Memorex 2011 Annual Report Download - page 85

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
$321.7 million and $320.4 million at December 31, 2011 and 2010, respectively. The inputs used in the fair value analysis fall
within Level 3 of the fair value hierarchy due to the use of significant unobservable inputs to determine fair value. Based upon
the testing performed in 2011 and 2010, no impairment of intangible assets was deemed to have occurred.
The Company assesses the impairment of property, plant, and equipment whenever events or changes in
circumstances indicate that the carrying amount of property, plant, and equipment assets may not be recoverable. As part of
the Company’s 2011 manufacturing redesign restructuring program, the Company recorded property, plant, and equipment
impairments of $14.7 million in 2010 related to the Weatherford, Oklahoma facility. See Note 7 herein for further discussion of
the previously announced restructuring initiatives.
During 2011 we acquired MXI Security and IronKey which resulted in goodwill of $21.9 million and $9.4 million,
respectively. Also during 2011 we acquired Encryptx which resulted in goodwill of $1.6 million. In accordance with the
accounting provisions for goodwill, goodwill related to the Encryptx acquisition was written-off as the carrying amount of our
Americas-Commercial reporting unit, including Encryptx, significantly exceeded the implied fair value. This resulted in an
impairment charge of $1.6 million, which was included in earnings in 2011. See Note 6 herein for further information regarding
the assumptions used to assess this impairment.
Assets and Liabilities that are Measured at Fair Value on a Recurring Basis
The assets in our postretirement benefit plans are measured at fair value on a recurring basis (at least annually). See
Note 9 herein for additional discussion concerning pension and postretirement benefit plans.
We revalue the contingent consideration obligation for acquisitions completed on a recurring basis each reporting
period. Changes in the fair value of our contingent consideration obligations are recognized as a fair value adjustment of
contingent consideration within our consolidated statements of income. These fair value measurements are based on
significant inputs not observable in the market and therefore represent Level 3 measurements. The total of such contingent
consideration obligations at December 31, 2011 was $10.5 million, related to our acquisitions of MXI Security and Encryptx in
the amounts of $9.2 million and $1.3 million, respectively. Based on our analysis of fair value as of December 31, 2011, the
value at acquisition of such contingent consideration obligations equaled the estimated fair value as of December 31, 2011
and no adjustments were required.
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 less than one to sixteen months. We do not hold or issue
derivative financial instruments for speculative or trading purposes and we are not a party to leveraged derivatives.
As of December 31, 2011, we held derivative instruments that are required to be measured at fair value on a recurring
basis. Our derivative instruments consist of foreign currency forwards, option contracts and option combination strategies.
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 in foreign currency forward and option contracts,
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 currency exchange rates through the use of option, forward and combination option
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