuring Reserve, Accrual Adjustment	0
Restructuring Ending Balance	1,265
Employee Severance [Member]
Restructuring Cost and Reserve [Line Items]
Restructuring Beginning Balance	6
Additions to restructuring	0
Payments for Restructuring	0
Restructuring Reserve, Accrual Adjustment	0
Restructuring Ending Balance	6
Facility Closing [Member]
Restructuring Cost and Reserve [Line Items]
Restructuring Beginning Balance	1,402
Additions to restructuring	59
Payments for Restructuring	(202)
Restructuring Reserve, Accrual Adjustment	0
Restructuring Ending Balance	$ 1,259