##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2009
 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
 o o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ




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##### 



IMATION CORP.
TABLE OF CONTENTS
 PAGEITEM 1. FINANCIAL STATEMENTSCondensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2009 and 2008
    
    3Condensed Consolidated Balance Sheets as of June 30, 2009 and December 31, 2008
    
    4Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2009 and 2008
    
    5Notes to Condensed Consolidated Financial Statements
    
    6Report of Independent Registered Public Accounting Firm
    
    19ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    20ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    30ITEM 4. CONTROLS AND PROCEDURES
    
    30PART II OTHER INFORMATIONITEM 1. LEGAL PROCEEDINGS
    
    31ITEM 1A. RISK FACTORS
    
    32ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
    
    32ITEM 3. DEFAULTS UPON SENIOR SECURITIES
    
    32ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    33ITEM 5. OTHER INFORMATION
    
    33ITEM 6. EXHIBITS
    
    33SIGNATURE
    
    34EXHIBIT INDEX
    
    35EX-10.1EX-10.2EX-15.1EX-31.1EX-31.2EX-32.1EX-32.2
  2




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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 Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Net revenue
    
    $
    427.9
    
    
    $
    547.0
    
    
    $
    854.1
    
    
    $
    1,077.9Cost of goods sold
    
    
    361.9
    
    
    
    452.1
    
    
    
    719.1
    
    
    
    884.3Gross profit
    
    
    66.0
    
    
    
    94.9
    
    
    
    135.0
    
    
    
    193.6Selling, general and administrative expense
    
    
    60.1
    
    
    
    72.7
    
    
    
    125.7
    
    
    
    144.6Research and development expense
    
    
    4.7
    
    
    
    6.0
    
    
    
    10.0
    
    
    
    12.6Litigation settlement expense
    
    
    49.0
    
    
    
    
    
    
    
    49.0
    
    
    
    Restructuring and other expense
    
    
    9.8
    
    
    
    4.0
    
    
    
    15.3
    
    
    
    4.7Total
    
    
    123.6
    
    
    
    82.7
    
    
    
    200.0
    
    
    
    161.9Operating (loss) income
    
    
    (57.6
    )
    
    
    12.2
    
    
    
    (65.0
    )
    
    
    31.7Other (income) and expenseInterest income
    
    
    (0.2
    )
    
    
    (0.7
    )
    
    
    (0.4
    )
    
    
    (1.6
    )Interest expense
    
    
    0.3
    
    
    
    0.3
    
    
    
    0.7
    
    
    
    1.0Other expense, net
    
    
    3.3
    
    
    
    2.0
    
    
    
    10.9
    
    
    
    3.4Total
    
    
    3.4
    
    
    
    1.6
    
    
    
    11.2
    
    
    
    2.8(Loss) income before income taxes
    
    
    (61.0
    )
    
    
    10.6
    
    
    
    (76.2
    )
    
    
    28.9Income tax (benefit) provision
    
    
    (24.1
    )
    
    
    3.4
    
    
    
    (27.7
    )
    
    
    10.7Net (loss) income
    
    $
    (36.9
    )
    
    $
    7.2
    
    
    $
    (48.5
    )
    
    $
    18.2(Loss) earnings per common shareBasic
    
    $
    (0.98
    )
    
    $
    0.19
    
    
    $
    (1.29
    )
    
    $
    0.48Diluted
    
    
    (0.98
    )
    
    
    0.19
    
    
    
    (1.29
    )
    
    
    0.48Weighted average shares outstandingBasic
    
    
    37.5
    
    
    
    37.4
    
    
    
    37.5
    
    
    
    37.6Diluted
    
    
    37.5
    
    
    
    37.5
    
    
    
    37.5
    
    
    
    37.7Cash dividend paid per common share
    
    $
    
    
    
    $
    0.16
    
    
    $
    
    
    
    $
    0.32
  3




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IMATION CORP.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions)
 June 30,
    
    
    December 31,2009
    
    
    2008(Unaudited)ASSETSCurrent assetsCash and cash equivalents
    
    $
    89.2
    
    
    $
    96.6Accounts receivable, net
    
    
    324.2
    
    
    
    378.3Inventories, net
    
    
    333.4
    
    
    
    363.2Other current assets
    
    
    161.7
    
    
    
    138.1Total current assets
    
    
    908.5
    
    
    
    976.2Property, plant and equipment, net
    
    
    118.5
    
    
    
    122.4Intangible assets, net
    
    
    345.8
    
    
    
    357.0Goodwill
    
    
    23.5
    
    
    
    23.5Other assets
    
    
    50.0
    
    
    
    43.2Total assets
    
    $
    1,446.3
    
    
    $
    1,522.3LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilitiesAccounts payable
    
    $
    234.9
    
    
    $
    296.1Accrued payroll
    
    
    14.0
    
    
    
    12.5Other current liabilities
    
    
    194.4
    
    
    
    195.0Total current liabilities
    
    
    443.3
    
    
    
    503.6Other liabilities
    
    
    98.4
    
    
    
    74.1Commitments and contingenciesShareholders equity
    
    
    904.6
    
    
    
    944.6Total liabilities and shareholders equity
    
    $
    1,446.3
    
    
    $
    1,522.3
  4




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IMATION CORP.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
 Six Months EndedJune 30,2009
    
    
    2008Cash Flows from Operating Activities:Net (loss) income
    
    $
    (48.5
    )
    
    $
    18.2Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    21.3
    
    
    
    25.3Deferred income taxes
    
    
    (20.4
    )
    
    
    2.2Asset impairments
    
    
    2.3
    
    
    
    Stock-based compensation
    
    
    3.8
    
    
    
    4.6Pension settlement
    
    
    5.2
    
    
    
    Note receivable reserve
    
    
    4.0
    
    
    
    Litigation settlement
    
    
    49.0
    
    
    
    Other
    
    
    0.7
    
    
    
    (0.2
    )Changes in operating assets and liabilities:Accounts receivable
    
    
    53.8
    
    
    
    126.2Inventories
    
    
    32.0
    
    
    
    29.0Other assets
    
    
    (20.4
    )
    
    
    0.5Accounts payable
    
    
    (60.8
    )
    
    
    (75.0
    )Accrued payroll and other liabilities
    
    
    (15.7
    )
    
    
    (52.5
    )Net cash provided by operating activities
    
    
    6.3
    
    
    
    78.3Cash Flows from Investing Activities:Capital expenditures
    
    
    (7.2
    )
    
    
    (6.5
    )Acquisitions, net of cash acquired
    
    
    
    
    
    
    (15.0
    )Acquisition of minority interest
    
    
    
    
    
    
    (8.0
    )Other, net
    
    
    0.8
    
    
    
    0.1Net cash used in investing activities
    
    
    (6.4
    )
    
    
    (29.4
    )Cash Flows from Financing Activities:Debt repayment
    
    
    
    
    
    
    (31.3
    )Purchase of treasury stock
    
    
    
    
    
    
    (26.4
    )Dividend payments
    
    
    
    
    
    
    (12.0
    )Exercise of stock options
    
    
    
    
    
    
    0.4Debt issuance costs
    
    
    (2.9
    )
    
    
    Net cash used in financing activities
    
    
    (2.9
    )
    
    
    (69.3
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    (4.4
    )
    
    
    2.6Net change in cash and cash equivalents
    
    
    (7.4
    )
    
    
    (17.8
    )Cash and cash equivalents  beginning of period
    
    
    96.6
    
    
    
    135.5Cash and cash equivalents  end of period
    
    $
    89.2
    
    
    $
    117.7
  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 Ended
    
    Six Months EndedJune 30,
    
    June 30,(In millions)
    
    2009
    
    2008
    
    2009
    
    2008Weighted average number of shares outstanding during the period
    
    
    37.5
    
    
    
    37.4
    
    
    
    37.5
    
    
    
    37.6Dilutive effect of stock-based compensation plans
    
    
    
    
    
    
    0.1
    
    
    
    
    
    
    
    0.1Weighted average number of diluted shares outstanding during the period
    
    
    37.5
    
    
    
    37.5
    
    
    
    37.5
    
    
    
    37.7
  6




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Note 3  Supplemental Balance Sheet Information
 June 30,
    
    
    December 31,(In millions)
    
    2009
    
    
    2008(Unaudited)Accounts ReceivableAccounts receivable
    
    $
    357.9
    
    
    $
    414.9Less allowances
    
    
    (33.7
    )
    
    
    (36.6
    )Accounts receivable, net
    
    $
    324.2
    
    
    $
    378.3InventoriesFinished goods
    
    $
    298.8
    
    
    $
    337.1Work in process
    
    
    10.8
    
    
    
    17.1Raw materials and supplies
    
    
    23.8
    
    
    
    9.0Total inventories, net
    
    $
    333.4
    
    
    $
    363.2Other Current AssetsDeferred income taxes
    
    $
    58.0
    
    
    $
    51.5Assets held for sale (1)
    
    
    20.5
    
    
    
    22.5Other
    
    
    83.2
    
    
    
    64.1Total other current assets
    
    $
    161.7
    
    
    $
    138.1Property, Plant and EquipmentProperty, plant and equipment
    
    $
    355.3
    
    
    $
    427.4Less accumulated depreciation
    
    
    (236.8
    )
    
    
    (305.0
    )Property, plant and equipment, net
    
    $
    118.5
    
    
    $
    122.4Other AssetsDeferred income taxes
    
    $
    39.4
    
    
    $
    31.4Other
    
    
    10.6
    
    
    
    11.8Total other assets
    
    $
    50.0
    
    
    $
    43.2Other Current LiabilitiesRebates
    
    $
    71.1
    
    
    $
    75.6Employee separation costs
    
    
    3.9
    
    
    
    14.5Litigation settlement liability
    
    
    20.0
    
    
    
    Other
    
    
    99.4
    
    
    
    104.9Total other current liabilities
    
    $
    194.4
    
    
    $
    195.0Other LiabilitiesPension
    
    $
    45.5
    
    
    $
    49.0Deferred income taxes
    
    
    4.0
    
    
    
    4.2Litigation settlement liability
    
    
    29.0
    
    
    
    Other
    
    
    19.9
    
    
    
    20.9Total other liabilities
    
    $
    98.4
    
    
    $
    74.1
 
 (1)
    
    As part of our restructuring programs, we ended operations and exited our Anaheim,
California distribution center as well as our Camarillo, California manufacturing facility, which
are being actively marketed for sale. We met the plan of sale criteria in Statement of Financial
Accounting Standard (SFAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets.
Accordingly, the book value of the building and property was transferred in the quarter ended
September 30, 2008 into other current assets, and is no longer being depreciated. During the three
months ended June 30, 2009, we determined the fair value of the Anaheim facility less estimated
costs to sell was less than the recorded cost. As such, we recorded an impairment of $2.3 million
to reduce the book value to the fair value less estimated costs to sell the facility. 7




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Note 4  Intangible Assets and Goodwill
  Customer(In millions)
    
    Trade Names
    
    
    Software
    
    
    Relationships
    
    
    Other
    
    
    TotalJune 30, 2009Cost
    
    $
    333.1
    
    
    $
    60.3
    
    
    $
    62.9
    
    
    $
    7.7
    
    
    $
    464.0Accumulated amortization
    
    
    (28.9
    )
    
    
    (55.5
    )
    
    
    (27.4
    )
    
    
    (6.4
    )
    
    
    (118.2
    )Net
    
    $
    304.2
    
    
    $
    4.8
    
    
    $
    35.5
    
    
    $
    1.3
    
    
    $
    345.8December 31, 2008Cost
    
    $
    333.1
    
    
    $
    56.9
    
    
    $
    62.9
    
    
    $
    8.1
    
    
    $
    461.0Accumulated amortization
    
    
    (23.2
    )
    
    
    (51.9
    )
    
    
    (22.7
    )
    
    
    (6.2
    )
    
    
    (104.0
    )Net
    
    $
    309.9
    
    
    $
    5.0
    
    
    $
    40.2
    
    
    $
    1.9
    
    
    $
    357.0
  Note 5  Comprehensive (Loss) Income
  June 30,
    
    
    December 31,(In millions)
    
    2009
    
    
    2008Cumulative currency translation adjustment
    
    $
    (55.9
    )
    
    $
    (54.9
    )Pension adjustments, net of income tax
    
    
    (24.0
    )
    
    
    (28.6
    )Cash flow hedging and other, net of income tax
    
    
    (1.3
    )
    
    
    (1.5
    )Total accumulated other comprehensive loss
    
    $
    (81.2
    )
    
    $
    (85.0
    )
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,(In millions)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Net (loss) income
    
    $
    (36.9
    )
    
    $
    7.2
    
    
    $
    (48.5
    )
    
    $
    18.2Currency translation adjustment
    
    
    9.4
    
    
    
    (1.3
    )
    
    
    (1.0
    )
    
    
    (5.4
    )Pension liability adjustments, net of income tax :Net actuarial (loss) gain
    
    
    4.3
    
    
    
    
    
    
    
    4.3
    
    
    
    Less: amortization of costs included in net periodic pension cost
    
    
    0.2
    
    
    
    0.1
    
    
    
    0.2
    
    
    
    0.1Cash flow hedging and other, net of income tax
    
    
    (3.5
    )
    
    
    2.5
    
    
    
    0.2
    
    
    
    (1.6
    )Total comprehensive (loss) income
    
    $
    (26.5
    )
    
    $
    8.5
    
    
    $
    (44.8
    )
    
    $
    11.3
 Note 6  Stock-Based Compensation
  8




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Stock Options
  WeightedStock
    
    
    AverageOptions
    
    
    Exercise PriceOutstanding December 31, 2008
    
    
    4,103,756
    
    
    $
    32.09Granted
    
    
    1,022,556
    
    
    
    9.75Exercised
    
    
    
    
    
    
    Forfeited
    
    
    (314,777
    )
    
    
    27.24Outstanding June 30, 2009
    
    
    4,811,535
    
    
    $
    27.61Exercisable as of June 30, 2009
    
    
    2,776,462
    
    
    $
    33.87
  Note 7  Retirement Plans
 Employer Contributions
  Employers Accounting for Settlements and
Curtailments of Defined Benefit Pension Plans and for Termination Benefits Employers Accounting for Defined Benefit Pension
and Other Postretirement Plansan amendment of FASB Statements No. 87, 88, 106, and 132(R)
   9




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Components of Net Periodic Pension Cost
 United States
    
    
    International
    
    
    United States
    
    
    InternationalThree Months Ended June 30,
    
    
    Six Months Ended June 30,(In millions)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Service cost
    
    $
    0.6
    
    
    $
    1.6
    
    
    $
    0.2
    
    
    $
    0.2
    
    
    $
    1.4
    
    
    $
    3.2
    
    
    $
    0.4
    
    
    $
    0.4Interest cost
    
    
    1.1
    
    
    
    1.8
    
    
    
    0.8
    
    
    
    1.0
    
    
    
    2.8
    
    
    
    3.6
    
    
    
    1.6
    
    
    
    1.9Expected return on plan assets
    
    
    (1.7
    )
    
    
    (2.2
    )
    
    
    (0.8
    )
    
    
    (1.1
    )
    
    
    (3.4
    )
    
    
    (4.4
    )
    
    
    (1.6
    )
    
    
    (2.1
    )Amortization of unrecognized items
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.1
    
    
    
    0.1
    
    
    
    0.1
    
    
    
    0.1Net periodic pension cost
    
    $
    0.0
    
    
    $
    1.2
    
    
    $
    0.2
    
    
    $
    0.1
    
    
    $
    0.9
    
    
    $
    2.5
    
    
    $
    0.5
    
    
    $
    0.3Settlement
    
    
    5.2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5.2
    
    
    
    
    
    
    
    
    
    
    
    Total pension costs
    
    $
    5.2
    
    
    $
    1.2
    
    
    $
    0.2
    
    
    $
    0.1
    
    
    $
    6.1
    
    
    $
    2.5
    
    
    $
    0.5
    
    
    $
    0.3
 Note 8  Litigation Settlement
        10




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Future(In millions)
    
    PaymentsYear2009
    
    $
    20.02010
    
    
    8.22011
    
    
    8.32012
    
    
    16.5Total undiscounted payments
    
    $
    53.0Adjustment for present value using 6% discount rate
    
    
    (4.0
    )Total liability recognized in the Condensed Consolidated Balance Sheet as of June 30, 2009
    
    $
    49.0
  Note 9  Restructuring and Other Expense
  Three Months
    
    
    Six MonthsEnded
    
    
    Ended(In millions)
    
    June 30, 2009
    
    
    June 30, 2009RestructuringSeverance and severance-related expense
    
    $
    2.3
    
    
    $
    6.7Lease termination costs
    
    
    
    
    
    
    0.9Total restructuring
    
    
    2.3
    
    
    
    7.6Pension settlement
    
    
    5.2
    
    
    
    5.2Asset impairment
    
    
    2.3
    
    
    
    2.3Other
    
    
    
    
    
    
    0.2Total
    
    $
    9.8
    
    
    $
    15.3
 11




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Balance as of
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance as ofDecember 31,
    
    Additional
    
    Currency
    
    
    
    
    
    June 30,(In millions)
    
    2008
    
    Charges
    
    Impacts
    
    Usage
    
    2009Severance and severance related
    
    $
    3.9
    
    
    $
    6.6
    
    
    $
    0.4
    
    
    $
    (7.0
    )
    
    $
    3.9Lease termination costs
    
    
    0.5
    
    
    
    0.9
    
    
    
    
    
    
    
    (1.4
    )
    
    
    
  Balance as ofInitial Program
    
    Additional
    
    Currency
    
    Cumulative
    
    June 30,(In millions)
    
    Amounts
    
    Charges
    
    Impacts
    
    Usage
    
    2009Severance and severance related
    
    $
    4.9
    
    
    $
    6.6
    
    
    $
    0.4
    
    
    $
    (8.0
    )
    
    $
    3.9Lease termination costs
    
    
    0.5
    
    
    
    0.9
    
    
    
    
    
    
    
    (1.4
    )
    
    
    
 Initial
    
    
    
    
    
    
    
    
    
    Balance as ofHeadcount
    
    
    
    
    
    Cumulative
    
    June 30,Amounts
    
    Additions
    
    Reductions
    
    2009Total employees affected
    
    
    203
    
    
    
    32
    
    
    
    (176
    )
    
    
    59
 Note 10  Taxes
    12




---



##### Table of Contents



Note 11  Segment Information
    Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,(In millions)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Net RevenueAmericas
    
    $
    169.4
    
    
    $
    190.2
    
    
    $
    325.9
    
    
    $
    404.9Europe
    
    
    117.9
    
    
    
    185.3
    
    
    
    253.2
    
    
    
    361.4Asia Pacific
    
    
    93.1
    
    
    
    113.3
    
    
    
    196.0
    
    
    
    227.6Electronic Products
    
    
    47.5
    
    
    
    58.2
    
    
    
    79.0
    
    
    
    84.0Total
    
    $
    427.9
    
    
    $
    547.0
    
    
    $
    854.1
    
    
    $
    1,077.9
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,(In millions)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Operating Income (Loss)Americas
    
    $
    14.4
    
    
    $
    17.5
    
    
    $
    26.4
    
    
    $
    41.3Europe
    
    
    0.8
    
    
    
    7.2
    
    
    
    2.5
    
    
    
    12.9Asia Pacific
    
    
    3.3
    
    
    
    8.0
    
    
    
    9.0
    
    
    
    15.7Electronic Products
    
    
    (1.2
    )
    
    
    0.6
    
    
    
    (5.1
    )
    
    
    (2.1
    )Corporate and unallocated
    
    
    (74.9
    )
    
    
    (21.1
    )
    
    
    (97.8
    )
    
    
    (36.1
    )Total
    
    $
    (57.6
    )
    
    $
    12.2
    
    
    $
    (65.0
    )
    
    $
    31.7
  13




---



##### Table of Contents



Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,(In millions)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Net RevenueOptical products
    
    $
    207.2
    
    
    $
    264.3
    
    
    $
    418.5
    
    
    $
    525.9Magnetic products
    
    
    114.6
    
    
    
    166.4
    
    
    
    237.5
    
    
    
    344.5Flash media products
    
    
    20.0
    
    
    
    27.0
    
    
    
    40.4
    
    
    
    53.9Electronic products, accessories and other
    
    
    86.1
    
    
    
    89.3
    
    
    
    157.7
    
    
    
    153.6Total
    
    $
    427.9
    
    
    $
    547.0
    
    
    $
    854.1
    
    
    $
    1,077.9
 Note 12  Derivative Financial Instruments
 Disclosure About Derivative Instruments
and Hedging Activities  An Amendment of FASB Statement 133,
   Cash Flow Hedges
   Other Hedges
   Fair ValueOther
    
    
    OtherNotional
    
    
    current
    
    
    current(In millions)
    
    amount
    
    
    assets
    
    
    liabilitiesCash flow hedges designated as hedging instruments
    
    $
    274.1
    
    
    $
    0.7
    
    
    $
    (2.2
    )Other hedges not receiving hedge accounting
    
    
    146.0
    
    
    
    0.1
    
    
    
    (0.4
    )Total
    
    $
    420.1
    
    
    $
    0.8
    
    
    $
    (2.6
    )
 14




---



##### Table of Contents



Pretax gain/(loss) onPretax gain/(loss)
    
    
    effective portion ofrecognized in
    
    
    derivative
    
    
    Pretax gain/(loss)other
    
    
    reclassification from
    
    
    recognized in thecomprehensive
    
    
    accumulated other
    
    
    Condensedincome on
    
    
    comprehensive income
    
    
    Statement ofeffective portion
    
    
    to cost of goods sold,
    
    
    Operations in other(In millions)
    
    of derivative
    
    
    net
    
    
    expense, netCash flow hedges designated as hedging instruments
    
    $
    (4.6
    )
    
    $
    
    
    
    $
    Other hedges not receiving hedge accounting
    
    
    
    
    
    
    
    
    
    
    (10.4
    )Total
    
    $
    (4.6
    )
    
    $
    
    
    
    $
    (10.4
    )
  Pretax gain/(loss) onPretax gain/(loss)
    
    
    effective portion ofrecognized in
    
    
    derivative
    
    
    Pretax gain/(loss)other
    
    
    reclassification from
    
    
    recognized in thecomprehensive
    
    
    accumulated other
    
    
    Condensedincome on
    
    
    comprehensive income
    
    
    Statement ofeffective portion
    
    
    to cost of goods sold,
    
    
    Operations in other(In millions)
    
    of derivative
    
    
    net
    
    
    expense, netCash flow hedges designated as hedging instruments
    
    $
    0.5
    
    
    $
    0.8
    
    
    $
    Other hedges not receiving hedge accounting
    
    
    
    
    
    
    
    
    
    
    (9.7
    )Total
    
    $
    0.5
    
    
    $
    0.8
    
    
    $
    (9.7
    )
 Note 13  Fair Value Measurements
 Fair value of financial instruments
 Fair Value Measurements, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not Orderly Interim Disclosures about Fair Value of Financial Instruments
  Assets and liabilities that are measured at fair value on a recurring basis:
  15




---



##### Table of Contents



Quoted prices inactive markets
    
    
    Significant otherfor identical
    
    
    observable
    
    
    UnobservableJune 30,
    
    
    assets
    
    
    inputs
    
    
    inputs(In millions)
    
    2009
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Derivative assets
    
    
    0.8
    
    
    
    
    
    
    
    0.8
    
    
    
    Derivative liabilities
    
    
    (2.6
    )
    
    
    
    
    
    
    (2.6
    )
    
    
    Total
    
    $
    (1.8
    )
    
    $
    
    
    
    $
    (1.8
    )
    
    $
    
 Assets and liabilities that are measured at fair value on a non-recurring basis:
   Quoted prices inactive markets
    
    
    Significant other
    
    
    
    
    
    
    Total losses included in earningsfor identical
    
    
    observable
    
    
    Unobservable
    
    
    for the periods ended June 30,June 30,
    
    
    assets
    
    
    inputs
    
    
    inputs
    
    
    2009(In millions)
    
    2009
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    Three Months
    
    
    Six MonthsLong-lived asset held for sale
    
    
    13.0
    
    
    
    
    
    
    
    13.0
    
    
    
    
    
    
    
    (2.3
    )
    
    
    (2.3
    )Total
    
    $
    13.0
    
    
    $
    
    
    
    $
    13.0
    
    
    $
    
    
    
    $
    (2.3
    )
    
    $
    (2.3
    )
 Note 14  Litigation, Commitments and Contingencies
 Accounting
for Contingencies
  Philips
  16




---



##### Table of Contents



SanDisk
     Note 15  Recently Issued Accounting Pronouncements
 Determining Fair Value When the Volume and Level of Activity for the Asset or
Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly
 Interim Disclosures about Fair Value
of Financial Instruments Disclosures about Fair Value of Financial
Instruments
 Subsequent Events
 The FASB Accounting Standards Codification  and the
Hierarchy of Generally Accepted Accounting Principles  a replacement of FAS No. 162
 17




---



##### Table of Contents



Note 16  Review Report of Independent Registered Public Accounting Firm
  18




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
       
 19




---



##### Table of Contents



Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations.
 Overview
     ®
  20




---



##### Table of Contents



Executive Summary
 Consolidated Results of Operations for the Six Months Ended June 30, 2009
 
    
    Revenue of $854.1 million for the six months ended June 30, 2009 was down 20.8 percent
compared with $1,077.9 million in the same period last year.
    
    Litigation settlement expense of $49.0 million and restructuring and other expense of
$15.3 million for the six months ended June 30, 2009.
    
    Operating loss of $65.0 million for the six months ended June 30, 2009, compared with
operating income of $31.7 million in the same period last year.
    
    Diluted loss per share was $1.29 for the six months ended June 30, 2009, compared with
diluted earnings per share of $0.48 for the same period last year.
 Cash Flow/Financial Condition for the Six Months Ended June 30, 2009
 
    
    Cash and cash equivalents totaled $89.2 million as of June 30, 2009, compared with $96.6
million at December 31, 2008.
 
    
    Cash flow provided by operating activities was $6.3 million for the six months ended
June 30, 2009, compared with $78.3 million in the same period last year.
 Results of Operations
 Net Revenue
 Three Months Ended
    
    
    
    
    
    Six Months EndedJune 30,
    
    Percent
    
    June 30,
    
    Percent(Dollars in millions)
    
    2009
    
    2008
    
    Change
    
    2009
    
    2008
    
    ChangeNet revenue
    
    $
    427.9
    
    
    $
    547.0
    
    
    
    -21.8
    %
    
    $
    854.1
    
    
    $
    1,077.9
    
    
    
    -20.8
    %
   Gross Profit
 Three Months Ended
    
    
    
    
    
    Six Months EndedJune 30,
    
    Percent
    
    June 30,
    
    Percent(Dollars in millions)
    
    2009
    
    2008
    
    Change
    
    2009
    
    2008
    
    ChangeGross profit
    
    $
    66.0
    
    
    $
    94.9
    
    
    
    -30.5
    %
    
    $
    135.0
    
    
    $
    193.6
    
    
    
    -30.3
    %Gross margin
    
    
    15.4
    %
    
    
    17.3
    %
    
    
    
    
    
    
    15.8
    %
    
    
    18.0
    %
  21




---



##### Table of Contents



Selling, General and Administrative (SG&A)
 Three Months Ended
    
    
    
    
    
    Six Months EndedJune 30,
    
    Percent
    
    June 30,
    
    Percent(Dollars in millions)
    
    2009
    
    2008
    
    Change
    
    2009
    
    2008
    
    ChangeSelling, general and administrative
    
    $
    60.1
    
    
    $
    72.7
    
    
    
    -17.3
    %
    
    $
    125.7
    
    
    $
    144.6
    
    
    
    -13.1
    %As a percent of revenue
    
    
    14.0
    %
    
    
    13.3
    %
    
    
    
    
    
    
    14.7
    %
    
    
    13.4
    %
   Research and Development (R&D)
 Three Months Ended
    
    
    
    
    
    Six Months EndedJune 30,
    
    Percent
    
    June 30,
    
    Percent(Dollars in millions)
    
    2009
    
    2008
    
    Change
    
    2009
    
    2008
    
    ChangeResearch and development
    
    $
    4.7
    
    
    $
    6.0
    
    
    
    -21.7
    %
    
    $
    10.0
    
    
    $
    12.6
    
    
    
    -20.6
    %As a percent of revenue
    
    
    1.1
    %
    
    
    1.1
    %
    
    
    
    
    
    
    1.2
    %
    
    
    1.2
    %
  Litigation Settlement
 Three Months Ended
    
    
    
    
    
    Six Months EndedJune 30,
    
    Percent
    
    June 30,
    
    Percent(Dollars in millions)
    
    2009
    
    2008
    
    Change
    
    2009
    
    2008
    
    ChangeLitigation settlement
    
    $
    49.0
    
    
    $
    
    
    
    NM
    
    $
    49.0
    
    
    $
    
    
    
    NMAs a percent of revenue
    
    
    11.5
    %
    
    
    
    %
    
    
    
    
    
    
    5.7
    %
    
    
    
    %
 
 NM-
    
    Not Meaningful  Restructuring and Other
 Three Months Ended
    
    
    
    
    
    Six Months EndedJune 30,
    
    Percent
    
    June 30,
    
    Percent(Dollars in millions)
    
    2009
    
    2008
    
    Change
    
    2009
    
    2008
    
    ChangeRestructuring and other
    
    $
    9.8
    
    
    $
    4.0
    
    
    NM
    
    $
    15.3
    
    
    $
    4.7
    
    
    NMAs a percent of revenue
    
    
    2.3
    %
    
    
    0.7
    %
    
    
    
    
    
    
    1.8
    %
    
    
    0.4
    %
 
 NM-
    
    Not Meaningful  22




---



##### Table of Contents



Operating (Loss) Income
 Three Months Ended
    
    
    
    
    
    Six Months EndedJune 30,
    
    Percent
    
    June 30,
    
    Percent(Dollars in millions)
    
    2009
    
    2008
    
    Change
    
    2009
    
    2008
    
    ChangeOperating (loss) income
    
    $
    (57.6
    )
    
    $
    12.2
    
    
    NM
    
    $
    (65.0
    )
    
    $
    31.7
    
    
    NMAs a percent of revenue
    
    
    (13.5
    )%
    
    
    2.2
    %
    
    
    
    
    
    
    (7.6
    )%
    
    
    2.9
    %
 
 NM-
    
    Not Meaningful  Other (Income) and Expense
 Three Months Ended
    
    
    
    
    
    
    Six Months EndedJune 30,
    
    
    Percent
    
    
    June 30,
    
    
    Percent(Dollars in millions)
    
    2009
    
    
    2008
    
    
    Change
    
    
    2009
    
    
    2008
    
    
    ChangeInterest income
    
    $
    (0.2
    )
    
    $
    (0.7
    )
    
    
    -71.4
    %
    
    $
    (0.4
    )
    
    $
    (1.6
    )
    
    
    -75.0
    %Interest expense
    
    
    0.3
    
    
    
    0.3
    
    
    
    0.0
    %
    
    
    0.7
    
    
    
    1.0
    
    
    
    -30.0
    %Other expense, net
    
    
    3.3
    
    
    
    2.0
    
    
    
    65.0
    %
    
    
    10.9
    
    
    
    3.4
    
    
    NMTotal
    
    
    3.4
    
    
    
    1.6
    
    
    
    112.5
    %
    
    
    11.2
    
    
    
    2.8
    
    
    
    300.0
    %As a percent of revenue
    
    
    0.8
    %
    
    
    0.3
    %
    
    
    
    
    
    
    1.3
    %
    
    
    0.3
    %
 
 NM-
    
    Not Meaningful   Income Tax Provision
 Three Months Ended
    
    
    
    
    
    Six Months EndedJune 30,
    
    Percent
    
    June 30,
    
    Percent(Dollars in millions)
    
    2009
    
    2008
    
    Change
    
    2009
    
    2008
    
    ChangeIncome tax provision (benefit)
    
    $
    (24.1
    )
    
    $
    3.4
    
    
    NM
    
    $
    (27.7
    )
    
    $
    10.7
    
    
    NMEffective tax rate
    
    
    39.5
    %
    
    
    32.1
    %
    
    
    
    
    
    
    36.4
    %
    
    
    37.0
    %
 
 NM-
    
    Not Meaningful  Segment Results
  23




---



##### Table of Contents



Data Storage Media
 Americas
 Three Months Ended
    
    
    
    
    
    Six Months EndedJune 30,
    
    Percent
    
    June 30,
    
    Percent(Dollars in millions)
    
    2009
    
    2008
    
    Change
    
    2009
    
    2008
    
    ChangeNet revenue
    
    $
    169.4
    
    
    $
    190.2
    
    
    
    -10.9
    %
    
    $
    325.9
    
    
    $
    404.9
    
    
    
    -19.5
    %Operating income
    
    
    14.4
    
    
    
    17.5
    
    
    
    -17.7
    %
    
    
    26.4
    
    
    
    41.3
    
    
    
    -36.1
    %As a percent of revenue
    
    
    8.5
    %
    
    
    9.2
    %
    
    
    
    
    
    
    8.1
    %
    
    
    10.2
    %
   Europe
 Three Months Ended
    
    
    
    
    
    Six Months EndedJune 30,
    
    Percent
    
    June 30,
    
    Percent(Dollars in millions)
    
    2009
    
    2008
    
    Change
    
    2009
    
    2008
    
    ChangeNet revenue
    
    $
    117.9
    
    
    $
    185.3
    
    
    
    -36.4
    %
    
    $
    253.2
    
    
    $
    361.4
    
    
    
    -29.9
    %Operating income
    
    
    0.8
    
    
    
    7.2
    
    
    
    -88.9
    %
    
    
    2.5
    
    
    
    12.9
    
    
    
    -80.6
    %As a percent of revenue
    
    
    0.7
    %
    
    
    3.9
    %
    
    
    
    
    
    
    1.0
    %
    
    
    3.6
    %
  24




---



##### Table of Contents



Asia Pacific (APAC)
 Three Months Ended
    
    
    
    
    
    Six Months EndedJune 30,
    
    Percent
    
    June 30,
    
    Percent(Dollars in millions)
    
    2009
    
    2008
    
    Change
    
    2009
    
    2008
    
    ChangeNet revenue
    
    $
    93.1
    
    
    $
    113.3
    
    
    
    -17.8
    %
    
    $
    196.0
    
    
    $
    227.6
    
    
    
    -13.9
    %Operating income
    
    
    3.3
    
    
    
    8.0
    
    
    
    -58.8
    %
    
    
    9.0
    
    
    
    15.7
    
    
    
    -42.7
    %As a percent of
revenue
    
    
    3.5
    %
    
    
    7.1
    %
    
    
    
    
    
    
    4.6
    %
    
    
    6.9
    %
   Electronic Products
 Three Months Ended
    
    
    
    
    
    Six Months EndedJune 30,
    
    Percent
    
    June 30,
    
    Percent(Dollars in millions)
    
    2009
    
    2008
    
    Change
    
    2009
    
    2008
    
    ChangeNet revenue
    
    $
    47.5
    
    
    $
    58.2
    
    
    
    -18.4
    %
    
    $
    79.0
    
    
    $
    84.0
    
    
    
    -6.0
    %Operating (loss) income
    
    
    (1.2
    )
    
    
    0.6
    
    
    NM
    
    
    (5.1
    )
    
    
    (2.1
    )
    
    NMAs a percent of
revenue
    
    
    (2.5)
    %
    
    
    1.0
    %
    
    
    
    
    
    
    (6.5
    )%
    
    
    (2.5
    )%
 
 NM- Not Meaningful   Corporate and Unallocated
 Three Months Ended
    
    
    
    
    
    Six Months EndedJune 30,
    
    Percent
    
    June 30,
    
    Percent(Dollars in millions)
    
    2009
    
    2008
    
    Change
    
    2009
    
    2008
    
    ChangeOperating costs
    
    $
    74.9
    
    
    $
    21.1
    
    
    NM
    
    $
    97.8
    
    
    $
    36.1
    
    
    NM
 
 NM- Not Meaningful  25




---



##### Table of Contents



Impact of Changes in Foreign Currency Rates
   Quantitative and Qualitative Disclosures about Market Risk
 Financial Position
       26




---



##### Table of Contents



Liquidity and Capital Resources
 Cash Flows Provided by Operating Activities:
 Six Months EndedJune 30,(Dollars in millions)
    
    2009
    
    
    2008Net (loss) income
    
    $
    (48.5
    )
    
    $
    18.2Adjustments to reconcile net (loss) income to net cash provided by operating activities:Depreciation and amortization
    
    
    21.3
    
    
    
    25.3Deferred income taxes
    
    
    (20.4
    )
    
    
    2.2Stock-based compensation
    
    
    3.8
    
    
    
    4.6Asset impairments
    
    
    2.3
    
    
    
    Note receivable reserve
    
    
    4.0
    
    
    
    Pension settlement
    
    
    5.2
    
    
    
    Litigation settlement
    
    
    49.0
    
    
    
    Other
    
    
    0.7
    
    
    
    (0.2
    )Changes in operating assets and liabilities, net of effects from acquisitions
    
    
    (11.1
    )
    
    
    28.2Net cash provided by operating activities
    
    $
    6.3
    
    
    $
    78.3
   Cash Flows Used in Investing Activities:
 Six Months EndedJune 30,(Dollars in millions)
    
    2009
    
    
    2008Capital expenditures
    
    $
    (7.2
    )
    
    $
    (6.5
    )Acquisitions, net of cash acquired
    
    
    
    
    
    
    (15.0
    )Acquisition of minority interest
    
    
    
    
    
    
    (8.0
    )Proceeds from sale of assets
    
    
    0.8
    
    
    
    Other, net
    
    
    
    
    
    
    0.1Net cash used in
investing
activities
    
    $
    (6.4
    )
    
    $
    (29.4
    )
  Cash Flows Used in Financing Activities:
 Six Months EndedJune 30,(Dollars in millions)
    
    2009
    
    
    2008Debt repayment
    
    $
    
    
    
    $
    (31.3
    )Purchase of treasury stock
    
    
    
    
    
    
    (26.4
    )Exercise of stock options
    
    
    
    
    
    
    0.4Debt issuance costs
    
    
    (2.9
    )
    
    
    Dividend payments
    
    
    
    
    
    
    (12.0
    )Net cash used in
financing
activities
    
    $
    (2.9
    )
    
    $
    (69.3
    )
  27




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
    
    up to 85% of eligible accounts receivable; plus
    
    up to the lesser of 65% of eligible inventory or 85% of
the appraised net orderly liquidation value of eligible
inventory; plus
    
    up to 60% of the appraised fair market value of eligible
real estate at closing (the Original Real Estate Value),
such Original Real Estate Value to be reduced each
calendar month by 1/84th, provided, that the Original Real
Estate Value shall not exceed $40,000,000; plus
    
    such other classes of collateral as may be mutually agreed
upon and at advance rates as may be determined by the
Agent; minus
    
    such reserves as the Agent may establish in good faith.
   28




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##### Table of Contents



Contractual Obligations
  Fair Value Measurements
  Critical Accounting Policies and Estimates
  Recently Issued Accounting Pronouncements
  Subsequent Event
  Forward-Looking Statements and Risk Factors
   29




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Quantitative and Qualitative Disclosures about Market Risk.
 Quantitative and Qualitative Disclosures about Market Risk
   
 Controls and Procedures .
   30




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PART II. OTHER INFORMATION
 
 Legal Proceedings
 Accounting for Contingencies
  Philips
       31




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SanDisk
     
 Risk Factors
   
 Unregistered Sales of Equity Securities and Use of Proceeds.
  
 Defaults Upon Senior Securities
  32




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Submission of Matters to a Vote of Security Holders.
  a)
    
    A proposal to elect three Class I directors of Imation to serve for three-year
terms ending in 2012, as follows:
 Directors
    
    Voted For
    
    Votes WithheldMichael S. Fields
    
    
    30,313,458
    
    
    
    2,795,266Ronald T. LeMay
    
    
    31,738,319
    
    
    
    1,370,405L. White Matthews, III
    
    
    31,827,248
    
    
    
    1,281,476
 There were no broker non-votes. In addition, the terms of the following directors continued
after the meeting: Class II directors with a term ending in 2010: Charles A. Haggerty, Frank
P. Russomanno, Glen A. Taylor and Daryl J. White; Class III directors with a term ending in
2011: Linda W. Hart, Raymond Leung and Charles Reich.
 b)
    
    A proposal to ratify the appointment of PricewaterhouseCoopers LLP to serve as
the independent registered public accounting firm of Imation for the year ending
December 31, 2009. The proposal received 32,856,888 votes for and 202,080 against
ratification. There were 49,755 abstentions and no broker non-votes.
 
 Other Information.
  
 Exhibits.
  ExhibitNumber
    
    Description of Exhibit10.1*
    
    Form of amended and restated Severence Agreement with Executive Officers10.2**
    
    Third Amendment to Credit Agreement among Imation Corp. and Imation Enterprises Corp. as borrowers, Bank of America, N.A. as
administrative agent and l/c issuer, and a Consortium of Lenders, dated as of June 3, 2009.15.1
    
    An awareness letter from Imation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*
    
    Items that are management contracts
or compensatory plans or arrangements required to be filed as an
exhibit pursuant to Item 6 of Form 10-Q.**
    
    Pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended, confidential portions of this exhibit
have been deleted and filed separately with the
Securities and Exchange Commission pursuant to a request for
confidential treatment.
 33




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##### Table of Contents



SIGNATURE
  Imation Corp.Date: August 7, 2009
    /s/ Paul R. ZellerPaul R. ZellerSenior Vice President and Chief Financial Officer(duly authorized officer and principal financial officer) 34




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##### Table of Contents



EXHIBIT INDEX
  ExhibitNumber
    
    Description of Exhibit10.1*
    
    Form of amended and restated Severence Agreement with Executive Officers10.2**
    
    Third Amendment to Credit Agreement among Imation Corp. and Imation Enterprises Corp. as borrowers, Bank of
America, N.A. as administrative agent and l/c issuer, and a Consortium of Lenders,
dated as of June 3, 2009.15.1
    
    An awareness letter from Imation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
 
 *
    
    Items that are management contracts or compensatory plans or arrangements required to be filed as
an exhibit pursuant to Item 6 of Form 10-Q**
    
    Pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended, confidential portions of this exhibit
have been deleted and filed separately with the Securities and Exchange Commission pursuant to a request for
confidential treatment. 35