Netgear 2012 Annual Report Download - page 42

Table of Contents
including goodwill by considering the following factors: macroeconomic conditions, industry and market considerations, cost factors, overall
company financial performance, events affecting the reporting units, and changes in our share price. Based on these factors, we determined that it is
not more likely than not that each reporting unit’s fair value was less than its carrying amount, and therefore performing the first step of the two-
step
impairment test for each reporting unit was unnecessary. No goodwill impairment was recognized in the years ended December 31, 2012, 2011 or
2010.
We do not believe it is likely that there will be a material change in the estimates or assumptions we use to test for impairment losses on
goodwill. However, if the actual results are not consistent with our estimates or assumptions, we may be exposed to an impairment charge that could
be material.
Long-lived assets
Purchased intangible assets with finite lives are amortized using the straight-
line method over the estimated economic lives of the assets, which
range from four to ten years. Finite-
lived intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the
carrying amount of such assets may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows
resulting from the use of the asset and its eventual disposition.
Purchased intangible assets determined to have indefinite useful lives are not amortized. Indefinite-
lived intangible assets are reviewed for
impairment at least annually during the fourth quarter and whenever events or changes in circumstances indicate that the carrying amount of such
assets may not be recoverable. Measurement of an impairment loss for indefinite-
lived assets that management expects to hold and use is based on
the fair value of the asset. Indefinite-
lived assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell. The
carrying value of the asset is reviewed on a regular basis for the existence of facts, both internal and external, that may suggest impairment.
In July 2012, the FASB issued ASU 2012-02, "Intangibles - Goodwill and Other (Topic 350): Testing Indefinite-
Lived Intangible Assets for
Impairment". The guidance in ASU 2012-
02 provides the option to first assess qualitative factors to determine whether it is necessary to perform a
quantitative impairment test. Calculation of the fair value of an indefinite-
lived intangible asset would not be required unless it is determined, based
on the qualitative assessment, that it is not more likely than not, the indefinite-lived intangible asset is impaired. ASU 2012-
02 is effective for annual
and interim period intangible asset impairment tests performed for fiscal years beginning on or after September 15, 2012; however early adoption is
permitted. We elected to adopt the updated standard for the purpose of our intangible asset impairment testing in the fourth fiscal quarter of 2012.
In the fourth fiscal quarter of 2012, we completed the annual impairment test of long-
lived assets. We assessed whether it was more likely than
not (that is, a likelihood of more than 50%) the carrying amount of our indefinite-
lived intangible assets may not be recoverable from their
undiscounted cash flows by considering the following factors: macroeconomic conditions, industry and market considerations, cost factors, overall
company financial performance, events affecting the reporting units, and changes in our share price. Based on these factors , we determined that it is
not more likely than not that there were events or changes in circumstances that indicated that the carrying amount of our indefinite-
lived intangible
assets may not be recoverable from their undiscounted cash flows, and therefore performing the first step of the two-
step impairment test for each
reporting unit was unnecessary. No impairments to our indefinite-
lived assets were recognized in the years ended December 31, 2012, 2011 and
2010.
We will continue to evaluate the carrying value of our indefinite-
lived assets and if we determine in the future that there is a potential further
impairment, we may be required to record additional charges to earnings which could affect our financial results.
Income Taxes
We account for income taxes under an asset and liability approach. Under this method, income tax expense is recognized for the amount of
taxes payable or refundable for the current year. In addition, deferred tax assets and liabilities are recognized for the expected future tax
consequences of temporary differences resulting from different treatments for tax versus accounting of certain items, such as accruals and allowances
not currently deductible for tax purposes. These differences result in deferred tax assets and liabilities, which are included within the consolidated
balance sheet. We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income and to the extent we
believe that recovery is not more likely than not, we must establish a valuation allowance. As of December 31, 2012
, we believe that all of our
deferred tax assets are recoverable; however, if there were a change in our ability to recover our deferred tax assets, we would be required to take a
charge in the period in which we determined that recovery was not more likely than not.
Uncertain tax provisions are recognized under guidance that provides that a company should use a more-likely-than-
not recognition threshold
based on the technical merits of the income tax position taken. Income tax positions that meet the more-
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