Memorex 2013 Annual Report Download - page 15

changes in circumstances indicate that their carrying value may not be recoverable. We monitor factors or indicators, such as
unfavorable variances from forecasted cash flows, established business plans or volatility inherent to external markets and
industries that would require an impairment test. The test for impairment of intangible assets requires a comparison of the
carrying value of the asset or asset group with their estimated undiscounted future cash flows. If the carrying value of the
asset or asset group is considered impaired, an impairment charge is recorded for the amount by which the carrying value of
the asset or asset group exceeds its fair value. The test for impairment of goodwill requires a comparison of the carrying value
of the reporting unit for which goodwill is assigned with the fair value of the reporting unit calculated based on discounted
future cash flows. If the carrying value of the reporting unit is greater than the fair value a second step is performed to
calculate any impairment.
Our security products must provide appropriate levels of security to adequately store and protect our
customers’ data. Many of our secure storage products include software and hardware security such as user
authentication, data encryption, and portable digital identities which are designed to prevent digital security breaches. Third
parties may attempt to hack into our products in order to, among other things, compromise the integrity of those products or
obtain confidential information. If our products do not provide adequate security and that security is compromised, we could
lose existing customers, have difficulty attracting new customers, experience increases in operating expenses, become
subject to litigation and loss of reputation or suffer other adverse consequences. There can be no assurance that our efforts to
upgrade the security of our products or develop new products to keep pace with continuing changes in technology will be
successful or that product issues will not arise in the future. Any significant breakdown, intrusion, interruption, corruption or
destruction of our secure storage products could have a material adverse effect on our financial results.
Changes in European law or practice related to the imposition or collectability of optical levies. Many
European countries impose levies on imports of optical products and other products to compensate copyright owners for legal
private copying. Imation is involved in litigation in several of those countries related to its obligation to pay levies on sales of
our products to commercial channel customers. Based on current European law, we no longer pay levies on commercial
channel sales. Because we have previously paid levies on such sales, we have offset certain levies payable on sales in the
consumer channel with amounts previously overpaid with respect to commercial channel sales. If a court were to rule against
us on this issue, we may be required to pay all, or a portion of, our unpaid levies to the collecting societies. In addition, any
reduction in the current levy rates applicable to consumer channel sales could reduce our ability to offset for past
overpayments on commercial channel sales. Other changes in levy rates or structures could impact our ability to compete in
certain markets or otherwise reduce our profitability.
In a volatile global economic environment, demand and seasonality may result in our inability to accurately
forecast our product purchase requirements. Sales of some of our products are subject to seasonality. For example,
sales have typically increased in the fourth quarter of each fiscal year, sometimes followed by significant declines in the first
quarter of the following fiscal year. This seasonality makes it more difficult for us to forecast our business, especially in the
volatile current global economic environment and its corresponding change in consumer confidence, which may impact typical
seasonal trends. If our forecasts are inaccurate, we may lose market share due to product shortages or procure excess
inventory or inappropriately increase or decrease our operating expenses, any of which could harm our business, financial
condition and results of operations. This seasonality also may lead to the need for working capital investments in receivables
and inventory and our need to build inventory levels in advance of our most active selling seasons. The seasonality of our
products could change as a result of our acquisitions and divestitures.
Significant changes in discount rates, rates of return on pension assets, mortality tables and other factors
could affect our future earnings, equity and pension funding requirements. Pension obligations and related costs are
determined using actual investment results as well as actuarial valuations that involve several assumptions. Our funding
requirements are based on these assumptions in addition to the performance of assets in the pension plans. The most critical
assumptions are the discount rate, the long-term expected return on assets and mortality. Some of these assumptions, such
as the discount rate, are largely outside of our control. Changes in these assumptions could affect our future earnings, equity
and funding requirements.
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