Netgear 2011 Annual Report Download - page 67

Table of Contents
The Company’
s customers are primarily distributors as well as retailers and broadband service providers who sell or distribute the products
to a large group of end-users. The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of the
Company’s customers to make required payments. The Company regularly performs credit evaluations of the Company’s customers’ financial
condition and considers factors such as historical experience, credit quality, age of the accounts receivable balances, geographic or country-
specific risks and current economic conditions that may affect customers’
ability to pay, and, generally, requires no collateral from its customers.
The Company secures credit insurance for certain customers in international and domestic markets.
As of December 31, 2011, Best Buy, Inc. represented greater than 10% of the Company’s total accounts receivable. As of December 31,
2010, Best Buy, Inc. and Wal-Mart Stores, Inc. each represented greater than 10% of the Company’s total accounts receivable.
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.
Fair value measurements
The carrying amounts of the Company’s financial instruments, including cash equivalents, short-term investments, 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, Fair Value of Financial Instruments, 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.
Cost method investments and loans receivable
As of December 31, 2011, the Company has $3.0 million in cost method investments classified within other non-current assets. The
Company measures its cost method investments and loans receivable at fair value quarterly; however, they are recorded at fair value only when
an impairment charge is recognized. No impairment charges have been recognized related to the Company’s cost method investments and loans
receivable in the years ended December 31, 2011 and 2010.
In the second fiscal quarter of 2010, the Company made a $3.0 million loan to a third party that was classified within prepaid and other
current assets. The loan was repaid in the fourth fiscal quarter of 2010. Additionally, the Company made a $3.0 million cost method investment
that was classified within other non-current assets in the fourth fiscal quarter of 2010.
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 quarterly 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.
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