Netgear 2012 Annual Report Download - page 65

Table of Contents NETGEAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Goodwill
Goodwill represents the purchase price over estimated fair value of net assets of businesses acquired in a business combination. Goodwill
acquired in a business combination is not amortized, but instead tested for impairment at least annually during the fourth quarter. Should certain
events or indicators of impairment occur between annual impairment tests, the Company will perform the impairment test as those events or
indicators occur. Examples of such events or circumstances include the following: a significant decline in the Company’
s expected future cash flows;
a sustained, significant decline in the Company’
s stock price and market capitalization; a significant adverse change in the business climate; and
slower growth rates.
Goodwill is tested for impairment at the reporting unit level by first performing a qualitative assessment to determine whether it is more likely
than not (that is, a likelihood of more than 50%) that the fair value of the reporting unit is less than its carrying value. The qualitative assessment
considers the following factors: macroeconomic conditions, industry and market considerations, cost factors, overall company financial performance,
events affecting the reporting units, and changes in the Company's share price. If the reporting unit does not pass the qualitative assessment, then the
Company estimates its fair value and compare the fair value with the carrying value of its net assets. If the fair value is greater than the carrying value
of its net assets, then no impairment results. If the fair value is less than its carrying value, then it would determine the fair value of the goodwill by
comparing the implied fair value to the carrying value of the goodwill in the same manner as if the Company were being acquired in a business
combination. Specifically, the Company would allocate the fair value to all of our assets and liabilities, including any unrecognized intangible assets,
in a hypothetical analysis that would calculate the implied fair value of goodwill. If the implied fair value of goodwill is less than the recorded
goodwill, an impairment charge would be recorded to earnings in the Consolidated Statements of Operations.
In the fourth fiscal quarter of 2012, the Company completed its annual impairment test of goodwill. The Company assessed whether it was
more likely than not (that is, a likelihood of more than 50%) that each reporting unit's fair value was less than its carrying amount 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 the Company's share price. Based on the Company's assessment of the
considerations, the Company 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 .
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. The Company elected to adopt the updated standard for the purpose of its intangible asset impairment testing in the fourth fiscal quarter of
2012.
In the fourth fiscal quarter of 2012, the Company completed its annual impairment test of indefinite-lived long-
lived assets. The Company
assessed whether it was more likely than not (that is, a likelihood of more than 50%) the carrying amount of its indefinite-
lived intangible assets may
not be recoverable from their undiscounted cash flows by considering the following factors:
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