Memorex 2012 Annual Report Download - page 87

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
carrying amount of such assets subject to the impairment to their estimated fair value. Additionally, as discussed in Note 4 —
Acquisitions, the Company consummated various business acquisitions during 2012 and 2011 and recorded the acquired
assets and liabilities, including goodwill, intangible assets and property, plant and equipment at their estimated fair value. The
determination of the estimated fair value of such assets required the use of significant unobservable inputs which would be
considered Level 3 fair value measurements.
Assets and Liabilities that are Measured at Fair Value on a Recurring Basis
The Company measures certain assets and liabilities at their estimated fair value on a recurring basis, including cash
and cash equivalents, derivative instruments and our contingent consideration obligations associated with certain acquisitions.
Derivative Financial Instruments
We maintain a foreign currency exposure management policy that allows the use of derivative instruments, principally
foreign currency forward, option contracts and option combination strategies to manage risks associated with foreign
exchange rate volatility. Generally, these contracts are entered into to fix the U.S. dollar amount of the eventual cash flows.
The derivative instruments range in duration at inception from between one to 16 months. The fair value of our derivative
instruments is determined based on inputs that are observable in the public market, but are other than publicly quoted prices
(Level 2). We are exposed to the risk of nonperformance by our counter-parties, but we do not anticipate nonperformance by
any of these counter-parties. We actively monitor our exposure to credit risk through the use of credit approvals and credit
limits and by using major international banks and financial institutions as counter-parties.
Cash Flow Hedges. We attempt to substantially mitigate the risk that forecasted cash flows denominated in foreign
currencies may be adversely affected by changes in the currency exchange rates through the use of option, forward and
combination option contracts. The degree of our hedging can fluctuate based on management judgment and forecasted
projections. We formally document all relationships between hedging instruments and hedged items, as well as our risk
management objective and strategy for undertaking the hedged items. This process includes linking all derivatives to
forecasted transactions. We formally assess, both at the hedge’s inception and on an ongoing basis, whether the derivatives
used in hedging transactions are highly effective in offsetting changes in the cash flows of hedged items. At December 31,
2012 and 2011, our contracts had durations of 12 months or less. The fair value of these contracts is recorded in other current
assets and other current liabilities on our Consolidated Balance Sheets.
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