Goodwill and Other Intangibles

In accordance with ASC 350 Intangibles — Goodwill and Other, goodwill and intangible assets with indefinite lives are measured for impairment at least annually, or when events indicate that impairment exists. Intangible assets that are determined to have definite lives are amortized over their useful lives.

The following table summarizes the changes in carrying value of goodwill (in thousands):



	Network Equipment			Network Integration			Total

Goodwill	$	169,043		$	21,314		$	190,357
Accumulated impairment losses and amortization	(157,416		)	(9,356		)	(166,772		)
Balance as of January 1, 2010	11,627			11,958			23,585

Currency adjustment	1,201			442			1,643

Goodwill	170,721			22,005			192,726
Accumulated impairment losses and amortization	(157,892		)	(9,605		)	(167,497		)
Balance as of December 31, 2010	12,829			12,400			25,229

Impairment at Alcadon	—			(7,095		)	(7,095		)
Currency adjustment	14			(149		)	(135		)

Goodwill	170,740			21,662			192,402
Accumulated impairment losses and amortization	(157,897		)	(16,506		)	(174,403		)
Balance as of December 31, 2011	$	12,843		$	5,156		$	17,999

Goodwill represents the excess of the purchase price of the net assets of acquired entities over the fair value of such assets. MRV performs an annual impairment test as of October 1 each year. A two-step test is used to identify the potential impairment and to measure the amount of the impairment, if any. The first step is based upon a comparison of the fair value of each of the Company's reporting units, as defined, and the carrying value of each reporting unit's net assets, including goodwill. If the fair value of the reporting unit exceeds its carrying value, goodwill is considered not impaired; otherwise goodwill is impaired and the loss is measured by performing step two of the test. Under step two the fair value of goodwill, calculated as the difference between the fair value of the reporting unit and the fair value of the assets of the reporting unit, is compared to the carrying value of goodwill. The excess of the carrying value of goodwill over the implied fair value represents the amount of goodwill which is impaired.

MRV used an Income Approach — Discounted Cash Flow model, with some weighting given to the Market Approach to calculate the estimated fair value of the reporting units. Discounted cash flows were compiled using cash forecasts for each reporting unit, consistent with data obtained from industry analysts and internal consultations. The forecasts used a combination of past results, current and future economic factors, and the Company's strategy for the future and strategic growth by business unit.

The step one analysis in 2011 indicated that the carrying value of Alcadon, one of our reporting units in the Network Integration group exceeded its fair value. Accordingly the Company performed a step two analysis for that reporting unit. Under the step two analysis, the Company measured the implied fair value of Alcadon's goodwill by valuing its tangible and intangible assets and liabilities in a manner similar to the allocation of purchase price in a business combination. The discounted cash flow model uses significant unobservable inputs, considered Level 3 within the fair value hierarchy as established in ASC 820-10 Fair Value Measurements. The carrying value of Alcadon's goodwill exceeded its implied fair value by $7.1 million, and the Company recorded an impairment charge of that amount to reduce the carrying value to the implied market value. The decrease in fair value resulted from the decrease in Alcadon management's forecasted cash flows related to both internal and macro-economic factors as well as an increased discount rate used in the valuation model reflecting increased uncertainty regarding future results.

Other intangibles consist of intellectual property purchased in 2011 by the Company's subsidiary located in Geneva, Switzerland, CES Creative Electronic Systems, S.A. ("CES"). The cost of these intangibles in 2011 was $474,000, and the intangibles are to be amortized over five years. Amortization of other intangible assets was $124,000 for the year ended December 31, 2011.