Netgear 2010 Annual Report Download - page 64

Table of Contents
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:
Recoverability of assets to be held and used is measured by comparing the carrying amount of an asset to the estimated undiscounted
future cash flows expected to be generated by the asset. If the carrying amount of the asset exceeds its estimated undiscounted future net cash
flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. 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.
Charges related to the impairment of property and equipment were not material in the years ended December 31, 2010, 2009 and 2008.
Goodwill
The Company performs an annual goodwill impairment test in the fourth quarter of each year. 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; the testing for
recoverability of a significant asset group; and slower growth rates. For purposes of impairment testing, the Company has determined that it has
only one reporting unit.
The goodwill impairment test involves a two-step process. In the first step, the Company estimates the Company’
s fair value and compares
the fair value with the carrying value of the Company’s net assets. If the fair value is greater than the carrying value of the Company’
s net assets,
then no impairment results. If the fair value is less than its carrying value, then the Company would perform the second step and determine the
fair value of the goodwill. In this second step, the amount of impairment is determined by comparing the implied fair value to the carrying value
of the goodwill in the same manner as if the Company was being acquired in a business combination. Specifically, the Company would allocate
the fair value to all of the Company’s 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 quarter of fiscal 2010, the Company completed the annual impairment test of goodwill. In conducting the impairment test, the
Company determined that the Company’s fair value exceeded the carrying value of the Company’s net assets by approximately 101%. No
goodwill impairment loss was recognized in the years ended December 31, 2010, 2009 or 2008.
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 two to ten years. Purchased intangible assets determined to have indefinite useful lives are not amortized. Long-lived assets,
including property and equipment and intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that
the carrying amount of such assets may not be recoverable. Such conditions may include an economic downturn or a change in the assessment of
future operations. Determination of recoverability is based on an estimate of undiscounted
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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