Memorex 2010 Annual Report Download - page 9

collaborate on the research and development of future tape formats in both companies’ research centers in the U.S. and
Japan, while consolidating tape coating operations to the TDK Group Yamanashi manufacturing facility.
In 2008, we ceased manufacturing operations at both the Wahpeton, North Dakota facility and the Camarillo,
California facility and either ended or outsourced manufacturing activities occurring in those locations by the end of that
year.
Raw Materials and Other Purchased Products
Until the assumption of manufacturing by TDK on April 1, 2011, the principal raw materials we use for the
manufacture of removable data storage media products include plastic resins, polyester films, magnetic pigments, specialty
chemicals and solvents. We make significant purchases of these and other materials and components for use in our
manufacturing operations from domestic and foreign sources. There are two sources of supply for the base film, one of
which supplies the newer, more advanced base film, and there are two sources for the metal particulate pigments on
which the industry relies for use in the manufacture of higher capacity magnetic data storage cartridges. If supply was
disrupted or prices significantly increase for any of these key materials, our business and the business of our competitors
could be negatively impacted. We also rely on certain partners as sole suppliers for components and raw materials used
in our manufacturing processes. The loss of these certain suppliers could have a material adverse impact on our business.
Except as noted above, we are not overly dependent on any single supplier of raw materials.
On July 31, 2007, we acquired substantially all of the assets relating to the marketing, distribution, sales, customer
service and support of removable recording media products, accessory products and ancillary products being sold under
the TDK Life on Record brand name (TDK Recording Media), from TDK, including the assets or capital stock of TDK’s
operating subsidiaries engaged in the TDK Recording Media business. In conjunction with our acquisition of the TDK
Recording Media business we also entered into a supply agreement, dated July 31, 2007, with TDK (Supply Agreement),
which allows us to purchase a limited number of LTO Tape media and Blu-ray removable recording media products and
accessory products for resale under the TDK Life on Record brand name. TDK agreed to supply such products on
competitive terms, and TDK agreed not to sell any such products to third parties for resale under the TDK Life on Record
brand name during the term of the trademark license agreements. The trademark license agreements will continue unless
terminated by TDK no earlier than 2032 (2017 in the case of headphones and speakers) or earlier in the event of a
material breach of the Trademark License Agreement, specific change of control events or default by Imation. The Supply
Agreement will continue until the later of 2012 or for so long as TDK manufactures any of the products.
We also make significant purchases of finished and semi-finished products, including optical media and USB flash
drives, certain finished tape and tape cartridges and consumer electronic products, primarily from Asian suppliers. For our
optical media, we procure our supply primarily from three companies. If supply were disrupted from any of these
companies, our business could be negatively impacted. The loss of these certain suppliers could have a material adverse
impact on the business. We view the sourcing and distribution of finished goods as a critical success factor for those
products we do not manufacture. Therefore, we seek to establish and maintain strategic sourcing relationships with several
key suppliers.
Research, Development and Engineering
Development and timely introduction of new products are important to our future success. We maintain an advanced
research facility and invest resources in researching and developing potential new products and improving existing
products. We invest in research, development and capital equipment in order to remain competitive and successfully
develop and source products that meet market requirements. We are also engaged both on our own and in collaboration
with other organizations in certain research programs related to future generations of magnetic tape that do not yet have
specific commercialized products in the market. Our research and development expense was $16.4 million, $20.4 million
and $23.6 million for 2010, 2009 and 2008, respectively. In 2011, we expect additional research and development costs
related to our strategic focus on data protection, storage hardware, removable hard drive systems and related software. As
noted above, we signed a strategic agreement with TDK to jointly develop and manufacture magnetic tape technologies.
Under the agreement, we will collaborate on the research and development of future tape formats in both companies’
research centers in the U.S. and Japan, while consolidating tape coating operations to the TDK Group Yamanashi
manufacturing facility.
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