Netgear 2013 Annual Report Download - page 66

Table of Contents NETGEAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 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, 2013 and December 31, 2012 , the carrying value of the Company's cost method investments was $1.3 million
. 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, 2013 and December 31, 2012
. 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:
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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