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Discontinued Operations
12 Months Ended
Dec. 31, 2018
Discontinued Operations and Disposal Groups [Abstract]  
Discontinued Operations
Discontinued Operations

On February 6, 2018, the Company announced that its Board of Directors had unanimously approved the pursuit of a separation of its smart camera business “Arlo” from NETGEAR (the “Separation”) to be effected by way of initial public offering (“IPO”) and spin-off. On August 2, 2018, Arlo Technologies, Inc. (“Arlo”) and NETGEAR announced the pricing of Arlo's initial public offering (“IPO”) at a price to the public of $16.00 per share, subsequently listing on the New York Stock Exchange on August 3, 2018 under the symbol "ARLO". On August 7, Arlo completed the IPO and generated proceeds of approximately $170.2 million, net of offering costs, which Arlo used for its general corporate purposes. Upon completion of the IPO, Arlo common stock outstanding amounted to 74,247,000 shares, of which NETGEAR held 62,500,000 shares, representing approximately 84.2% of the outstanding shares of Arlo common stock. On December 31, 2018, NETGEAR completed the distribution of these 62,500,000 shares of common stock of Arlo (the “Distribution”). After the completion of the Distribution, NETGEAR no longer owns any shares of Arlo common stock. The Distribution took place by way of a pro rata common stock dividend to each NETGEAR stockholder of record on the record date of the Distribution, December 17, 2018, and NETGEAR stockholders received 1.980295 shares of Arlo common stock for every share of NETGEAR common stock held as of the record date.
Upon completion of the Distribution, the Company ceased to own a controlling financial interest in Arlo and Arlo's assets, liabilities, operating results and cash flows for all periods presented have been classified as discontinued operations within the Consolidated Financial Statements.

In connection with Arlo's Separation, the Company incurred Separation expense of $33.9 million since commencing in December 2017. Separation expense primarily consists of third-party advisory, consulting, legal and professional services, IT costs and employee bonuses directly related to the separation, as well as other items that are incremental and one-time in nature that are related to the separation. The majority of these costs are reflected in the Company's consolidated statement of operations as discontinued operations for all periods presented. In addition, in the third fiscal quarter of 2018, the Company contributed $70.0 million in cash to Arlo and provided for, among other things, the transfer from NETGEAR to Arlo of assets and the assumption by Arlo of liabilities comprising its business effected through a master separation agreement between NETGEAR and Arlo. The master separation agreement governs the separation of Arlo's business from NETGEAR as well as various interim arrangements. In connection with these arrangements, during the third and fourth quarter of 2018, NETGEAR recorded a reduction to operating expenses of $6.3 million relating to the transition services, which are reflected in the Company's consolidated statement of operations as discontinued operations for the periods presented. In the third quarter of 2018, NETGEAR provided billing and collection services to Arlo in respect of its trade receivables and trade payments. As of December 31, 2018, NETGEAR had a net liability to Arlo of $12.2 million relating to these transition service, billing and collection services, and the net liability was classified within accounts payable on the consolidated balance sheets. The Company does not expect the amounts relating to such services to be material after the Distribution. Additionally, the Company entered into certain other agreements that provide a framework for the relationship between NETGEAR and Arlo after the separation, including a transition services agreement, a tax matters agreement, an employee matters agreement, an intellectual property rights cross-license agreement, and a registration rights agreement.
The financial results of Arlo through the Distribution date are presented as income (loss) from discontinued operations, net of tax, on the consolidated statement of operations. The following table presents financial results of Arlo:
 
Year Ended December 31,
 
2018
 
2017
 
2016
 
(In thousands)
Net revenues
$
464,649

 
$
367,751

 
$
184,853

Cost of net revenues
372,843

 
279,425

 
146,570

Gross profit
91,806

 
88,326

 
38,283

Operating expenses:
 
 
 
 
 
Research and development
48,696

 
22,710

 
18,463

Sales and marketing
39,713

 
19,490

 
10,764

General and administrative
17,762

 
691

 
487

Separation expense
31,583

 
1,384

 

Restructuring and other charges

 

 
40

Litigation reserves, net

 
28

 

Total operating expenses
137,754

 
44,303

 
29,754

Income (loss) from operations of discontinued operations
(45,948
)
 
44,023

 
8,529

Interest income
1,239

 

 

Other income (expense), net
(41
)
 
467

 
45

Income (loss) from discontinued operations before income taxes
(44,750
)
 
44,490

 
8,574

Provision (benefit) for income taxes
(9,095
)
 
13,921

 
3,035

Income (loss) from discontinued operations, net of tax
$
(35,655
)
 
$
30,569

 
$
5,539

The following table presents the aggregate carrying amounts of the classes of assets and liabilities of the discontinued operations of Arlo:
 
As of December 31,
 
2017
 
(In thousands)
Carrying amounts of assets included as part of discontinued operations
 
Cash and cash equivalents
$
143

Accounts receivable, net
157,680

Inventories
82,952

Prepaid expenses and other current assets
2,350

Current assets classified as discontinued operations
243,125

Property and equipment, net
3,311

Intangibles, net
4,348

Goodwill
21,149

Other non-current assets
12,318

Non-current assets classified as discontinued operations
41,126

Total assets classified as discontinued operations on the consolidated balance sheet
$
284,251

 
 
Carrying amounts of liabilities included as part of discontinued operations:
 
Accounts payable
$
20,711

Accrued employee compensation
3,231

Other accrued liabilities
72,649

Deferred revenue
34,072

Current liabilities classified as discontinued operations
130,663

Other non-current liabilities
13,333

Non-current liabilities classified as discontinued operations
13,333

Total liabilities classified as discontinued operations on the consolidated balance sheet
$
143,996