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Imation Racks Up First Quarter Loss

Imation Corp. announced financial results for its first quarter ended March 31, 2013.

Imation trades on the NASDAQ under the symbol IMN.

For more information visit: www.imation.com


Unedited press release follows:

Imation Reports First Quarter 2013 Financial Results

OAKDALE, Minn. — Imation Corp. (NYSE:IMN) today released financial results for the quarter ended March 31, 2013.  The Company reported Q1 2013 net revenue of $224.4 million, down 14.8 percent from Q1 2012, an operating loss of $14.7 million including special charges of $4.2 million, and a diluted loss per share from continuing operations of $0.39. Excluding special charges, Q1 2013 operating loss would have been $10.5 million and diluted loss per share from continuing operations would have been $0.31 (See Tables Five and Six for non-GAAP measures).

Imation President and Chief Executive Officer Mark Lucas commented: “Imation’s strategic transformation continues to center on leveraging our roots in data storage to build a platform for long-term growth and profitability. In the first quarter, our storage and security solutions business delivered strong results, led by our recently acquired NexsanTM portfolio of products. Additionally, we made good strides in reducing our operating costs and implemented our reorganization into two business units to streamline decision making.” Lucas continued, “Though we are making good progress, we are not yet where we need to be long-term and more work remains.”

Business Update
The Company announced in February that a process would be run to divest both the Memorex and XtremeMac consumer electronic businesses. That process is moving forward and progress has been made in identifying interested parties. The consumer storage business under the MemorexTM and TDK Life on RecordTM brands will be retained.

Starting January 1, 2013, the Company reorganized into two new business segments: Consumer Storage and Accessories (CSA) and Tiered Storage and Security Solutions (TSS). With these two business segments, Imation is becoming a more customer-centric and nimble organization.

Imation’s CSA business unit generates solid cash flows for the Company. This segment includes consumer storage media, primarily optical and flash, as well as storage and electronic accessories. With the planned consumer electronics divestitures, Imation will be able to refocus on storage at the retail level. For example, the Company recently introduced a 3.0 External Solid State Drive with ultra-quick data transfer in a portable form under the TDK Life on Record brand. The CSA business unit plans to launch several other new products in the upcoming quarters.

The TSS business unit provides strategic opportunities for revenue growth and margin expansion. TSS includes both Imation and Nexsan branded tiered and scalable storage solutions, IronKeyTM branded mobile security solutions and commercial storage media. During the quarter, gross margins in the TSS segment increased to 22 percent compared to 19.4 percent in the prior-year period.

Imation’s Nexsan products have strong momentum and posted double-digit growth. The mobile security platform gained a significant win with the Japanese government by landing a contract for Imation’s portable workspace PC on a StickTM product IronKey Workspace 300, which is Microsoft – Certified for Windows to Go. Additionally, Imation launched several other new IronKey flash drives. These storage and security solutions categories delivered gross margins well in excess of 40 percent. Commercial storage media declined 22.4 percent, as expected, driven by magnetic tape.

Lucas concluded, “In the first quarter, our businesses performed as we expected across all major geographies and product categories. Going forward we are continuing to work on introducing differentiated products, building gross margins, improving our cost structure and supporting our two business units. We are committed to achieving growth and profitability, and becoming a key player in data storage and security worldwide.”

Detailed Q1 2013 Analysis
As a result of the planned consumer electronics divestitures, the financial results for those operations are now presented as discontinued operations. The following financial results are presented for continuing operations for the current and prior periods unless otherwise indicated.

Net revenue for Q1 2013 was $224.4 million, down 14.8 percent from Q1 2012. From a segment perspective, TSS grew 1.4 percent and CSA declined 24.9 percent. Foreign currency exchange negatively impacted total Q1 2013 revenues by 2.5 percent.

Gross margin for Q1 2013 was 18.8 percent, down from 20.4 percent in Q1 2012. Gross margin in Q1 2013 was 19.7 percent excluding inventory write offs of $2.1 million, which were part of the Company’s restructuring program, compared to 20.4 percent on the same basis in 2012. TSS gross margin for Q1 2013 was 22.0 percent up from 19.4 percent in Q1 2012. CSA gross margin was 17.7 percent down from 21.0 percent in Q1 2012 (See Table Five for non-GAAP measures).

Selling, general and administrative (SG&A) expenses in Q1 2013 were $49.3 million, down $3.0 million compared with Q1 2012 expenses of $52.3 million. The reduction of 5.7 percent was driven by our cost reduction efforts and prior intangible write-offs, which reduced these costs by approximately 18 percent, partially offset by the Nexsan operating expenses added as a result of the acquisition.

Research and development (R&D) expenses in Q1 2013 were $5.4 million, down $0.2 million compared with Q1 2012 expenses of $5.6 million.

Special charges were $4.2 million in Q1 2013 compared with Q1 2012 charges of $1.3 million.

Operating loss was $14.7 million in Q1 2013 compared with an operating loss of $5.6 million in Q1 2012. Excluding the impact of special charges described above, adjusted operating loss would have been $10.5 million in Q1 2013 compared with adjusted operating loss on the same basis of $4.3 million in Q1 2012 (See Tables Five and Six for non-GAAP measures).

Income tax provision was $0.4 million in Q1 2013 compared with income tax provision of $1.3 million in Q1 2012. The Company maintains a valuation allowance related to its U.S. deferred tax assets and, therefore, no tax provision or benefit was recorded related to its U.S. results in either period.

Discontinued operations was an after tax loss of $5.5 million in Q1 2013 compared with a $3.0 million loss in Q1 2012. Discontinued operations represent the direct results of the XtremeMac and Memorex consumer electronics businesses and included $1.1 million of restructuring charges in Q1 2013.

Loss per diluted share from continuing operations was $0.39 in Q1 2013 compared with $0.25 in Q1 2012. Excluding the impact of special charges described above, adjusted loss per diluted share would have been $0.31 in Q1 2013 compared with $0.21 in Q1 2012 (See Table Five for non-GAAP measures).

Cash and cash equivalents balance was $98.2 million as of March 31, 2013, down $10.5 million during the quarter, driven primarily by anticipated changes in working capital and payments for restructuring.

Webcast and Replay Information

A teleconference is scheduled for 9:00 AM Central Time today, May 1, 2013, and will be available on the Internet on a listen-only basis at www.ir.Imation.com or www.streetevents.com. The Company’s quarterly financial results will be discussed.

A taped replay of the teleconference will be available beginning at 1:30 PM Central Time on May 1, 2013, until 11:30 PM Central Time on May 10, 2013, by dialing 855-859-2056 (conference ID 26505626). All remarks made during the teleconference will be current at the time of the teleconference and the replay will not be updated to reflect any subsequent developments.

Description of Tables

Table One – Consolidated Statements of Operations

Table Two – Consolidated Balance Sheets

Table Three – Supplemental Segment and Product Information

Table Four – Additional Information

Table Five – Non-GAAP Financial Measures

Table Six – Non-GAAP Financial Measures

Table Seven – 2012 Financial Information – Discontinued Operations

Table Eight – 2012 Financial Information – Revised Segments

Non-GAAP Financial Measures
The Non-GAAP financial measurements (adjusted gross margin, adjusted operating income (loss), adjusted earnings (loss) per diluted share) are provided to assist in understanding the impact of certain items on Imation’s actual results of operations when compared with prior periods (see Tables Five and Six). Management believes this will assist investors in making an evaluation of Imation’s performance against prior periods on a comparable basis by adjusting for these items. Management understands that there are material limitations on the use of Non-GAAP measures. Non-GAAP measures are not substitutes for GAAP measures for the purpose of analyzing financial performance. These Non-GAAP measures are not in accordance with, or an alternative for measures prepared in accordance with, generally accepted accounting principles and may be different from Non-GAAP measures used by other companies. In addition, these Non-GAAP measures are not based on any comprehensive set of accounting rules or principles. This information should not be construed as an alternative to the reported results, which have been determined in accordance with accounting principles generally accepted in the United States of America.

About Imation Corp.
Imation (NYSE: IMN) is a global scalable storage and data security company. The Company’s portfolio includes tiered storage and security offerings for business and products designed to manage audio and video information in the home. Imation reaches customers in more than 100 countries through a powerful global distribution network and well recognized brands. Additional information about Imation is available at www.imation.com.

Table One
IMATION CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except for per share amounts)
(Unaudited)
Three Months Ended
March 31
2013 2012
Net revenue $ 224.4 $ 263.3
Cost of goods sold 182.3 209.7
Gross profit 42.1 53.6
Operating expense:
Selling, general and administrative 49.3 52.3
Research and development 5.4 5.6

Restructuring and other

2.1 1.3
Total 56.8 59.2
Operating loss from continuing operations (14.7) (5.6)
Other expense (income):
Interest income - (0.1)
Interest expense 0.7 0.9
Other, net (0.2) 1.5
Total 0.5 2.3
Loss from continuing operations before income taxes (15.2) (7.9)
Income tax provision 0.4 1.3
Loss from continuing operations (15.6) (9.2)
Discontinued operations:

Loss from operations of discontinued businesses, net of income
taxes

(5.5) (3.0)

Net loss

$ (21.1) $ (12.2)
Loss per common share – basic:
Continuing operations $ (0.39) $ (0.25)
Discontinued operations (0.14) (0.08)
Net loss (0.52) (0.33)
Loss per common share – diluted:
Continuing operations $ (0.39) $ (0.25)
Discontinued operations (0.14) (0.08)
Net loss (0.52) (0.33)
Weighted average shares outstanding
Basic 40.4 37.5
Diluted 40.4 37.5

Table Two

IMATION CORP.

CONSOLIDATED BALANCE SHEETS

(In millions)

(Unaudited)

March 31, December 31,
2013 2012
ASSETS
Current assets
Cash and cash equivalents $ 98.2 $ 108.7
Accounts receivable, net 176.2 220.8
Inventories 133.6 166.0
Other current assets 92.2 61.6

Total current assets

500.2 557.1
Property, plant and equipment, net 55.8 58.9
Intangible assets, net 75.8 81.9
Goodwill 70.6 73.5
Other assets 22.7 22.1
Total assets $ 725.1 $ 793.5
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable $ 136.5 $ 162.7
Other current liabilities 138.4 158.4
Short-term debt 20.0 20.0
Total current liabilities 294.9 341.1
Other liabilities 50.6 52.0
Total liabilities 345.5 393.1
Commitments and contingencies
Shareholders’ equity 379.6 400.4
Total liabilities and shareholders’ equity $ 725.1 $ 793.5
Table Three
IMATION CORP.
SUPPLEMENTAL SEGMENT AND PRODUCT INFORMATION
(Dollars in millions)
(Unaudited)
Three months ended Three months ended
March 31, March 31,
2013 2012 % Change
Revenue % Total Revenue % Total
Consumer Storage and Accessories
Consumer storage media $ 114.2 50.9 % $ 152.7 58.0 % -25.2 %
Audio and accessories 7.6 3.4 % 9.4 3.6 % -19.1 %
Total Consumer Storage and Accessories 121.8 54.3 % 162.1 61.6 % -24.9 %
Tiered Storage and Security Solutions
Commercial storage media 66.9 29.8 % 86.2 32.7 % -22.4 %
Storage and security solutions 35.7 15.9 % 15.0 5.7 % 138.0 %
Total Tiered Storage and Security Solutions 102.6 45.7 % 101.2 38.4 % 1.4 %
Total $ 224.4 100.0 % $ 263.3 100.0 %

Operating
Income (Loss)

OI %

Operating
Income (Loss)

OI %

Consumer Storage and Accessories $ 5.9 4.8 % $ 16.6 10.2 % -64.5 %
Tiered Storage and Security Solutions (3.0 ) -2.9 % (6.5 ) -6.4 % -53.8 %
Corp/Unallocated (1) (17.6 ) NM (15.7 ) NM 12.1 %
Total operating loss from continuing operations $ (14.7 ) -6.6 % $ (5.6 ) -2.1 %

Gross Margin

Gross Margin

Consumer Storage and Accessories 17.7

%

21.0

%

Tiered Storage and Security Solutions 22.0 19.4
19.7 20.4

Inventory write-offs related to restructuring programs

(0.9 ) 0.0
Total 18.8

%

20.4

%

NM – Not Meaningful

(1) Corporate and unallocated amounts include depreciation and
amortization expense, litigation settlement expense, goodwill
impairment, intangible impairments, intangible asset abandonment,
corporate expense, contingent consideration adjustments, inventory
write-offs related to our restructuring programs and restructuring
and other expenses which are not allocated to the segments. We
believe the presentation of these items in Corporate and
unallocated avoids distorting the operating income for our
segments.

Table Four
IMATION CORP.
ADDITIONAL INFORMATION
(Dollars in millions)
(Unaudited)
Three Months Ended
March 31
Cash and Cash Flow Information 2013 2012
Cash and cash equivalents – end of period $ 98.2 $ 216.2
Capital Spending $ 1.4 $ 2.0
Depreciation $ 2.8 $ 2.1
Amortization $ 3.6 $ 7.2
Asset Utilization Information *

March 31

December 31

2013

2012

Days Sales Outstanding (DSO) 63 59
Days of Inventory Supply 76 89
Debt to Total Capital 5.0 % 4.8 %
Other Information
Approximate employee count as of March 31, 2013: 1,100
Approximate employee count as of December 31, 2012: 1,230
Book value per share as of March 31, 2013:

$9.37

Shares used to calculate book value per share (millions): 40.5
Imation did not repurchase shares of its stock in the first quarter
of 2013.

*These operational measures, which we regularly use, are provided
to assist in the investor’s further understanding of our
operations.

Days Sales Outstanding is calculated using the count-back method,
which calculates the number of days of most recent revenue that
are reflected in the net accounts receivable balance.

Days of Inventory Supply is calculated using the current period
inventory balance divided by an estimate of the inventoriable
portion of cost of goods sold expressed in days. December 31, 2012
amount excludes Nexsan Corporation.

Debt to Total Capital is calculated by dividing total debt (long
term plus short term) by total shareholders’ equity and total debt.

Table Five
IMATION CORP.
Non-GAAP Financial Measures
(In millions, except for per share amounts)
(Unaudited)
Three Months Ended Three Months Ended
March 31, 2013 March 31, 2012
GAAP Adj * Non-GAAP GAAP Adj * Non-GAAP
Net revenue $ 224.4 $ - $ 224.4 $ 263.3 $ - $ 263.3
Cost of goods sold 182.3 (2.1 ) 180.2 209.7 - 209.7

Adjusted gross profit

$ 42.1 $ 2.1 $ 44.2 $ 53.6 $ - $ 53.6
Adjusted gross margin 18.8 % 19.7 % 20.4 % 20.4 %
Operating (loss) income from continuing operations $ (14.7 ) $ 4.2 $ (10.5 ) $ (5.6 ) $ 1.3 $ (4.3 )
Adjusted income tax provision $ 0.4 $ 1.1 $ 1.5 $ 1.3 $ - $ 1.3
Adjusted (loss) from continuing operations $ (15.6 ) $ 3.1 $ (12.5 ) $ (9.2 ) $ 1.3 $ (7.9 )

Adjusted (loss) earnings per common share from continuing
operations – Diluted

$ (0.39 ) $ (0.31 ) $ (0.25 ) $ (0.21 )
Adjusted weighted average shares outstanding – Diluted 40.4 40.4 37.5 37.5
*See Table Six
Table Six
IMATION CORP.
Non-GAAP Financial Measures
(In millions, except for per share amounts)
(Unaudited)
Operating (loss) income / Adjusted operating (loss) income
Three Months Ended
March 31
2013 2012
Operating loss: $ (14.7 ) $ (5.6 )
Restructuring and other
Restructuring 1.5 0.6

Other

0.6 0.7
Inventory write-downs related to restructuring programs included in
cost of goods sold
2.1 -
Total adjustments 4.2 1.3
Adjusted operating (loss) income – Non-GAAP $ (10.5 ) $ (4.3 )
Effect on diluted EPS:
(Loss) income from operations $ (0.39 ) $ (0.25 )
Restructuring and other
Restructuring 0.03 0.02
Other 0.01 0.02
Inventory write-downs 0.04 -
Adjusted diluted EPS – Non-GAAP $ (0.31 ) $ (0.21 )
EBITDA:
Operating loss $ (14.7 ) $ (5.6 )
Depreciation 2.8 2.1
Amortization 3.6 7.2
EBITDA $ (8.3 ) $ 3.7
Restructuring and other 2.1 1.3
Inventory write-downs related to restructuring programs included in
cost of goods sold
2.1 -
Total adjustments 4.2 1.3
Adjusted EBITDA $ (4.1 ) $ 5.0
EBITDA is defined as operating income less depreciation and
amortization. Adjusted EBITDA is defined as EBITDA before goodwill,
restructuring and other, and inventory write-downs related to
restructuring programs included in cost of goods sold.

The Non-GAAP financial measurements (adjusted operating income
(loss), adjusted income (loss), adjusted diluted EPS, EBITDA and
adjusted EBITDA) are provided to assist in understanding the
impact of certain items on Imation’s actual results of operations
when compared with prior periods. Management believes this will
assist investors in making an evaluation of Imation’s performance
against prior periods on a comparable basis by adjusting for these
items. Management understands that there are material limitations
on the use of Non-GAAP measures. Non-GAAP measures are not
substitutes for GAAP measures for the purpose of analyzing
financial performance. These Non-GAAP measures are not in
accordance with, or an alternative for measures prepared in
accordance with, generally accepted accounting principles and may
be different from Non-GAAP measures used by other companies. In
addition, these Non-GAAP measures are not based on any
comprehensive set of accounting rules or principles. This
information should not be construed as an alternative to the
reported results, which have been determined in accordance with
accounting principles generally accepted in the United States of
America.

Table Seven
IMATION CORP.
2012 FINANCIAL INFORMATION – DISCONTINUED OPERATIONS
CONSOLIDATED STATEMENT OF OPERATIONS
(In millions, except for per share amounts)
(Unaudited)
Year Ended December 31, 2012
Q1 Q2 Q3 Q4 Total
Net revenue $ 263.3 $ 249.2 $ 227.4 $ 266.8 $ 1,006.7
Cost of goods sold 209.7 199.6 184.3 223.8 817.4
Gross profit 53.6 49.6 43.1 43.0 189.3
Operating expense:
Selling, general and administrative 52.3 47.3 45.8 45.7 191.1
Research and development 5.6 5.5 4.6 4.7 20.4
Intangible impairments -

-

- 251.8 251.8
Goodwill impairment - - - 23.3 23.3
Restructuring and other 1.3 4.3 (3.6 ) 19.1 21.1
Total 59.2 57.1 46.8 344.6 507.7
Operating loss (5.6 ) (7.5 ) (3.7 ) (301.6 ) (318.4 )
Other expense (income):
Interest income (0.1 ) (0.2 ) (0.1 ) (0.1 ) (0.5 )
Interest expense 0.9 0.9 0.6 0.5 2.9
Other, net 1.5 1.1 (0.4 ) 0.4 2.6
Total 2.3 1.8 0.1 0.8 5.0
Loss before income taxes (7.9 ) (9.3 ) (3.8 ) (302.4 ) (323.4 )
Income tax (benefit) provision 1.3 0.2 - (0.1 ) 1.4
Loss from continuing operations (9.2 ) (9.5 ) (3.8 ) (302.3 ) (324.8 )
Discontinued operations:

(Loss) income from operations of discontinued businesses, net of
income taxes

(3.0 ) (2.5 ) (2.5 ) (7.9 ) (15.9 )
Net (loss) income $ (12.2 ) $ (12.0 ) $ (6.3 ) $ (310.2 ) $ (340.7 )
(Loss) earnings per common share – basic:*
Continuing operations $ (0.25 ) $ (0.25 ) $ (0.10 ) $ (8.13 ) $ (8.67 )
Discontinued operations (0.08 ) (0.07 ) (0.07 ) (0.21 ) (0.42 )
Net income (0.33 ) (0.32 ) (0.17 ) (8.34 ) (9.09 )
(Loss) earnings per common share – diluted:*
Continuing operations $ (0.25 ) $ (0.25 ) $ (0.10 ) $ (8.13 ) $ (8.67 )
Discontinued operations (0.08 ) (0.07 ) (0.07 ) (0.21 ) (0.42 )
Net income (0.33 ) (0.32 ) (0.17 ) (8.34 ) (9.09 )
Weighted average shares outstanding
Basic 37.5 37.7 37.4 37.2 37.5
Diluted 37.5 37.7 37.4 37.2 37.5
As of March 31, 2013, we are presenting discontinued operations for
two businesses which we plan to divest. The Consolidated Statement
of Operations for the Year Ended December 31, 2012 presented above
has been prepared including discontinued operations for each quarter
and in total for comparative purposes.
*The sum of the quarterly loss per share may not equal the annual
loss per share as quarterly calculations are performed on a discrete
basis.
Table Eight
IMATION CORP.
2012 FINANCIAL INFORMATION – REVISED SEGMENTS
SEGMENT AND PRODUCT INFORMATION
(Dollars in millions)
(Unaudited)
Year Ended December 31, 2012
Q1 Q2 Q3 Q4 Total
Revenue:
Consumer Storage and Accessories
Consumer storage media $ 152.7 $ 151.1 $ 133.5 $ 157.0 $ 594.3
Audio and accessories 9.4 9.4 8.7 13.5 41.0
Total Consumer Storage and Accessories 162.1 160.5 142.2 170.5 635.3
Tiered Storage and Security Solutions
Commercial storage media 86.2 75.1 72.9 77.4 311.6
Storage and security solutions 15.0 13.6 12.3 18.9 59.8
Total Tiered Storage and Security Solutions 101.2 88.7 85.2 96.3 371.4
Total $ 263.3 $ 249.2 $ 227.4 $ 266.8 $ 1,006.7
Operating income (loss):
Consumer Storage and Accessories $ 16.6 $ 16.0 $ 12.9 $ 16.0 $ 61.5
Tiered Storage and Security Solutions (6.5 ) (6.0 ) (6.6 ) (7.6 ) (26.7 )
Corp/Unallocated (1) (15.7 ) (17.5 ) (10.0 ) (310.0 ) (353.2 )
Total operating loss $ (5.6 ) $ (7.5 ) $ (3.7 ) $ (301.6 ) $ (318.4 )

As of January 1, 2013, we revised our segment reporting to reflect
changes in how we manage our business, review operating
performance and allocate resources. We now manage our business
through two reporting segments, Tiered Storage and Security
Solutions (TSS) and Consumer Storage and Accessories (CSA).
Additionally, as of March 31, 2013, we are presenting discontinued
operations for two businesses which we plan to divest. The
information presented above for the Year Ended December 31, 2012,
has been prepared under our new reporting segments and excluding
amounts reclassified to discontinued operations for comparative
purposes.

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