Memorex 2013 Annual Report Download - page 10

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business we also entered into a supply agreement, dated July 31, 2007, with TDK (Supply Agreement), which allowed us to
purchase a limited number of Linear Tape-Open, (LTO), Tape media and Blu-ray removable recording media products and
accessory products for resale under the TDK Life on Record brand name. TDK agreed to supply such products on competitive
terms, and TDK agreed not to sell any such products to third parties for resale under the TDK brand name during the term of
the trademark license agreements. The Supply Agreement will be terminated on March 31, 2014. The trademark license
agreements will continue unless terminated by TDK no earlier than 2032 (2017 in the case of headphones and speakers) or
earlier in the event of a material breach of the trademark license agreement, specific change of control events or default by
Imation. TDK owned approximately 18 percent of outstanding Imation Corp. common stock on December 31, 2013.
In 2011, we signed a strategic agreement with TDK to jointly develop and manufacture magnetic tape technologies and
we discontinued tape coating operations at our Weatherford, Oklahoma facility. Under the agreement, we collaborated on the
research and development of future tape formats in both companies’ research centers in the U.S. and Japan, and
consolidated tape coating operations to the TDK Group Yamanashi manufacturing facility. At the end of 2013, TDK
announced its intent to cease manufacturing of magnetic tape. Imation will transition to source our product from alternate
magnetic tape suppliers during 2014.
We also make purchases of finished and semi-finished products, including optical media and USB flash drives, certain
finished tape and tape cartridges and consumer electronic products, primarily from Asian suppliers. For our optical media, we
procure our supply primarily from three companies. If supply were disrupted from any of our primary suppliers, our business
could be negatively impacted. The loss of these certain suppliers could have a material adverse impact on the business. We
view the sourcing and distribution of finished goods as a critical success factor for these products. Therefore, we seek to
establish and maintain strategic sourcing relationships with several key suppliers.
Research, Development and Engineering
Development and timely introduction of new products are important to our success. We maintain advanced research
facilities and invest resources in researching, developing and engineering potential new products and improving existing
products. Our research and development expense was $18.4 million, $20.4 million and $18.3 million for 2013, 2012 and 2011,
respectively. We invest in research, development, engineering and capital equipment in order to remain competitive and
successfully develop and source products that meet market requirements. Beginning in 2013 we have reduced our research
and development efforts on our legacy products and are focusing on our growth areas by investment in research related to
our strategic focus on data protection and management, storage hardware, removable hard drive systems, disk-based
storage systems and related software.
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
United States and in a number of other countries where we do business. United States patents are currently granted for a
term of 20 years from the date a patent application is filed. United States 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. The trademark license agreements will continue unless terminated by TDK no earlier than 2032 (2017 in
the case of headphones and speakers) or earlier in the event of a material breach of the trademark license agreement,
specific change of control events or default by Imation.
During 2013, we were awarded 21 United States patents and at the end of the year held over 263 patents in the United
States.
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