Memorex 2007 Annual Report Download - page 58

a corresponding offset to the original intangible asset recorded in conjunction with the execution of the original Exabyte
distribution agreement.
Due to the decline in value of Exabyte common stock, we determined that other-than-temporary impairments in our
investment in Exabyte holdings existed in 2006. Consequently, we reduced the carrying value of our Exabyte holdings by
$4.2 million with a corresponding loss recorded in other expense in the Consolidated Statements of Operations. As of
December 31, 2006, our Exabyte stock holdings had been fully written off.
The Exabyte notes receivable consist of a $5.0 million note, bearing 10 percent interest beginning January 1, 2006,
with interest only payments through 2007 and quarterly principal and interest payments commencing on March 31, 2008
and continuing through December 31, 2009. The notes receivable also included a $2.0 million note bearing 10 percent
interest through December 15, 2006, at which time the principal amount was due.
On November 20, 2006, Tandberg completed the acquisition of substantially all of the Exabyte assets and the
Exabyte tape media distribution agreement was assigned to Tandberg. As a result of the acquisition, we restructured the
Exabyte notes receivable agreement. In connection with the notes restructuring agreement, we received $1.0 million of the
$2.0 million previously due December 15, 2006, and all interest accrued but not paid, on the outstanding notes receivable.
Tandberg replaced the $5.0 million note with a $4.0 million note (the Note). The Note bears interest at 10 percent
beginning November 20, 2007, payable quarterly with principal payments commencing on December 15, 2008 and
continuing through December 15, 2010. In addition, in conjunction with the note restructuring agreement, Tandberg
increased the margin we earn on distribution by two percentage points, effective January 1, 2007, until such time that we
recover the forgiven principal amount on both notes totaling $2.0 million. In connection with the restructuring of our notes
receivable and distribution agreements, we recorded a loss of $0.4 million during 2006, which represents lost interest
income on the notes receivable. During 2007 Tandberg experienced liquidity problems and short-term funding has been
provided by outside investors. The collection of the note receivable and realization of the intangible asset is dependent on
the continued success of our relationship with Tandberg and the liquidity of Tandberg. At December 31, 2007, we continue
to believe the recorded note is collectible. However, future events may impact this assessment.
Intangible assets were $371.0 million as of December 31, 2007, compared with $230.2 million as of December 31,
2006. The increase in net intangible assets was attributed to identifiable intangible assets of $132.1 million arising from the
TDK Recording Media acquisition and $25.1 million arising from the Memcorp acquisition.
Accounts payable were $350.1 million as of December 31, 2007, compared with $227.3 million as of December 31,
2006. The increase in accounts payable was mainly attributed to the TDK Recording Media acquisition.
Other current liabilities were $257.3 million as of December 31, 2007, compared with $140.6 million as of
December 31, 2006. The increase in current liabilities was attributed to the liability for rebates, which increased
$38.7 million due mainly to the acquisition of the TDK Recording Media business, an increase in employee separation cost
liability of $21.7 million related to our restructuring activity, as well as several other increases associated with our recent
acquisitions of approximately $50 million in aggregate.
Liquidity and Capital Resources
Cash provided by operating activities was $87.5 million in 2007. The major driver was a net loss of $50.4 million
offset by non-cash items totaling $154.8 million offset by working capital changes of $16.9 million. Non-cash items included
a goodwill impairment charge of $94.1 million, depreciation and amortization of $46.9 million and stock-based compensa-
tion of $10.2 million. Large cash outflows in 2007 included net income tax payments of $9.6 million, restructuring payments
of $13.1 million and pension funding of $5.6 million.
Cash provided by operating activities was $97.5 million in 2006. The major driver was net income as adjusted for
non-cash items totaling $139.6 million, offset by working capital changes of $42.1 million. Net income as adjusted for
significant non-cash items included net income of $76.4 million adjusted for depreciation and amortization of $38.4 million,
stock-based compensation of $11.0 million, deferred income taxes of $9.7 million and asset impairments of $7.2 million.
Significantly higher revenue drove working capital during the year, including increases in receivables and inventories, using
working capital of $37.6 million and $49.3 million, respectively, offset by an increase in accounts payable, providing working
capital of $30.5 million. Large cash outflows in 2006 included tax payments of $22.0 million, restructuring payments of
$13.2 million and pension funding of $13.2 million.
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