Netgear 2013 Annual Report Download - page 43

Table of Contents
would allocate the fair value to all of our 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 fiscal quarter of 2013, we completed the annual impairment test of goodwill. Due to the increase in goodwill in fiscal year 2013 as a
result of our acquisitions, we elected to bypass the qualitative assessment and proceed directly to estimating the fair value of net assets for each reporting
unit. The fair value of the business units was determined placing an equal weighting of 50 percent on the income approach and market approach
indications of value. 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 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. We compared the fair value of the 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 excess of fair value over carrying amount for each of our
reporting units ranged from approximately 15% to approximately 219% of carrying amounts. The service provider business unit has the lowest excess of
fair value over carrying amount at 15%. In order to evaluate the sensitivity of the estimated fair values of our reporting units in the goodwill impairment
test, we applied a hypothetical 10% decrease to the fair values of each reporting unit. This hypothetical 10% decrease resulted in a lowest excess of fair
value over carrying amount of approximately 4% for service provider business unit. We will continue to monitor goodwill on an annual basis as of the
beginning of our fourth fiscal quarter and whenever events or changes in circumstances, such as significant adverse changes in business climate or
operating results, changes in management's business strategy or significant declines in our stock price, indicate that there may be potential indicator of
impairment. No goodwill impairment was recognized in the years ended December 31, 2013, 2012 or 2011.
We do not believe it is likely that there will be a material change in the estimates or assumptions we use to test for impairment losses on goodwill.
However, if the actual results are not consistent with our estimates or assumptions, we may be exposed to an impairment charge that could be material.
Intangible 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 four to ten years. Finite-
lived intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the
carrying amount of such assets may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows
resulting from the use of the asset and its eventual disposition.
Purchased intangible assets determined to have indefinite useful lives are not amortized. Indefinite-
lived intangible assets are reviewed for
impairment at least annually during the fourth quarter and whenever events or changes in circumstances indicate that the carrying amount of such assets
may not be recoverable. Measurement of an impairment loss for indefinite-
lived assets that management expects to hold and use is based on the fair
value of the asset. Indefinite-
lived assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell. 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.
In the third quarter of 2013, we recorded an impairment charge of $2.0 million related to the abandonment of certain IPR&D projects acquired in
AirCard acquisition.
In the fourth fiscal quarter of 2013, we completed the annual impairment test of indefinite-
lived intangible assets. We assessed whether it was
more likely than not (that is, a likelihood of more than 50%) the carrying amount of our indefinite-
lived intangible assets may not be recoverable from
their undiscounted cash flows by considering the following factors: macroeconomic conditions, industry and market considerations, cost factors, overall
company financial performance, events affecting the reporting units, and changes in our share price. Based on these factors , we determined that it is not
more likely than not that there were events or changes in circumstances that indicated that the carrying amount of our indefinite-
lived intangible assets
may not be recoverable from their undiscounted cash flows, and therefore performing the first step of the two-
step impairment test for each reporting
unit was unnecessary. No impairments to our indefinite-
lived assets were recognized resulting from the annual impairment tests in the years ended
December 31, 2013, 2012 and 2011.
We will continue to evaluate the carrying value of our indefinite-
lived assets and if we determine in the future that there is a potential further
impairment, we may be required to record additional charges to earnings which could affect our financial results.
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