Netgear 2011 Annual Report Download - page 31

Table of Contents
equity investments in private companies are not liquid, and we may not be able to dispose of these investments on favorable terms or at all. The
occurrence of any of these events could harm our results. Gains or losses from equity securities could vary from expectations depending on gains
or losses realized on the sale or exchange of securities and impairment charges related to debt instruments as well as equity and other
investments.
We are exposed to adverse currency exchange rate fluctuations in jurisdictions where we transact in local currency, which could harm
our financial results and cash flows.
Because a significant portion of our business is conducted outside the United States, we face exposure to adverse movements in foreign
currency exchange rates. These exposures may change over time as business practices evolve, and they could have a material adverse impact on
our results of operations, financial position and cash flows. Although a portion of our international sales are currently invoiced in United States
dollars, we have implemented and continue to implement for certain countries and customers both invoicing and payment in foreign currencies.
Our primary exposure to movements in foreign currency exchange rates relates to non-U.S. dollar denominated sales in Europe, Japan and
Australia as well as our global operations, and non-U.S. dollar denominated operating expenses and certain assets and liabilities. In addition,
weaknesses in foreign currencies for U.S. dollar denominated sales could adversely affect demand for our products. Conversely, a strengthening
in foreign currencies against the U.S. dollar could increase foreign currency denominated costs. As a result we may attempt to renegotiate
pricing of existing contracts or request payment to be made in U.S. dollars. We cannot be sure that our customers would agree to renegotiate
along these lines. This could result in customers eventually terminating contracts with us or in our decision to terminate certain contracts, which
would adversely affect our sales.
We implemented a hedging program in November 2008 to hedge exposures to fluctuations in foreign currency exchange rates as a
response to the risks of changes in the value of foreign currency denominated assets and liabilities. We may enter into foreign currency forward
contracts or other instruments, the majority of which mature within approximately five months. Our foreign currency forward contracts reduce,
but do not eliminate, the impact of currency exchange rate movements. For example, we do not execute forward contracts in all currencies in
which we conduct business. In addition, in the second fiscal quarter of 2009, we commenced implementation of a hedging program to reduce the
impact of volatile exchange rates on net revenues, gross profit and operating profit for limited periods of time. However, the use of such hedging
activities may only offset a portion of the adverse financial effect resulting from unfavorable movements in foreign exchange rates.
If our goodwill or amortizable intangible assets become impaired we may be required to record a significant charge to earnings.
Under generally accepted accounting principles, we review our amortizable intangible assets for impairment when events or changes in
circumstances indicate the carrying value may not be recoverable. Goodwill is required to be tested for impairment at least annually. Factors that
may be considered when determining if the carrying value of our goodwill or amortizable intangible assets may not be recoverable include a
significant decline in our expected future cash flows or a sustained, significant decline in our stock price and market capitalization.
As a result of our acquisitions, we have significant goodwill and amortizable intangible assets recorded on our balance sheet. In addition,
significant negative industry or economic trends, such as those that have occurred as a result of the recent economic downturn, including reduced
estimates of future cash flows or disruptions to our business could indicate that goodwill or amortizable intangible assets might be impaired. If,
in any period our stock price decreases to the point where our market capitalization is less than our book value, this too could indicate a potential
impairment and we may be required to record an impairment charge in that period. Our valuation methodology for assessing impairment requires
management to make judgments and assumptions based on projections of future operating performance. We operate in highly competitive
environments and projections of future operating results and cash flows may vary significantly from actual results. As a result, we may incur
substantial impairment charges to earnings in our financial statements should an impairment of our goodwill or amortizable intangible assets be
determined resulting in an adverse impact on our results of operations.
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