Memorex 2011 Annual Report Download - page 29

The 2010 operating loss was significantly impacted by restructuring and other expenses of $51.1 million, asset impairment of
$31.2 million and inventory write-offs of $14.2 million as well as a litigation settlement charge of $2.6 million. Our 2009
operating loss was significantly impacted by the Philips litigation settlement charge of $49.0 million and restructuring and
other charges of $26.6 million.
Other Expense
Years Ended December 31, Percent Change
2011 2010 2009 2011 vs. 2010 2010 vs. 2009
(In millions)
Interest income .................................... $(0.9) $(0.8) $ (0.7) 12.5% 14.3%
Interest expense ................................... 3.7 4.2 2.9 (11.9)% 44.8%
Other expense, net ................................. 7.0 3.3 12.8 112.1% (74.2)%
Other expense ..................................... $9.8 $6.7 $15.0 46.3% (55.3)%
As a percent of revenue ............................ 0.8% 0.5% 0.9%
Interest income remained relatively constant in 2011 compared with 2010. Our interest expense decreased in 2011
compared with 2010 due to decreased amortization of capitalized fees related to securing our credit facility and decreased
imputed interest related to our liability for the Philips litigation settlement. Other expense increased in 2011 compared with
2010 due to increases in foreign currency losses of $2.4 million. We attempt to mitigate the exposure to foreign currency
volatility through our hedging program; however, our program is not designed to fully hedge our risk and as a result we
experience some volatility in other income, especially in periods of significant foreign currency fluctuation. Other expense in
2010 benefited $2.0 million from a recovery of a note receivable from a commercial partner.
Interest income remained relatively constant in 2010 compared with 2009 primarily due to higher average cash balances
during the year, offset by reduced interest rates year-over-year. Our interest expense increased in 2010 compared with 2009
due to increased amortization of capitalized fees related to securing our credit facility of $1.1 million and increased imputed
interest related to our liability for the Philips litigation settlement of $0.7 million, offset partially by reduced interest on
borrowings of $0.5 million. Our other expense net decreased in 2010, compared with 2009, due to declines in foreign currency
losses of $4.5 million and a $3.0 million reserve for a note receivable from one of our commercial partners recorded in 2009,
offset partially by a recovery of $2.0 million in 2010.
Income Tax Provision (Benefit)
Years Ended December 31,
2011 2010 2009
(In millions)
Income tax provision (benefit) ............................................... $3.8 $81.9 $(32.7)
Effective tax rate ......................................................... NM NM 42.6%
NM - Not meaningful
The 2011 income tax provision primarily represents tax expense related to operations outside the United States as well
as foreign withholding taxes. We maintain a valuation allowance related to our U.S. deferred tax assets and, therefore, no tax
provision or benefit was recorded related to 2011 U.S. results. Because of the valuation allowance, the effective tax rates for
2011 and 2010 are not meaningful.
The change in our income tax provision (benefit) for 2010, as compared to 2009, was primarily due to the establishment
of a valuation allowance on our U.S. deferred tax assets. During the fourth quarter of 2010, we recognized significant
restructuring charges related to our U.S. operations. Due to these charges and cumulative losses incurred in recent years, we
were no longer able to conclude that it was more-likely-than-not that our U.S. deferred tax assets would be fully realized.
Therefore, during 2010, we recorded a charge to establish a valuation allowance of $105.6 million related to our U.S. deferred
tax assets. The valuation allowance charge is included in income tax provision on our Consolidated Statement of Operations.
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