8-K
NETGEAR, INC. (NTGR)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
January 30, 2020
NETGEAR, INC.
(Exact name of Registrant as specified in its charter)
| Delaware | 000-50350 | 77-0419172 |
|---|---|---|
| (State or other jurisdiction<br><br><br>of incorporation) | (Commission File Number) | (I.R.S. Employer<br><br><br>Identification Number) |
| 350 East Plumeria Drive | ||
| --- | --- | --- |
| San Jose, | CA | 95134 |
| (Address, including zip code, of principal executive offices) | ||
| (408) | 907-8000 | |
| --- | --- | |
| (Registrant's telephone number, including area code) |
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | |
|---|---|---|
| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | |
| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | |
| ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) | |
| Securities registered pursuant to Section 12(b) of the Act: | ||
| --- | --- | --- |
| Title of each class | Trading symbol(s): | Name of each exchange on which registered |
| Common Stock, $0.001 par value | NTGR | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
| 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. ☐
| Item 2.02 | Results of Operations and Financial Condition. |
|---|
On February 5, 2020, NETGEAR, Inc. (the “Company”) issued a press release announcing its financial results for its fourth fiscal quarter and full year ended December 31, 2019, the text of which is furnished herewith as Exhibit 99.1.
The information furnished pursuant to this Item 2.02 and the exhibit to this Current Report are being furnished and shall not be deemed “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. The information furnished pursuant to this Item 2.02 and the exhibit to this Current Report shall not be incorporated by reference in any filing under the Securities Act of 1933, as amended or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.
| Item 5.02(e) | Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers. |
|---|
On January 30, 2020, the Compensation Committee of the Company’s Board of Directors approved the Company’s Executive Bonus Plan (the “Plan”). The material features of the Plan are described below. This summary is subject to, and qualified in its entirety by, the full text of the Plan, which is attached hereto as Exhibit 99.2 and is incorporated herein by reference.
Purpose
The purpose of the Plan is to increase stockholder value and the success of the Company by motivating key executives to perform to the best of their abilities and to achieve the Company’s objectives. The Plan seeks to accomplish this by paying awards under the Plan only after the achievement of the specified goals.
Eligibility to Participate
The Compensation Committee selects which of the Company’s employees (and employees of the Company’s affiliates) will be eligible to receive awards under the Plan. The actual number of employees who will be eligible to receive an award during any particular year cannot be determined in advance because the Compensation Committee has discretion to select the participants. However, it is expected that the Company’s Chief Executive Officer and all of the Chief Executive Officer’s direct reports will participate in the Plan in any year.
Target Awards and Performance Goals
Each performance period, the Compensation Committee assigns each participant a target award and performance goal or goals that must be achieved before an award actually will be paid to the participant. The participant’s target award is generally expressed as a percentage of his or her base salary at the end of the fiscal year, but may be designated as a dollar amount or some other fashion as the Compensation Committee may determine. The performance goals may provide for a targeted level or levels of achievement, which may include (without limitation), one or more of the following: cash flow; cash flow from operations; total earnings; earnings per share, diluted or basic; earnings per share from continuing operations, diluted or basic; earnings before interest and taxes; earnings before interest, taxes, depreciation, and amortization; pre-tax profit; earnings from operations; net asset turnover; inventory turnover; capital expenditures; net earnings; net operating earnings; gross or operating margin; profit margin, debt; working capital; return on equity; return on net assets; return on total assets; return on capital; return on investment; return on sales; net or gross sales; market share; economic value added; cost of capital; change in assets; expense reduction levels; debt reduction; productivity; new product introductions; delivery performance; safety record; stock price; individual objectives; and total stockholder return.
Actual Awards
The actual award that is payable to a participant is determined by applying the applicable formula to calculate the extent to which performance goals actually were achieved or exceeded. Notwithstanding any contrary provision of the Plan, the Committee may, in its sole discretion and at any time, increase, reduce or eliminate a participant’s actual award that otherwise would be payable under the applicable formula, and determine what actual award, if any, will be paid in the event of a termination of employment or a change of control prior to the end of the performance period. The Compensation Committee may determine the amount of any increase, reduction or elimination on the basis of such factors as it deems relevant, and will not be required to establish any allocation or weighting with respect to the factors it considers. Actual awards generally are paid in cash within three and one-half months after the performance period ends.
Administration, Amendment and Termination
The Compensation Committee administers the Plan. Subject to the terms of the Plan, the Compensation Committee has the authority, in its discretion, to make any and all decisions regarding the administration of the Plan, including selecting employees eligible to receive awards, determining the target award for each participant, determining the performance goals that must be achieved before any actual awards are paid, determining formulas to increase or decrease an award to reflect actual performance versus the predetermined performance goals and interpreting the provisions of the Plan. The Compensation Committee may amend or terminate the Plan at any time and for any reason.
| Item 9.01 | Financial Statements and Exhibits. |
|---|---|
| (d) | Exhibits |
| --- | --- |
| Exhibit Number | Description |
| --- | --- |
| 99.1 | Press Release, Dated February 5, 2020 |
| 99.2 | Executive Bonus Plan |
| 104 | Cover Page Interactive Data File (the cover page XBRL tags are embedded within the Inline XBRL document) |
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 hereunto duly authorized.
Dated: February 5, 2020
NETGEAR, INC.
| By: | /s/ Bryan D. Murray |
|---|---|
| Bryan D. Murray | |
| Chief Financial Officer |
ntgr-ex991_6.htm
Exhibit 99.1
NEWS RELEASE
NETGEAR^®^ REPORTS FOURTH QUARTER AND FULL YEAR 2019 RESULTS
SAN JOSE, California - February 5, 2020 - NETGEAR, Inc. (NASDAQ: NTGR), a global networking company that delivers innovative networking and Internet connected products to consumers and businesses, today reported financial results for the fourth quarter and full year ended December 31, 2019.
| • | Fourth quarter 2019 net revenue of $253.0 million, a decrease of 12.4% from the comparable prior year quarter. |
|---|---|
| • | Fourth quarter 2019 GAAP operating loss of $0.2 million, or (0.1)% of net revenue, as compared to operating income of $17.4 million, or 6.0% of net revenue, in the comparable prior year quarter. |
| --- | --- |
| ◦ | Fourth quarter 2019 non-GAAP operating income of $11.0 million, or 4.4% of net revenue, as compared to $27.1 million, or 9.4% of net revenue in the comparable prior year quarter. |
| --- | --- |
| • | Fourth quarter 2019 GAAP net loss per diluted share from continuing operations of $0.01, as compared to net loss of $0.02 in the comparable prior year quarter. |
| --- | --- |
| ◦ | Fourth quarter 2019 non-GAAP net income per diluted share from continuing operations of $0.34, as compared to $0.68 in the comparable prior year quarter. |
| --- | --- |
| • | Fiscal 2019 net revenue of $998.8 million, a decrease of 5.7% from the prior year. |
| --- | --- |
| • | Fiscal 2019 GAAP operating income of $26.2 million, or 2.6% of net revenue, as compared to $38.7 million, or 3.7% of net revenue, in the prior year. |
| --- | --- |
| ◦ | Fiscal 2019 non-GAAP operating income of $64.5 million, or 6.5% of net revenue, as compared to $76.3 million, or 7.2% of net revenue in the prior year. |
| --- | --- |
| • | Fiscal 2019 GAAP net income per diluted share from continuing operations of $0.81, as compared to $0.52 in the prior year. |
| --- | --- |
| ◦ | Fiscal 2019 non-GAAP net income per diluted share from continuing operations of $1.87, as compared to $1.94 in the prior year. |
| --- | --- |
The accompanying schedules provide a reconciliation of financial measures computed on a GAAP basis to financial measures computed on a non-GAAP basis.
Patrick Lo, Chairman and Chief Executive Officer of NETGEAR, commented, “While we experienced a heavily promotional holiday season, we proceeded as planned by participating competitively in the WiFi 5 market while aggressively shifting our channel to WiFi 6 products. During the promotional period, we took advantage of incremental opportunities to gain share, thus leading to slightly higher revenue and lower non-GAAP operating margin. We also took initial steps to adjust inventory in the channel to facilitate our continuing shift to WiFi 6 and Power over Ethernet Plus. We will advance the same strategy in the first half of 2020 and expect WiFi 6 and Power over Ethernet Plus to constitute the majority of the markets in which they play in the second half of this year.”
Mr. Lo continued, “Despite the competitive environment, our product and channel execution continues to be stellar as we brought two new WiFi 6 mesh systems to market along with three other WiFi 6 products since the beginning of Q4. We also introduced five new Power over Ethernet Plus switches in the same period. We are driving our roadmap to capitalize on these ongoing technology inflections and emerge again as the leader in the next generation of networking technologies - WiFi 6, 5G, and Power over Ethernet Plus. At CES in Las Vegas, we rolled out the industry’s first WiFi 6 DOCSIS 3.1 cable gateway, which won a CES innovation honoree award.”
“We are also pleased to report that, in Q4, we drove strong increases in both the number of our registered users, up from 12.0 million to 12.8 million, and our registered app users, up from 3.6 million to 4.4 million total. The growth of these users serves as the foundation for growing our paid subscriber base, which has increased to 177,000 by the end of the fourth quarter. We will continue to execute our strategy and drive initiatives to extend this momentum in 2020.”
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Bryan Murray, Chief Financial Officer of NETGEAR, added, “We finished the year with strong cash flow, generating almost $50 million in cash from operations in the fourth quarter, and, with the migration from our China manufacturing operations complete, we expect to continue to generate positive cash flow. Additionally, in the quarter, we repurchased approximately 721,000 shares of common stock for $22.0 million. We remain confident in our ability to generate meaningful levels of cash and plan to continue to opportunistically repurchase shares in future quarters.”
Business Outlook
Mr. Murray continued, “Due to reduced service provider shipments as carriers are awaiting roll outs of 5G product offerings, and our continued efforts to rebalance the channel inventory mix towards WiFi 6 products, our first quarter net revenue is expected to be in the range of $205 million to $220 million. Given this decline in our topline, our GAAP operating margin for the first quarter is expected to be in the range of (1.8)% to (0.8)%, and non-GAAP operating margin is expected to be in the range of 2.0% to 3.0%. Our GAAP tax rate is expected to be approximately (16.0)%, and our non-GAAP tax rate is expected to be 25.0% for the first quarter of 2020.”
A reconciliation between the Business Outlook on a GAAP and non-GAAP basis is provided in the following table:
| Three months ending | ||||
|---|---|---|---|---|
| March 29, 2020 | ||||
| Operating Margin<br><br><br>Rate | Tax Rate | |||
| GAAP | (1.8)% - (0.8)% | (16.0)% | ||
| Estimated adjustments for^1^: | ||||
| Amortization of intangibles | 0.7% | — | ||
| Stock-based compensation expense | 3.1% | — | ||
| Tax effects of non-GAAP adjustments | — | 41.0% | ||
| Non-GAAP | 2.0% - 3.0% | 25.0% |
^1^Business outlook does not include estimates for any currently unknown income and expense items which, by their nature, could arise late in a quarter, including: litigation reserves, net; acquisition-related charges; impairment charges; restructuring and other charges and discrete tax benefits or detriments that cannot be forecasted (e.g., windfalls or shortfalls from equity awards or items related to the resolution of uncertain tax positions). New material income and expense items such as these could have a significant effect on our guidance and future GAAP results.
Investor Conference Call / Webcast Details
NETGEAR will review the fourth quarter and full year results and discuss management's expectations for the first quarter of 2020 today, Wednesday, February 5, 2020 at 5 p.m. ET (2 p.m. PT). The toll free dial-in number for the live audio call is (844) 709-2008. The international dial-in number for the live audio call is (647) 253-8663. The conference ID for the call is 2864226. A live webcast of the conference call will be available on NETGEAR's Investor Relations website at http://investor.netgear.com. A replay of the call will be available via the web at http://investor.netgear.com.
About NETGEAR, Inc.
NETGEAR (NASDAQ: NTGR) has pioneered advanced networking technologies for homes, businesses, and service providers around the world since 1996 and leads the industry with a broad range of award-winning products designed to simplify and improve people’s lives. By enabling people to collaborate and connect to a world of information and entertainment, NETGEAR is dedicated to delivering innovative and advanced connected solutions ranging from mobile and cloud-based services for enhanced control and security, to smart networking products, video over Ethernet for Pro AV applications, easy-to-use WiFi solutions and performance gaming routers to enhance online game play. NETGEAR products are sold in approximately 24,000 retail locations around the globe, and through approximately 20,000 value-added resellers, as well as multiple major cable, mobile and wireline service providers around the world. The company's headquarters are in San Jose, Calif., with additional offices in approximately 20 countries. More information is available at http://investor.netgear.com or by calling (408) 907-8000. Connect with NETGEAR at http://twitter.com/NETGEAR and http://www.facebook.com/NETGEAR.
© 2020 NETGEAR, Inc. NETGEAR and the NETGEAR logo are trademarks or registered trademarks of NETGEAR, Inc. and its affiliates in the United States and/or other countries. Other brand and product names are trademarks or registered trademarks of their respective holders. The information contained herein is subject to change without
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notice. NETGEAR shall not be liable for technical or editorial errors or omissions contained herein. All rights reserved.
Contact:
NETGEAR Investor Relations
Erik Bylin
investors@netgear.com
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 for NETGEAR, Inc.:
This press release contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. The words “anticipate,” “expect,” “believe,” “will,” “may,” “should,” “estimate,” “project,” “outlook,” “forecast” or other similar words are used to identify such forward-looking statements. However, the absence of these words does not mean that the statements are not forward-looking. The forward-looking statements represent NETGEAR, Inc.’s expectations or beliefs concerning future events based on information available at the time such statements were made and include statements regarding: NETGEAR’s future operating performance and financial condition, expected net revenue, GAAP and non-GAAP operating margins, and GAAP and non-GAAP tax rates; expectations regarding the timing, distribution, sales momentum and market acceptance of recent and anticipated new product introductions that position the Company for growth; expectations regarding NETGEAR's paid subscriber base, registered users and registered app users and their effect on NETGEAR's paid subscriber base; and expectations regarding the Company’s ability to generate cash and continue its share repurchase program. These statements are based on management's current expectations and are subject to certain risks and uncertainties, including the following: future demand for the Company's products may be lower than anticipated; consumers may choose not to adopt the Company's new product offerings or adopt competing products; product performance may be adversely affected by real world operating conditions; the Company may be unsuccessful or experience delays in manufacturing and distributing its new and existing products; telecommunications service providers may choose to slow their deployment of the Company's products or utilize competing products; the Company may be unable to grow its number of registered users and/or registered app users; the Company may be unable to grow its paid subscriber base; the Company may be unable to collect receivables as they become due; the Company may fail to manage costs, including the cost of developing new products and manufacturing and distribution of its existing offerings; the Company may fail to successfully continue to effect operating expense savings; changes in the level of NETGEAR's cash resources and the Company's planned usage of such resources, including potential repurchases of the Company’s common stock; changes in the Company's stock price and developments in the business that could increase the Company's cash needs; fluctuations in foreign exchange rates; and the actions and financial health of the Company's customers. Further, certain forward-looking statements are based on assumptions as to future events that may not prove to be accurate. Therefore, actual outcomes and results may differ materially from what is expressed or forecast in such forward-looking statements. Further information on potential risk factors that could affect NETGEAR and its business are detailed in the Company's periodic filings with the Securities and Exchange Commission, including, but not limited to, those risks and uncertainties listed in the section entitled “Part II - Item 1A. Risk Factors” in the Company's quarterly report on Form 10-Q for the fiscal quarter ended September 29, 2019, filed with the Securities and Exchange Commission on November 1, 2019. Given these circumstances, you should not place undue reliance on these forward-looking statements. NETGEAR undertakes no obligation to release publicly any revisions to any forward-looking statements contained herein to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events, except as required by law.
Non-GAAP Financial Information:
To supplement our unaudited selected financial data presented on a basis consistent with Generally Accepted Accounting Principles (“GAAP”), we disclose certain non-GAAP financial measures that exclude certain charges, including non-GAAP gross profit, non-GAAP gross margin, non-GAAP research and development, non-GAAP sales and marketing, non-GAAP general and administrative, non-GAAP other operating expenses, net, non-GAAP total operating expenses, non-GAAP operating income, non-GAAP operating margin, Non-GAAP other income (expense), net, non-GAAP net income and non-GAAP net income per diluted share. These non-GAAP financial measures represent results from continuing operations. These supplemental measures exclude adjustments for amortization of intangibles, stock-based compensation expense, separation expense, change in fair value of contingent consideration, restructuring and other charges, litigation reserves, net, gain/loss on investments, net, and the related tax effects. These non-GAAP measures are not in accordance with or an alternative for GAAP, and may be different from non-GAAP measures used by other companies. We believe that these non-GAAP measures have limitations in that they do not reflect all of the amounts associated with our results of operations as determined in accordance with GAAP and that these measures should only be used to evaluate our results of operations in conjunction with the corresponding GAAP measures. The presentation of this additional information is not meant to be considered in isolation or as a substitute for the most directly comparable GAAP measures. We compensate for the limitations of non-GAAP financial measures by relying upon GAAP results to gain a complete picture of our performance.
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In calculating non-GAAP financial measures, we exclude certain items to facilitate a review of the comparability of our operating performance on a period-to-period basis because such items are not, in our view, related to our ongoing operational performance. We use non-GAAP measures to evaluate the operating performance of our business, for comparison with forecasts and strategic plans, and for benchmarking performance externally against competitors. In addition, management’s incentive compensation is determined using certain non-GAAP measures. Since we find these measures to be useful, we believe that investors benefit from seeing results “through the eyes” of management in addition to seeing GAAP results. We believe that these non-GAAP measures, when read in conjunction with our GAAP financials, provide useful information to investors by offering:
| • | the ability to make more meaningful period-to-period comparisons of our on-going operating results; |
|---|---|
| • | the ability to better identify trends in our underlying business and perform related trend analyses; |
| --- | --- |
| • | a better understanding of how management plans and measures our underlying business; and |
| --- | --- |
| • | an easier way to compare our operating results against analyst financial models and operating results of competitors that supplement their GAAP results with non-GAAP financial measures. |
| --- | --- |
The following are explanations of the adjustments that we incorporate into non-GAAP measures, as well as the reasons for excluding them in the reconciliations of these non-GAAP financial measures:
Amortization of intangibles consists primarily of non-cash charges that can be impacted by, among other things, the timing and magnitude of acquisitions. We consider our operating results without these charges when evaluating our ongoing performance and forecasting our earnings trends, and therefore exclude such charges when presenting non-GAAP financial measures. We believe that the assessment of our operations excluding these costs is relevant to our assessment of internal operations and comparisons to the performance of our competitors.
Stock-based compensation expense consists of non-cash charges for the estimated fair value of stock options, restricted stock units and shares under the employee stock purchase plan granted to employees. We believe that the exclusion of these charges provides for more accurate comparisons of our operating results to peer companies due to the varying available valuation methodologies, subjective assumptions and the variety of award types. In addition, we believe it is useful to investors to understand the specific impact stock-based compensation expense has on our operating results.
Other items consist of certain items that are the result of either unique or unplanned events, including, when applicable: separation expense, change in fair value of contingent consideration, restructuring and other charges, litigation reserves, net, and gain/loss on investments, net. It is difficult to predict the occurrence or estimate the amount or timing of these items in advance. Although these events are reflected in our GAAP financial statements, these unique transactions may limit the comparability of our on-going operations with prior and future periods. The amounts result from events that often arise from unforeseen circumstances, which often occur outside of the ordinary course of continuing operations. Therefore, the amounts do not accurately reflect the underlying performance of our continuing business operations for the period in which they are incurred.
Tax effects consist of the various above adjustments that we incorporate into non-GAAP measures in order to provide a more meaningful measure on non-GAAP net income. We also believe providing financial information with and without the income tax effects relating to our non-GAAP financial measures provides our management and users of the financial statements with better clarity regarding the on-going performance of our business.
Source: NETGEAR-F
-Financial Tables Attached-
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NETGEAR, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
| As of | ||||||
|---|---|---|---|---|---|---|
| December 31,<br><br><br>2019 | December 31,<br><br><br>2018 | |||||
| ASSETS | ||||||
| Current assets: | ||||||
| Cash and cash equivalents | $ | 190,208 | $ | 201,047 | ||
| Short-term investments | 5,499 | 73,317 | ||||
| Accounts receivable, net | 277,168 | 303,667 | ||||
| Inventories | 235,489 | 243,871 | ||||
| Prepaid expenses and other current assets | 35,745 | 35,997 | ||||
| Total current assets | 744,109 | 857,899 | ||||
| Property and equipment, net | 17,683 | 20,177 | ||||
| Operating lease right-of-use assets, net | 28,917 | — | ||||
| Intangibles, net | 10,104 | 17,146 | ||||
| Goodwill | 80,721 | 80,721 | ||||
| Other non-current assets | 74,279 | 67,433 | ||||
| Total assets | $ | 955,813 | $ | 1,043,376 | ||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||
| Current liabilities: | ||||||
| Accounts payable | $ | 80,531 | $ | 139,748 | ||
| Accrued employee compensation | 20,024 | 31,666 | ||||
| Other accrued liabilities | 189,547 | 199,472 | ||||
| Deferred revenue | 6,450 | 11,086 | ||||
| Income taxes payable | 1,839 | 2,020 | ||||
| Total current liabilities | 298,391 | 383,992 | ||||
| Non-current income taxes payable | 15,307 | 19,600 | ||||
| Non-current operating lease liabilities | 25,434 | — | ||||
| Other non-current liabilities | 7,988 | 12,232 | ||||
| Total liabilities | 347,120 | 415,824 | ||||
| Stockholders’ equity: | ||||||
| Common stock | 30 | 32 | ||||
| Additional paid-in capital | 831,365 | 793,585 | ||||
| Accumulated other comprehensive income (loss) | 21 | (15 | ) | |||
| Accumulated deficit | (222,723 | ) | (166,050 | ) | ||
| Total stockholders’ equity | 608,693 | 627,552 | ||||
| Total liabilities and stockholders’ equity | $ | 955,813 | $ | 1,043,376 |
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NETGEAR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share and percentage data)
(Unaudited)
| Three Months Ended | Twelve Months Ended | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| December 31,<br><br><br>2019 | September 29,<br><br><br>2019 | December 31,<br><br><br>2018 | December 31,<br><br><br>2019 | December 31,<br><br><br>2018 | |||||||||||
| Net revenue | $ | 252,971 | $ | 265,858 | $ | 288,928 | $ | 998,763 | $ | 1,058,816 | |||||
| Cost of revenue | 183,388 | 188,666 | 198,274 | 704,535 | 717,118 | ||||||||||
| Gross profit | 69,583 | 77,192 | 90,654 | 294,228 | 341,698 | ||||||||||
| Gross margin | 27.5 | % | 29.0 | % | 31.4 | % | 29.5 | % | 32.3 | % | |||||
| Operating expenses: | |||||||||||||||
| Research and development | 20,799 | 19,537 | 19,143 | 77,982 | 82,416 | ||||||||||
| Sales and marketing | 34,263 | 33,491 | 38,251 | 138,150 | 152,569 | ||||||||||
| General and administrative | 13,965 | 11,887 | 14,454 | 49,432 | 64,857 | ||||||||||
| Other operating expenses, net | 767 | 212 | 1,390 | 2,476 | 3,142 | ||||||||||
| Total operating expenses | 69,794 | 65,127 | 73,238 | 268,040 | 302,984 | ||||||||||
| Income (loss) from operations | (211 | ) | 12,065 | 17,416 | 26,188 | 38,714 | |||||||||
| Operating margin | -0.1 | % | 4.5 | % | 6.0 | % | 2.6 | % | 3.7 | % | |||||
| Interest income, net | 417 | 639 | 1,174 | 2,539 | 3,980 | ||||||||||
| Other income (expense), net | 419 | (403 | ) | 85 | 844 | 510 | |||||||||
| Income before income taxes | 625 | 12,301 | 18,675 | 29,571 | 43,204 | ||||||||||
| Provision (benefit) for income taxes | 1,045 | (228 | ) | 19,210 | 3,780 | 25,878 | |||||||||
| Net income (loss) from continuing operations | (420 | ) | 12,529 | (535 | ) | 25,791 | 17,326 | ||||||||
| Net loss from discontinued operations, net of tax ^2^ | — | — | (27,304 | ) | — | (35,655 | ) | ||||||||
| Net income (loss) | (420 | ) | 12,529 | (27,839 | ) | 25,791 | (18,329 | ) | |||||||
| Net loss attributable to non-controlling interest in discontinued operations ^2^ | — | — | (8,368 | ) | — | (9,167 | ) | ||||||||
| Net income (loss) attributable to NETGEAR, Inc. | $ | (420 | ) | $ | 12,529 | $ | (19,471 | ) | $ | 25,791 | $ | (9,162 | ) | ||
| Net income (loss) per share - basic: | |||||||||||||||
| Income (loss) from continuing operations | $ | (0.01 | ) | $ | 0.41 | $ | (0.02 | ) | $ | 0.83 | $ | 0.55 | |||
| Loss from discontinued operations attributable to NETGEAR, Inc. ^2^ | — | — | (0.60 | ) | — | (0.84 | ) | ||||||||
| Net income (loss) attributable to NETGEAR, Inc. | $ | (0.01 | ) | $ | 0.41 | $ | (0.62 | ) | $ | 0.83 | $ | (0.29 | ) | ||
| Net income (loss) per share - Diluted: | |||||||||||||||
| Income (loss) from continuing operations | $ | (0.01 | ) | $ | 0.39 | $ | (0.02 | ) | $ | 0.81 | $ | 0.52 | |||
| Loss from discontinued operations attributable to NETGEAR, Inc. ^2^ | — | — | (0.60 | ) | — | (0.80 | ) | ||||||||
| Net income (loss) attributable to NETGEAR, Inc. | $ | (0.01 | ) | $ | 0.39 | $ | (0.62 | ) | $ | 0.81 | $ | (0.28 | ) | ||
| Weighted average shares used to compute net income (loss) per share: | |||||||||||||||
| Basic | 30,103 | 30,933 | 31,604 | 30,936 | 31,626 | ||||||||||
| Diluted | 30,103 | 31,819 | 31,604 | 31,965 | 33,137 |
^2^^^Historical results of Arlo Technologies, Inc. are reflected as discontinued operations for the periods presented.
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NETGEAR, INC.
RECONCILIATIONS OF GAAP MEASURES TO NON-GAAP MEASURES
(In thousands, except percentage data)
(Unaudited)
STATEMENT OF OPERATIONS DATA:
| Three Months Ended | Twelve Months Ended | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| December 31,<br><br><br>2019 | September 29,<br><br><br>2019 | December 31,<br><br><br>2018 | December 31,<br><br><br>2019 | December 31,<br><br><br>2018 | |||||||||||
| GAAP gross profit | $ | 69,583 | $ | 77,192 | $ | 90,654 | $ | 294,228 | $ | 341,698 | |||||
| GAAP gross margin | 27.5 | % | 29.0 | % | 31.4 | % | 29.5 | % | 32.3 | % | |||||
| Amortization of intangibles | 178 | 179 | 181 | 714 | 829 | ||||||||||
| Stock-based compensation expense | 714 | 706 | 681 | 2,843 | 2,435 | ||||||||||
| Non-GAAP gross profit | $ | 70,475 | $ | 78,077 | $ | 91,516 | $ | 297,785 | $ | 344,962 | |||||
| Non-GAAP gross margin | 27.9 | % | 29.4 | % | 31.7 | % | 29.8 | % | 32.6 | % | |||||
| GAAP research and development | $ | 20,799 | $ | 19,537 | $ | 19,143 | $ | 77,982 | $ | 82,416 | |||||
| Stock-based compensation expense | (2,556 | ) | (1,496 | ) | (1,112 | ) | (6,532 | ) | (4,283 | ) | |||||
| Non-GAAP research and development | $ | 18,243 | $ | 18,041 | $ | 18,031 | $ | 71,450 | $ | 78,133 | |||||
| GAAP sales and marketing | $ | 34,263 | $ | 33,491 | $ | 38,251 | $ | 138,150 | $ | 152,569 | |||||
| Amortization of intangibles | (1,341 | ) | (1,341 | ) | (1,831 | ) | (6,017 | ) | (7,150 | ) | |||||
| Stock-based compensation expense | (2,846 | ) | (2,097 | ) | (1,904 | ) | (9,069 | ) | (8,267 | ) | |||||
| Non-GAAP sales and marketing | $ | 30,076 | $ | 30,053 | $ | 34,516 | $ | 123,064 | $ | 137,152 | |||||
| GAAP general and administrative | $ | 13,965 | $ | 11,887 | $ | 14,454 | $ | 49,432 | $ | 64,857 | |||||
| Stock-based compensation expense | (2,838 | ) | (2,687 | ) | (2,536 | ) | (10,693 | ) | (11,476 | ) | |||||
| Non-GAAP general and administrative | $ | 11,127 | $ | 9,200 | $ | 11,918 | $ | 38,739 | $ | 53,381 | |||||
| GAAP other operating expenses, net | $ | 767 | $ | 212 | $ | 1,390 | $ | 2,476 | $ | 3,142 | |||||
| Separation expense | — | — | (550 | ) | (264 | ) | (929 | ) | |||||||
| Change in fair value of contingent consideration | 224 | (199 | ) | — | 25 | — | |||||||||
| Restructuring and other charges | (931 | ) | 77 | (830 | ) | (2,077 | ) | (2,198 | ) | ||||||
| Litigation reserves, net | (60 | ) | (90 | ) | (10 | ) | (160 | ) | (15 | ) | |||||
| Non-GAAP other operating expenses, net | $ | — | $ | — | $ | — | $ | — | $ | — |
Page 7
NETGEAR, INC.
RECONCILIATIONS OF GAAP MEASURES TO NON-GAAP MEASURES (CONTINUED)
(In thousands, except percentage data)
(Unaudited)
STATEMENT OF OPERATIONS DATA (CONTINUED):
| Three Months Ended | Twelve Months Ended | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| December 31,<br><br><br>2019 | September 29,<br><br><br>2019 | December 31,<br><br><br>2018 | December 31,<br><br><br>2019 | December 31,<br><br><br>2018 | |||||||||||
| GAAP total operating expenses | $ | 69,794 | $ | 65,127 | $ | 73,238 | $ | 268,040 | $ | 302,984 | |||||
| Amortization of intangibles | (1,341 | ) | (1,341 | ) | (1,831 | ) | (6,017 | ) | (7,150 | ) | |||||
| Stock-based compensation expense | (8,240 | ) | (6,280 | ) | (5,552 | ) | (26,294 | ) | (24,026 | ) | |||||
| Separation expense | — | — | (550 | ) | (264 | ) | (929 | ) | |||||||
| Change in fair value of contingent consideration | 224 | (199 | ) | — | 25 | — | |||||||||
| Restructuring and other charges | (931 | ) | 77 | (830 | ) | (2,077 | ) | (2,198 | ) | ||||||
| Litigation reserves, net | (60 | ) | (90 | ) | (10 | ) | (160 | ) | (15 | ) | |||||
| Non-GAAP total operating expenses | $ | 59,446 | $ | 57,294 | $ | 64,465 | $ | 233,253 | $ | 268,666 | |||||
| GAAP operating income (loss) | $ | (211 | ) | $ | 12,065 | $ | 17,416 | $ | 26,188 | $ | 38,714 | ||||
| GAAP operating margin | (0.1 | )% | 4.5 | % | 6.0 | % | 2.6 | % | 3.7 | % | |||||
| Amortization of intangibles | 1,519 | 1,520 | 2,012 | 6,731 | 7,979 | ||||||||||
| Stock-based compensation expense | 8,954 | 6,986 | 6,233 | 29,137 | 26,461 | ||||||||||
| Separation expense | — | — | 550 | 264 | 929 | ||||||||||
| Change in fair value of contingent consideration | (224 | ) | 199 | — | (25 | ) | — | ||||||||
| Restructuring and other charges | 931 | (77 | ) | 830 | 2,077 | 2,198 | |||||||||
| Litigation reserves, net | 60 | 90 | 10 | 160 | 15 | ||||||||||
| Non-GAAP operating income | $ | 11,029 | $ | 20,783 | $ | 27,051 | $ | 64,532 | $ | 76,296 | |||||
| Non-GAAP operating margin | 4.4 | % | 7.8 | % | 9.4 | % | 6.5 | % | 7.2 | % | |||||
| GAAP other income (expense), net | $ | 419 | $ | (403 | ) | $ | 85 | $ | 844 | $ | 510 | ||||
| Gain/loss on investments, net ^3^ | — | 223 | (190 | ) | 223 | 861 | |||||||||
| Non-GAAP other income (expense), net | $ | 419 | $ | (180 | ) | $ | (105 | ) | $ | 1,067 | $ | 1,371 |
Page 8
NETGEAR, INC.
RECONCILIATIONS OF GAAP MEASURES TO NON-GAAP MEASURES (CONTINUED)
(In thousands, except per share data)
(Unaudited)
STATEMENT OF OPERATIONS DATA (CONTINUED):
| Three Months Ended | Twelve Months Ended | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| December 31,<br><br><br>2019 | September 29,<br><br><br>2019 | December 31,<br><br><br>2018 | December 31,<br><br><br>2019 | December 31,<br><br><br>2018 | ||||||||||
| GAAP net income (loss) from continuing operations | $ | (420 | ) | $ | 12,529 | $ | (535 | ) | $ | 25,791 | $ | 17,326 | ||
| Amortization of intangibles | 1,519 | 1,520 | 2,012 | 6,731 | 7,979 | |||||||||
| Stock-based compensation expense | 8,954 | 6,986 | 6,233 | 29,137 | 26,461 | |||||||||
| Separation expense | — | — | 550 | 264 | 929 | |||||||||
| Change in fair value of contingent consideration | (224 | ) | 199 | — | (25 | ) | — | |||||||
| Restructuring and other charges | 931 | (77 | ) | 830 | 2,077 | 2,198 | ||||||||
| Litigation reserves, net | 60 | 90 | 10 | 160 | 15 | |||||||||
| Gain/loss on investments, net ^3^ | — | 223 | (190 | ) | 223 | 861 | ||||||||
| Tax effects of above non-GAAP adjustments | (460 | ) | (725 | ) | 13,424 | (4,598 | ) | 8,680 | ||||||
| Non-GAAP net income from continuing operations | $ | 10,360 | $ | 20,745 | $ | 22,334 | $ | 59,760 | $ | 64,449 | ||||
| NET INCOME (LOSS) PER DILUTED SHARE: | ||||||||||||||
| GAAP net income (loss) per diluted share from continuing operations | $ | (0.01 | ) | $ | 0.39 | $ | (0.02 | ) | $ | 0.81 | $ | 0.52 | ||
| Amortization of intangibles | 0.05 | 0.05 | 0.06 | 0.21 | 0.24 | |||||||||
| Stock-based compensation expense | 0.29 | 0.22 | 0.19 | 0.91 | 0.80 | |||||||||
| Separation expense | — | — | 0.02 | 0.01 | 0.03 | |||||||||
| Change in fair value of contingent consideration | (0.01 | ) | 0.01 | — | (0.00) | — | ||||||||
| Restructuring and other charges | 0.03 | (0.00) | 0.03 | 0.06 | 0.07 | |||||||||
| Litigation reserves, net | 0.00 | 0.00 | 0.00 | 0.01 | 0.00 | |||||||||
| Gain/loss on investments, net ^3^ | — | 0.01 | (0.01 | ) | 0.01 | 0.02 | ||||||||
| Tax effects of above non-GAAP adjustments | (0.01 | ) | (0.03 | ) | 0.41 | (0.15 | ) | 0.26 | ||||||
| Non-GAAP net income per diluted share from continuing operations ^4^ | $ | 0.34 | $ | 0.65 | $ | 0.68 | $ | 1.87 | $ | 1.94 | ||||
| Shares used in computing GAAP net income (loss) per diluted share | 30,103 | 31,819 | 31,604 | 31,965 | 33,137 | |||||||||
| Shares used in computing non-GAAP net income per diluted share | 30,800 | 31,819 | 32,803 | 31,965 | 33,137 |
^3^ Gain/loss on investments includes realized gains or losses, impairments, and adjustments for observable price changes pertaining to investments. Upon adopting ASU 2016-1 in the first quarter of 2018, the Company elected to record investments without readily determinable fair values at cost, less impairment, and plus or minus subsequent adjustments for observable price changes.
^4^The per share reconciliation of GAAP to non-GAAP may not aggregate due to both calculations utilizing a different share basis. The GAAP net loss per diluted share calculation uses a lower share count as it excludes potentially dilutive shares included in the non-GAAP net income per diluted share calculation.
Page 9
NETGEAR, INC.
SUPPLEMENTAL FINANCIAL INFORMATION
(In thousands, except per share data, DSO, inventory turns, weeks of channel inventory, headcount and percentage data)
(Unaudited)
| Three Months Ended | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| December 31,<br><br><br>2019 | September 29,<br><br><br>2019 | June 30,<br><br><br>2019 | March 31,<br><br><br>2019 | December 31,<br><br><br>2018 | ||||||
| Cash, cash equivalents and short-term investments | $ | 195,707 | $ | 171,917 | $ | 218,311 | $ | 212,652 | $ | 274,364 |
| Cash, cash equivalents and short-term investments per diluted share | $ | 6.35 | $ | 5.40 | $ | 6.80 | $ | 6.47 | $ | 8.36 |
| Accounts receivable, net | $ | 277,168 | $ | 248,070 | $ | 238,635 | $ | 262,531 | $ | 303,667 |
| Days sales outstanding (DSO) | 102 | 85 | 94 | 95 | 97 | |||||
| Inventories | $ | 235,489 | $ | 275,584 | $ | 276,316 | $ | 236,123 | $ | 243,871 |
| Ending inventory turns | 3.1 | 2.7 | 2.4 | 2.8 | 3.3 | |||||
| Weeks of channel inventory: | ||||||||||
| U.S. retail channel | 8.0 | 8.6 | 10.6 | 10.4 | 7.7 | |||||
| U.S. distribution channel | 4.5 | 5.4 | 5.5 | 5.7 | 5.2 | |||||
| EMEA distribution channel | 5.9 | 5.8 | 4.6 | 4.0 | 4.1 | |||||
| APAC distribution channel | 9.6 | 7.8 | 7.4 | 6.4 | 7.4 | |||||
| Deferred revenue (current and non-current) | $ | 8,511 | $ | 7,712 | $ | 12,047 | $ | 13,598 | $ | 11,865 |
| Headcount | 809 | 802 | 824 | 828 | 837 | |||||
| Non-GAAP diluted shares | 30,800 | 31,819 | 32,112 | 32,874 | 32,803 |
NET REVENUE BY GEOGRAPHY
| Three Months Ended | Twelve Months Ended | |||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| December 31, 2019 | September 29, 2019 | December 31, 2018 | December 31, 2019 | December 31, 2018 | ||||||||||||||||
| Americas | $ | 169,128 | 67 | % | $ | 178,679 | 67 | % | $ | 190,335 | 66 | % | $ | 653,006 | 65 | % | $ | 700,693 | 66 | % |
| EMEA | 50,491 | 20 | % | 49,554 | 19 | % | 58,798 | 20 | % | 200,099 | 20 | % | 207,599 | 20 | % | |||||
| APAC | 33,352 | 13 | % | 37,625 | 14 | % | 39,795 | 14 | % | 145,658 | 15 | % | 150,524 | 14 | % | |||||
| Total | $ | 252,971 | 100 | % | $ | 265,858 | 100 | % | $ | 288,928 | 100 | % | $ | 998,763 | 100 | % | $ | 1,058,816 | 100 | % |
Page 10
NETGEAR, INC.
SUPPLEMENTAL FINANCIAL INFORMATION (CONTINUED)
(In thousands)
(Unaudited)
NET REVENUE BY SEGMENT
| Three Months Ended | Twelve Months Ended | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| December 31,<br><br><br>2019 | September 29,<br><br><br>2019 | December 31,<br><br><br>2018 | December 31,<br><br><br>2019 | December 31,<br><br><br>2018 | ||||||
| Connected Home | $ | 183,859 | $ | 190,672 | $ | 215,638 | $ | 711,391 | $ | 771,060 |
| SMB | 69,112 | 75,186 | 73,290 | 287,372 | 287,756 | |||||
| Total net revenue | $ | 252,971 | $ | 265,858 | $ | 288,928 | $ | 998,763 | $ | 1,058,816 |
SERVICE PROVIDER NET REVENUE
| Three Months Ended | Twelve Months Ended | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| December 31,<br><br><br>2019 | September 29,<br><br><br>2019 | December 31,<br><br><br>2018 | December 31,<br><br><br>2019 | December 31,<br><br><br>2018 | ||||||
| Connected Home | $ | 29,651 | $ | 35,482 | $ | 37,772 | $ | 128,852 | $ | 156,671 |
| SMB | 1,095 | 972 | 670 | 4,465 | 3,624 | |||||
| Total service provider net revenue | $ | 30,746 | $ | 36,454 | $ | 38,442 | $ | 133,317 | $ | 160,295 |
Page 11
ntgr-ex992_183.htm
Exhibit 99.2
NETGEAR, INC.
EXECUTIVE BONUS PLAN
1.Purposes of the Plan. The Plan is intended to increase stockholder value and the success of the Company by motivating Employees to (a) perform to the best of their abilities and (b) achieve the Company’s objectives. The Plan’s goals are to be achieved by providing participants with incentive awards based on the achievement of goals relating to the performance of the Company.
2.Definitions.
(a)“Actual Award” means as to any Performance Period, the actual award (if any) payable to a Participant for the Performance Period. Each Actual Award is determined by the Payout Formula for the Performance Period, subject to the Committee’s authority under Section 3(e) to eliminate or reduce the award otherwise determined by the Payout Formula and the forfeiture provisions set forth in Section 4(e).
(b) “Affiliate” means any corporation or other entity (including, but not limited to, partnerships and joint ventures) controlled by the Company.
(c)“Base Salary” means as to any Performance Period, the Participant’s annualized salary rate on the last day of the Performance Period. Such Base Salary will be before both (a) deductions for taxes or benefits, and (b) deferrals of compensation pursuant to Company-sponsored plans.
(d)“Board” means the Board of Directors of the Company.
(e) “Code” means the Internal Revenue Code of 1986, as amended. Reference to a specific section of the Code or regulation thereunder will include such section or regulation, any valid regulation promulgated thereunder, and any comparable provision of any future legislation or regulation amending, supplementing or superseding such section or regulation.
(f)“Committee” means the committee appointed by the Board (pursuant to Section 5) to administer the Plan. Unless and until the Board otherwise determines, the Board’s Compensation Committee will administer the Plan.
(g)“Company” means NETGEAR, Inc., a Delaware corporation, or any successor thereto.
(h)“Disability” means a permanent and total disability determined in accordance with uniform and nondiscriminatory standards adopted by the Committee from time to time.
(i)“Employee” means any executive, officer, or other employee of the Company or of an Affiliate, whether such individual is so employed at the time the Plan is adopted or becomes so employed subsequent to the adoption of the Plan.
(j)“Fiscal Year” means the fiscal year of the Company.
(k)“Participant” means as to any Performance Period, an Employee who has been selected by the Committee for participation in the Plan for that Performance Period.
(l)“Payout Formula” means as to any Performance Period, the formula or payout matrix established by the Committee pursuant to Section 3(d) in order to determine the Actual Awards (if any) to be paid to Participants. The formula or matrix may differ from Participant to Participant.
(m)“Performance Goals” means the goal(s) (or combined goal(s)) determined by the Committee (in its discretion) to be applicable to a Participant for a Target Award for a Performance Period. As determined by the Committee, the Performance Goals for any Target Award applicable to a Participant may provide for a targeted level or levels of achievement, which may include (without limitation), one or more of the following measures: cash flow; cash flow from operations; total earnings; earnings per share, diluted or basic; earnings per share from continuing operations, diluted or basic; earnings before interest and taxes; earnings before interest, taxes, depreciation, and amortization; pre-tax profit; earnings from operations; net asset turnover; inventory turnover; capital expenditures; net earnings; net operating earnings; gross or operating margin; profit margin, debt; working capital; return on equity; return on net assets; return on total assets; return on capital; return on investment; return on sales; net or gross sales; market share; economic value added; cost of capital; change in assets; expense reduction levels; debt reduction; productivity; new product introductions; delivery performance; safety record; stock price; individual objectives; and total stockholder return.
(n)“Performance Period” means any Fiscal Year or such other period (shorter or longer than a Fiscal Year), as determined by the Committee in its sole discretion.
(o)“Plan” means the NETGEAR, Inc. Executive Bonus Plan, as set forth in this instrument (including any appendix attached hereto) and as hereafter amended from time to time.
(p)“Target Award” means the target award payable under the Plan to a Participant for the Performance Period, which may be expressed as a percentage of Base Salary, a fixed dollar amount, or such other amount or formula, as determined by the Committee in accordance with Section 3(c).
(q)“Termination of Employment” means a cessation of the employee-employer relationship between an Employee and the Company or an Affiliate for any reason, including, but not by way of limitation, a termination by resignation, discharge, death, Disability, or the disaffiliation of an Affiliate, but excluding any such termination where there is a simultaneous reemployment by the Company or an Affiliate.
3.Selection of Participants and Determination of Awards.
(a)Selection of Participants. The Committee, in its sole discretion, will select the Employees who will be Participants for any Performance Period. Participation in the Plan is in the sole discretion of the Committee, on a Performance Period by Performance Period basis. Accordingly, an Employee who is a Participant for a given Performance Period in no way is guaranteed or assured of being selected for participation in any subsequent Performance Period or Performance Periods.
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(b)Determination of Performance Goals. Notwithstanding any contrary provision of the Plan, the Committee, in its sole discretion, will determine the performance goals applicable to any Target Award (or portion thereof). Such Performance Goals will be set forth in writing. The Performance Goals may differ from Participant to Participant and from award to award. The Committee will determine whether any significant performance measures will be included in or excluded from the calculation of any Performance Goal with respect to any Participants.
(c)Determination of Target Awards. The Committee, in its sole discretion, will establish a Target Award for each Participant. Each Participant’s Target Award will be determined by the Committee in its sole discretion, and each Target Award will be set forth in writing.
(d)Determination of Payout Formula or Formulae. The Committee, in its sole discretion, will establish a Payout Formula or Formulae for purposes of determining the Actual Award (if any) payable to each Participant. Each Payout Formula will (a) be in writing, (b) be based on a comparison of actual performance to the Performance Goals, (c) provide for the payment of a Participant’s Target Award if the Performance Goals for the Performance Period are achieved, and (d) provide for an Actual Award greater than or less than the Participant’s Target Award, depending upon the extent to which actual performance exceeds or falls below the Performance Goals.
(e)Determination of Actual Awards. The Actual Award for each Participant will be determined by applying the Payout Formula. Notwithstanding any contrary provision of the Plan, the Committee may, in its sole discretion and at any time, increase, reduce or eliminate a Participant’s Actual Award that otherwise would be payable under the Payout Formula, and determine what Actual Award, if any, will be paid in the event of a Termination of Employment or a change of control prior to the end of the Performance Period. The Committee may determine the amount of any increase, reduction or elimination on the basis of such factors as it deems relevant, and will not be required to establish any allocation or weighting with respect to the factors it considers.
4.Payment of Awards.
(a)Right to Receive Payment. Each Actual Award will be paid solely from the general assets of the Company. Nothing in this Plan will be construed to create a trust or to establish or evidence any Participant’s claim of any right to payment of an Actual Award other than as an unsecured general creditor with respect to any payment to which he or she may be entitled.
(b)Timing of Payment. Payment of each Actual Award will be made as soon as practicable after the end of the Performance Period to which the Actual Award relates and after the Actual Award is approved by the Committee, but in no event later than the later of the 15th day of the third month of the Fiscal Year immediately following the Fiscal Year in which the Participant’s Actual Award is no longer subject to a substantial risk of forfeiture. Unless otherwise determined by the Committee, to earn an Actual Award a Participant must be employed by the Company or any Affiliate on the date the Actual Award is paid.
The Committee may permit Participants to elect to defer payment of their Actual Awards in a manner satisfying the requirements of §409A of the Code. It is the intent that
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this Plan be exempt from or comply with the requirements of Code Section 409A so that none of the payments to be provided hereunder will be subject to the additional tax imposed under Code Section 409A, and any ambiguities or ambiguous terms herein will be interpreted to be so exempt or so comply.
(c)Form of Payment. Each Actual Award generally will be paid in cash (or its equivalent) in a single lump sum unless otherwise deferred in accordance with Section 4(b).
(d)Payment in the Event of Death. If a Participant dies prior to the payment of an Actual Award that the Committee has determined will be paid for a prior Performance Period, the Actual Award will be paid to his or her estate.
(e)Forfeiture Provisions. Notwithstanding anything to the contrary in the Plan, the Company will adjust the amount of any Actual Award of a Participant that was previously determined based on the financial performance of the Company (or a business unit of the Company) if:
| • | The financial statements of the Company (or the business unit on which the calculation or determination of the Actual Award in any form was based) are subsequently restated (whether or not the conduct of the Participant directly or indirectly resulted in the restatement), and |
|---|---|
| • | In the reasonable judgment of a majority of the independent members of the Board or the Compensation Committee of the Board, the financial statements as so restated would have resulted in less of an Actual Award being paid to the Participant if such information had been known at the time the Actual Award had originally been calculated or determined. |
| --- | --- |
In such event and to the extent permitted by law, the independent members of the Board or the Compensation Committee of the Board, may require, in its discretion, that the Participant repay to the Company the amount by which such Actual Award as originally calculated or determined exceeds the Actual Award as adjusted pursuant to the preceding sentence; and the Company may cancel, without payment of any consideration whatsoever, the portion of any Actual Award not yet paid or delivered that exceeds the Actual Award adjusted pursuant to the previous sentence.
Any failure by the Company to assert the forfeiture and repayment rights under this Section 4(e) with respect to specific claims against the Participant will not waive, or operate to waive, the Company’s right to later assert its rights hereunder with respect to other or subsequent claims against the Participant.
The Company’s forfeiture and repayment rights under this Section 4(e) will be in addition to, and not in lieu of, actions the Company may take to remedy or discipline any misconduct by the Participant including, but not limited to, termination of employment or initiation of appropriate legal action.
5.Plan Administration.
(a)Committee is the Administrator. The Plan will be administered by the Committee. The Committee will consist of not less than two (2) members of the Board. The
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members of the Committee will be appointed from time to time by, and serve at the pleasure of, the Board.
(b)Committee Authority. It will be the duty of the Committee to administer the Plan in accordance with the Plan’s provisions. The Committee will have all powers and discretion necessary or appropriate to administer the Plan and to control its operation, including, but not limited to, the power to (i) determine which Employees will be granted awards, (ii) prescribe the terms and conditions of awards, (iii) interpret the Plan and the awards, (iv) adopt such procedures and subplans as are necessary or appropriate to permit participation in the Plan by Employees who are foreign nationals or employed outside of the United States, (v) adopt rules for the administration, interpretation and application of the Plan as are consistent therewith, and (vi) interpret, amend or revoke any such rules.
(c)Decisions Binding. All determinations and decisions made by the Committee, the Board, and any delegate of the Committee pursuant to the provisions of the Plan will be final, conclusive, and binding on all persons, and will be given the maximum deference permitted by law.
(d)Delegation by Committee. The Committee, in its sole discretion and on such terms and conditions as it may provide, may delegate all or part of its authority and powers under the Plan to one or more directors and/or officers of the Company.
6.General Provisions.
(a)Tax Withholding. The Company (or the Affiliate employing the applicable Employee) will withhold all applicable taxes from any Actual Award, including any federal, state and local taxes (including, but not limited to, the Participant’s FICA and SDI obligations).
(b)No Effect on Employment or Service. Nothing in the Plan will interfere with or limit in any way the right of the Company (or the Affiliate employing the applicable Employee) to terminate any Participant’s employment or service at any time, with or without cause. For purposes of the Plan, transfer of employment of a Participant between the Company and any one of its Affiliates (or between Affiliates) will not be deemed a Termination of Employment. Employment with the Company and its Affiliates is on an at-will basis only. The Company expressly reserves the right, which may be exercised at any time and without regard to when during a Performance Period such exercise occurs, to terminate any individual’s employment with or without cause, and to treat him or her without regard to the effect that such treatment might have upon him or her as a Participant.
(c)Participation. No Employee will have the right to be selected to receive an award under this Plan, or, having been so selected, to be selected to receive a future award.
(d)Indemnification. Each person who is or will have been a member of the Committee, or of the Board, will be indemnified and held harmless by the Company against and from (i) any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by him or her in connection with or resulting from any claim, action, suit, or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action taken or failure to act under the Plan or any award, and (ii) from any and all amounts paid by him or her in settlement thereof, with the Company’s approval, or paid by him or her in satisfaction of any judgment in any such claim, action, suit, or proceeding against him or her, provided he or she will
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give the Company an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it on his or her own behalf. The foregoing right of indemnification will not be exclusive of any other rights of indemnification to which such persons may be entitled under the Company’s Certificate of Incorporation or Bylaws, by contract, as a matter of law, or otherwise, or under any power that the Company may have to indemnify them or hold them harmless.
(e)Successors. All obligations of the Company under the Plan, with respect to awards granted hereunder, will be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business or assets of the Company.
(f)Beneficiary Designations. If permitted by the Committee, a Participant under the Plan may name a beneficiary or beneficiaries to whom any vested but unpaid award will be paid in the event of the Participant's death. Each such designation will revoke all prior designations by the Participant and will be effective only if given in a form and manner acceptable to the Committee. In the absence of any such designation, any vested benefits remaining unpaid at the Participant's death will be paid to the Participant's estate.
(g)Nontransferability of Awards. No award granted under the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will, by the laws of descent and distribution or to the limited extent provided in Section 6(f). All rights with respect to an award granted to a Participant will be available during his or her lifetime only to the Participant.
7.Amendment, Termination, and Duration.
(a)Amendment, Suspension, or Termination. The Board or the Committee, in its sole discretion, may amend or terminate the Plan, or any part thereof, at any time and for any reason. The amendment, suspension or termination of the Plan will not, without the consent of the Participant, alter or impair any rights or obligations under any Target Award theretofore earned by such Participant. No award may be granted during any period of suspension or after termination of the Plan.
(b)Duration of the Plan. The Plan will commence on the date January 30, 2020, and subject to Section 7(a) (regarding the Board’s and/or the Committee’s right to amend or terminate the Plan), will remain in effect thereafter until terminated.
8.Legal Construction.
(a)Gender and Number. Except where otherwise indicated by the context, any masculine term used herein also will include the feminine and any feminine term used herein also will include the masculine; the plural will include the singular and the singular will include the plural.
(b)Severability. In the event any provision of the Plan will be held illegal or invalid for any reason, the illegality or invalidity will not affect the remaining parts of the Plan, and the Plan will be construed and enforced as if the illegal or invalid provision had not been included.
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(c)Requirements of Law. The granting of awards under the Plan will be subject to all applicable laws, rules and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required.
(d)Governing Law. The Plan and all awards will be construed in accordance with and governed by the laws of the State of California, but without regard to its conflict of law provisions.
(e)Bonus Plan. The Plan is intended to be a “bonus program” as defined under U.S. Department of Labor regulation 2510.3-2(c) and will be construed and administered in accordance with such intention.
(f)Captions. Captions are provided herein for convenience only, and will not serve as a basis for interpretation or construction of the Plan.
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