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Imation Announces Third Quarter Results And Acceleration Of Its Strategic Transformation

Stocks in this article: IMN

Description of Tables

Table One - Consolidated Statements of OperationsTable Two - Consolidated Balance SheetsTable Three - Supplemental Segment and Product InformationTable Four - Operations, Cash Flow and Additional InformationTable Five - Non-GAAP Financial MeasuresTable Six - Non-GAAP Financial Measures

Non-GAAP Financial Measures

The Non-GAAP financial measurements (adjusted operating income (loss), adjusted income (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.

Risk and Uncertainties

Certain information contained in this press release which does not relate to historical information may be deemed to constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties that could cause our actual results in the future to differ materially from our historical results and those presently anticipated or projected. We wish to caution investors not to place undue reliance on any such forward-looking statements. Any forward-looking statements speak only as of the date on which such statements are made, and we undertake no obligation to update such statements to reflect events or circumstances arising after such date. Risk factors include our ability to successfully implement our strategy; our ability to grow our business in new products with profitable margins and the rate of revenue decline for certain existing products; the ability of our data security products to withstand cyber-attacks; the ability to quickly develop, source, introduce and deliver differentiating and innovative products; our potential dependence on third parties for new product introductions or technologies in order to introduce our own new products; the ready availability and price of energy and key raw materials or critical components including due to the effects of natural disasters and our ability to pass along raw materials price increases to our customers; continuing uncertainty in global and regional economic conditions including adverse effects of the ongoing sovereign debt crisis in Europe, increased Euro currency exchange rate volatility, and related austerity measures and their potential impact on European economic growth; our ability to identify, value, integrate and realize the expected benefits from any acquisition which has occurred or may occur in connection with our strategy; the possibility that our goodwill or any goodwill that we acquire may become impaired; the seasonality and volatility of the markets in which we operate; foreign currency fluctuations; changes in European law or practice related to the imposition or collectability of optical levies; significant changes in discount rates and other assumptions used in the valuation of our pension plans; the possibility that our intangible assets may become impaired; acquisition related contingent consideration, which is recorded at fair value and revalued each period, differs from the obligation recorded during the previous period resulting in income or expense being recorded on the consolidated statements of operations; changes in tax laws, regulations and results of inspections by various tax authorities; our ability to successfully defend our intellectual property rights and the ability or willingness of our suppliers to provide adequate protection against third party intellectual property or product liability claims; the outcome of any pending or future litigation; failure to adequately protect our information systems from cyber-attacks; our ability to meet our revenue growth, gross margin and earnings targets and the volatility of our stock price due to our results or market trends, as well as various factors set forth from time to time in our filings with the Securities and Exchange Commission.

       
Table One
 
IMATION CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except for per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
September 30 September 30
2012 2011 2012   2011
Net revenue $ 248.2 $ 308.6 $ 800.5 $ 948.1
Cost of goods sold   202.5     251.4     646.3       782.9  
Gross profit 45.7 57.2 154.2 165.2
 
Operating expense:
Selling, general and administrative 50.7 52.7 160.2 150.8
Research and development 5.1 5.3 17.7 15.0
Goodwill impairment - - - 1.6
Litigation settlement - 2.0 - 2.0
Restructuring and other   (3.6 )   5.5     2.0       16.8  
Total 52.2 65.5 179.9 186.2
 
Operating loss (6.5 ) (8.3 ) (25.7 ) (21.0 )
 
Other expense (income):
Interest income (0.1 ) (0.2 ) (0.4 ) (0.6 )
Interest expense 0.6 0.8 2.4 2.7
Other, net   (0.4 )   3.1     2.2       6.2  
Total 0.1 3.7 4.2 8.3
 
Loss before income taxes (6.6 ) (12.0 ) (29.9 ) (29.3 )
 
Income tax (benefit) provision   (0.3 )   2.1     0.6       4.5  
 
Net loss $ (6.3 ) $ (14.1 ) $ (30.5 )   $ (33.8 )
 
(Loss) earnings per common share
Basic $ (0.17 ) $ (0.38 ) $ (0.81 ) $ (0.89 )
Diluted (0.17 ) (0.38 ) (0.81 ) (0.89 )
 
Weighted average shares outstanding
Basic 37.4 37.5 37.6 37.8
Diluted 37.4 37.5 37.6 37.8
 

 
Table Two
       
IMATION CORP.
CONSOLIDATED BALANCE SHEETS
(In millions)
(Unaudited)
 
September 30, December 31,
2012 2011
ASSETS
Current assets
Cash and cash equivalents $ 186.3 $ 223.1
Accounts receivable, net 178.2 234.9
Inventories 211.5 208.8
Other current assets   61.0   49.7
 
Total current assets 637.0 716.5
 
Property, plant and equipment, net 55.8 55.4
Intangible assets, net 300.6 321.7
Goodwill 31.3 31.3
Other assets   27.4   24.4
 
Total assets $ 1,052.1 $ 1,149.3
 
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 172.0 $ 205.2
Other current liabilities   129.0   151.2
 
Total current liabilities 301.0 356.4
 
Other liabilities 51.5 69.2
       
Total liabilities   352.5   425.6
Commitments and contingencies        
Shareholders' equity   699.6   723.7
 
Total liabilities and shareholders' equity $ 1,052.1 $ 1,149.3
 

   
Table Three
 
IMATION CORP.
SUPPLEMENTAL SEGMENT AND PRODUCT INFORMATION
(Dollars in millions)
(Unaudited)
 
 
Three months ended Three months ended
September 30, September 30,

2012

2011

% Change
Revenue % Total Revenue % Total
Americas $ 117.3 47.3 % $ 141.4 45.8 % -17.0 %
Europe 44.3 17.8 % 56.8 18.4 % -22.0 %
North Asia 62.0 25.0 % 75.3 24.4 % -17.7 %
South Asia   24.6   9.9 %   35.1   11.4 % -29.9 %
Total $ 248.2   100.0 % $ 308.6   100.0 %

 

 
Revenue % Total Revenue % Total
Traditional storage
Optical products $ 97.0 39.1 % $ 126.8 41.1 % -23.5 %
Magnetic products 68.3 27.5 % 76.9 24.9 % -11.2 %
Other traditional storage   3.2   1.3 %   13.0   4.2 % -75.4 %
Total traditional storage 168.5 67.9 % 216.7 70.2 % -22.2 %
Secure and scalable storage 44.5 17.9 % 48.2 15.6 % -7.7 %
Audio and video information   35.2   14.2 %   43.7   14.2 % -19.5 %
Total $ 248.2   100.0 % $ 308.6   100.0 %
 
 
Operating Income Operating Income
(Loss)

OI %

(Loss)

OI %

Americas $ (0.5 ) -0.4 % $ (0.8 ) -0.6 % -37.5 %
Europe (1.9 ) -4.3 % 4.6 8.1 % -141.3 %
North Asia 0.7 1.1 % (0.3 ) -0.4 % NM
South Asia (0.5 ) -2.0 % 1.4 4.0 % -135.7 %
Corp/Unallocated (1)   (4.3 ) NM     (13.2 ) NM   NM
Total $ (6.5 ) -2.6 % $ (8.3 ) -2.7 %
 
Gross Margin Gross Margin
 
Traditional storage 18.0 % 19.9 %
Secure and scalable storage 22.0 15.6
Audio and video information   15.9     15.1  
18.4 18.5
 
Inventory write-offs related to restructuring programs   0.0     0.0  
Total   18.4   %   18.5   %
 
Nine months ended Nine months ended
September 30, September 30,
2012 2011 % Change
Revenue % Total Revenue % Total
Americas $ 373.6 46.7 % $ 427.3 45.1 % -12.6 %
Europe 149.0 18.6 % 183.2 19.3 % -18.7 %
North Asia 194.4 24.3 % 229.6 24.2 % -15.3 %
South Asia   83.5   10.4 %   108.0   11.4 % -22.7 %
Total $ 800.5   100.0 % $ 948.1   100.0 %
 
 
Revenue % Total Revenue % Total
Traditional storage
Optical products $ 317.8 39.7 % $ 383.8 40.5 % -17.2 %
Magnetic products 215.0 26.8 % 244.7 25.8 % -12.1 %
Other traditional storage   11.7   1.5 %   38.6   4.1 % -69.7 %
Total traditional storage 544.5 68.0 % 667.1 70.4 % -18.4 %
Secure and scalable storage 147.3 18.4 % 156.3 16.5 % -5.8 %
Audio and video information   108.7   13.6 %   124.7   13.1 % -12.8 %
Total $ 800.5   100.0 % $ 948.1   100.0 %
 
 
Operating Income Operating Income
(Loss)

OI %

(Loss)

OI %

Americas $ 3.0 0.8 % $ 2.3 0.5 % 30.4 %
Europe (5.8 ) -3.9 % 7.8 4.3 % -174.4 %
North Asia 2.8 1.4 % 9.1 4.0 % -69.2 %
South Asia 0.8 1.0 % 2.3 2.1 % -65.2 %
Corp/Unallocated (1)   (26.5 ) NM     (42.5 ) NM   NM
Total $ (25.7 ) -3.2 % $ (21.0 ) -2.2 %
 
Gross Margin Gross Margin
 
Traditional storage 19.4 % 19.0 %
Secure and scalable storage 20.6 14.1
Audio and video information   16.7     14.3  
19.3 17.6
 
Inventory write-offs related to restructuring programs   0.0     (0.2 )
Total   19.3   %   17.4   %
 
 
NM - Not Meaningful
(1) Corporate and unallocated amounts include inventory write-offs related to restructuring programs, goodwill impairment, intangible accelerated amortization, research and development expense, corporate expense, stock-based compensation expense, and restructuring and other charges that are not allocated to the regional markets we serve. We believe this avoids distorting the operating income for the regional segments.
 

 
Table Four
       
IMATION CORP.
OPERATIONS, CASH FLOW AND ADDITIONAL INFORMATION
(Dollars in millions)
(Unaudited)
 
 
 
Three Months Ended Nine Months Ended
(Dollars in millions) September 30   September 30
2012 2011   2012 2011
Operations
Gross Profit $ 45.7 $ 57.2 $ 154.2 $ 165.2
Gross Margin % 18.4 % 18.5 % 19.3 % 17.4 %
Operating (Loss) Income $ (6.5 ) $ (8.3 ) $ (25.7 ) $ (21.0 )
Operating (Loss) Income % -2.6 % -2.7 % -3.2 % -2.2 %
 
Cash Flow
Net cash (used in) provided by operating activities $ (20.7 ) $ (16.3 ) $ (22.6 ) $ (31.6 )
Net cash (used in) provided by investing activities $ (2.4 ) $ (2.1 ) $ (6.1 ) $ (32.1 )
Net cash (used in) provided by financing activities $ (3.0 ) $ (2.9 ) $ (8.5 ) $ (9.1 )
Cash and cash equivalents - end of period $ 186.3 $ 232.9 $ 186.3 $ 232.9
 
Capital Spending $ 3.3 $ 1.6 $ 8.4 $ 6.1
Depreciation $ 1.9 $ 2.7 $ 6.1 $ 8.4
Amortization $ 7.2 $ 6.6 $ 21.7 $ 18.8
 
NM - Not Meaningful
 
Asset Utilization Information *
September 30 December 31
2012 2011
 
Days Sales Outstanding (DSO) 62 58
Days of Inventory Supply 76 85
Debt to Total Capital 0.0 % 0.0 %
 
Other Information
 
Approximate employee count as of September 30, 2012: 1,080
Approximate employee count as of December 31, 2011: 1,130
Book value per share as of September 30, 2012: $ 18.76
Shares used to calculate book value per share (millions): 37.3
Imation repurchased approximately 429,0000 shares of its stock during the quarter for $2.5 million.
Authorization for repurchase of approximately 4.2 million shares remains outstanding based on the latest Board authorization.
 
*

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.

 

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
September 30, 2012 September 30, 2011
GAAP Adj * Non-GAAP GAAP Adj * Non-GAAP
Net revenue $ 248.2 $ - $ 248.2 $ 308.6 $ - $ 308.6
Cost of goods sold   202.5     -     202.5     251.4     -     251.4  
Adjusted gross profit $ 45.7   $ -   $ 45.7   $ 57.2   $ -   $ 57.2  
 
Adjusted gross margin 18.4 % 18.4 % 18.5 % 18.5 %
 
Operating (loss) income $ (6.5 ) $ (3.6 ) $ (10.1 ) $ (8.3 ) $ 7.5 $ (0.8 )
 
Adjusted income tax provision (benefit) $ (0.3 ) $ - $ (0.3 ) $ 2.1 $ - $ 2.1
 
Adjusted (loss) income $ (6.3 ) $ (3.6 ) $ (9.9 ) $ (14.1 ) $ 7.5 $ (6.6 )
 
Adjusted (loss) earnings per common share - Diluted $ (0.17 ) $ (0.26 ) $ (0.38 ) $ (0.18 )
 
Adjusted weighted average shares outstanding - Diluted 37.4 37.4 37.5 37.5
 
 
Nine Months Ended Nine Months Ended
September 30, 2012 September 30, 2011
GAAP Adj * Non-GAAP GAAP Adj * Non-GAAP
Net revenue $ 800.5 $ - $ 800.5 $ 948.1 $ - $ 948.1
Cost of goods sold   646.3     -     646.3     782.9     (1.5 )   781.4  
Adjusted gross profit $ 154.2   $ -   $ 154.2   $ 165.2   $ 1.5   $ 166.7  
 
Adjusted gross margin 19.3 % 19.3 % 17.4 % 17.6 %
 
Operating (loss) income $ (25.7 ) $ 2.0 $ (23.7 ) $ (21.0 ) $ 21.9 $ 0.9
 
Adjusted income tax provision (benefit) $ 0.6 $ - $ 0.6 $ 4.5 $ 0.4 $ 4.9
 
Adjusted (loss) income $ (30.5 ) $ 2.0 $ (28.5 ) $ (33.8 ) $ 21.5 $ (12.3 )
 
Adjusted (loss) earnings per common share - Diluted $ (0.81 ) $ (0.76 ) $ (0.89 ) $ (0.32 )
 
Adjusted weighted average shares outstanding - Diluted 37.6 37.6 37.8 37.8
 
 
 
*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 Nine Months Ended
September 30 September 30
2012 2011 2012 2011
Operating loss: $ (6.5 ) $ (8.3 ) $ (25.7 ) $ (21.0 )
Restructuring and other
Restructuring 0.1 4.3 4.5 6.4
Gain on sale of fixed assets held for sale - - (0.7 ) -
Facility Disposal - - - 7.0
Pension settlement 0.5 0.9 2.0 1.9
Acquisitions and integration 0.1 0.3 1.3 1.5
Intangible asset accelerated amortization - - 1.3 -
Acquisition contingent consideration adjustment (5.5 ) - (8.3 ) -
Other 1.2 - 1.9 -
Goodwill impairment - - - 1.6
Litigation settlement - 2.0 - 2.0
Inventory write-downs related to restructuring programs included in cost of goods sold   -     -     -     1.5  
Total adjustments   (3.6 )   7.5     2.0     21.9  
Adjusted operating (loss) income - Non-GAAP $ (10.1 ) $ (0.8 ) $ (23.7 ) $ 0.9  
 
Effect on diluted EPS:
(Loss) income from operations $ (0.17 ) $ (0.38 ) $ (0.81 ) $ (0.89 )
Restructuring and other
Restructuring 0.01 0.12 0.12 0.17
Gain on sale of fixed assets held for sale - - (0.01 ) -
Facility Disposal - - - 0.18
Pension settlement 0.01 0.02 0.05 0.05
Acquisitions and integration 0.01 0.01 0.03 0.04
Intangible asset accelerated amortization - - 0.03 -
Acquisition contingent consideration adjustment (0.15 ) - (0.22 ) -
Other 0.03 - 0.05 -
Goodwill impairment - - - 0.04
Litigation settlement - 0.05 - 0.05
Inventory write-downs   -     -     -     0.04  
Adjusted diluted EPS - Non-GAAP $ (0.26 ) $ (0.18 ) $ (0.76 ) $ (0.32 )
 
 
EBITDA:
Operating loss $ (6.5 ) $ (8.3 ) $ (25.7 ) $ (21.0 )
Depreciation 1.9 2.7 6.1 8.4
Amortization   7.2     6.6     21.7     18.8  
EBITDA $ 2.6   $ 1.0   $ 2.1   $ 6.2  
Restructuring and other (3.6 ) 5.5 2.0 16.8
Goodwill impairment - - - 1.6
Litigation settlement - 2.0 - 2.0
Inventory write-downs related to restructuring programs included in cost of goods sold   -     -     -     1.5  
Total adjustments   (3.6 )   7.5     2.0     21.9  
Adjusted EBITDA $ (1.0 ) $ 8.5   $ 4.1   $ 28.1  
 
 

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.
 




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