Memorex 2010 Annual Report Download - page 85

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these matters could materially affect operating results depending upon the final resolution in future periods, it is our opinion
that after final disposition, any monetary liability beyond that provided in the Consolidated Balance Sheet as of
December 31, 2010 would not be material to our Consolidated Financial Statements.
In 2007 SanDisk Corporation (SanDisk) filed a patent infringement action in U.S. District Court, Western District of
Wisconsin, against Imation and its subsidiaries and 20 other defendants, relating to flash drives and other solid state
memory products. SanDisk also filed a complaint with the U.S. International Trade Commission (ITC) against the same
defendants, relating to the same patents and products, seeking to block the defendants’ importation of these products into
the United States. The U.S. District Court stayed the court proceeding until resolution of the ITC claim. The ITC claim was
resolved in the fall of 2009, with SanDisk withdrawing its claims with respect to certain patents and the ITC ruling that the
remaining patents were invalid and or not infringed. The U.S. District Court lifted the stay of its proceedings in the fall of
2009 and one of the patents in the case was withdrawn without prejudice by SanDisk. On May 4, 2010, SanDisk filed an
additional patent infringement lawsuit in the U.S. District Court, Western District of Wisconsin, based on seven new patents
against Imation and its subsidiaries and one other company named as defendants seeking an injunction and damages.
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.
On June 19, 2009, Advanced Research Corp. (ARC) sued Imation for breach of contract relating to a supply
agreement under which we purchase our requirements for magnetic heads to write servo patterns on magnetic tape prior
to sale of the finished cartridges, requesting the court to order that Imation pay damages and return the purchased heads
to ARC. ARC is alleging that we misrepresented the volumes of heads that we would require, and that ARC invested in a
new facility in reliance on our forecasts. ARC has claimed damages in excess of $27.2 million and we have filed
counterclaims against ARC for its failure to comply with the supply agreement and other agreements, claiming damages in
excess of $8.5 million. In March, 2010, both Imation and ARC filed motions for partial summary judgment, which motions
were denied by the court on July 6, 2010. On July 27, 2010, the court granted ARC’s motion to amend its complaint to
add a claim for trade secret misappropriation. On December 20, 2010, the court provided Imation ten weeks to conduct
additional discovery relating to ARC’s new claim. A trial date has been set for October 2011. Imation believes ARC’s
claims are without merit.
Operating Leases
We incur rent expense under operating leases, which primarily relate to equipment and office space. Most long-term
leases include one or more options to renew at the then fair rental value for a period of approximately one to three years.
The following table sets forth the components of rent expense for the years ended December 31:
2010 2009 2008
(In millions)
Minimum lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9.6 $10.3 $16.7
Contingent rentals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.2 18.0 13.7
Rental income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2.9) (2.8) (2.4)
Sublease income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.5) (0.3) (0.5)
Total rental expense recognized in income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $13.4 $25.2 $27.5
Minimum lease payments and contingent rental expenses incurred due to agreements with warehouse providers are
included as a component of cost of goods sold in the Consolidated Statements of Operations. The minimum lease
payments under such arrangements were $2.0 million, $2.2 million and $3.9 million in 2010, 2009 and 2008, respectively.
The contingent rental expenses under such arrangements were $3.6 million, $5.8 million and $0.7 million in 2010, 2009
and 2008, respectively.
82
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)