Memorex 2013 Annual Report Download - page 32

fair value of our Mobile Security reporting unit was impaired. We recorded an impairment charge of $23.3 million in our
Consolidated Statements of Operations.
The significant assumptions used included a discount rate of 16.0 percent to reflect the relevant risks of the higher
growth assumed for the Mobile Security reporting unit, revenue growth rates, which were forecasted to be significant, and a
terminal growth rate of 2.5 percent. An increase in the discount rate of one percent would have decreased the reporting unit’s
fair value by approximately 4.0 percent while a decrease in the discount rate by one percent would have increased the
reporting unit’s fair value by 4.7 percent. The revenue growth rates in 2013 through 2015 are significant assumptions within
the projections.
2011 Goodwill Analysis
During 2011, we acquired substantially all of the assets of BeCompliant Corporation, doing business as Encryptx
(Encryptx) which resulted in goodwill of $1.6 million. The goodwill was allocated to our Mobile Security reporting unit. Based
on an interim goodwill impairment test performed at March 31, 2011, we determined this goodwill was fully impaired and as a
result, a $1.6 million charge was recorded in 2011 in our Consolidated Statements of Operations.
See Note 2 — Summary of Significant Accounting Policies and Note 6 — Intangible Assets and Goodwill in our Notes to
Consolidated Financial Statements as well as Critical Accounting Policies and Estimates for further background and
information on goodwill impairments.
Intangible Impairments
2013 Intangible Asset Analysis
As a part of our annual goodwill impairment test for our Storage Solutions and Mobile Security reporting units (as
discussed above), we also tested for impairment the long-lived assets, including intangible assets, within the asset groups
included in our Mobile Security and Storage Solutions reporting units. In performing these tests, we compared the carrying
values of these asset groups with their estimated undiscounted future cash flows and determined that the undiscounted cash
flows expected to be generated by the asset groups exceeded their carrying values resulting in no impairment. There were no
interim triggering events that occurred during 2013 that warranted an impairment test to be performed on our long-lived assets
(including intangible assets) other than goodwill. See Note 6 — Intangible Assets and Goodwill in our Notes to Consolidated
Financial Statements for more information on intangible assets including our valuation approach and assumptions.
2012 Intangible Asset Analysis
During the second and third quarters of 2012, as noted below under our 2012 goodwill analysis discussion, we
performed interim goodwill impairment testing for our Mobile Security business (referred to as our Americas-Mobile Security
business in 2012) due to changes in the timing of expected cash flows and lower than expected short-term revenues and
gross margins. We also determined these factors to be an event that warranted interim tests as to whether our intangible
assets associated with the Mobile Security business were impaired. Based on our impairment analysis performed in the
second and third quarters of 2012, we concluded that we did not have an impairment of our intangible assets in the Mobile
Security asset group at those times.
During the fourth quarter of 2012, we determined that the results of our revised internal financial forecast, which was
finalized during the quarter and took into account the expected actions and outcomes associated with the acceleration of our
strategic transformation (as further described in Note 1 — Basis of Presentation in our Notes to Consolidated Financial
Statements), qualified as a triggering event for impairment testing. This required the assessment of the recoverability of the
long-lived assets (including definite-lived intangible assets) included in all of our asset groups with the exception of the recent
acquisition of Nexsan.
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