Memorex 2007 Annual Report Download - page 37

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Raw Materials and Other Purchased Products
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 (MP) 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 increased 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 the business. Except as noted above, we are not overly dependent on any single
supplier of raw materials.
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), to purchase Imation’s requirements of removable recording media
products and accessory products for resale under the TDK Life on Record brand name to the extent TDK can 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, which will continue unless terminated by
TDK no earlier than 26 years. The Supply Agreement will continue for the greater of five years or for so long as TDK
manufactures any of the products.
We also make significant purchases of finished and semi-finished products, including optical and USB flash drives,
certain finished tape and tape cartridges and electronic products, primarily from Asian suppliers. We view the sourcing and
distribution of finished goods products 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 and Development
Development and timely introduction of new data storage media 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, manufacture and source media that meets market requirements. We also invest, through third party
industrial designers, in design and feature enhancements for our external and removable hard drive and consumer
electronic products. We are also engaged in certain research programs that do not yet have specific commercialized
products in the market, both on our own and in collaboration with other organizations. Our research and development
(R&D) expense was $38.2 million, $50.0 million and $51.3 million for 2007, 2006 and 2005, respectively. The decrease in
our 2007 R&D expense was due to an alignment of our resources with our strategic direction. In 2007, research and
development spending focused on the development of high density MP tape cartridges such as the LTO Ultrium and the
Sun StorageTek T10000, advanced tape coating processes not yet commercialized, servo-writing and products containing
hard disk drives.
Intellectual Property
We rely on a combination of patent, trademark and copyright laws, trade secret protection and confidentiality and
license agreements to protect the intellectual property rights related to our products. We register our patents and
trademarks in the U.S. and in a number of other countries where we do business. U.S. patents are currently granted for a
term of twenty years from the date a patent application is filed. U.S. trademark registrations are for a term of ten years
and are renewable every ten years as long as the trademarks are used in the regular course of trade. Pursuant to
Trademark License Agreements between TDK and Imation and its affiliates, TDK granted Imation and its affiliates a
long-term exclusive license to use the TDK Life on Record brand for current and future recordable magnetic, optical, flash
media and accessory products globally. That right is revocable by TDK in the year 2032, with a one year wind down.
During 2007, we were awarded 32 U.S. patents relating to our data storage business and at the end of the year held
over 380 patents in the United States relating to our data storage business.
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