Memorex 2010 Annual Report Download - page 23

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Research and Development (R&D)
2010 2009 2008 2010 vs. 2009 2009 vs. 2008
Years Ended December 31, Percent Change
(In millions)
Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . $16.4 $20.4 $23.6 ⫺19.6% ⫺13.6%
As a percent of revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1% 1.2% 1.2%
The decrease in our 2010 and 2009 R&D expense was due to continued cost savings from restructuring activities
and cost control actions. R&D expense as a percent of revenue remained relatively flat compared with 2009 and 2008.
During 2011 we plan to invest in additional R&D activities in four core product technology areas: secure storage, scalable
storage, wireless/connectivity and magnetic tape. These investments will result in an increase of more than 30 percent in
R&D annually.
Litigation Settlement
2010 2009 2008
Years Ended December 31,
(In millions)
Litigation settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2.6 $49.0 $—
A charge of $2.6 million was recognized in the fourth quarter of 2010 and is included in litigation settlement expense.
On January 11, 2011, we signed a patent cross-license agreement with SanDisk to settle the two patent cases filed by
SanDisk in Federal District Court against our flash memory products, including USB drives and solid state disk (SSD)
drives. Under the terms of the cross-license, we will pay SanDisk royalties on certain flash memory products that were
previously not licensed. The specific terms of the cross-license are confidential. The cross-license agreement requires us
to make a one time payment of $2.6 million. The one time payment was recognized in the fourth quarter of 2010 and
recorded as litigation settlement expense in the Consolidated Statements of Operations. See Note 15 in the Consolidated
Financial Statements for further information about this litigation settlement.
A litigation settlement charge of $49.0 million was recorded in 2009. We entered into a confidential settlement
agreement ending all legal disputes with Philips Electronics N.V., U.S. Philips Corporation and North American Philips
Corporation (collectively, Philips). We had been involved in a complex series of disputes in multiple jurisdictions regarding
cross-licensing and patent infringement related to recordable optical media. The settlement provided resolution of all claims
and counterclaims filed by the parties without any finding or admission of liability or wrongdoing by any party. As a term of
the settlement, we agreed to pay Philips $53.0 million over a period of three years. Based on the present value of these
settlement payments, we recorded a charge of $49.0 million in the second quarter of 2009. We made payments of
$8.2 million and $20.0 million in 2010 and 2009, respectively. Interest accretion of $1.5 million and $0.8 million was
recorded in 2010 and 2009, respectively. The interest accretion is included in the interest expense on our Consolidated
Statements of Operations.
Goodwill Impairment
2010 2009 2008
Years Ended December 31,
(In millions)
Goodwill impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $23.5 $— $32.4
We made certain changes to our business segments effective in the second quarter of 2010. Our reporting units for
goodwill are our operating segments with the exception of the Americas segment which is further divided between the
Americas-Consumer and Americas-Commercial reporting units as determined by sales channel. As a result of the segment
change in the second quarter of 2010, the $23.5 million of goodwill which was previously allocated to the Electronics
Products segment was merged into the Americas-Consumer reporting unit. See Note 14 to the Consolidated Financial
Statements for further information about the changes of our segments. The Americas-Consumer reporting unit had a fair
value that was significantly less than its carrying amount prior to the combination, which is a triggering event for an interim
goodwill impairment test. Goodwill is considered impaired when its carrying amount exceeds its implied fair value. A two-
step impairment test was performed to identify a potential impairment and measure an impairment loss to be recognized.
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