Netgear 2009 Annual Report Download - page 61

Table of Contents
The Company is exposed to credit loss in the event of nonperformance by counterparties to the foreign currency forward contracts used to
mitigate the effect of foreign currency exchange rate changes. The Company believes the counterparties for its outstanding contracts are large,
financially sound institutions and thus, the Company does not anticipate nonperformance by these counterparties. However, given the recent,
unprecedented turbulence in the financial markets, the failure of additional counterparties is possible.
The following table summarizes the percentage of the Company’s total accounts receivable represented by customers with balances in
excess of 10% of its total accounts receivable as of December 31, 2009 and 2008.
Fair value measurements
The carrying amounts of the Company’s financial instruments, including cash equivalents, accounts receivable, and accounts payable
approximate their fair values due to their short maturities. Foreign currency forward contracts are recorded at fair value based on observable
market data. See Note 13 of the Notes to Consolidated Financial Statements for disclosures regarding fair value measurements in accordance
with the authoritative guidance for fair value measurements and disclosures.
Allowance for doubtful accounts
The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make
required payments. The Company regularly performs credit evaluations of its customers’ financial condition and considers factors such as
historical experience, credit quality, age of the accounts receivable balances, and geographic or country-specific risks and economic conditions
that may affect a customer’s ability to pay. The allowance for doubtful accounts is reviewed monthly and adjusted if necessary based on the
Company’s assessments of its customers’ ability to pay. If the financial condition of the Company’s customers should deteriorate or if actual
defaults are higher than the Company’s historical experience, additional allowances may be required, which could have an adverse impact on
operating expenses.
Inventories
Inventories consist primarily of finished goods which are valued at the lower of cost or market, with cost being determined using the first-
in, first-out method. The Company writes down its inventories based on estimated excess and obsolete inventories determined primarily by
future demand forecasts. At the point of loss recognition, a new, lower cost basis for that inventory is established, and subsequent changes in
facts and circumstances do not result in the restoration or increase in that newly established cost basis.
Property and equipment
Property and equipment are stated at historical cost, less accumulated depreciation. Depreciation is computed using the straight-line
method over the estimated useful lives of the assets as follows:
59
December 31,
2009
2008
Best Buy Co., Inc.
26
%
18
%
Ingram Micro, Inc.
9
%
12
%
Computer equipment
2 years
Furniture and fixtures
5 years
Software
2
-
5 years
Machinery and equipment
2
-
3 years
Leasehold improvements
Shorter of the lease term or 5 years