Netgear 2012 Annual Report Download - page 29

Table of Contents
If our goodwill or amortizable intangible assets become impaired we may be required to record a significant charge to earnings.
Under generally accepted accounting principles, we review our amortizable 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 amortizable 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 amortizable intangible assets recorded on our balance sheet. 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 amortizable 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. 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 amortizable intangible assets be
determined resulting in an adverse impact on our results of operations.
In the second fiscal quarter of 2011, in connection with our reorganization into three specific business units (retail, commercial, and service
provider), we allocated goodwill to each business unit and evaluated those allocations for potential impairment. No impairment existed as of the end
of the second fiscal quarter of 2011. In the fourth fiscal quarter of 2012, we completed our annual impairment test of goodwill and determined no
impairment existed as of December 31, 2012. We will continue to test goodwill for impairment at least annually at the business unit level. The
allocation of goodwill may have greater impact for certain of the business segments, as compared to the other segments. Accordingly, the
performance of a business unit may be adversely affected by the allocation of goodwill.
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.
In the past, there have been bankruptcies amongst our customer base. Although any resulting loss has not been material to date, future losses, if
incurred, could harm our business and have a material adverse effect on our operating results and financial condition. To the degree that the recent
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.
We invest in companies for both strategic and financial reasons, but may not realize a return on our investments in every instance.
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.
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