##### 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 September 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




---



##### 



IMATION CORP.
TABLE OF CONTENTS
 PAGEPART I FINANCIAL INFORMATION
    
    
    3ITEM 1. FINANCIAL STATEMENTS
    
    
    3Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2009 and 2008
    
    
    3Condensed Consolidated Balance Sheets as of September 30, 2009 and December 31, 2008
    
    
    4Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2009 and 2008
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Report of Independent Registered Public Accounting Firm
    
    
    20ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    21ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    32ITEM 4. CONTROLS AND PROCEDURES
    
    
    32PART II OTHER INFORMATION
    
    
    33ITEM 1. LEGAL PROCEEDINGS
    
    
    33ITEM 1A. RISK FACTORS
    
    
    35ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
    
    
    35ITEM 3. DEFAULTS UPON SENIOR SECURITIES
    
    
    35ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    35ITEM 5. OTHER INFORMATION
    
    
    35ITEM 6. EXHIBITS
    
    
    35SIGNATURE
    
    
    36EXHIBIT INDEX
    
    
    37EX-15.1EX-31.1EX-31.2EX-32.1EX-32.2
  2




---



##### 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
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Net revenue
    
    $
    401.3
    
    
    $
    475.9
    
    
    $
    1,197.8
    
    
    $
    1,467.1Cost of goods sold
    
    
    336.8
    
    
    
    397.4
    
    
    
    1,003.0
    
    
    
    1,200.9Gross profit
    
    
    64.5
    
    
    
    78.5
    
    
    
    194.8
    
    
    
    266.2Selling, general and administrative expense
    
    
    50.4
    
    
    
    69.6
    
    
    
    174.3
    
    
    
    212.7Research and development expense
    
    
    4.9
    
    
    
    5.6
    
    
    
    14.9
    
    
    
    18.2Litigation settlement expense
    
    
    
    
    
    
    
    
    
    
    49.0
    
    
    
    Restructuring and other expense
    
    
    7.5
    
    
    
    14.3
    
    
    
    22.8
    
    
    
    19.0Total
    
    
    62.8
    
    
    
    89.5
    
    
    
    261.0
    
    
    
    249.9Operating income (loss)
    
    
    1.7
    
    
    
    (11.0
    )
    
    
    (66.2
    )
    
    
    16.3Other (income) and expenseInterest income
    
    
    (0.1
    )
    
    
    (0.9
    )
    
    
    (0.5
    )
    
    
    (2.5
    )Interest expense
    
    
    0.8
    
    
    
    0.3
    
    
    
    1.5
    
    
    
    1.3Other expense, net
    
    
    1.5
    
    
    
    2.6
    
    
    
    12.2
    
    
    
    5.7Total
    
    
    2.2
    
    
    
    2.0
    
    
    
    13.2
    
    
    
    4.5(Loss) income from continuing operations before income taxes
    
    
    (0.5
    )
    
    
    (13.0
    )
    
    
    (79.4
    )
    
    
    11.8Income tax (benefit) provision
    
    
    (0.2
    )
    
    
    (5.6
    )
    
    
    (28.1
    )
    
    
    3.2(Loss) income from continuing operations
    
    
    (0.3
    )
    
    
    (7.4
    )
    
    
    (51.3
    )
    
    
    8.6Discontinued operations:(Loss) income from operations of discontinued businesses, net of income taxes
    
    
    (0.1
    )
    
    
    1.5
    
    
    
    2.4
    
    
    
    3.7(Loss) income from discontinued operations
    
    
    (0.1
    )
    
    
    1.5
    
    
    
    2.4
    
    
    
    3.7Net (loss) income
    
    $
    (0.4
    )
    
    $
    (5.9
    )
    
    $
    (48.9
    )
    
    $
    12.3(Loss) earnings per common share  basic:Continuing operations
    
    $
    (0.01
    )
    
    $
    (0.20
    )
    
    $
    (1.37
    )
    
    $
    0.23Discontinued operations
    
    
    
    
    
    
    0.04
    
    
    
    0.06
    
    
    
    0.10Net income
    
    
    (0.01
    )
    
    
    (0.16
    )
    
    
    (1.30
    )
    
    
    0.33(Loss) earnings per common share  diluted:Continuing operations
    
    $
    (0.01
    )
    
    $
    (0.20
    )
    
    $
    (1.37
    )
    
    $
    0.23Discontinued operations
    
    
    
    
    
    
    0.04
    
    
    
    0.06
    
    
    
    0.10Net income
    
    
    (0.01
    )
    
    
    (0.16
    )
    
    
    (1.30
    )
    
    
    0.33Weighted average shares outstanding:Basic
    
    
    37.6
    
    
    
    37.3
    
    
    
    37.5
    
    
    
    37.5Diluted
    
    
    37.6
    
    
    
    37.3
    
    
    
    37.5
    
    
    
    37.6Cash dividend paid per common share
    
    $
    
    
    
    $
    0.16
    
    
    $
    
    
    
    $
    0.48
  3




---



##### Table of Contents



IMATION CORP.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions)
 September 30,
    
    
    December 31,2009
    
    
    2008(Unaudited)ASSETSCurrent assetsCash and cash equivalents
    
    $
    111.0
    
    
    $
    96.6Accounts receivable, net
    
    
    296.1
    
    
    
    378.3Inventories, net
    
    
    320.4
    
    
    
    363.2Other current assets
    
    
    170.4
    
    
    
    138.1Total current assets
    
    
    897.9
    
    
    
    976.2Property, plant and equipment, net
    
    
    115.3
    
    
    
    122.4Intangible assets, net
    
    
    341.0
    
    
    
    357.0Goodwill
    
    
    23.5
    
    
    
    23.5Other assets
    
    
    38.8
    
    
    
    43.2Total assets
    
    $
    1,416.5
    
    
    $
    1,522.3LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilitiesAccounts payable
    
    $
    219.5
    
    
    $
    296.1Accrued payroll
    
    
    17.7
    
    
    
    12.5Other current liabilities
    
    
    177.9
    
    
    
    195.0Total current liabilities
    
    
    415.1
    
    
    
    503.6Other liabilities
    
    
    83.7
    
    
    
    74.1Commitments and contingencies
    
    
    
    
    
    
    Shareholders equity
    
    
    917.7
    
    
    
    944.6Total
liabilities and shareholders equity
    
    $
    1,416.5
    
    
    $
    1,522.3
  4




---



##### Table of Contents



IMATION CORP.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
 Nine Months EndedSeptember 30,2009
    
    
    2008Cash Flows from Operating Activities:Net (loss) income
    
    $
    (48.9
    )
    
    $
    12.3Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    32.2
    
    
    
    38.7Deferred income taxes
    
    
    (12.9
    )
    
    
    5.0Asset impairments
    
    
    2.3
    
    
    
    Stock-based compensation
    
    
    5.6
    
    
    
    7.0Pension settlement
    
    
    10.9
    
    
    
    Note receivable reserve
    
    
    4.0
    
    
    
    Litigation settlement
    
    
    49.0
    
    
    
    Non-cash restructuring and other charges
    
    
    
    
    
    
    9.2Other
    
    
    1.8
    
    
    
    1.0Changes in operating assets and liabilities:Litigation settlement payment
    
    
    (20.0
    )
    
    
    Accounts receivable
    
    
    88.6
    
    
    
    148.5Inventories
    
    
    50.4
    
    
    
    0.4Other assets
    
    
    (25.0
    )
    
    
    (15.7
    )Accounts payable
    
    
    (81.8
    )
    
    
    (55.9
    )Accrued payroll and other liabilities
    
    
    (31.3
    )
    
    
    (64.0
    )Net cash provided by operating activities
    
    
    24.9
    
    
    
    86.5Cash Flows from Investing Activities:Capital expenditures
    
    
    (9.2
    )
    
    
    (9.7
    )Acquisitions, net of cash acquired
    
    
    
    
    
    
    (15.0
    )Acquisition of minority interest
    
    
    
    
    
    
    (8.0
    )Other, net
    
    
    0.8
    
    
    
    0.1Net cash used in investing activities
    
    
    (8.4
    )
    
    
    (32.6
    )Cash Flows from Financing Activities:Debt repayment
    
    
    
    
    
    
    (31.3
    )Purchase of treasury stock
    
    
    
    
    
    
    (26.4
    )Dividend payments
    
    
    
    
    
    
    (17.9
    )Exercise of stock options
    
    
    
    
    
    
    0.6Debt issuance costs
    
    
    (2.9
    )
    
    
    Net cash used in financing activities
    
    
    (2.9
    )
    
    
    (75.0
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    0.8
    
    
    
    (1.6
    )Net change in cash and cash equivalents
    
    
    14.4
    
    
    
    (22.7
    )Cash and cash equivalents  beginning of period
    
    
    96.6
    
    
    
    135.5Cash and cash equivalents  end of period
    
    $
    111.0
    
    
    $
    112.8
  5




---



##### Table of Contents



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
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,(In millions)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Weighted average number of shares outstanding during the period
    
    
    37.6
    
    
    
    37.3
    
    
    
    37.5
    
    
    
    37.5Dilutive effect of stock-based compensation plans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.1Weighted average number of diluted shares outstanding during the period
    
    
    37.6
    
    
    
    37.3
    
    
    
    37.5
    
    
    
    37.6
  6




---



##### Table of Contents



Note 3  Discontinued Operations
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,(In millions)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Net revenue
    
    $
    13.9
    
    
    $
    51.6
    
    
    $
    71.5
    
    
    $
    138.3Income before income taxes
    
    
    
    
    
    
    2.1
    
    
    
    2.7
    
    
    
    6.2Income tax provision
    
    
    0.1
    
    
    
    0.6
    
    
    
    0.3
    
    
    
    2.5Total discontinued operations
    
    $
    (0.1
    )
    
    $
    1.5
    
    
    $
    2.4
    
    
    $
    3.7
 Note 4  Supplemental Balance Sheet Information
 September 30,
    
    
    December 31,(In millions)
    
    2009
    
    
    2008(Unaudited)Accounts ReceivableAccounts receivable
    
    $
    330.4
    
    
    $
    414.9Less allowances
    
    
    (34.3
    )
    
    
    (36.6
    )Accounts receivable, net
    
    $
    296.1
    
    
    $
    378.3InventoriesFinished goods
    
    $
    285.8
    
    
    $
    337.1Work in process
    
    
    13.0
    
    
    
    9.0Raw materials and supplies
    
    
    21.6
    
    
    
    17.1Total inventories, net
    
    $
    320.4
    
    
    $
    363.2Other Current AssetsDeferred income taxes
    
    $
    60.0
    
    
    $
    51.5Assets held for sale (1)
    
    
    20.5
    
    
    
    22.5Other
    
    
    89.9
    
    
    
    64.1Total other current assets
    
    $
    170.4
    
    
    $
    138.1Property, Plant and EquipmentProperty, plant and equipment
    
    $
    355.6
    
    
    $
    427.4Less accumulated depreciation
    
    
    (240.3
    )
    
    
    (305.0
    )Property, plant and equipment, net
    
    $
    115.3
    
    
    $
    122.4Other AssetsDeferred income taxes
    
    $
    28.3
    
    
    $
    31.4Other
    
    
    10.5
    
    
    
    11.8Total other assets
    
    $
    38.8
    
    
    $
    43.2
 7




---



##### Table of Contents



September 30,
    
    
    December 31,(In millions)
    
    2009
    
    
    2008(Unaudited)Other Current LiabilitiesRebates
    
    $
    68.8
    
    
    $
    75.6Employee separation costs
    
    
    3.9
    
    
    
    14.5Litigation settlement liability
    
    
    7.9
    
    
    
    Other
    
    
    97.3
    
    
    
    104.9Total other current liabilities
    
    $
    177.9
    
    
    $
    195.0Other LiabilitiesPension
    
    $
    37.8
    
    
    $
    49.0Deferred income taxes
    
    
    4.1
    
    
    
    4.2Litigation settlement liability
    
    
    21.5
    
    
    
    Other
    
    
    20.3
    
    
    
    20.9Total other liabilities
    
    $
    83.7
    
    
    $
    74.1
  Note 5  Intangible Assets and Goodwill
  Customer(In millions)
    
    Trade Names
    
    
    Software
    
    
    Relationships
    
    
    Other
    
    
    TotalSeptember 30, 2009Cost
    
    $
    333.3
    
    
    $
    61.2
    
    
    $
    63.6
    
    
    $
    7.7
    
    
    $
    465.8Accumulated amortization
    
    
    (31.6
    )
    
    
    (56.6
    )
    
    
    (29.9
    )
    
    
    (6.7
    )
    
    
    (124.8
    )Net
    
    $
    301.7
    
    
    $
    4.6
    
    
    $
    33.7
    
    
    $
    1.0
    
    
    $
    341.0December 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
  8




---



##### Table of Contents



Note 6  Comprehensive (Loss) Income
  September 30,
    
    
    December 31,(In millions)
    
    2009
    
    
    2008Cumulative currency translation adjustment
    
    $
    (48.2
    )
    
    $
    (54.9
    )Pension adjustments, net of income tax
    
    
    (19.2
    )
    
    
    (28.6
    )Cash flow hedging and other, net of income tax
    
    
    (2.3
    )
    
    
    (1.5
    )Total accumulated other comprehensive loss
    
    $
    (69.7
    )
    
    $
    (85.0
    )
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,(In millions)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Net (loss) income
    
    $
    (0.4
    )
    
    $
    (5.9
    )
    
    $
    (48.9
    )
    
    $
    12.3Currency translation adjustment
    
    
    7.7
    
    
    
    (19.5
    )
    
    
    6.7
    
    
    
    (5.4
    )Pension liability adjustments, net of income tax:Net actuarial gain (loss)
    
    
    4.6
    
    
    
    (7.5
    )
    
    
    8.9
    
    
    
    (7.4
    )Less: amortization of costs included in net periodic pension cost
    
    
    0.2
    
    
    
    
    
    
    
    0.4
    
    
    
    0.1Cash flow hedging and other, net of income tax
    
    
    (1.0
    )
    
    
    2.3
    
    
    
    (0.8
    )
    
    
    0.7Total comprehensive income (loss)
    
    $
    11.1
    
    
    $
    (30.6
    )
    
    $
    (33.7
    )
    
    $
    0.3
 Note 7  Stock-Based Compensation
   Stock Options
  WeightedAverageStock Options
    
    
    Exercise PriceOutstanding December 31, 2008
    
    
    4,103,756
    
    
    $
    32.09Granted
    
    
    1,026,622
    
    
    
    9.74Exercised
    
    
    
    
    
    
    Forfeited
    
    
    (395,285
    )
    
    
    28.21Outstanding September 30, 2009
    
    
    4,735,093
    
    
    $
    27.57Exercisable as of September 30, 2009
    
    
    2,739,249
    
    
    $
    33.90
  9




---



##### Table of Contents



Note 8  Retirement Plans
 Employer Contributions
      Components of Net Periodic Pension Cost
 United States
    
    
    International
    
    
    United States
    
    
    InternationalThree Months Ended September 30,
    
    
    Nine Months Ended September 30,(In millions)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Service cost
    
    $
    0.7
    
    
    $
    1.1
    
    
    $
    0.2
    
    
    $
    0.2
    
    
    $
    2.1
    
    
    $
    4.3
    
    
    $
    0.6
    
    
    $
    0.6Interest cost
    
    
    1.4
    
    
    
    1.3
    
    
    
    0.9
    
    
    
    0.9
    
    
    
    4.2
    
    
    
    4.9
    
    
    
    2.5
    
    
    
    2.8Expected return on plan assets
    
    
    (1.5
    )
    
    
    (1.6
    )
    
    
    (0.8
    )
    
    
    (1.2
    )
    
    
    (4.9
    )
    
    
    (6.0
    )
    
    
    (2.4
    )
    
    
    (3.3
    )Amortization of unrecognized items
    
    
    0.1
    
    
    
    
    
    
    
    0.1
    
    
    
    
    
    
    
    0.2
    
    
    
    0.1
    
    
    
    0.2
    
    
    
    0.1Net periodic pension cost
    
    $
    0.7
    
    
    $
    0.8
    
    
    $
    0.4
    
    
    $
    (0.1
    )
    
    $
    1.6
    
    
    $
    3.3
    
    
    $
    0.9
    
    
    $
    0.2Settlement
    
    
    1.0
    
    
    
    2.5
    
    
    
    4.6
    
    
    
    
    
    
    
    6.2
    
    
    
    2.5
    
    
    
    4.6
    
    
    
    Curtailment
    
    
    
    
    
    
    0.7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.7
    
    
    
    
    
    
    
    Total pension costs
    
    $
    1.7
    
    
    $
    4.0
    
    
    $
    5.0
    
    
    $
    (0.1
    )
    
    $
    7.8
    
    
    $
    6.5
    
    
    $
    5.5
    
    
    $
    0.2
 Note 9  Litigation Settlement
   10




---



##### Table of Contents



11




---



##### Table of Contents



Future(In millions)
    
    Payments2010
    
    $
    8.22011
    
    
    8.32012
    
    
    16.5Total undiscounted payments
    
    $
    33.0Adjustment for present value using 6% discount rate
    
    
    (3.7
    )Total liability recognized in the Condensed Consolidated Balance Sheet as of September 30, 2009
    
    $
    29.3
  Note 10  Restructuring and Other Expense
  Three Months
    
    
    Nine MonthsEnded
    
    
    EndedSeptember 30,
    
    
    September 30,(In millions)
    
    2009
    
    
    2009RestructuringSeverance and severance-related expense
    
    $
    1.8
    
    
    $
    8.5Lease termination costs
    
    
    0.1
    
    
    
    1.0Total restructuring
    
    
    1.9
    
    
    
    9.5Pension settlements (Note 8)
    
    
    5.6
    
    
    
    10.8Asset impairments
    
    
    
    
    
    
    2.3Other
    
    
    
    
    
    
    0.2Total
    
    $
    7.5
    
    
    $
    22.8
   12




---



##### Table of Contents



Balance as of
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance as ofDecember 31,
    
    Additional
    
    Currency
    
    
    
    
    
    September 30,(In millions)
    
    2008
    
    Charges
    
    Impacts
    
    Usage
    
    2009Severance and severance related
    
    $
    3.9
    
    
    $
    8.5
    
    
    $
    0.5
    
    
    $
    (9.0
    )
    
    $
    3.9Lease termination costs
    
    
    0.5
    
    
    
    1.0
    
    
    
    
    
    
    
    (1.5
    )
    
    
    
  Initial Period
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance as ofProgram
    
    Additional
    
    Currency
    
    Cumulative
    
    September 30,(In millions)
    
    Amounts
    
    Charges
    
    Impacts
    
    Usage
    
    2009Severance and severance related
    
    $
    4.9
    
    
    $
    8.5
    
    
    $
    0.5
    
    
    $
    (10.0
    )
    
    $
    3.9Lease termination costs
    
    
    0.5
    
    
    
    1.0
    
    
    
    
    
    
    
    (1.5
    )
    
    
    
 InitialPeriod

    
    
    
    

    
    
    
    
    
    Balance as ofHeadcount

    
    
    
    

    
    Cumulative
    
    September 30,Amounts
    
    Additions
    
    Reductions
    
    2009Total employees affected
    
    
    203
    
    
    
    54
    
    
    
    (205
    )
    
    
    52
 Note 11  Taxes
     13




---



##### Table of Contents



Note 12  Segment Information
    Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,(In millions)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Net RevenueAmericas
    
    $
    162.4
    
    
    $
    186.9
    
    
    $
    478.0
    
    
    $
    578.2Europe
    
    
    95.4
    
    
    
    127.7
    
    
    
    301.3
    
    
    
    416.0Asia Pacific
    
    
    91.5
    
    
    
    99.4
    
    
    
    287.5
    
    
    
    327.0Electronic Products
    
    
    52.0
    
    
    
    61.9
    
    
    
    131.0
    
    
    
    145.9Total
    
    $
    401.3
    
    
    $
    475.9
    
    
    $
    1,197.8
    
    
    $
    1,467.1
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,(In millions)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Operating Income (Loss)Americas
    
    $
    15.8
    
    
    $
    16.4
    
    
    $
    42.4
    
    
    $
    58.1Europe
    
    
    1.5
    
    
    
    3.1
    
    
    
    2.5
    
    
    
    13.1Asia Pacific
    
    
    3.0
    
    
    
    7.8
    
    
    
    12.0
    
    
    
    23.5Electronic Products
    
    
    (0.8
    )
    
    
    (4.4
    )
    
    
    (5.9
    )
    
    
    (6.5
    )Corporate and unallocated
    
    
    (17.8
    )
    
    
    (33.9
    )
    
    
    (117.2
    )
    
    
    (71.9
    )Total
    
    $
    1.7
    
    
    $
    (11.0
    )
    
    $
    (66.2
    )
    
    $
    16.3
  14




---



##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,(In millions)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Net RevenueOptical products
    
    $
    182.9
    
    
    $
    203.5
    
    
    $
    543.9
    
    
    $
    642.7Magnetic products
    
    
    109.0
    
    
    
    154.2
    
    
    
    346.4
    
    
    
    498.7Flash media products
    
    
    20.3
    
    
    
    22.8
    
    
    
    60.7
    
    
    
    76.7Electronic products, accessories and other
    
    
    89.1
    
    
    
    95.4
    
    
    
    246.8
    
    
    
    249.0Total
    
    $
    401.3
    
    
    $
    475.9
    
    
    $
    1,197.8
    
    
    $
    1,467.1
 Note 13  Derivative Financial Instruments
    Cash Flow Hedges
   Other Hedges
   Fair ValueOther
    
    
    OtherNotional
    
    
    current
    
    
    current(In millions)
    
    amount
    
    
    assets
    
    
    liabilitiesCash flow hedges designated as hedging instruments
    
    $
    137.1
    
    
    $
    
    
    
    $
    (2.0
    )Other hedges not receiving hedge accounting
    
    
    98.0
    
    
    
    0.1
    
    
    
    (0.4
    )Total
    
    $
    235.1
    
    
    $
    0.1
    
    
    $
    (2.4
    )
 15




---



##### Table of Contents



Pretax gain/(loss) onPretax gain/(loss)
    
    
    effective portion of
    
    
    Pretax gain/(loss)recognized in other
    
    
    derivative reclassification
    
    
    recognized in thecomprehensive income
    
    
    from accumulated other
    
    
    Condensed Statement ofon effective portion
    
    
    comprehensive income to cost
    
    
    Operations in other(In millions)
    
    of derivative
    
    
    of goods sold, net
    
    
    expense, netCash flow hedges designated as hedging instruments
    
    $
    (1.0
    )
    
    $
    (1.2
    )
    
    $
    Other hedges not receiving hedge accounting
    
    
    
    
    
    
    
    
    
    
    (3.8
    )Total
    
    $
    (1.0
    )
    
    $
    (1.2
    )
    
    $
    (3.8
    )
  Pretax gain/(loss) onPretax gain/(loss)
    
    
    effective portion of
    
    
    Pretax gain/(loss)recognized in other
    
    
    derivative reclassification
    
    
    recognized in thecomprehensive income
    
    
    from accumulated other
    
    
    Condensed Statement ofon effective portion
    
    
    comprehensive income to cost
    
    
    Operations in other(In millions)
    
    of derivative
    
    
    of goods sold, net
    
    
    expense, netCash flow hedges designated as hedging instruments
    
    $
    (0.4
    )
    
    $
    (0.4
    )
    
    $
    Other hedges not receiving hedge accounting
    
    
    
    
    
    
    
    
    
    
    (13.3
    )Total
    
    $
    (0.4
    )
    
    $
    (0.4
    )
    
    $
    (13.3
    )
 Note 14  Fair Value Measurements
 Fair value of financial instruments
   Assets and liabilities that are measured at fair value on a recurring basis:
  16




---



##### Table of Contents



Quoted prices inactive markets for
    
    
    Significant otherSeptember 30,
    
    
    identical assets
    
    
    observable inputs
    
    
    Unobservable inputs(In millions)
    
    2009
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Derivative assets
    
    $
    0.1
    
    
    $
    
    
    
    $
    0.1
    
    
    $
    Derivative liabilities
    
    
    (2.4
    )
    
    
    
    
    
    
    (2.4
    )
    
    
    Total
    
    $
    (2.3
    )
    
    $
    
    
    
    $
    (2.3
    )
    
    $
    
 Assets and liabilities that are measured at fair value on a non-recurring basis:
   Quoted prices in
    
    
    Significant other
    
    
    
    
    
    
    Total losses included in earningsactive markets for
    
    
    observable
    
    
    Unobservable
    
    
    for the periods endedSeptember 30,
    
    
    identical assets
    
    
    inputs
    
    
    inputs
    
    
    September 30, 2009(In millions)
    
    2009
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    Three Months
    
    
    Nine MonthsLong-lived asset held for sale
    
    $
    13.0
    
    
    $
    
    
    
    $
    13.0
    
    
    $
    
    
    
    $
    
    
    
    $
    (2.3
    )Total
    
    $
    13.0
    
    
    $
    
    
    
    $
    13.0
    
    
    $
    
    
    
    $
    
    
    
    $
    (2.3
    )
 Note 15  Litigation, Commitments and Contingencies
   Philips
  17




---



##### Table of Contents



SanDisk
     Note 16  Recently Issued Accounting Pronouncements
     18




---



##### Table of Contents



Note 17  Review Report of Independent Registered Public Accounting Firm
  19




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
      /s/ PricewaterhouseCoopers LLPPricewaterhouseCoopers LLPMinneapolis, MinnesotaNovember 5, 2009
 20




---



##### Table of Contents



Managements Discussion and Analysis of Financial Condition and Results of Operations.
 Overview
      ®
 21




---



##### Table of Contents



Factors Affecting Comparability of our Financial Results
 Discontinued Operations
 
    
    The Global Data Media (GDM) joint venture was wound down and the GDM current and
historic results have been reclassified into discontinued operations.
 Executive Summary
 Consolidated Results of Operations for the Nine Months Ended September 30, 2009
 
    
    Net revenue from continuing operations of $1,197.8 million for the nine months ended
September 30, 2009 was down 18.4 percent compared with $1,467.1 million in the same period
last year.
    
    Litigation settlement expense of $49.0 million and restructuring and other expense of
$22.8 million was incurred for the nine months ended September 30, 2009.
    
    Operating loss was $66.2 million for the nine months ended September 30, 2009, compared
with operating income of $16.3 million in the same period last year.
    
    Diluted loss per share from continuing operations was $1.37 for the nine months ended
September 30, 2009, compared with diluted earnings per share from continuing operations of
$0.23 for the same period last year.
 Cash Flow/Financial Condition for the Nine Months Ended September 30, 2009
 
    
    Cash and cash equivalents totaled $111.0 million as of September 30, 2009, compared with
$96.6 million at December 31, 2008.
    
    Cash flow provided by operating activities was $24.9 million for the nine months ended
September 30, 2009, compared with $86.5 million in the same period last year.
 Results of Operations
 Net Revenue
 Three Months Ended
    
    
    
    
    
    
    Nine Months EndedSeptember 30,
    
    
    Percent
    
    
    September 30,
    

    

    Percent(Dollars in millions)
    
    2009
    
    
    2008
    
    
    Change
    
    
    2009
    
    
    2008
    
    
    ChangeNet revenue
    
    $
    401.3
    
    
    $
    475.9
    
    
    
    -15.7
    %
    
    $
    1,197.8
    
    
    $
    1,467.1
    
    
    
    -18.4
    %
   Gross Profit
 Three Months Ended
    
    
    
    
    
    
    Nine Months EndedSeptember 30,
    
    
    Percent
    
    
    September 30,
    
    
    Percent(Dollars in millions)
    
    2009
    
    
    2008
    
    
    Change
    
    
    2009
    
    
    2008
    
    
    ChangeGross profit
    
    $
    64.5
    
    
    $
    78.5
    
    
    
    -17.8
    %
    
    $
    194.8
    
    
    $
    266.2
    
    
    
    -26.8
    %Gross margin
    
    
    16.1
    %
    
    
    16.5
    %
    
    
    
    
    
    
    16.3
    %
    
    
    18.1
    %
 22




---



##### Table of Contents



Selling, General and Administrative (SG&A)
 Three Months Ended
    
    
    
    
    
    
    Nine Months EndedSeptember 30,
    
    
    Percent
    
    
    September 30,
    
    
    Percent(Dollars in millions)
    
    2009
    
    
    2008
    
    
    Change
    
    
    2009
    
    
    2008
    
    
    ChangeSelling, general and administrative
    
    $
    50.4
    
    
    $
    69.6
    
    
    
    -27.6
    %
    
    $
    174.3
    
    
    $
    212.7
    
    
    
    -18.1
    %As a percent of revenue
    
    
    12.6
    %
    
    
    14.6
    %
    
    
    
    
    
    
    14.6
    %
    
    
    14.5
    %
   Research and Development (R&D)
 Three Months Ended
    
    
    
    
    
    
    Nine Months EndedSeptember 30,
    
    
    Percent
    
    
    September 30,
    
    
    Percent(Dollars in millions)
    
    2009
    
    
    2008
    
    
    Change
    
    
    2009
    
    
    2008
    
    
    ChangeResearch and development
    
    $
    4.9
    
    
    $
    5.6
    
    
    
    -12.5
    %
    
    $
    14.9
    
    
    $
    18.2
    
    
    
    -18.1
    %As a percent of revenue
    
    
    1.2
    %
    
    
    1.2
    %
    
    
    
    
    
    
    1.2
    %
    
    
    1.2
    %
  Litigation Settlement
   Restructuring and Other
 Three Months Ended
    
    
    
    
    
    
    Nine Months EndedSeptember 30,
    
    
    Percent
    
    
    September 30,
    
    
    Percent(Dollars in millions)
    
    2009
    
    
    2008
    
    
    Change
    
    
    2009
    
    
    2008
    
    
    ChangeRestructuring and other
    
    $
    7.5
    
    
    $
    14.3
    
    
    
    -47.6
    %
    
    $
    22.8
    
    
    $
    19.0
    
    
    
    20.0
    %As a percent of revenue
    
    
    1.9
    %
    
    
    3.0
    %
    
    
    
    
    
    
    1.9
    %
    
    
    1.3
    %
 23




---



##### Table of Contents



Operating Income (Loss)
 Three Months Ended
    
    
    
    
    
    
    Nine Months EndedSeptember 30,
    
    
    Percent
    
    
    September 30,
    
    
    Percent(Dollars in millions)
    
    2009
    
    
    2008
    
    
    Change
    
    
    2009
    
    
    2008
    
    
    ChangeOperating income (loss)
    
    $
    1.7
    
    
    $
    (11.0
    )
    
    
    115.5
    %
    
    $
    (66.2
    )
    
    $
    16.3
    
    
    
    -506.1
    %As a percent of revenue
    
    
    0.4
    %
    
    
    (2.3)
    %
    
    
    
    
    
    
    5.5
    %
    
    
    1.1
    %
  Other (Income) and Expense
 Three Months Ended
    
    
    
    
    
    
    Nine Months EndedSeptember 30,
    
    
    Percent
    
    
    September 30,
        
    Percent(Dollars in millions)
    
    2009
    
    
    2008
    
    
    Change
    
    
    2009
    
    
    2008
    
    
    ChangeInterest income
    
    $
    (0.1
    )
    
    $
    (0.9
    )
    
    
    -89
    %
    
    $
    (0.5
    )
    
    $
    (2.5
    )
    
    
    -80
    %Interest expense
    
    
    0.8
    
    
    
    0.3
    
    
    
    167
    %
    
    
    1.5
    
    
    
    1.3
    
    
    
    15
    %Other expense, net
    
    
    1.5
    
    
    
    2.6
    
    
    
    -42
    %
    
    
    12.2
    
    
    
    5.7
    
    
    
    114
    %Total
    
    
    2.2
    
    
    
    2.0
    
    
    
    10
    %
    
    
    13.2
    
    
    
    4.5
    
    
    
    193
    %As a percent of revenue
    
    
    0.5
    %
    
    
    0.4
    %
    
    
    
    
    
    
    1.1
    %
    
    
    0.3
    %
     24




---



##### Table of Contents



Income Tax (Benefit) Provision
 Three Months Ended
    
    
    
    
    
    
    Nine Months EndedSeptember 30,
    
    
    Percent
    
    
    September 30,
    
    
    Percent(Dollars in millions)
    
    2009
    
    
    2008
    
    
    Change
    
    
    2009
    
    
    2008
    
    
    ChangeIncome tax (benefit) provision
    
    $
    (0.2
    )
    
    $
    (5.6
    )
    
    
    -96.4
    %
    
    $
    (28.1
    )
    
    $
    3.2
    
    
    
    978.1
    %Effective tax rate
    
    
    40.0
    %
    
    
    43.1
    %
    
    
    
    
    
    
    35.4
    %
    
    
    27.1
    %
   Discontinued Operations
 Three Months Ended
    
    
    
    
    
    
    Nine Months EndedSeptember 30,
    
    
    Percent
    
    
    September 30,
    
    
    Percent(In millions)
    
    2009
    
    
    2008
    
    
    Change
    
    
    2009
    
    
    2008
    
    
    ChangeNet revenue
    
    $
    13.9
    
    
    $
    51.6
    
    
    
    -73.1
    %
    
    $
    71.5
    
    
    $
    138.3
    
    
    
    -48.3
    %Income before income taxes
    
    
    
    
    
    
    2.1
    
    
    
    -100.0
    %
    
    
    2.7
    
    
    
    6.2
    
    
    
    -56.5
    %Income tax provision
    
    
    0.1
    
    
    
    0.6
    
    
    
    -83.3
    %
    
    
    0.3
    
    
    
    2.5
    
    
    
    -88.0
    %Total discontinued operations
    
    $
    (0.1
    )
    
    $
    1.5
    
    
    
    -106.7
    %
    
    $
    2.4
    
    
    $
    3.7
    
    
    
    -35.1
    %
   Segment Results
    25




---



##### Table of Contents



Data Storage Media
 Americas
 Three Months Ended
    
    
    
    
    
    
    Nine Months EndedSeptember 30,
    
    
    Percent
    
    
    September 30,
    
    
    Percent(Dollars in millions)
    
    2009
    
    
    2008
    
    
    Change
    
    
    2009
    
    
    2008
    
    
    ChangeNet revenue
    
    $
    162.4
    
    
    $
    186.9
    
    
    
    -13.1
    %
    
    $
    478.0
    
    
    $
    578.2
    
    
    
    -17.3
    %Operating income
    
    
    15.8
    
    
    
    16.4
    
    
    
    -3.7
    %
    
    
    42.4
    
    
    
    58.1
    
    
    
    -27.0
    %As a percent of revenue
    
    
    9.7
    %
    
    
    8.8
    %
    
    
    
    
    
    
    8.9
    %
    
    
    10.0
    %
    Europe
 Three Months Ended
    
    
    
    
    
    
    Nine Months EndedSeptember 30,
    
    
    Percent
    
    
    September 30,
    
    
    Percent(Dollars in millions)
    
    2009
    
    
    2008
    
    
    Change
    
    
    2009
    
    
    2008
    
    
    ChangeNet revenue
    
    $
    95.4
    
    
    $
    127.7
    
    
    
    -25.3
    %
    
    $
    301.3
    
    
    $
    416.0
    
    
    
    -27.6
    %Operating income
    
    
    1.5
    
    
    
    3.1
    
    
    
    -51.6
    %
    
    
    2.5
    
    
    
    13.1
    
    
    
    -80.9
    %As a percent of revenue
    
    
    1.6
    %
    
    
    2.4
    %
    
    
    
    
    
    
    0.8
    %
    
    
    3.1
    %
    26




---



##### Table of Contents



Asia Pacific (APAC)
 Three Months Ended
    
    
    
    
    
    Nine Months EndedSeptember 30,
    
    Percent
    
    September 30,
    
    Percent(Dollars in millions)
    
    2009
    
    2008
    
    Change
    
    2009
    
    2008
    
    ChangeNet revenue
    
    $
    91.5
    
    
    $
    99.4
    
    
    
    -7.9
    %
    
    $
    287.5
    
    
    $
    327.0
    
    
    
    -12.1
    %Operating income
    
    
    3.0
    
    
    
    7.8
    
    
    
    -61.5
    %
    
    
    12.0
    
    
    
    23.5
    
    
    
    -48.9
    %As a percent of revenue
    
    
    3.3
    %
    
    
    7.8
    %
    
    
    
    
    
    
    4.2
    %
    
    
    7.2
    %
   Electronic Products
 Three Months Ended
    
    
    
    
    
    Nine Months EndedSeptember 30,
    
    Percent
    
    September 30,
    
    Percent(Dollars in millions)
    
    2009
    
    2008
    
    Change
    
    2009
    
    2008
    
    ChangeNet revenue
    
    $
    52.0
    
    
    $
    61.9
    
    
    
    -16.0
    %
    
    $
    131.0
    
    
    $
    145.9
    
    
    
    -10.2
    %Operating (loss) income
    
    
    (0.8
    )
    
    
    (4.4
    )
    
    
    -81.8
    %
    
    
    (5.9
    )
    
    
    (6.5
    )
    
    
    -9.2
    %As a percent of revenue
    
    
    (1.5
    )%
    
    
    (7.1
    )%
    
    
    
    
    
    
    (4.5
    )%
    
    
    (4.5)
    %
   Corporate and Unallocated
 Three Months Ended
    
    
    
    
    
    Nine Months EndedSeptember 30,
    
    Percent
    
    September 30,
    
    Percent(Dollars in millions)
    
    2009
    
    2008
    
    Change
    
    2009
    
    2008
    
    ChangeOperating costs
    
    $
    17.8
    
    
    $
    33.9
    
    
    
    -47.5
    %
    
    $
    117.2
    
    
    $
    71.9
    
    
    
    63.0
    %
  27




---



##### Table of Contents



Impact of Changes in Foreign Currency Rates
   Quantitative and Qualitative Disclosures about Market Risk
 Financial Position
       28




---



##### Table of Contents



Liquidity and Capital Resources
 Cash Flows Provided by Operating Activities:
 Nine Months EndedSeptember 30,(Dollars in millions)
    
    2009
    
    
    2008Net (loss) income
    
    $
    (48.9
    )
    
    $
    12.3Adjustments to reconcile net (loss) income to net cash provided by operating activities:Depreciation and amortization
    
    
    32.2
    
    
    
    38.7Deferred income taxes
    
    
    (12.9
    )
    
    
    5.0Stock-based compensation
    
    
    5.6
    
    
    
    7.0Asset impairments
    
    
    2.3
    
    
    
    Note receivable reserve
    
    
    4.0
    
    
    
    Pension settlement
    
    
    10.9
    
    
    
    Litigation settlement
    
    
    49.0
    
    
    
    Non-cash restructuring and other charges
    
    
    
    
    
    
    9.2Other
    
    
    1.8
    
    
    
    1.0Changes in operating assets and liabilities, net of effects from acquisitions
    
    
    0.9
    
    
    
    13.3Litigation settlement payment
    
    
    (20.0
    )
    
    
    Net cash provided by operating activities
    
    $
    24.9
    
    
    $
    86.5
   Cash Flows Used in Investing Activities:
 Nine Months EndedSeptember 30,(Dollars in millions)
    
    2009
    
    
    2008Capital expenditures
    
    $
    (9.2
    )
    
    $
    (9.7
    )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
    
    $
    (8.4
    )
    
    $
    (32.6
    )
  29




---



##### Table of Contents



Cash Flows Used in Financing Activities:
 Nine Months EndedSeptember 30,(Dollars in millions)
    
    2009
    
    
    2008Debt repayment
    
    $
    
    
    
    $
    (31.3
    )Purchase of treasury stock
    
    
    
    
    
    
    (26.4
    )Exercise of stock options
    
    
    
    
    
    
    0.6Debt issuance costs
    
    
    (2.9
    )
    
    
    Dividend payments
    
    
    
    
    
    
    (17.9
    )Net cash used in financing activities
    
    $
    (2.9
    )
    
    $
    (75.0
    )
     
    
    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.
 30




---



##### Table of Contents



Contractual Obligations
  Fair Value Measurements
  Critical Accounting Policies and Estimates
  Recently Issued Accounting Pronouncements
  Forward-Looking Statements and Risk Factors
  31




---



##### Table of Contents



Quantitative and Qualitative Disclosures about Market Risk.
 Quantitative and Qualitative Disclosures about Market Risk
    
 Controls and Procedures .
   32




---



##### Table of Contents



PART II. OTHER INFORMATION
 
 Legal Proceedings
    Philips
       33




---



##### Table of Contents



SanDisk
     34




---



##### Table of Contents



Item 1A.
    
    Risk Factors.
    
 Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds.
  
 Item 3.
    
    Defaults Upon Senior Securities.
  
 Item 4.
    
    Submission of Matters to a Vote of Security Holders.
  
 Item 5.
    
    Other Information.
  
 Item 6.
    
    Exhibits.
  ExhibitNumber
    
    Description of Exhibit15.1
    
    Awareness letter 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
 35




---



##### Table of Contents



SIGNATURE
  Imation Corp.Date: November 5, 2009
    /s/ Paul R. ZellerPaul R. ZellerSenior Vice President and Chief Financial Officer(duly authorized officer and principal financial officer) 36




---



##### Table of Contents



EXHIBIT INDEX
  ExhibitNumber
    
    Description of Exhibit15.1
    
    Awareness letter 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
 37