Memorex 2013 Annual Report Download - page 44

the tax benefit is measured and recognized as the largest amount of tax benefit that, in our judgment, is greater than
50 percent likely to be realized.
The total amount of unrecognized tax benefits as of December 31, 2013 was $5.3 million, excluding accrued interest
and penalties described below. If the unrecognized tax benefits were recognized in our Consolidated Financial Statements,
$5.3 million would affect income tax expense and our related effective tax rate.
Interest and penalties recorded for uncertain tax positions are included in our income tax provision. As of December 31,
2013, $1.1 million of interest and penalties was accrued, excluding the tax benefit of deductible interest. The reversal of
accrued interest and penalties would affect income tax expense and our related effective tax rate.
Our U.S. federal income tax returns for 2010 through 2012 are subject to examination by the Internal Revenue Service.
With few exceptions, we are no longer subject to examination by foreign tax jurisdictions, or state and city tax jurisdictions for
years before 2006. In the event that we have determined not to file tax returns with a particular state or city, all years remain
subject to examination by the tax jurisdiction.
The ultimate outcome of tax matters may differ from our estimates and assumptions. Unfavorable settlement of any
particular issue may require the use of cash and could result in increased income tax expense. Favorable resolution could
result in reduced income tax expense. It is reasonably possible that our unrecognized tax benefits could increase or decrease
significantly during the next twelve months due to the resolution of certain U.S. and international tax uncertainties; however it
is not possible to estimate the potential change at this time.
Intangibles. We record all assets and liabilities acquired in purchase acquisitions, including intangibles, at estimated
fair value. Intangible assets with a definite life are amortized based on a pattern in which the economic benefits of the assets
are consumed, typically with useful lives ranging from one to 30 years. The initial recognition of intangible assets, the
determination of useful lives and, if necessary, subsequent impairment analysis require management to make subjective
judgments concerning estimates of how the acquired assets will perform in the future using certain valuation methods
including discounted cash flow analysis. We evaluate assets on our balance sheet, including such intangible assets,
whenever events or changes in circumstances indicate that their carrying value may not be recoverable. Factors such as
unfavorable variances from forecasted cash flows, established business plans or volatility inherent to external markets and
industries may indicate a possible impairment that would require an impairment test. While we believe that the current
carrying value of these assets is not impaired, materially different assumptions regarding future performance of our
businesses, which in many cases require subjective judgments concerning estimates, could result in significant impairment
losses. The test for impairment 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. See Note 6 —
Intangible Assets and Goodwill for information on our 2013 and 2012 intangible assets.
Goodwill. We record all assets and liabilities acquired in purchase acquisitions, including goodwill, at fair value. The
initial recognition of goodwill and subsequent impairment analysis require management to make subjective judgments
concerning estimates of how the acquired assets will perform in the future using valuation methods including discounted cash
flow analysis. Goodwill is the excess of the cost of an acquired entity over the amounts assigned to assets acquired and
liabilities assumed in a business combination. Goodwill is not amortized. We test the carrying amount of a reporting unit’s
goodwill for impairment on an annual basis during the fourth quarter of each year (as of November 30) or if an event occurs or
circumstances change that would warrant impairment testing during an interim period.
Goodwill is considered impaired when its carrying amount exceeds its implied fair value. The first step of the impairment
test involves comparing the fair value of the reporting unit to which goodwill was assigned to its carrying amount. The second
step of the impairment test compares the implied fair value of the reporting unit’s goodwill with the carrying amount of the
reporting unit’s goodwill. If the carrying amount of the reporting unit’s goodwill is greater than the implied fair value of the
reporting unit’s goodwill an impairment loss must be recognized for the excess. This involves measuring the fair value of the
reporting unit’s assets and liabilities (both recognized and unrecognized) at the time of the impairment test. The difference
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