Netgear 2012 Annual Report Download - page 64

Table of Contents NETGEAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 Measurements,
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
As of December 31, 2012 and December 31, 2011 , the carrying value of the Company's cost method investments was $1.3 million and
$3.0
million respectively. These investments are included in other non-
current assets in the consolidated balance sheets and are carried at cost, adjusted for
any impairment, because the Company does not have a controlling interest and does not have the ability to exercise significant influence over these
companies. The Company monitors these investments for impairment on a quarterly basis, and adjusts carrying value for any impairment charges
recognized. There were no impairments recognized in the years ended December 31, 2012 and December 31, 2011
. Realized gains and losses on
these investments are reported in other income (expense), net in the consolidated statements of operations. In the third fiscal quarter of 2012 the
Company recognized a gain of $3.1 million on the partial sale of one of its cost method investments.
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.
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, 2012 , 2011 and 2010 .
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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