Netgear 2011 Annual Report Download - page 68

Table of Contents
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, net
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, 2011, 2010 and 2009.
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. The Company assesses goodwill impairment at the reporting unit level.
In the second fiscal quarter of 2011, the Company performed a goodwill impairment assessment as a result of its change in reportable
segments. Refer to Note 12, Segment Information, Operations by Geographic Area and Customer Concentration, of the Notes to Consolidated
Financial Statements for additional information regarding the change in segment reporting. The company allocated goodwill to each segment
based on their relative fair values. The Company then compared the fair value of the new reporting units to the reporting unit’s carrying value
and determined that goodwill was not impaired since the estimated fair values of each of the reporting units exceeded the carrying values. The
fair value of the new business units was determined using an income approach and a market approach which were weighted equally. Under the
income approach, the fair value of an asset is based on the value of the estimated cash flows that the asset can be expected to generate in the
future. These estimated future cash flows were discounted at rates ranging from 13 to 15 percent to arrive at their respective fair values. Under
the market approach, the fair value of the unit is based on an analysis of financial data for publicly traded companies engaged in the same or
similar lines of business.
In September 2011, the FASB issued ASU 2011-08, “Intangibles—Goodwill and Other (Topic 350): Testing Goodwill for Impairment.”
ASU 2011-08 permits an entity to make a qualitative assessment of whether it is more likely than not that a reporting unit’
s fair value is less than
its carrying amount as a basis for
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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