Netgear 2009 Annual Report Download - page 65

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Table of Contents
During the year ended December 31, 2009, the Company entered into a $2.5 million arrangement to license certain software technologies
that the Company may integrate into certain future products. The Company has not yet established the technological feasibility of these products,
and does not believe the software has an alternative future use. In this situation, the authoritative guidance for software states that the cost of
software purchased to be integrated with products that have not yet reached technological feasibility and do not have an alternative use should
not be expensed. As such, the Company has expensed the entire technology license arrangement amount of $2.5 million in the year ended
December 31, 2009.
Advertising costs
Advertising costs are expensed as incurred. Total advertising and promotional expenses were $14.4 million, $17.0 million and $17.4
million in the years ended December 31, 2009, 2008 and 2007, respectively.
Income taxes
The Company accounts 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 treatment for tax versus accounting for 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. The Company must then assess the likelihood that the Company’s deferred tax assets will be recovered from
future taxable income and to the extent the Company believes that recovery is not more likely than not, the Company must establish a valuation
allowance.
As discussed in Note 8, effective January 1, 2007, the Company adopted authoritative guidance for accounting for uncertain income tax
positions. In the ordinary course of business there is inherent uncertainty in assessing the Company’s income tax positions. The Company
assesses its tax positions and records benefits for all years subject to examination based on management’s evaluation of the facts, circumstances
and information available at the reporting date. For those tax positions where it is more likely than not that a tax benefit will be sustained, the
Company records the largest amount of tax benefit with a greater than 50 percent likelihood of being realized upon ultimate settlement with a
taxing authority that has full knowledge of all relevant information. For those income tax positions where it is not more likely than not that a tax
benefit will be sustained, no tax benefit has been recorded in the financial statements. Where applicable, associated interest and penalties have
also been recognized as a component of income tax expense.
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. Under this transition method, stock-based compensation expense for the years
ended December 31, 2009, 2008 and 2007 includes compensation expense for all stock-based compensation awards granted prior to, but not yet
vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of the authoritative guidance
for stock compensation. 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
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