Netgear 2012 Annual Report Download - page 68

Table of Contents NETGEAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Computation of net income per share
Basic net income per share is computed by dividing net income by the weighted average number of common shares outstanding for the period.
Diluted net income per share reflects the additional dilution from potential issuances of common stock, such as stock issuable pursuant to the exercise
of stock options and awards. Potentially dilutive shares are excluded from the computation of diluted net income per share when their effect is anti-
dilutive.
Stock-based compensation
Effective January 1, 2006, the Company adopted the fair value recognition provisions of the updated authoritative guidance for stock
compensation, using the modified prospective transition method. Stock-based compensation expense for all stock-
based compensation awards
granted on or after January 1, 2006 is based on the grant-
date fair value estimated in accordance with the provisions of the updated authoritative
guidance for stock compensation. The valuation provisions also apply to grants that are modified after January 1, 2006. The Company recognizes
these compensation costs on a straight-line basis over the requisite service period of the award, which is generally the option vesting term of
four
years. The Company will recognize an excess benefit from stock-
based compensation in equity based on the difference between tax expense
computed with consideration of the windfall deduction and without consideration of the windfall deduction. In addition, the Company accounts for
the indirect effects of stock-based compensation on the research tax credit and the foreign tax credit in the income statement. See Note 11,
Employee
Benefit Plans
, of the Notes to Consolidated Financial Statements for a further discussion on stock-based compensation.
Comprehensive income
Comprehensive income consists of net income and other gains and losses affecting stockholder's equity that the Company excluded from net
income, including gains and losses related to fair value of short-
term investments and the effective portion of cash flow hedges that were outstanding
as of the end of the year.
Foreign currency translation
The Company's functional currency is the U.S. dollar for all of its international subsidiaries. Foreign currency transactions of international
subsidiaries are re-measured into U.S. dollars at the end-of-
period exchange rates for monetary assets and liabilities, and historical exchange rates for
non-monetary assets. Expenses are re-measured at average exchange rates in effect during each period, except for expenses related to non-
monetary
assets, which are re-measured at historical exchange rates. Revenue is re-
measured at average exchange rates in effect during each period. Gains and
losses arising from foreign currency transactions are included in total comprehensive income and were a net gain of $204,000
for the year ended
December 31, 2012 , a net gain of $131,000 for the year ended December 31, 2011 and a net loss of $130,000 for the year ended
December 31,
2010 .
Recent accounting pronouncements
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 fiscal
years, and interim periods within those fiscal years, beginning on or after September 15, 2012. Early adoption of ASU 2012-
02 is permitted. The
Company early adopted ASU 2012-02 in the fourth quarter of 2012, with no impact on its financial position, results of operations or cash flows.
Note 2. Business Acquisitions
AVAAK, Inc.
On July 2, 2012 , the Company acquired 100% of the voting equity interests of AVAAK, Inc. (“AVAAK”), a privately-
held company that
developed wire-free video networking products for a total purchase consideration of $24.0 million
in cash. The Company believes the acquisition will
bolster its retail business unit product offerings and expand its presence into the smart home market. The Company paid $21.6 million
of the
aggregate purchase price in the third quarter of 2012, and expects to pay the remaining $2.4 million
, less amounts used to satisfy certain potential
claims, twelve months after the closing of the acquisition.
64