##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
 For the quarterly period ended March 31, 2008
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
 For the transition period from  to
 Commission File Number: 1-14310
 
 
 IMATION CORP.
  Delaware
    
    41-1838504(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)1 Imation WayOakdale, Minnesota
    
    55128(Address of principal executive offices)
    
    (Zip Code)
 (651) 704-4000
 Not Applicable
 
 þ o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



IMATION CORP.
TABLE OF CONTENTS
 PAGEPART I FINANCIAL INFORMATIONITEM 1. FINANCIAL STATEMENTSCondensed Consolidated Statements of Operations for the Three Months Ended
March 31, 2008 and 2007
    
    
    3Condensed Consolidated Balance Sheets as of March 31, 2008 and December 31, 2007
    
    
    4Condensed Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 2008 and 2007
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Report of Independent Registered Public Accounting Firm
    
    
    17ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    18ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    26ITEM 4. CONTROLS AND PROCEDURES
    
    
    27PART II OTHER INFORMATIONITEM 1. LEGAL PROCEEDINGS
    
    
    27ITEM 1A. RISK FACTORS
    
    
    28ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
    
    
    28ITEM 3. DEFAULTS UPON SENIOR SECURITIES
    
    
    29ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    29ITEM 5. OTHER INFORMATION
    
    
    29ITEM 6. EXHIBITS
    
    
    29SIGNATURE
    
    
    30EXHIBIT INDEX
    
    
    31Second Amendment to Credit AgreementAwareness LetterSection 302 CertificationSection 302 CertificationSection 906 CertificationSection 906 Certification




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Financial Statements.
 IMATION CORP.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (In millions, except per share amounts)
 (Unaudited)
 Three Months EndedMarch 31,2008
    
    
    2007Net revenue
    
    $
    530.9
    
    
    $
    421.9Cost of goods sold
    
    
    432.2
    
    
    
    340.1Gross profit
    
    
    98.7
    
    
    
    81.8Selling, general and administrative expense
    
    
    71.9
    
    
    
    45.2Research and development expense
    
    
    6.6
    
    
    
    12.4Restructuring and other expense
    
    
    0.7
    
    
    
    0.6Total
    
    
    79.2
    
    
    
    58.2Operating income
    
    
    19.5
    
    
    
    23.6Other (income) and expenseInterest income
    
    
    (0.9
    )
    
    
    (2.5
    )Interest expense
    
    
    0.7
    
    
    
    0.3Other expense, net
    
    
    1.4
    
    
    
    0.7Total
    
    
    1.2
    
    
    
    (1.5
    )Income before income taxes
    
    
    18.3
    
    
    
    25.1Income tax provision
    
    
    7.3
    
    
    
    9.4Net income
    
    $
    11.0
    
    
    $
    15.7Earnings per common shareBasic
    
    $
    0.29
    
    
    $
    0.45Diluted
    
    
    0.29
    
    
    
    0.44Weighted average shares outstandingBasic
    
    
    37.7
    
    
    
    34.9Diluted
    
    
    37.8
    
    
    
    35.4Cash dividend paid per common share
    
    $
    0.16
    
    
    $
    0.14
  3




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##### Table of Contents



IMATION CORP.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (In millions)
 March 31,
    
    
    December 31,2008
    
    
    2007(Unaudited)ASSETSCurrent assetsCash and cash equivalents
    
    $
    105.5
    
    
    $
    135.5Accounts receivable, net
    
    
    417.0
    
    
    
    507.1Inventories, net
    
    
    370.2
    
    
    
    366.1Other current assets
    
    
    118.6
    
    
    
    109.9Total current assets
    
    
    1,011.3
    
    
    
    1,118.6Property, plant and equipment, net
    
    
    167.2
    
    
    
    171.5Intangible assets, net
    
    
    367.5
    
    
    
    371.0Goodwill
    
    
    55.3
    
    
    
    55.5Other assets
    
    
    36.6
    
    
    
    34.4Total assets
    
    $
    1,637.9
    
    
    $
    1,751.0LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilitiesAccounts payable
    
    $
    286.4
    
    
    $
    350.1Accrued payroll
    
    
    15.1
    
    
    
    13.5Other current liabilities
    
    
    237.3
    
    
    
    257.3Current maturities of long-term debt
    
    
    
    
    
    
    10.0Total current liabilities
    
    
    538.8
    
    
    
    630.9Other liabilities
    
    
    44.7
    
    
    
    45.0Long-term debt, less current maturities
    
    
    
    
    
    
    21.3Commitments and contingenciesShareholders equity
    
    
    1,054.4
    
    
    
    1,053.8Total liabilities and shareholders equity
    
    $
    1,637.9
    
    
    $
    1,751.0
  4




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IMATION CORP.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In millions)
 (Unaudited)
 Three Months EndedMarch 31,2008
    
    
    2007Cash Flows from Operating Activities:Net income
    
    $
    11.0
    
    
    $
    15.7Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    12.6
    
    
    
    10.5Deferred income taxes
    
    
    1.9
    
    
    
    (0.6
    )Stock-based compensation
    
    
    2.6
    
    
    
    3.0Excess tax benefits from exercise of stock options
    
    
    
    
    
    
    (0.1
    )TDK post-closing purchase price adjustment
    
    
    (2.3
    )
    
    
    Other
    
    
    1.2
    
    
    
    1.1Changes in operating assets and liabilities:Accounts receivable
    
    
    107.6
    
    
    
    26.1Inventories
    
    
    5.7
    
    
    
    (42.7
    )Other assets
    
    
    (5.8
    )
    
    
    (5.1
    )Accounts payable
    
    
    (75.0
    )
    
    
    14.7Accrued payroll and other liabilities
    
    
    (26.7
    )
    
    
    (16.4
    )Net cash provided by operating activities
    
    
    32.8
    
    
    
    6.2Cash Flows from Investing Activities:Proceeds from working capital adjustments related to Memorex
    
    
    1.0
    
    
    
    7.9Capital expenditures
    
    
    (2.4
    )
    
    
    (5.4
    )Acquisition of minority interest
    
    
    (8.0
    )
    
    
    Net cash (used in) provided by investing activities
    
    
    (9.4
    )
    
    
    2.5Cash Flows from Financing Activities:Debt repayment
    
    
    (31.3
    )
    
    
    Purchase of treasury stock
    
    
    (19.4
    )
    
    
    Exercise of stock options
    
    
    0.1
    
    
    
    3.3Dividend payments
    
    
    (6.0
    )
    
    
    (4.9
    )Excess tax benefits from exercise of stock options
    
    
    
    
    
    
    0.1Net cash used in financing activities
    
    
    (56.6
    )
    
    
    (1.5
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    3.2
    
    
    
    (0.3
    )Net change in cash and cash equivalents
    
    
    (30.0
    )
    
    
    6.9Cash and cash equivalents  beginning of period
    
    
    135.5
    
    
    
    252.5Cash and cash equivalents  end of period
    
    $
    105.5
    
    
    $
    259.4
  5




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IMATION CORP.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 Note 1  Basis of Presentation
    Note 2  Weighted Average Basic and Diluted Shares Outstanding
  Three Months EndedMarch 31,(In millions)
    
    2008
    
    2007Weighted average number of shares outstanding during the period
    
    
    37.7
    
    
    
    34.9Dilutive effect of stock-based compensation plans
    
    
    0.1
    
    
    
    0.5Weighted average number of diluted shares outstanding during the period
    
    
    37.8
    
    
    
    35.4
  Note 3  Fair Value Measurements
 Fair Value Measurements
 6




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Application of FASB
Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair
Value Measurements for Purposes of Lease Classification or Measurement under Statement 13 Effective Date of FASB Statement No. 157 Accounting for Leases
    Quoted prices inactive markets
    
    
    Significant otherfor identical
    
    
    observable
    
    
    UnobservableMarch 31,
    
    
    assets
    
    
    inputs
    
    
    inputs(In
millions)
    
    2008
    
    
    (Level 1)
    
    
    (Level 2)
    
    

(Level 3)Derivative assets
    
    $
    0.4
    
    
    $
    0.4
    
    
    $
    
    
    
    $
    Derivative liabilities
    
    
    (4.7
    )
    
    
    (4.7
    )
    
    
    
    
    
    
    Total
    
    $
    (4.3
    )
    
    $
    (4.3
    )
    
    $
    
    
    
    $
    
  Note 4  Business Combinations
 Imation Corporation Japan
 Consolidated Financial Statements
  (In millions)
    
    AmountCash consideration
    
    $
    8.0Interest acquired in historical book value of ICJ
    
    
    (7.1
    )Excess purchase price over historical book value
    
    $
    0.9
 7




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(In millions)
    
    AmountCustomer relationships
    
    $
    0.8Inventory
    
    
    0.1Goodwill
    
    
    0.4Deferred tax liability
    
    
    (0.4
    )Excess purchase price over historical book value
    
    $
    0.9
  TDK Recording Media
    Memcorp
    8




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Pro Forma Disclosure
  Three Months EndedMarch 31,
    
    June 30,
    
    September 30,(In millions, except per share amounts)
    
    2007
    
    2007
    
    2007Net revenue
    
    $
    629.3
    
    
    $
    580.0
    
    
    $
    581.4Net income
    
    
    17.5
    
    
    
    (9.3
    )
    
    
    7.6Earnings per common shareBasic
    
    $
    0.42
    
    
    $
    (0.22
    )
    
    $
    0.19Diluted
    
    $
    0.41
    
    
    $
    (0.22
    )
    
    $
    0.19
  Note 5  Supplemental Balance Sheet Information
 March 31,
    
    
    December 31,(In millions)
    
    2008
    
    
    2007(Unaudited)Accounts ReceivableAccounts receivable
    
    $
    450.0
    
    
    $
    535.4Less allowances
    
    
    (33.0
    )
    
    
    (28.3
    )Accounts receivable, net
    
    $
    417.0
    
    
    $
    507.1InventoriesFinished goods
    
    $
    313.7
    
    
    $
    308.7Work in process
    
    
    35.2
    
    
    
    34.7Raw materials and supplies
    
    
    21.3
    
    
    
    22.7Total inventories, net
    
    $
    370.2
    
    
    $
    366.1Other Current AssetsDeferred income taxes
    
    $
    55.1
    
    
    $
    53.1Other
    
    
    63.5
    
    
    
    56.8Total other current assets
    
    $
    118.6
    
    
    $
    109.9Property, Plant and EquipmentProperty, plant and equipment
    
    $
    533.9
    
    
    $
    542.6Less accumulated depreciation
    
    
    (366.7
    )
    
    
    (371.1
    )Property, plant and equipment, net
    
    $
    167.2
    
    
    $
    171.5Other AssetsDeferred income taxes
    
    $
    16.8
    
    
    $
    14.9Other
    
    
    19.8
    
    
    
    19.5Total other assets
    
    $
    36.6
    
    
    $
    34.4
 9




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March 31,
    
    
    December 31,(In millions)
    
    2008
    
    
    2007(Unaudited)Other Current LiabilitiesRebates
    
    $
    101.2
    
    
    $
    104.0Employee separation costs
    
    
    16.7
    
    
    
    23.9Income taxes
    
    
    17.9
    
    
    
    18.2Other
    
    
    101.5
    
    
    
    111.2Total other current liabilities
    
    $
    237.3
    
    
    $
    257.3Other LiabilitiesPension
    
    $
    8.5
    
    
    $
    7.7Deferred income taxes
    
    
    6.8
    
    
    
    2.5Other
    
    
    29.4
    
    
    
    34.8Total other liabilities
    
    $
    44.7
    
    
    $
    45.0
 Note 6  Intangible Assets and Goodwill
  Customer(In millions)
    
    Trade Names
    
    
    Software
    
    
    Relationships
    
    
    Other
    
    
    TotalMarch 31, 2008Cost
    
    $
    330.3
    
    
    $
    55.8
    
    
    $
    62.9
    
    
    $
    8.9
    
    
    $
    457.9Accumulated amortization
    
    
    (14.9
    )
    
    
    (53.9
    )
    
    
    (15.4
    )
    
    
    (6.2
    )
    
    
    (90.4
    )Net
    
    $
    315.4
    
    
    $
    1.9
    
    
    $
    47.5
    
    
    $
    2.7
    
    
    $
    367.5December 31, 2007Cost
    
    $
    330.0
    
    
    $
    54.6
    
    
    $
    60.9
    
    
    $
    8.8
    
    
    $
    454.3Accumulated amortization
    
    
    (12.2
    )
    
    
    (52.7
    )
    
    
    (12.8
    )
    
    
    (5.6
    )
    
    
    (83.3
    )Net
    
    $
    317.8
    
    
    $
    1.9
    
    
    $
    48.1
    
    
    $
    3.2
    
    
    $
    371.0
  Electronic(In millions)
    
    Americas
    
    
    Asia Pacific
    
    
    Products
    
    
    TotalBalance as of December 31, 2007
    
    $
    9.5
    
    
    $
    12.4
    
    
    $
    33.6
    
    
    $
    55.5TDK post-closing purchase price adjustment
    
    
    (0.1
    )
    
    
    (1.1
    )
    
    
    
    
    
    
    (1.2
    )Purchase of ICJ minority interest
    
    
    
    
    
    
    0.4
    
    
    
    
    
    
    
    0.4Foreign exchange impact
    
    
    
    
    
    
    0.6
    
    
    
    
    
    
    
    0.6Balance as of March 31, 2008
    
    $
    9.4
    
    
    $
    12.3
    
    
    $
    33.6
    
    
    $
    55.3
 Note 7  Stock-Based Compensation
  10




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Stock Options
  WeightedAverageStock Options
    
    
    Exercise PriceOutstanding December 31, 2007
    
    
    3,149,761
    
    
    $
    35.16Granted
    
    
    190,500
    
    
    
    26.56Exercised
    
    
    (4,505
    )
    
    
    19.42Forfeited
    
    
    (101,899
    )
    
    
    37.29Outstanding March 31, 2008
    
    
    3,233,857
    
    
    $
    34.62Exercisable as of March 31, 2008
    
    
    1,879,608
    
    
    $
    33.28
  Note 8  Retirement Plans
 Employer Contributions
  Components of Net Periodic Pension Cost
 United States
    
    
    InternationalThree Months Ended March 31,(In millions)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Service cost
    
    $
    1.6
    
    
    $
    2.0
    
    
    $
    0.2
    
    
    $
    Interest cost
    
    
    1.8
    
    
    
    1.8
    
    
    
    0.9
    
    
    
    0.8Expected return on plan assets
    
    
    (2.2
    )
    
    
    (2.4
    )
    
    
    (1.0
    )
    
    
    (0.8
    )Amortization of unrecognized items
    
    
    0.1
    
    
    
    0.1
    
    
    
    
    
    
    
    0.1Net periodic pension cost
    
    $
    1.3
    
    
    $
    1.5
    
    
    $
    0.1
    
    
    $
    0.1
 Note 9  Restructuring and Other Expense
  (In millions)
    
    AmountRestructuringSeverance and severance-related expense
    
    $
    1.1Lease termination costs
    
    
    1.6Total restructuring
    
    
    2.7TDK post-closing purchase price adjustment
    
    
    (2.3
    )Other
    
    
    0.3Total
    
    $
    0.7
  11




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2007 Cost Reduction Restructuring Program
   Balance as of
    
    
    
    
    
    
    
    
    
    Balance as ofDecember 31,
    
    Additional
    
    
    
    
    
    March 31,(In millions)
    
    2007
    
    Charges
    
    Usage
    
    2008Severance and other liability
    
    $
    13.6
    
    
    $
    1.1
    
    
    $
    (5.2
    )
    
    $
    9.5On a cumulative basis through March 31, 2008, the status of the 2007 cost reduction
restructuring accruals was as follows:Initial
    
    
    
    
    
    
    
    
    
    Liability as ofProgram
    
    Additional
    
    Cumulative
    
    March 31,(In millions)
    
    Amounts
    
    Charges
    
    Usage
    
    2008Severance and other liability
    
    $
    15.1
    
    
    $
    7.3
    
    
    $
    (12.9
    )
    
    $
    9.5Initial
    
    
    
    
    
    
    
    
    
    Balance as ofHeadcount
    
    
    
    
    
    Cumulative
    
    March 31,Amounts
    
    Additions
    
    Reductions
    
    2008Total employees affected
    
    
    675
    
    
    
    160
    
    
    
    (507
    )
    
    
    328TDK Recording Media Restructuring
CostsThe following tables summarize the restructuring activity related to TDK Recording Media which
began in the third quarter of 2007.Changes in the TDK Recording Media restructuring accruals during the three months ended March
31, 2008 were as follows:Balance as of
    
    
    
    
    
    
    
    
    
    Balance as ofDecember 31,
    
    Currency
    
    
    
    
    
    March 31,(In millions)
    
    2007
    
    Impacts
    
    Usage
    
    2008Severance and other liability
    
    $
    9.4
    
    
    $
    0.6
    
    
    $
    (2.8
    )
    
    $
    7.2On a cumulative basis through March 31, 2008, the status of the TDK Recording Media
restructuring accruals was as follows:Initial
    
    
    
    
    
    
    
    
    
    Liability as ofProgram
    
    Currency
    
    Cumulative
    
    March 31,(In millions)
    
    Amounts
    
    Impacts
    
    Usage
    
    2008Severance and other liability
    
    $
    11.7
    
    
    $
    0.6
    
    
    $
    (5.1
    )
    
    $
    7.2
 Initial
    
    
    
    
    
    Balance as
ofHeadcount
    
    Cumulative
    
    March 31,Amounts
    
    Reductions
    
    2008Total employees affected
    
    
    172
    
    
    
    (114
    )
    
    
    58
 12




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Note 10  Taxes
   Note 11  Comprehensive Income (Loss)
  March 31,
    
    
    December 31,(In millions)
    
    2008
    
    
    2007Cumulative currency translation adjustment
    
    $
    (24.6
    )
    
    $
    (40.0
    )Pension adjustments, net of income tax
    
    
    (4.4
    )
    
    
    (4.4
    )Cash flow hedging and other, net of income tax
    
    
    (3.8
    )
    
    
    0.3Total accumulated other comprehensive loss
    
    $
    (32.8
    )
    
    $
    (44.1
    )
  Three Months EndedMarch 31,(In millions)
    
    2008
    
    
    2007Net income
    
    $
    11.0
    
    
    $
    15.7Cumulative currency translation adjustment
    
    
    15.4
    
    
    
    7.3Cash flow hedging and other, net of income tax
    
    
    (4.1
    )
    
    
    (0.6
    )Total comprehensive income
    
    $
    22.3
    
    
    $
    22.4
 Note 12  Segment Information
   13




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Three Months EndedMarch 31,(In millions)
    
    2008
    
    
    2007Net RevenueAmericas
    
    $
    214.7
    
    
    $
    215.1Europe
    
    
    176.1
    
    
    
    142.7Asia Pacific
    
    
    114.3
    
    
    
    64.1Electronic Products
    
    
    25.8
    
    
    
    Total
    
    $
    530.9
    
    
    $
    421.9
 Three Months EndedMarch 31,(In millions)
    
    2008
    
    
    2007Operating
Income (Loss)Americas
    
    $
    23.8
    
    
    $
    24.5Europe
    
    
    5.7
    
    
    
    11.1Asia Pacific
    
    
    7.7
    
    
    
    6.4Electronic Products
    
    
    (2.7
    )
    
    
    Corporate and unallocated
    
    
    (15.0
    )
    
    
    (18.4
    )Total
    
    $
    19.5
    
    
    $
    23.6
   Three Months EndedMarch 31,(In millions)
    
    2008
    
    
    2007Net RevenueOptical products
    
    $
    261.6
    
    
    $
    192.7Magnetic products
    
    
    178.1
    
    
    
    162.4Flash media products
    
    
    26.9
    
    
    
    35.7Electronic products
    
    
    25.8
    
    
    
    Accessories and other
    
    
    38.5
    
    
    
    31.1Total
    
    $
    530.9
    
    
    $
    421.9
 Note 13  Litigation, Commitments and Contingencies
 Accounting for Contingencies
  14




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Philips
     SanDisk
    15




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Note 14  Recent Accounting Pronouncements
 Disclosures about Derivative Instruments and
Hedging Activities  an amendment of FASB Statement No. 133 .
 Business Combinations Business Combinations
 Noncontrolling Interests in Consolidated
Financial Statements  an amendment of ARB No. 51
 Note 15  Review Report of Independent Registered Public Accounting Firm
  16




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
      /s/ PricewaterhouseCoopers LLPPricewaterhouseCoopers LLP
 
 17




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##### Table of Contents



Managements Discussion and Analysis of Financial Condition and Results of Operations.
 Overview
      
    
    Optimize our magnetic tape business.The magnetic tape market remains an attractive
market with growing demand for storage capacity across a substantial installed base of
commercial Information Technology users, a relatively small number of competitors, and high
barriers to entry. Imation enjoys a leading market share, significant intellectual property
portfolio, solid industry reputation and relationships among key original equipment
manufacturers (OEMs). To optimize our magnetic tape business and stabilize or reduce our
manufacturing costs, in May of 2007 we started a major restructuring of our manufacturing
operations. As a result we are concentrating our direct manufacturing investments on
coating operations and are in process of outsourcing other parts of manufacturing
operations for magnetic tape. We continue to invest broadly in tape technology and seek to
maintain and extend value-added technology capabilities in key areas, including precision
thin film tape coating and servo-writing.
    
    Grow the data storage media business across the four pillars of storage offering
products under multiple brands.Over the years, we have brought to market recordable media
products beyond magnetic tape, including recordable optical media, removable USB flash
drives and flash cards, and external and removable hard disk products. We have also
acquired additional brands, beyond the Imation brand, and established distribution
agreements for other brands. In addition, with approximately 60 percent of our revenue
coming from outside the United States for the three months ended March 31, 2008, we seek to
leverage our global marketing and distribution capability in bringing products to market
across multiple geographies.
    
    Extend certain brands selectively across multiple product categories.We sell
accessories and certain consumer electronic products, selectively, under multiple brands in
various regions of the world. With the acquisition of the Memcorp business in the third
quarter of 2007, we entered into the consumer electronics market to sell certain consumer
electronic products primarily in North America which we did not offer previously. Our
product portfolio includes TVs and digital displays, including flat-panel liquid crystal
displays and digital picture frames, IPod accessories, clock-radios and MP3 players. The
portfolio also includes home theater video, portable and fashion DVD players, karaoke
systems and office products such as voice recorders. The Memcorp business acquisition also
included a brand licensing agreement with MTV Networks, a division of Viacom International,
to design and distribute consumer electronic items under certain Nickelodeon
character-based properties and the NPower brands.
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Factors Affecting Comparability of our Financial Results
    Executive Summary
 Consolidated Results of Operations for the Three-Month Period Ended March 31, 2008
 
    
    Revenue of $530.9 million in the three months ended March 31, 2008 was up 25.8 percent
over the same period last year.
    
    Operating income of $19.5 million in the three months ended March 31, 2008 was down 17.4
percent compared with $23.6 million in the same period last year.
    
    Diluted earnings per share was $0.29 for the three-month period ended March 31, 2008
compared with $0.44 for the same period last year.
 Cash Flow/Financial Condition for the Three-Month Period Ended March 31, 2008
 
    
    Cash flow from operations totaled $32.8 million in the three-month period ended March
31, 2008 compared with $6.2 million in the same period last year.
    
    Total cash and cash equivalents were $105.5 million as of March 31, 2008, compared with
$135.5 million at year-end 2007.
    
    Dividends of $0.16 per share were paid in March 2008.
 Results of Operations
 Net Revenue
 Three Months EndedMarch 31,
    
    Percent(Dollars in millions)
    
    2008
    
    2007
    
    ChangeNet revenue
    
    $
    530.9
    
    
    $
    421.9
    
    
    
    25.8
    %
  19




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Gross Profit
 Three Months EndedMarch 31,
    
    Percent(Dollars in millions)
    
    2008
    
    2007
    
    ChangeGross profit
    
    $
    98.7
    
    
    $
    81.8
    
    
    
    20.7
    %Gross margin
    
    
    18.6
    %
    
    
    19.4
    %
  Selling, General and Administrative (SG&A)
 Three Months EndedMarch 31,
    
    Percent(Dollars in millions)
    
    2008
    
    2007
    
    ChangeSelling, general and administrative
    
    $
    71.9
    
    
    $
    45.2
    
    
    
    59.1
    %As a percent of revenue
    
    
    13.5
    %
    
    
    10.7
    %
  Research and Development (R&D)
 Three Months EndedMarch 31,
    
    Percent(Dollars in millions)
    
    2008
    
    2007
    
    ChangeResearch and development
    
    $
    6.6
    
    
    $
    12.4
    
    
    
    -46.8
    %As a percent of revenue
    
    
    1.2
    %
    
    
    2.9
    %
  Restructuring and Other
 Three Months EndedMarch 31,
    
    Percent(Dollars in millions)
    
    2008
    
    2007
    
    ChangeRestructuring and other
    
    $
    0.7
    
    
    $
    0.6
    
    
    
    16.7
    %As a percent of revenue
    
    
    0.1
    %
    
    
    0.1
    %
   20




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Operating Income
 Three Months EndedMarch 31,
    
    Percent(Dollars in millions)
    
    2008
    
    2007
    
    ChangeOperating income
    
    $
    19.5
    
    
    $
    23.6
    
    
    
    -17.4
    %As a percent of revenue
    
    
    3.7
    %
    
    
    5.6
    %
  Income Tax Provision
 Three Months EndedMarch 31,
    
    Percent(Dollars in millions)
    
    2008
    
    2007
    
    ChangeIncome tax provision
    
    $
    7.3
    
    
    $
    9.4
    
    
    
    -22.3
    %Effective tax rate
    
    
    39.9
    %
    
    
    37.5
    %
  Segment Results
    Americas
 Three Months EndedMarch 31,
    
    Percent(Dollars in millions)
    
    2008
    
    2007
    
    ChangeNet revenue
    
    $
    214.7
    
    
    $
    215.1
    
    
    
    -0.2
    %Operating income
    
    
    23.8
    
    
    
    24.5
    
    
    
    -2.9
    %As a percent of revenue
    
    
    11.1
    %
    
    
    11.4
    %
   21




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Europe
 Three Months EndedMarch 31,
    
    Percent(Dollars in millions)
    
    2008
    
    2007
    
    ChangeNet revenue
    
    $
    176.1
    
    
    $
    142.7
    
    
    
    23.4
    %Operating income
    
    
    5.7
    
    
    
    11.1
    
    
    
    -48.6
    %As a percent of revenue
    
    
    3.2
    %
    
    
    7.8
    %
   Asia Pacific
 Three Months EndedMarch 31,
    
    Percent(Dollars in millions)
    
    2008
    
    2007
    
    ChangeNet revenue
    
    $
    114.3
    
    
    $
    64.1
    
    
    
    78.3
    %Operating income
    
    
    7.7
    
    
    
    6.4
    
    
    
    20.3
    %As a percent of revenue
    
    
    6.7
    %
    
    
    10.0
    %
   Electronic Products
 Three Months EndedMarch 31,
    
    Percent(Dollars in millions)
    
    2008
    
    2007
    
    ChangeNet revenue
    
    $
    25.8
    
    
    $
    
    
    
    NMOperating loss
    
    
    (2.7
    )
    
    
    
    
    
    NMAs a percent of revenue
    
    NM
    
    
    
  Corporate and Unallocated
 Three Months EndedMarch 31,
    
    Percent(Dollars in millions)
    
    2008
    
    2007
    
    ChangeOperating costs
    
    $
    15.0
    
    
    $
    18.4
    
    
    
    -18.5
    %
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Impact of Changes in Foreign Currency Rates
    Financial Position
     Liquidity and Capital Resources
   23




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Contractual Obligations
  Fair Value Measurements
 Fair Value Measurements
 Critical Accounting Policies and Estimates
  Recently Issued Accounting Standards
 Disclosures about Derivative Instruments and Hedging Activities  an amendment of FASB Statement
No. 133 .
 Business Combinations Business Combinations
 Noncontrolling Interests in Consolidated
Financial Statements  an amendment of ARB No. 51
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Forward-Looking Statements and Risk Factors
   
    
    Revenue is targeted at approximately $2.4 billion, representing growth of
approximately 16 percent over 2007.
    
    Operating income, including restructuring and other charges, is targeted to be in the
range of $95 million to $105 million. We anticipate restructuring and other charges to
be in the range of $4 million to $6 million for 2008.
    
    Diluted earnings per share is targeted between $1.51 and $1.68 which includes the
negative impact of approximately $0.08 from restructuring and other charges.
    
    Capital spending is targeted in the range of $15 million to $20 million.
    
    The tax rate is anticipated to be in the range of 35 percent to 37 percent, absent
any one-time tax items that may occur in the future.
    
    Depreciation and amortization expense is targeted to be in the range of $48 million
to $52 million.
  
 Quantitative and Qualitative Disclosures about Market Risk
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Controls and Procedures.
   
 PART II. OTHER INFORMATION
 
 Legal Proceedings
 Accounting for Contingencies
   Philips
  27




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SanDisk
    
 Risk Factors
  
 Unregistered Sales of Equity Securities and Use of Proceeds.
    28




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##### Table of Contents



(b)Total Number of
    
    
    Maximum Number(a)
    
    
    
    
    
    
    Shares Purchased
    
    
    of Shares that MayTotal Number
    
    
    Average
    
    
    as Part of Publicly
    
    
    Yet Be Purchasedof Shares
    
    
    Price Paid
    
    
    Announced Plans
    
    
    Under the Plans orPeriod
    
    Purchased
    
    
    per Share
    
    
    or Programs
    
    
    ProgramsJanuary 1, 2008  January 31, 2008
    
    
    438,700
    
    
    $
    21.53
    
    
    
    438,700
    
    
    
    3,000,000February 1, 2008  February 29, 2008
    
    
    395,300
    
    
    
    25.28
    
    
    
    395,300
    
    
    
    2,604,700March 1, 2008  March 31, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,604,700Total
    
    
    834,000
    
    
    $
    23.31
    
    
    
    834,000
    
    
    
    2,604,700
 
 (a)
    
    The purchases in this column include shares repurchased as part of our publicly
announced programs.(b)
    
    On April 17, 2007, our Board of Directors authorized and announced the
repurchase of 5.0 million shares of common stock. On January 28, 2008, the Board of
Directors authorized and announced a share repurchase program increasing total
outstanding share repurchase authorization to 3.0 million shares of common stock. The
Companys previous authorization, which had a remaining share repurchase authorization
of 0.8 million shares, was cancelled with the new authorization. During the three
months ended March 31, 2008, we repurchased 0.8 million shares. As of March 31, 2008,
we had repurchased 0.4 million shares under the latest authorization and held, in
total, 5.3 million shares of treasury stock acquired at an average price of $25.05 per
share. Authorization for repurchases of an additional 2.6 million shares remained
outstanding as of March 31, 2008, and such authorization has no expiration date. 
 Defaults Upon Senior Securities.
  
 Submission of Matters to a Vote of Security Holders
  
 Other Information.
  
 Exhibits.
  ExhibitNumber
    
    Description of Exhibit10.1
    
    
    Second amendment to Credit Agreement between Imation Corp. and a consortium of lenders dated as of April 25, 200815.1
    
    
    An awareness letter from the Companys independent registered public accounting firm regarding unaudited interim financial statements31.1
    
    
    Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    
    Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    
    Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    
    Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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SIGNATURE
  Imation Corp.Date: May 8, 2008
    /s/ Paul R. ZellerPaul R. ZellerVice President and Chief Financial Officer
(duly authorized officer and principal financialofficer) 30




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EXHIBIT INDEX
  ExhibitNumber
    
    Description of Exhibit10.1
    
    
    Second amendment to Credit Agreement between Imation Corp. and a consortium of lenders dated as of April 25, 200815.1
    
    
    An awareness letter from the Companys independent registered public accounting firm regarding unaudited interim financial statements31.1
    
    
    Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    
    Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    
    Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    
    Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 31