The reasons for the price increases are, increased blank CD-R media costs, the tightening of worldwide supplies, worldwide manufacturing consolidation, and strict enforcement of royalty fees by patent holders. The overall effect of these market dynamics is a price increase for Memorex branded CD-R media.

Last year, slightly over 1 billion blank CD-Rs were imported and sold in the United States. During 2001, the U. S. sales forecast is for 1.46 billion units to be sold. A significant portion of future growth is attributed to sales at retail.

In the short term, per disc cost has increased by over 30% based on prices paid at the end of the year 2000. With the enforcement of royalty fees, CD-R disc prices are scheduled to increase again. Memorex has made significant commitments to ensure a steady stream of product availability for 2001 and beyond.

The environment for CD-R media distribution and manufacturing changed dramatically over the last year. Since the beginning of the year 2000, many small and medium sized manufacturers have closed their doors. Last year, manufacturers without a consistent channel for their CD-Rs, sold their inventory on a ``spot'' type market. As a result, excess inventory was often sold drastically below manufacturer's production cost.

Going forward, CD-R patent holders will aggressively enforce their licensing agreements and collect their royalty fees. Due to the enforcement of royalties, major overseas manufacturers are unwilling to produce discs without executable purchase orders in hand.