Memorex 2013 Annual Report Download - page 57

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Property, Plant and Equipment. Property, plant and equipment, including leasehold and other improvements that
extend an asset’s useful life or productive capabilities, are recorded at cost. Maintenance and repairs are expensed as
incurred. The cost and related accumulated depreciation of assets sold or otherwise disposed are removed from the related
accounts and the gains or losses are reflected in the results of operations.
Property, plant and equipment are generally depreciated on a straight-line basis over their estimated useful lives. The
estimated depreciable lives range from 10 to 20 years for buildings and 5 to 10 years for machinery and equipment.
Leasehold and other improvements are amortized over the remaining life of the lease or the estimated useful life of the
improvement, whichever is shorter. Depreciation expense from continuing operations was $9.4 million, $7.5 million and
$9.6 million for 2013, 2012 and 2011, respectively.
Intangible Assets. Intangible assets include principally trade names and customer relationships and are amortized
using methods that approximate the benefit provided by utilization of the assets, which may be on a straight-line or
accelerated basis depending on the intangible asset.
We record all assets and liabilities acquired in purchase acquisitions, including intangibles, at estimated fair value. The
initial recognition of intangible assets, the determination of useful lives and, if necessary, subsequent impairment analyses
require management to make subjective estimates of how the acquired assets will perform in the future using certain valuation
methods. See Note 6 — Intangible Assets and Goodwill for further information on our intangible assets and impairment
testing.
We capitalize costs of software developed or obtained for internal use, once the preliminary project stage has been
completed, management commits to funding the project and it is probable that the project will be completed and the software
will be used to perform the function intended. Capitalized costs include only (1) external direct costs of materials and services
consumed in developing or obtaining internal-use software, (2) payroll and payroll-related costs for employees who are
directly associated with and who devote time to the internal-use software project and (3) interest costs incurred, when
material, while developing internal-use software. Capitalization of costs ceases when the project is substantially complete and
ready for its intended use.
Goodwill. Goodwill is the excess of the cost of an acquired entity over the estimated fair value of assets acquired and
liabilities assumed in a business combination. Goodwill is not amortized. Goodwill is tested for impairment annually as of
November 30, or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
Goodwill is considered impaired when its carrying amount exceeds its implied fair value. The Company may assess
qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying
amount, including goodwill. If we determine in this assessment that the fair value of the reporting unit is more than its carrying
amount we may conclude that there is no need to perform the Step 1 of the impairment test. We have an unconditional option
to bypass the qualitative assessment for any reporting unit in any period and proceed directly to performing Step 1 of the
goodwill impairment test.
Step 1 of the impairment test involves comparing the fair value of the reporting unit to which goodwill was assigned to its
carrying amount. If fair value is deemed to be less than carrying value, the Step 2 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 between the reporting unit’s fair value and the fair values
assigned to the reporting unit’s individual assets and liabilities is the implied fair value of the reporting unit’s goodwill. See
Note 6 — Intangible Assets and Goodwill for further information on our goodwill and impairment testing.
Impairment of Long-Lived Assets. We periodically review the carrying value of our property and equipment and our
intangible assets to test whether current events or circumstances indicate that such carrying value may not be recoverable.
For the testing of long-lived assets that are “held for use,” if the tests indicate that the carrying value of the asset group that
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